Borders, real and imagined

In an era of multinational mega-mergers, uncertainty prevails. Management styles of top executives often conflict. Cultural hurdles lie under the skin. Diverse geographic elements confound.

Didn't stop Montreal-based Teleglobe Inc. and Dallas-based Excel Communications from merging. They're well on the way to uniting two companies that come from completely different ends of the telecom galaxy. Let alone different countries.

Teleglobe has an international network, third largest worldwide. It will use Excel's well-regarded "relationship selling" to reach retail markets in the U.S and elsewhere. Excel is the fifth largest long-distance carrier in the U.S. It will exploit Teleglobe's international network and presence.

The $7 billion merger strongly argues that opposites attract. For being so different, they're undeniably a powerful pair. Combined, they would create the fourth-largest telecom carrier in the North American long-distance market (based on today's business landscape).

The merged companies will serve more than 275 carriers worldwide, about six million residential customers and 65,000 business customers. And more international ISPs than any other carrier. Expect a done deal by year's end.

An attractive part of the package: Relationships with ISPs are increasing in value. A U.S.-based deal in the news, the proposed Bell Atlantic takeover of GTE, makes a strong case for obtaining a wide reach to the ISP market. With long-distance margins shrinking almost daily, the Internet business may be the financial battleground of the early 21st century.

Teleglobe's tale is of a $1.99 billion company that provides overseas services for carriers, cable network operators, broadcasters and other large telecom users. International origin and direction can create cultural and cross-border obstacles that dog other similar merger candidates. But Teleglobe and Excel have come together smoothly, says Andre Bourbonnais, vice president for law and regulatory affairs at Teleglobe.

"So far, it has proved the two [business] cultures are fairly similar,"

Bourbonnais says. "Both were entrepreneur-driven companies, not big bureaucracies."

Entrepreneurial flair starts at the top. Teleglobe and Excel are both led by independent spirits. Teleglobe Chairman and CEO Charles Sirois built Canada's largest privately held telecom company, Telesystem Ltd., from a Quebec paging company.

Excel Founder and CEO Kenny Troutt started the $1.45 billion company 10 years ago as a regional reseller. National operations blossomed within a year.

Both executives broke in new directions when they had to. They didn't fear the unknown.

The cross-border issues in this merger have been standard fare, says Bourbonnais. Differing accounting practices and tax laws are among hash-out items. Cultural differences between Canadians and Americans appear to be minimal.

Part of the reason: Teleglobe has had American new carrier partners for some time. It carries international calls for BellSouth Long DIstance and also swaps capacity in the U.S. with Qwest Communications. And Excel offers still more Yankee influence to savor. To wit, Teleglobe's already incorporating Excel's marketing methods-using independent consultants who closely track network needs-wherever possible.

Teleglobe has network and operating licenses in 18 countries, including G-7 countries: the U.S., Japan, Germany, France, United Kingdom, Italy and Canada.

"This probably works well in some places and not at all in others," Bourbonnais says. "It is our intention to apply the multilevel marketing way of doing business everywhere Teleglobe has an operating license. If for some reason-from a cultural, technological or regulatory point of view-it doesn't work, it doesn't prevent us from using more traditional marketing and sales channels."

Either way, the merger's a key stepping stone for Teleglobe, says Courtney Munroe, program director for business network services at IDC Research. It brings the company millions of residential customers in the U.S. and a new way to market its services. But he still sees other growth markets for the merged pair.

"Excel is a niche player, and it has a large customer base, but they're still residential and small and medium-sized businesses," Munroe says. "[Teleglobe] does want large national accounts."

Otherwise, Excel will gain more fuel to feed its current niche. It can offer 20 Teleglobe products to its own customers. Internet access, calling cards, operator services and more. "I believe it's a good merger for Excel," says Munroe.

Plus, the company can choose which international markets to pursue with its marketing plan. Ken Hilton, Excel's executive vice president for consumer marketing, says the opportunities could vary greatly.

One of the first things to consider is the acceptance of the network marketing model. If the underlying model is correct, the business will probably succeed. If it's wrong, all bets are off.

"If you look at the G-7, you probably see our first target because it is readily accepted there," he says.

There are other considerations. Hilton says cross-border success hinges on:

* Whether telecom has been deregulated and a "real" level playing field exists for the pre-subscribed customer

* Whether a long-distance bill can be combined with a local bill

* What product set would be most appropriate in each country.

Once Excel decides which countries to pursue with its marketing plan, it will weigh the value of joint ventures with other brand name companies.

Excel's independent representatives have new services to offer as well as the chance to build their businesses in other countries as Excel grows. "We'll build a global marketing plan to make residual income wherever [reps] live," Hilton says. "When we open Japan, [we] can go and recruit everyone there. It's no longer a U.S. organization but a global organization."

Excel's opportunity to offer more sophisticated products may present a new sales challenge for the company, says Munroe.

"They have grown largely as a result of both acquisition and their unorthodox marketing methods," Munroe says. "But [with] value-added services, you need a lot of expertise. When they begin to go up-market, they'll have to change that whole philosophy, and perhaps recruit and train more."

Excel company line: There are no plans to change its sales strategy. It notes that giants like AT&T and MCI use network marketing channels to sell products, too. Excel is betting that its professional sales force, a byproduct of a 1997 merger with long-distance carrier Telco Communications Group Inc., can make any needed leaps.

Other network savings will provide a cushion. Teleglobe and Excel are both cutting termination fees, a result of combining networks. Excel announced July 22 that fees would be lower in 74 countries included in the initial transition.

"We'll probably enter into arms-length contracts with [Teleglobe] before the merger is complete," Hilton says.

One thing's for sure: Teleglobe and Excel can't afford to look back now. Many more firms are followingin their footsteps. Many more candidates lining up to play the multinational mega-merger game.