In the 1990s, deregulation to encourage competition ‘forced’ major telcos globally to form international alliances that collapsed when the dotcom bubble burst – is this round 2?
BT Group and Verizon are planning to combine their international operations in a 50:50 joint venture, forming a company with about $4 billion (€3.51. billion) in revenue. The two claim this would “transform international connectivity” by creating a company serving multinational organisations with more than 3,000 customers across more than 180 countries.
The thinking is this will unlock “scale efficiencies across the combined global network and service operations” but at the same time comply with local regulations. Should the new company go ahead, it will be “designed for a cloud-first world in the age of AI”.
International alliances as a bolster
For those of us who’ve been around for a while, this all feels a bit 1990s – remember when BT and MCI Communications launched a $1 billion global joint venture called Concert Communications Service in June 1994? This fell apart in 1997 when WorldCom outbid BT to acquire MCI so in 1998, BT pivoted and rebuilt Concert as a multibillion-dollar 50-50 joint venture with AT&T.
Back then everybody was at it: Unisource (the national telcos of the Netherlands, Sweden, and Switzerland) joined up with WorldPartners (comprising AT&T, Japan’s KDD, SingaporeTelecom and GlobalOne was formed by the US’ Sprint, Deutsche Telekom and France Télécom (now Orange).
These alliances were the telcos’ attempts to build what we’d call a moat in response to three lots of legislation that they saw as existential threats:
• the US Telecommunications Act of 1996 was the first major overhaul of telecoms in America for more than 60 years. The goal was to let anyone enter any communications business and let any company compete in any market. It allowed the long-distance carriers (like AT&T and Sprint) and local regional phone companies (the so-called Baby Bells) to invade each other’s territory, hence US carriers looked overseas for growth and hoped to secure lucrative multinational corporate accounts to protect their revenues.
• the European Union set a hard deadline of 1 January 1998 to open its telecom markets to full competition to dismantle national, state-run monopolies (like France Télécom, BT Group and Deutsche Telekom) and allow open market access across Europe. Fear of foreign telcos taking their corporate clients drove them to form alliances before the deregulation came into force.
• the 1997 World Trade Organisation Basic Telecom Agreement was a landmark pact, signed by 69 countries signed a landmark in February 1997. The idea was topromote global competition and allow foreign companies to buy stakes in domestic telecom networks.
This agreement gave legal protection to the cross-border investments required for mega-alliances, giving European and US telcos the confidence to invest billions in each other’s infrastructure.
However, integrating the businesses, tech and cultures proved all but impossible and the final nail in the alliances’ coffin was the dotcom bubble bursting. Almost all the investment in them was lost.
Too complex, too little margin
BT has been casting around for what to do with its international operations for years. CEO Allison Kirkby said BT might sell it in 2024 to cut costs and focus on its domestic market. To facilitate such a move, the unit was spun it out into a separate unit, BT International, in mid-2025.
Verizon’s CEO, Dan Schulman, has also been implementing major cost-cutting measures. He hopes that the JV get the low-margin, complex global infrastructure off its books and allow Verizon to concentrate on the lucrative US mobile market.
Verizon is to pay BT an equalisation amount of (£473 million ) $625 million to guarantee even voting rights. Martijn Blanken, formerly of Telstra and KPN, is due to join BT from 1 September and will be CEO of the new entity, shepherding its completion.
History suggests things will not turn out this way yet this JV may well be a trendsetter. Operators seem to find their international businesses to be more trouble than they are worth – TIM had been negotiating to offload its international unit Sparkle to KKR, which bought the former national operator’s domestic network.
In the end, Sparkle was acquired by the Italian Ministry of Economy and Finance and infrastructure operator Retelit (operating as Boost BidCo) for €700 million. The European Commission approved this sale, and the closing date for the transaction was extended to 15 October, 2026.
Hyperscalers add to telcos’ difficulties
Telcos’ struggles with their international units have been exacerbated by the rise of the hyperscalers dominating international routes in two ways.
First, they generate most of the traffic on many routes. For example, more than 80% of trans-Pacific bandwidth is consumed by content from Google, Meta, Microsoft and Amazon. Also, in this age of AI, they are looking to link up their concentrations of data centres.
Not surprisingly, increasingly hyperscalers are looking to control subsea infrastructure, the cost structure and its performance by building their own. For example, Google’s TOPAZ cable connects Japan to North America via Canada, bypassing traditional landing points. Likewise Meta’s planned W cable is looking to link, avoiding hotspots in the Middle East were conflict and politics lead to sabotage and are holding up progress on many subsea routes.
Elisabeth Braw of the Atlantic Council wrote an article published earlier this month in the Financial Times [subscription required] called Tech’s private subsea cables are a threat to everyone else.
In it, she argues that hyperscalers building infrastructure primarily for their own traffic will lead to a two-tier system, deepening the rest of the world’s dependence on US tech – just when everybody’s talking about digital sovereignty. Previously the funding required was such it required a consortium of telcos and other parties to fund them.
Also, as hyperscalers build out more capacity, telcos and other established carriers will progressively lose their largest wholesale buyers. This could eventually reduce the economic incentive to fund and maintain legacy public cables.
What happens when the AI bubble pops?
It is thanks to the US Telecommunications Act of 1996 that they hyperscalers can afford their own because it introduced Section 230. This shielded what became hyperscale platform companies from liability for user-generated content, allowing them to scale without the fear of crippling litigation, unlike the heavily regulated telcos and traditional media.
It will be interesting to see what happens when the AI bubble pops.
