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BT Renews $656M Marconi Deal

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News Analysis
Light Reading
6/29/2004

Executives at Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) breathed a sigh of relief today as BT Group plc (NYSE: BTY; London: BTA) renewed a four-year network cable services deal worth up to £363 million ($656 million), about six percent of the vendor's annual revenues (see Marconi Wins Monster Outsourcing Deal).

While there was no guarantee BT would stick with Marconi for another term, the vendor had been confident of winning the tender process, says David Convery, VP of cable services at Marconi. And while the "framework" nature of the deal means there's no guarantee that Marconi will be given the full value of work in the next 48 months, Convery says the value of the current deal, which ends June 30, increased during its four-year run.

The contract involves building and maintaining BT's copper and fiber networks in the East Midlands, Eastern, Outer London, and Inner London regions. Convery says Marconi laid 3,300 kilometers of copper and fiber in those regions during 2003.

Marconi couldn't provide any further financial detail, such as the gross margins it gets from this business, but back-of-the-envelope calculations show the renewal is worth, at current revenue rates, about six percent of the company's annual turnover. The deal is worth an average £90.75 million ($164 million) per year, while Marconi is on course for revenues in the current year of about £1.5 billion ($2.7 billion), based on its first-quarter sales of £378 million ($684 million).

The deal also highlights just how much BT spends on the service element of its cable expansion and maintenance. Marconi is the biggest of the six contractors doing cable services work, commanding 30 percent of BT's annual outlay. That puts the carrier's annual outlay at about £300 million ($542 million), and that's before it has paid for the equipment and components.

The other five contractors are: Enterprise PLC, which won a four-year framework deal worth £250 million ($452 million); Fujitsu Ltd. (OTC: FJTSY; Tokyo: 6702); McNicholas Construction (Holdings) Ltd.; Skanska Networks, which won a four-year framework contract worth up to £200 million ($361 million); and Wrekin Construction.

Marconi has a lot to thank BT for at present. The vendor is heavily involved in the U.K. carrier's trials surrounding its next-generation network, 21CN, as well as other support deals (see Marconi Softswitches With BT, BT Moves Ahead With Mega Project, and Marconi Signs BT Services Contract ).

But BT isn't the only incumbent to have awarded Marconi significant deals of late (see Marconi Lands Telstra Deal and CeBIT Schnippets).

Marconi's share price closed up 10 pence, or 1.5 percent, at 673.5 pence on the London market today.

— Ray Le Maistre, International Editor, Boardwatch

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