M&A Activities Firm Up BT Global

UK carrier has pulled together all its international bits and pieces, says there could be more acquisitions on the way

July 1, 2005

4 Min Read
M&A Activities Firm Up BT Global

Two carriers that were once on the same team are now pitching wildly against each other. No sooner had AT&T Corp. (NYSE: T) talked up its credentials as a global operator par excellence, than BT Group plc (NYSE: BT; London: BTA) began beating its chest about its international prowess (see BT Gives Global Services Update and AT&T Goes Global (Again)).

After having lost vast amounts of money when their Concert International joint venture collapsed in 2001, each operator is now positioning itself as the carrier that multinational businesses should turn to for their global communications services (see AT&T and BT to Unwind JV).

While AT&T has been busy building out its network and forging partnerships, BT has been on the acquisition trail, splashing out more than $1.3 billion in the past eight months, with Infonet its major purchase at $965 million (see BT Goes Global – Again!, BT Buys Radianz, Wins Reuters Deal, BT Buys Spanish ICT Business, and BT Takes Control of Albacom).

Now BT has pulled all these businesses together, along with the major business accounts from its BT Retail division, and made them all part of what it calls its "new" BT Global Services.

It has also pulled the business back from its disastrous Concert exit. The carrier says this is a profitable, growing business that has signed contracts worth £18 billion (US$31.9 billion) during the past three years, compared with the albatross that lost £550 million ($974 million) in the financial year 2002/2003.

And the latest deal to boost the unit was announced today (see BT Lands €175M Deal).

For the first time, BT has been discussing the financial impact its acquisitions will have on the Global Services business. In the 2004/2005 financial year (ended March 31, 2005), Global Services recorded revenues of £6.4 billion ($11.3 billion), EBITDA of £600 million ($1.1 billion), and a small operating profit of just £7 million ($12.4 million). BT estimates that the new Global Services unit, with all the acquisitions included, would have generated much better results in the same period (see table below).

Table 1: Acquisitions Pump Up BT Global Services

BT Global Services 2004/2005 as reported

New* BT Global Services 2004/2005 pro forma


About 22,000

About 30,000


�6.4 billion ($11.3 billion)

�8.2 billion ($14.5 billion)


�600 million ($1.1 billion)

�1.1 billion ($1.9 billion)


�7 million ($12.4 million)

�400 million ($708 million)


�600 million ($1.1 billion)

�700 million ($1.2 billion)

Cash flow **

Negative �48 million ($85 million)

�400 million ($708 million)

BT's senior executives say there's every chance that further acquisitions will be made, though they're likely to be small, localized operations, similar to the acquisition of the Spanish integration unit BT bought from Cable & Wireless plc (NYSE: CWP) for about $14 million.

"We're taking a careful, targeted approach to acquisitions. We'll buy to underpin our strategy, not to change it," said the CEO of BT Global Services, Andy Green, at a presentation earlier this week. "You can expect us to carry on looking for further bolt-ons that will bolster our capabilities in areas where our customers want to be."

BT is also expanding its physical network reach. Its IP network currently extends into 71 countries, and the operator plans to increase that to 160 by the end of 2007. It says it is connecting one additional city each week, and that it's currently connecting a further 6,000 customer sites each week in addition to the 160,000 already hooked up.

But BT and AT&T are not alone in targeting the world's international enterprise customers: France Telecom SA (NYSE: FTE) is a significant competitor with its Equant unit, while T-Systems Inc. (part of Deutsche Telekom AG), Global Crossing Holdings Ltd. (Nasdaq: GLBC), NTT Communications Corp., and MCI Inc. (Nasdaq: MCIP) are also significant players. (See NTT Takes Ethernet Global, Equant Wins $100M+ Contract, T-Systems, KPN Partner, MCI Touts Global Ethernet Services, Serta Rests With Global Crossing, and T-Systems Launches Layer 2 IP VPN.)

Then, as BT is offering what it calls "Networked IP Services" -- "fundamental to our vision is the combination of managing IP networks and IT resources," says Green -- it is also butting up against the IT services giants like Accenture, Electronic Data Systems Corp. (EDS) (NYSE: EDS), and IBM Global Services. "But we're not trying to become an IT company," Green insists. "The part that's driving our growth is the networking services."

Consequently, BT believes that while the market for international communications and IT services will be worth £1 trillion ($1.77 trillion) by 2008/2009, its addressable market will be worth less than half that amount.

— Ray Le Maistre, International News Editor, Light Reading

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