In the newly competitive arena of the fastest-growing industry in the world, many previously slumbering giants are waking up to the idea that forming alliances is a natural strategic option.
In August last year, OTC, the Australian telecommunications company, announced that it had signed an agreement with the then Soviet Republic of Kazakhstan to co-operate on the development and management of an international phone network for the eastern, sparsely populated backwater of the Russian empire. It was, said OTC's MD Steve Burton, an important toehold for the corporation in the new Soviet market.
And yet it was also an example of the strange and unlikley alliances now being thrown up in the world telecoms marketplace. For telecoms companies around the world, deals, partnerships and alliance are now an essential ingredient of corporate strategy.
At the start of the last decade, telecoms was regarded as a moribund business, little affected by either competition or customers. It consisted of a domestic monopoly in each country, providing a basic telephone service to business and domestic customers. Those undertakings were invariable state-owned and displayed all the typical characteristics of government monopolies: bureaucracy, inefficiency, and caution. And, with the exception of international calls, they would have had little day-to-day contact with one another.
The situation in the supply of telephone services was reflected in the supply of equipment. Government-owned companies were told to buy within their own borders with little regard for quality or price. Even in the UK, it wasn't until the mid-80s that it was possible to buy a telephone from anybody other than BT. As a result, alongside the national telephone operators, were a set of national suppliers tied to domestic markets. Telecommunications as a world industry scarcely existed.
Through the '80s all that started to change. Powerful trends started to transform the industry into one of the fastest-growing and most competitive in the world. So much so that by last year, the world telecoms market, including equipment and calls, was worth a massive $300 billion, and had become an arena for competing giants.
The most important of those trends was technology. During the decade a host of new gadgets such as faxes and modems became commonplace, stimulating traffic along phone lines. At the same time digital exchanges, satellite communications systems, and now fibre-optic cables have transformed the economics of the industry; more calls can be carried further at lower cost. One result was to create a fierce technological race between rival companies to be the first to the marker with the latest gizmo.
Just as important was the trend towards de-regulation. In Britain, the state-owned, monopolist BT was privatised. Few other countries have so far followed that lead, but most have at least opened up the equipment market to international competition, leading to a tougher commercial environment for all the players in the industry. Lastly, the globalisation of international business over the decade has stimulated a huge growth in international telephone traffic. It has also created a significant and profitable slice of the market which is genuinely international rather than just domestic.
For companies faced with the task of adapting from slumbering monopoly to fierce competition, alliances have become a natural strategic option. One example is the US company, VXX, a manufacturer of voice paging systems. It has established itself in Europe by forging alliances with the Swedish Ericcson, and with Mercury in the UK. "For us this is the only way into the European market," says UK MB Paul Cheslaw.
He cites the UK as one example of a country where striking alliances has proved to be the quickest and most cost-effective route into the market. "For an American company to come into the UK and establish a presence is very expensive in terms of both time and money," he says. "But if you strike a relationship with a company like Mercury then you automatically have 10,000 customers. In the industry it is almost impossible to come in cold and start winning business right away." The result of those pressures has been a dynamic towards strategic alliances that has gripped the industry. One example is the BT-led initiative Syncordia. This offshoot of the telecoms giant aims to provide multinational corporations with tailor-made global internal communications systems; it aims to replace the networks many companies set up for themselves, providing the systems at a much lower cost.
To make the venture work BT has tried to tie up two of its largest rivals as partners: the German telecoms major Deutsche Telekom, and its Japanese equivalent Nippon Telegraph and Telecom. Negotiations have dragged on since last year. At the same time the French were disappointed to be left out of the British plans. France Telecom tried to join Syncordia, but was firmly rebuffed by BT.
Smarting from that rejection, it then revealed plans to set up its own rival to the network, initiating negotiations with other national telecoms monopolists - this year it managed to pull Deutsche Telekom into a deal to develop value added telephone service. That kind of intrigue has won Syncordia the nickname within the industry of "Discordia". Whether or not BT is finally able to find the partners to create its network, its experience is a neat example of the kind of frantic horse trading that goes on.
Some international alliances have already been forged. The US company MCI, for example, has successfully created a partnership of 11 international companies, to create Infonet, a global partnership providing data communications services to companies. But many more combinations will be needed before the final shape of the world telecommunications industry is settled. The reason is simple: the pace of technological change that first suggested alliances is not slowing but speeding up.
The most important trend, according to experts, is the gradual dismantling of boundaries between telecoms, information technology and broadcasting. One driving force is digitisation - the process of turning information into small bits for transmission - which brings computing know-how into the frame. Another is broadband transmission technologies ranging from fibre optics, satellites and microwaves - which is fast blurring the divide between two-way transmission via cables and one-way transmission via broadcasting. As those technological boundaries melt away so do the ones between companies and industries. The French company, Alcatel, the first to develop digital switches, had to acquire computing skills before it could start exploiting its discovery.
But there is a problem. The telecoms companies are characterised by a paper-shuffling, civil service mentality; the computing companies by contrast are usually recent start-ups with a very different culture. Which is one reason that alliances are more talked about than struck. "Everyone seems to be talking to one another," says Cheslaw. "But only occasionally does it turn out to be more than just talk."