BT Spanish coup red rag to AT&T bull

British Telecom and its US partner, MCI, are today expected to sign a global alliance with Spain's telephone group, Telefonica, securing a big coup over AT&T, their main rival in the fast-growing market for international business communications.

The privatised Spanish network last night called a press conference for today to announce what it said would be an "international alliance". Neither Telefonica nor BT would confirm that the link-up involved the two sides, though unless the Spanish group pulls out of the signing ceremony at the last minute the deal appeared to be concluded. Sir Iain Vallance, BT chairman, was thought to be planning to fly to Madrid for the announcement.

The alliance will give Concert, the BT/MCI global business communications venture, a significant headstart over rivals in the rapidly expanding market in Latin America, where Telefonica has a substantial foothold. Earlier this week BT/MCI concluded a similar alliance with Portugal Telecom, which gave them a potential link-up with Brazil's state telephones operator, Telebras. The phone market there is worth $14bn (pounds 8.6bn), accounting for 40 per cent of Latin America.

The Telefonica deal is expected to involve the Spanish group taking cross- shareholdings with Portugal Telecom. At last week's signing ceremony the Portugese made the bizarre mistake of accidentally issuing a press statement about a "pan-American joint venture between MCI and Telefonica", only to immediately withdraw it.

Discussions between BT and Telefonica have continued for several weeks as it became clear the Spanish company was unhappy with its existing alliance with Unisource, a grouping of smaller European phone networks with AT&T, the US long-distance giant. Telefonica has a 25 per cent stake in Unisource, though the alliance is regarded by analysts as having been slow to make inroads into the business market.

The talks incensed AT&T, which has been struggling to outline its international strategy to investors in the face of competition from Concert and Global One, the link-up between Sprint of the US, Deutsche Telekom and France Telecom. Direct appeals to Juan Villalonga, Telefonica chairman, from AT&T's top management have apparently failed to repair the rift.

The prize for BT is Telefonica's valuable shareholdings in South American carriers through Tisa, its international arm. BT and MCI are believed to have agreed to buy stakes in Tisa to cement the relationship. Telefonica owns 18 per cent of Telefonica de Argentina, has a 31.5 per cent stake in Telefonica del Peru and owns 43.6 per cent of Chile's telephone network. All have much greater growth potential than the more mature US and European markets.

Michael Hepburn, an analyst with stockbrokers Hoare Govett, explained: "Telefonica is considered to have the best track record in Latin America."

The Spanish deal will end a historic week for BT, which apart from the Portugese alliance included the overwhelming vote by shareholders at an extraordinary general meeting to approve the pounds 12.5bn merger with MCI.