BT Cozies Up to Covad

Maybe BT Group plc (NYSE: BT; London: BTA) should have done this first time around.

Having failed to crack the U.S. market through its Concert joint venture with AT&T Corp. (NYSE: T) a few years back, the U.K. carrier has rebuilt its U.S. presence through a combination of acquisition and partnership (see AT&T and BT to Unwind JV).

Last November BT announced its planned $965 million acquisition of international service provider Infonet Services Corp. (NYSE: IN), which generates about one third of its revenues from the Americas (see BT Goes Global – Again!, EC OKs BT's Buy of Infonet, and Infonet Shareholders to Vote on Merger).

Now it has struck a partnership with U.S. broadband access specialist Covad Communications Inc. (OTC: COVD), which offers business DSL services in 900 cities in 44 states (see BT Teams With Covad).

The idea is that corporate customers can connect to their BT-managed VPNs via broadband links provided by Covad.

That's not the end of BT's expansion in North America -- it is still in the process of acquiring Radianz, Reuters's global extranet for the finance industry that has a strong enterprise customer base in the U.S. (see BT to Extend M&A Spree).

And BT has been preparing for its U.S. growth by expanding its presence at a major collocation facility in New York (see BT Expands US Presence). BT hopes these combined moves will result in more major corporate outsourcing deals such as the one with drugs firm Bristol-Myers Squibb, a multi-year network management and support deal estimated to be worth up to $640 million. The pharmaceuticals company is a former AT&T customer.

Such outsourcing deals, which BT refers to as its ICT (Information Communication Technology) service, comprise one of the linchpins of the U.K. carrier's "New Wave" services (along with broadband and mobility) that it believes will drive revenue growth (see BT Inks ICT Deal With HP, BT Launches Outsourcing Offensive, and BT Bolsters Its ICT Story).

But BT has its work cut out to win deals ahead of the local competition, especially AT&T, MCI Inc. (Nasdaq: MCIP), Sprint Corp. (NYSE: FON), the RBOCs, and the likes of Savvis Communications Corp. (Nasdaq: SVVS), which last year bought Cable & Wireless plc's (NYSE: CWP) U.S. assets (see Savvis Bulks Up).

Researchers at In-Stat/MDR say AT&T was the leading IP VPN provider in the U.S. in 2004, followed by MCI and Savvis. The firm reckons IP VPN revenues in the U.S. will rise from $2.9 billion in 2004 to $8.1 billion in 2009.

Covad's high-speed access, VOIP, hosting, and managed security services cover 57 million homes and businesses, more than half the U.S. total (see Covad Completes VOIP Rollout). It is set to announce annual revenues in excess of $400 million for the first time when it announces its 2004 results later this month. Analysts expect revenues of $426.7 million and a loss per share of 24 cents.

— Ray Le Maistre, International News Editor, Light Reading

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