European unification

Deutsche Telekom and Telecom Italia agreed on one of the largest corporate mergers in history last week and will create the world's second largest telecommunications company.

Telecom Italia accepted Deutsche Telekom's offer of about $82 billion, only after the company was assured it would not be controlled by the German government, which owns 70% of Deutsche Telekom.

According to terms of the merger, which must still gain approval from various authorities, the German government's share would drop to about 40%. As of Friday, however, the Italian government was considering blocking the deal if Telecom Italia would not enter as an equal partner. That same day, France Telecom threatened legal action over the merger for allegedly violating terms of the Global One venture, which includes Deutsche Telekom, France Telecom and Sprint.

If the deal is completed, the currently unnamed entity would have joint headquarters in Bonn and Rome, catering to more than 100 million customers in Europe, Latin America and Southeast Asia.

"This transaction will lead to the formation of Europe's premier telecommunications company, secure the European home marketplace and enable us to offer the most advanced communications services to our customers," said Ron Sommer, CEO of Deutsche Telekom. "We see this merger strengthening Global One."

"We feel that only a genuinely global presence can allow us to deliver the full scope of wireless, fixed, data and Internet solutions to our customers," added Telecom Italia CEO Franco Bernabe.

The planned merger is "a very simple and straightforward transition economically from local to global competition. They are scaled and scoped geographically," said P. William Bane, vice president of Mercer Management Consulting.

"Even in the U.S., there are shoes yet to fall: BellSouth, probably Sprint and certainly U S West. Now that the game is getting to be more clearly global, there are speculations that Deutsche Telekom might be going after Sprint," Bane said.

At a joint news conference last week, Sommer refused to confirm any plans for a Sprint takeover.

But Bernabe said a takeover bid was not out of the question and noted that the U.S. would be the next area of expansion.

"What you do see is these guys all bulking up," said Bane.

Continuing the global pairing trend, rumors surfaced last week that AT&T and BT will buy 30% of Japan Telecom. The companies would put up a combined $1.25 billion, marking their biggest investment in the world's second-largest phone market. Both AT&T and BT refused comment.

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