British Telecommunications PLC (BT) and AT&T Corp. have formally agreed to terms on which to disband their Concert joint venture and return the assets to the parent companies, the two companies said in a joint statement Tuesday.
In addition, AT&T announced it would take two charges totaling US$5.3 billion against its third-quarter earnings, largely as a result of the demerger agreement. BT will take a 1.2 billion pound (US$1.7 billion) charge against its third-quarter earnings and also plans to divest its stake in AT&T’s Canadian subsidiary, AT&T Canada.
Of the 6,300 staff employed by Concert, up to 2,300 jobs will be lost as a result of the demerger, the companies said. The remainder are expected to be absorbed into BT and AT&T.
The decision to close the Concert joint venture was made due to changes in the global market since Concert was founded in 1998, AT&T said in a statement issued separately.
The two companies developed Concert to cater to the telecommunication needs of multinational companies, smaller carriers and Internet service providers. Concert’s Internet backbone covers 21 cities in 17 countries – 12 cities in Europe, five in the U.S. and four in the Asia-Pacific region. Concert also made deals with its parent companies and other distributors to provide voice service to about 850 cities.
AT&T cited over capacity and a sharp drop in telecommunication prices that dragged down revenue as reasons for the decision. In addition, many emerging carriers, who had been expected to be Concert customers and suppliers, had encountered financial difficulties.
Concert had been losing money for AT&T and BT almost from the beginning, and had trouble finding sufficient revenue to support its debt load. AT&T lent the venture US$1 billion last year.
One analyst noted that an end to the venture has been on the horizon for a while.
“We have been speculating this would happen for the better part of a year so there is no surprise here,” said Jeffrey Kagan, a telecommunication market analyst, in an e-mail.
“The idea behind Concert was a winner. The customers liked it. It’s just that AT&T and BT couldn’t crack the code on how to make money on the venture.”
BT and AT&T therefore decided that the best way to serve the interests of customers, shareholders and employees was through an orderly unwind, the companies said.
The demerger agreement is expected to close in the first half of 2002, and AT&T and BT will work together to provide a smooth transition for Concert customers. All existing contracts and service level agreements will be honored for three years, according to the joint statement.
Under the terms of the demerger agreement, BT and AT&T will re-assume control of the assets that each had contributed to the joint venture, including customer contracts, international transport facilities and gateways, AT&T said. The exception to this agreement is a frame relay network in Asia-Pacific, originally contributed to Concert by BT, which AT&T will take over, it said.