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Fri, Aug 27, 2004 - Page 12 News List

Global firms reap US telecom harvest

`SORT OF DUMB' A US$1.3 billion network selling for US$50 million was just one of the bargains emerging telecommunications firms scooped up after the bubble burst


Billions of dollars worth of global telecommunications networks bought or built by US investors now belong to Chinese, Indian and other non-American companies that have snapped them up for a fraction of their cost.

The shift in ownership of the networks, which are used to carry much of the world's Internet traffic, comes less than four years after the telecommunications bubble burst. Asian companies in particular have taken advantage of US companies' troubles at a time when government telecom monopolies in their countries are waning, access to capital is greater and consumer appetite for bandwidth is growing.

In retrospect, analysts say, US investors overpaid to set up the global networks and have ended up inadvertently financing them for foreign owners, who bought at fire-sale prices when the companies fell on hard times.

The US, with its capital markets and openness to outside investors, eased the shift in control. Foreign companies like Asia Netcom adroitly purchased the remnants of the overbuilt infrastructure at prices that should insulate them from the large losses suffered by the original owners, analysts said.

"While the US is still smarting from the telecoms catastrophe, it has awoken to find that it has significantly assisted everyone else, which was really sort of dumb," said Farooq Hussain, a former executive at Sprint and MCI who heads Network Conceptions, a US consultant group.

Some US$30 billion in international telecommunications infrastructure owned by US companies was sold to foreign-owned entities from 2000 to 2004 for a total of about US$4 billion, said Sam Paltridge, an economist at the Organization for Economic Cooperation and Development in Paris.

Since it bankrolled the networks, "Wall Street has inadvertently financed more telecom infrastructure overseas than the World Bank and other international agencies," Paltridge said.

The change in the balance of ownership may have political consequences. The international pieces of a nation's communications infrastructure, considered strategic and defensive holdings, can be controlled by those who may not share that nation's interests.

The new profile of owners has changed the business. The smaller companies that sought for years to be treated as equals by American rivals can offer their customers global end-to-end services, including access to the biggest market -- the US -- over their own networks or others owned by partners they are better able to negotiate with.

Although carriers like Sprint, MCI, AT&T and Level 3 Communications still carry a big percentage of the world's Internet traffic, US carriers have lost their status as unassailable giants as more traffic is routed around them. Operators like T-Mobile of Germany, NTT of Japan, Telstra of Australia and France Telecom moved into the US market; Telmex, the Mexican phone company, snapped up AT&T's Latin American network and MCI's share of Embratel in Brazil; and Telmex's largest shareholder, Carlos Slim Helu, took strategic stakes in MCI and Global Crossing.

A European network valued at US$1.7 billion and built by Global TeleSystems, a US company, was sold to KPNQwest, a joint venture by Qwest and KPN, the Dutch phone operator, in 2002. The network once carried a quarter of Europe's Internet traffic. When KPNQwest dissolved in 2002, Qwest's part of the network, valued at US$1.3 billion, was sold to several European carriers, including Interoute in Britain and TeliaSonera, the Scandinavian carrier, for about US$50 million.

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