CONCERT HITS SOUR NOTES : MERGER PROMPTS QUESTIONS ABOUT STRATEGIC RATIONALE.

Byline: Mark Landler The New York Times

It was hard to tell from the lofty price tag and the elegant moniker, but the deal that created Concert was not the first choice of British Telecommunications PLC.

BT, as the British company is known, agreed to consider an acquisition of MCI Communications Corp. only after it failed in its effort to buy a British international phone company, Cable and Wireless PLC. Though MCI pushed for the deal, it, too, had considered several other potential partners, including the GTE Corp. and at least some of the seven regional Bell companies.

These considerations were largely lost in the hoopla of Sunday's announcement that MCI and BT had agreed to merge their operations to create Concert, the world's first trans-Atlantic telephone carrier. But now, as shareholders and regulators place the $23 billion deal under a microscope, questions about its strategic rationale will come to the fore.

``This is a consolation prize for British Telecom,'' said David Roddy, chief telecommunications economist at the accounting and consulting firm Deloitte & Touche.

BT negotiated to acquire Cable and Wireless over five months this year after management turmoil left that company open to a new owner. But the talks collapsed in May, largely over disagreements on price.

Roddy and other experts said Cable and Wireless would have been a more attractive partner for British Telecom than MCI is because it would have enabled BT to fill out its geographic footprint in Asia.

By contrast, the MCI merger solidifies BT's foothold only in North America - something that analysts say had already been secured by its 20 percent equity stake in MCI.

Asia - with a population of 2.3 billion, explosive economic growth and one phone line for every 96 people - represents a larger and less tapped opportunity than the American market, which is both mature and beset by regulatory uncertainty.

The combination with BT is an about-face of sorts for MCI, too.

In May 1995, MCI agreed to invest $2 billion in Rupert Murdoch's News Corp. - on the assumption that it could bridge the worlds of telecommunications and entertainment. MCI also poured $600 million into American Sky Broadcasting, a satellite television service that was to be MCI's vehicle to enter the consumer video market.

MCI now says it will limit its investment in the News Corp. at the current $1.3 billion. It wants to reduce its equity stake in A Sky B to less than 20 percent. And Murdoch, a director of MCI, will not join the board of Concert.

The architects of the deal - Bert C. Roberts Jr. of MCI and Sir Iain Vallance of BT - betrayed no second thoughts as they prepare to meet today with Reed E. Hundt, chairman of the Federal Communications Commission, whose support will be critical in order for the deal to clear regulatory hurdles.

Analysts said that concerns about how long it might take to close the deal dampened the performance of MCI's shares, which rose just 50 cents, to $30.75. BT's shares showed surprising resilience in the London market on Monday, rising 22 pence, to 3.73 pounds, or $6.10. The increase in BT's stock price added about $1 billion to the value of the deal.

Executives at BT were eager to explain why a merger with MCI was preferable to a deal with Cable and Wireless.

Although Hong Kong Telecom has a commanding position in the huge Hong Kong market, John Butler, BT's director of regulatory affairs, noted that the utility was vulnerable to political instability, particularly with the coming of Chinese rule of the British colony next July.

Moreover, British Telecom already has a web of smaller alliances with carriers in India, Japan, and South Korea. With its expanded size, Concert would be in a stronger position to make strategic deals with Asian telephone companies than either BT or MCI alone would be.

Nippon Telegraph and Telephone seems destined to be the major target of Concert's affections.

``NTT must rank as an excellent prospective partner,'' Butler said. And other BT executives noted that their company's chief executive, Sir Peter Bonfield, who will also be the chief executive of Concert, came to BT from a British computer manufacturer, ICL, which happens to be owned by Fujitsu of Japan.

Whether Sir Peter can persuade NTT to become a player in Concert remains, of course, to be seen. And Butler acknowledged that Cable and Wireless would have given British Telecom an immediate and powerful beachhead in Asia.

Yet he added: ``At the end of our discussion, we had too many uncertainties as to the prospects for that company.''

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2 Photos

Photo: (1--Color) This building in Washington houses the corporate headquarters of MCI.

(2--Color) MCI's Gerald Taylor, left, and BT's Sir Peter Bonfield present the new logo.

Associated Press