Global One: One Big, Unhappy Telecom Family?

The joint venture is facing realignment--if not divorce

The pressure is building on telecom joint venture Global One. Two of its three owners, Deutsche Telekom and France Telecom, are virtually at war. It lost $798 million last year on sales of $1.2 billion. On July 16, Chief Executive Gary Forsee resigned--the second ceo to quit since Global One was founded three years ago. Insiders say the troubled venture, which also includes Sprint of the U.S., is not likely to be in existence in its current form by the end of the year.

The most likely prospect: One or two of the owners take majority control. At the least, the percentages of ownership will shift. There has been speculation that France Telecom will sell its stake back to Deutsche Telekom and Sprint and will seek out new allies. Deutsche Telekom angered France Telecom when it made a takeover bid for Telecom Italia. France Telecom sued, accusing the German company of breaking the terms of their alliance. Deutsche Telekom's bid for Telecom Italia ultimately failed, but France Telecom still feels betrayed. Officials at France Telecom declined to comment.

SEPARATE PATHS? Sprint and Deutsche Telekom are also weighing their options. Deutsche Telekom conceded in June that the Global One partnership could fall apart. Sprint ceo William T. Esrey says all of the partners are weighing whether they want to align themselves as a more cooperative trio or go their separate ways by building international facilities on their own or hooking up with other people. Global One provides international telecom services to multinationals. "Our wish list would be that everything stays the way it is, but I think that's unlikely," says Esrey.

Global One's hydra-headed management structure may have doomed it from the start. Each of the three owners has veto power over major decisions. They've bickered over which technology to adopt and how much money to spend. They took too long to decide what kind of platform to use for a data network, says market researcher Yankee Group Europe. Global One's startup problems created an opening for competitors such as MCI WorldCom with clearer lines of authority.

Conflicting agendas also cause problems. At times, one or more of the three partner companies are marketing service in the same foreign country as the partnership, causing confusion. "We get crosswise in the marketplace and we're trying to work that out," says Esrey. "We can't keep going in this direction."

Still, there are compelling reasons for the three partners to stick together. Some analysts say Global One's owners can't afford to fold it. After investing some $1.4 billion in infrastructure alone, the company is just getting up to speed. Sales, flat last year, are growing by 20% this year, and interim ceo Michel Huet expects Global One to hit the breakeven point in 2001. And with their monopolies gone, France Telecom and Deutsche Telekom can only lose market share at home. Deutsche Telekom, for example, has already lost 35% of the German market for toll calls. They must expand internationally to compensate.

"BEST POSITIONED." For all its problems, Global One is doing some things right. It has sales offices in 65 countries, a network that promotes closer personal contact with customers. It's ahead of most competitors in offering "atm" service, a high-speed technology that allows transmission of traditional voice traffic while providing plenty of bandwidth for Internet use.

And Global One is rated highly by its customers. In a survey by Yankee Group, corporations said Global One was the "best positioned" of all the global telecom services. It scored ahead of rivals such as British Telecommunications PLC's Concert and MCI WorldCom Inc. Apple Computer Inc., for one, says it's a satisfied customer of Global One in Europe and does not plan to switch. Global One soon will announce $100 million in new contracts to customers like ups and R.J. Reynolds International, says Esrey.

There's still a slim chance that Global One's three partners could resolve their differences. Global One's potential is great in the age of the Internet and globalization. Analysts expect the market for companies that provide global communications services for multinationals, now valued at $23 billion, to explode. Shares of Equant, a fast-growing Global One rival, have more than tripled since its initial public offering one year ago. But in the case of Global One, one head would have been better than three.

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