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AT&T, BT No Longer In Concert

Concert, a $10 billion joint venture of AT&T Corp. and British Telecom focused on offering a broad range of global communications migrating customer networks to an IP-based environment, is calling it quits. Concert has been losing about $800 million annually.

AT&T and BT Tuesday said they will unwind their global joint venture, first proposed in 1998, by the first half of 2002. The customer contracts and assets -- including international transport facilities and gateways -- will be returned to the parent companies. AT&T committed to continuing to deliver global communications services to multinational business customers and carriers, and said that as part of Tuesday's deal, it will assume ownership of the Asia/Pacific frame relay assets that BT originally contributed to the venture.

"AT&T is fully prepared and eager to directly serve the needs of customers in the global market today and in the years ahead through the global resources we have been building, as well as the return of employee expertise originally contributed to Concert," said AT&T Chairman and Chief Executive Officer C. Michael Armstrong.

But the move won't come without a price. AT&T said it will record a third quarter 2001 charge of $3.5 billion related to the dissolution of the venture, including an agreement with BT to assume the British company's stake in AT&T Canada and certain obligations. Additionally, AT&T will record a third quarter charge of about $1.8 billion under an existing agreement related to AT&T's stake in AT&T Canada. AT&T said the charge represents the difference between the underlying value of the AT&T Canada shares and what AT&T is committed to pay under the agreement.

BT is expected to take a $1.7 billion charge as a result of the dissolution, including a $435 million write-off for goodwill.

"This decision to dissolve Concert is in the best interests of customers, shareholders and employees," said AT&T President David Dorman, noting that the global market has changed significantly since the creation of the venture. "We'll work closely with BT, Concert and our customers to ensure a smooth transition."

Dorman said factors that contributed to Concert's failure included over-capacity in transport developed and the sharp fall in the prices of international calls and data services. Also, many of the emerging carriers that were expected to be Concert's customers and suppliers, encountered financial difficulties.

Be that as it may, AT&T has no plans to pull out of the market occupied by Concert. It pledged to honor all contracts and service level agreements assumed from Concert, and said it and BT have cemented transitional commercial agreements enabling them to continue to provide existing Concert services for three years. Under those agreements, the two companies will pay each other market-based prices.

AT&T plans to combine the assets returned from Concert with the global data network business it acquired from IBM in 1999, creating a physical presence in more than 60 countries and 850 cities outside the United States, with more than 5,000 employees dedicated on servicing multinational corporations.

"We will bring our entire array of assets, products and expertise to bear to meet customers' global needs, augmenting our portfolio, the commercial agreements with BT, and additional network assets, as needed," Armstrong said.

Under the agreement, AT&T and BT will equally split the working capital needs for Concert -- including restructuring charges associated with personnel and real estate expenses -- as well as its long-term debt and any Concert-level tax liabilities associated with the dissolution.