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IBM-MCI Pact Reaction is Similar, Big Telecom Market Battle Seen.

Years from now, hindsight will tell us it was inevitable, but the IBM-MCI alliance and its impact on the computer and telecommunications industry could make the future somewhat clearer.

While analysts and "experts" disagree on the particulars, all are of the opinion major market confrontation between the new force and major player AT&T is here. At any rate, users of the technology that caused these events will be affected the most.

Terms of the arrangement call for MCI to acquire assets of Satellite Business Systems (SBS), a satellite communications system owned jointly by IBM and Aetna Life and Casualty. IBM will assume SBS debt and purchase the 41 percent share of sbs owned by Aetna. In return, IBM gets an immediate 16-percent share of MCI with an option on two percent more with power to acquire as much as 30 percent of MCI. IBM said it expects to spend as much as $400 million on 45 million shares of new MCI securities in 1985.

Benefits for the two companies are seen from the outset. IBM will divest itself of SBS, an enterprise that underused its satellite capacity and was losing about $100 million per year. It is felt the merging of MCI and SBS will give the new concern ability to combine an aggressive long-distance telephone operation with a modern satellite communications system, providing MCI voice and data capability it needed to grow but could not afford to finance.

MCI controls substantial digital facilities, recently upgraded through expansion and improvements to fiber-optic and digital microwave routes, while SBS' digital satellite system is ready for more large data-transmission customers. (IBM is the largest customer.)

Additionally, IBM will have a greater presence in the telecommunications market to complement its computer prowess.

The battle lines become apparent considering AT&T recently introduced a line of 70 computer products and scored a major victory by landing a nearly $950-million computer contract from the US Department of Defense.

Yet another factor is the regulatory process. Most observers see a relatively quick end to Computer Inquiry II. AT&T maintains the size of the IBM/MCI alliance and its involvement in long-distance and computer arenas warrant abolition of Computer II and deregulation of AT&T.

Al Kramer, general counsel for the North American Telecommunications Association, takes a different view.

"The fact the most fiercely competitive and aggressively entrepreneurial player in the market (MCI) has been forced into the arms of IBM proves the market is not truly competitive," Kramer said.

AT&T currently controls about 85 percent of the long-distance market, MCI eight percent, GTE Sprint five percent, Allnet one percent and other carriers the remaining portion. Other common carriers recently petitioned the FCC to investigate issues they say threaten successful transition to competition.

The IBM-MCI alliance also raises questions about how the two will work together.

IBM Vice Chairman Paul Rizzo down-played the possibility of IBM taking over MCI while MCI chairman William McGowan took the approach that IBM has deferred to MCI's ability to "run a better telephone business."

Justice Department officials have not commented on the deal and various regulatory issues will have to be resolved for the transactions to close. Computer II-related issues will rise again.
COPYRIGHT 1985 Nelson Publishing
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Copyright 1985 Gale, Cengage Learning. All rights reserved.

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Publication:Communications News
Date:Aug 1, 1985
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