Deal With Bt May Help Mci In Local Call Market

Much depends, though, on how fast prices fall and whether competition stimulates the overall communications services market to grow faster than it otherwise would. The experience of competition in the US long-distance telephone market over the past decade provides some limited clues about what may happen. Calling rates have undoubtedly fallen (by as much as 70 per cent, says Tim Price, who will run the MCI business in the US after the takeover by BT.)

At the same time, the market has grown to support a large number of competitors, not the least of which is MCI, which has had one of the best-performing US stocks since the early 1980s. Local competition, though, will be different.

 

It will not be nimble upstarts like MCI fighting for market share, but a group of very large, well-capitalised companies - the combined cashflow of the Baby Bells and GTE, a local service provider, comes to $43 billion, Roberts calculation.

That financial muscle, and a consensus among the participants that there will be room only for a small number of national communications companies promise a bloody fight.

MCI at least starts in a good position. Its main assets in the coming fight are its own local fibre-optic networks, which it says will be capable of reaching more than half of all US businesses its main target market - by the end of March next year, as well as a history as an effective sales and marketing company.

If the merger with BT is completed, the company will also have extra financial backing for the coming battle. Early comments by MCI executives suggest this will not change the pace of investment in local telephone services. Price adds, however, that the link with BT would reduce the dilution to its earnings per share that MCI would otherwise face from stepping up the pace of its investments. Also, merging with a company which traditionally has had a less volatile share price would produce a more secure platform from which to finance the growth, he added.