January 2, 2001 - Chesterfield, Missouri - As telecom carriers evolve into multimedia communications providers, they must replace legacy transmission systems with intelligent bit pipes, making spin-offs just as important as mergers, strategic alliances, and joint ventures. That is one of the conclusions of the new 165-page study, Firms in Flux: Creating Successful Telecom Combinations & Spin-offs

"Telecom players must make brilliant use of combinations and spin-offs to move up the value chain," said Andrew McLachlan, Director of Economic Logic Pty. Ltd., and principal author of the report. "The challenge for companies will be managing fluid relationships, constantly reinventing themselves to stay relevant while maintaining the integrity of successful brands. One false move can quickly destroy shareholder value," he added.

"This report explains how to apply clearly defined objectives and performance measurements to telecom combinations and spin-offs," said Ira Brodsky, President of Datacomm Research. "Telecom players must know when to consolidate and when to divest, and must act only after careful planning and analysis," he added.

Firms in Flux: Creating Successful Telecom Combinations & Spin-offs includes an Executive Summary presenting the top indicators for mergers, acquisitions, joint ventures, strategic alliances, and spin-offs. The Mergers & Acquisitions section discusses timing, geographic considerations, and technology drivers. The Joint Ventures, Strategic Alliances & Divestitures section evaluates the alternatives to traditional consolidation. The Future Role of Telecom Carriers section compares the "dumb pipe," "end-to-end solution," and "smart pipe" carrier business models. The Consolidation & Technology section highlights emerging and converging technologies that are redefining the industry. Sections on Business Planning Implications, Post-Deal Strategies, Financial Considerations, Regulatory Issues, and Telecomm Merger Success Benchmarks round out the comprehensive study.

Economic Logic Pty. Ltd. specializes in applying macro- and micro- economic analysis to high tech industries. The firm's Web site is found at www.economiclogic.com.

Additional conclusions found in

• Incumbent telcos look to mergers and acquisitions to help them combat shrinking margins. Increasingly, ILECs are teaming up with next-generation network operators, buying content providers, and constructing "smart pipes" as they seek to move up the value chain. The next stage in this process is likely to be acquisition of application service providers (ASPs) and companies offering integrated e-commerce solutions.
  
  
• Technology is the primary driver for consolidation. Thanks to new wireless, fiber optic, Internet protocol, broadband access, and e-commerce technologies, operators have outgrown the "dumb pipes" used to transport voice and low-speed data in the past. But consolidation is not just for corporate leviathans; it is often better to acquire small firms or even specific products and technologies.
  
  
• Bigger is not always better -- it is sometimes necessary to divest. Conglomerates must set disparate businesses free to pursue individual goals. Vertically integrated companies must divest so component businesses can eliminate sales channel conflicts. Entrenched players must rid themselves of legacy systems.
  
  
• Against a background of inexorable technology change, outsourcing, strategic alliances, and joint ventures increasingly make more sense than traditional mergers. Mergers should be reserved for situations in which globalization, time-to-market, or regulatory concerns are paramount. In the future, many types of skilled workers will bid for work on the Internet, diminishing the role of organization building.
  
  
• Companies embarking on mergers must create mechanisms to detect and deal with problems as early as possible. Once a merger is agreed to, a discrete merger team should be formed, including managers from both sides as well as lower level staff providing employee feedback. Senior management must be prepared to make inevitable course corrections.