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11/8/2004
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BT To Buy Major Competitor

London telecom company to acquire Infonet, a leading provider of international managed voice and data services.

BT, the London-based communications company, said Monday it will acquire Infonet, a leading provider of international managed voice and data services. BT is looking to expand its global reach and sell a more comprehensive menu of services to large multinational businesses. The deal values Infonet at $965 million; since Infonet has around $390 million in cash, BT actually will be paying the equivalent of $575 million.

Infonet, which had around $620 million in revenue last year, provides a variety of voice and data services to 1,800 international businesses. It has local operations in 70 countries and points of presence in 3,000 cities in 180 countries. The combination of BT's and Infonet's networks will strengthen BT's presence in the North American and Asia-Pacific markets and let it offer more value-added services such as mobile data, network security, and multimedia services.

By paying less than Infonet's annual revenue, BT "got a good deal and it takes a major competitor out of the market," says David Willis, VP of technology research services at the Meta Group. "But it will be 18 months before customers see any benefit. There's a lot of overlap between the two in Europe."

BT has been building out its network aggressively and competing for business from U.S.-based multinational companies. The acquisition of Infonet should help BT offer a broader range of IP network services in more parts of the world, especially in the North American and Asia-Pacific markets, BT executives say.

"This will let us bring new value to customers," says BT Global Services CEO Andy Green. "There are a number of locations in Latin America and Asia Pacific where Infonet is and where we wanted to go. And Infonet sells a number of mobile data services that we want to sell to a wider customer base. We can also provide Infonet customers with in-country services, which Infonet couldn't provide."

Infonet's chief technology officer, Paul Hibbert, says "2005 is the right time to look for the next generation of network services, a pure IP platform for services. This acquisition gives us the opportunity to leap ahead in terms of that implementation."

Green cites a number of cost synergies that will result from the combined companies. "They have a fiber network across the U.S. that we can load our traffic on. And we've got a deep reach in Europe that can reduce Infonet's access costs."

BT plans to phase in the merger of the two companies' networks and run two products sets for a while, as it adopts the best of each for its service offerings. BT expects to cut annual operating costs by about $150 million in the third year by eliminating redundancies and overlapping network elements. BT also is entering into a strategic relationship with KDDI, a major distributor of Infonet services in Japan, to provide better network-based outsourcing services to BT customers in Japan and for KDDI customers outside Japan.

For Infonet, a company that was losing money, the deal provides "a decent exit from the market," says Meta Group's Willis. Despite its financial problems, customers gave it high marks for service and reliability. For business customers, the acquisition may slow the steady decline in prices for network services, especially in Europe. Says Willis: "Infonet was always leading price, and this will take some price pressure out of the European market."

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