Picture before you a forest covered in darkness, the ground tangled with hazards unspoken, as you walk forward into the unknown. Now, picture a dim corporate boardroom, empty but for a single large conference table, bearing three sheets of letterhead paper... one from British Telecom, one from WorldCom and a third from GTE. All attractive offers, each fraught with implications for MCI and its shareholders. Which one do you choose?
This was the dilemma faced by MCI and its shareholders prior to the November 10th selection of WorldCom as its merger partner for US$ 37 billion in stock and cash. The telecommunications industry had waited in anticipation as the formidable list of competitors grew longer. British Telecom, already owner of 20 percent of the business and partner in Concert, was joined by WorldCom's bullish bid for yet another telecom acquisition with a US$28 billion stock bid. Finally, GTE joined the list of suitors, offering US$ 30 billion in cash. The question remains: what if BT had known the intentions and consequences of WorldCom's strategic plan to outbid BT and merge with MCI? Did they even consider such a possibility? Had WorldCom simply been waiting for tactical advantage to attack, such as the reduced BT offering price for MCI stock?
British Telecom had formulated its entire strategic business plan around its merger with and forthcoming integration of MCI, extending the Concert brand and building a global telecommunications powerhouse rendered through massive new economies of scale. WorldCom, by then nation's fourth largest telecommunications company, arrived on the scene after just having acquired MFS Communications in September, and with it, its UUnet Internet business itself recently acquired the previous month. GTE, the large local telco provider, had just acquired one of the historic founders of today's Internet, BBN Planet, and was planning to carry on its aggressive campaigns. As competitive pressures grew, BT should have gauged the likely eventuality of WorldCom moving in, as an overall market trend.
Implications of each scenario
Should BT prevail, the business of telecommunications, not just voice, but data and video, would undergo a powerful shift towards internationalization in the global telecom marketplace. A change every telecom provider would need to come to terms with. GTE's success would bring a focus on bundling of services, a single bill for wireless, local, long distance and data services for the consumer. WorldCom, with a focus on IP switching and its Internet success, would create an Internetworking behemoth directly owning over half of the worldwide Internet backbone infrastructure. And with it, it could seize the destinies of many of the technologies that have provided consumer and business customers virtual private networks for the past few years as the Internet has sprung to the forefront of popular culture and business process engineering.
We all know how things turned out and an analysis of the telecommunications industry would be fruitless after the fact. WorldCom received word from its shareholders and those of MCI that their offer, modified to satisfy certain other partners, namely BT, had been accepted and they would know shortly whether regulators would approve the merger within the coming weeks. BT's 20 percent share in MCI would be purchased for US$ 7 billion in cash, thereby preserving BT's shareholder-value through avoiding a much shakier stock swap with WorldCom. Now the post-mortem... Did BT win this game or lose it? If they lost, who won and why?
99 percent of surprises in business are negative
British Telecom was plainly caught with its pants down when WorldCom made its competing offer for MCI following the lower than expected price per share bid offered after the previous MCI fiscal quarter. But, more than that, BT had made three fundamental mistakes, all of them attributable to a lacking competitive intelligence effort, or at least one not sufficiently integrated with its strategic planning and the decision-making of its executives.
First, BT had not sufficiently anticipated the motives of its competitors (WorldCom and GTE) for both offensive (growth through acquisition) and defensive (overcoming a competitor's business strategy) tactics towards their individual strategic objectives.
Second, BT failed to defend its most valuable business information from its rivals, especially the cool reception of BT's "revised" stock price per share for MCI, following less-than-expected financial results of the acquisition target. And, more importantly, BT's missing entirely of the possibility that any other company might offer up a competing bid for their target, should such news gather steam.
Finally, BT failed to integrate into decision-making the intelligence gathered on its rivals in the form of recent histories of successful acquisitions by both WorldCom and GTE.
But hey, seven billion dollars ain't bad
Even though it appears that BT made out well enough in the end, in fact, the results of the competition to win MCI have left BT with a gaping hole in its global business strategy. The future of the organization had been based on the ability to integrate European and North American operations to create a global telecom business. It was supposed to signal a shift in the entire industrial sector, right?
Well, it has indeed. Once approved by regulators, the combined WorldCom/MCI telecommunications business will own about half of the Internet's backbone infrastructure, including many of its most modern components; Internet technologies will likely be the foundation of the combined company.
Whether this is good or bad, for telecommunications in general, or for the Net in particular, is unclear. Whether this is good for BT...?
Why was CI so important for BT's strategic planning?
Competitive intelligence provides a firm, including firms much smaller than BT, with the ability to predict, within a reasonable degree of error, the future activities and behaviors of business rivals in a given marketplace. It's not just about stealing away customers either. We might call this "tactical intelligence" and it is by nature short-term and limited in strategic value. Also, such predictions cannot be based solely upon past or even current behaviors. As one prominent figure in the CI realm put it, to paraphrase, the process of relying on history alone is not intelligence, it's guessing. The fundamental power of proactive, management sponsored competitive surveillance and intelligence gathering might have made the difference to BT and its shareholders. It certainly has to WorldCom, whose tactics were very well-suited to take advantage of business intelligence for its own strategic advantage.
Of course, a full analysis of events must include elements such as corporate commitment to the merger effort and financial viability of the arrangement. Still, it is clear that BT's loss of MCI and with it the foundation of its strategic plan also signalled a loss of discipline and understanding of, in the words of Lombardi, "what it takes to be number one".
Arik R. Johnson is Managing Director of the CI consultancy Aurora WDC, where he is a consultant, trainer, writer and speaker on Competitive Intelligence for clients in the Healthcare, Financial Services, Telecommunications, Transportation, Information Technology, and Services Industry Sectors. He can be reached via email (email@example.com) or on the Web (http://www.aurorawdc.com).
Home Page |
Services | Research
& Discussion |
Resources | Company
E-Mail Aurora WDC | Request Information