The jointly-owned operation will combine the assets and operations of each company, including their existing international networks, all of their international traffic, and all of their international products for business customers.
The still unnamed venture will start out in life with an impressive pedigree: the companies said they expect it to generate $1bn (£0.60bn) in first-year operating earnings on revenues in excess of $10 billion. The two corporate parents will keep their hands off: the venture will operate as a standalone operation managed by its own chief executive officer and based in the eastern U.S.
At the same time, AT&T and BT plan to plunk down a combined $1 billion in U.S. businesses in "high technology and emerging communications markets," the companies said in a press release announcing the deal. They did not get more specific.
The deal goes a long way toward realising AT&T Chairman C. Michael Armstrong's promise to bolster the company's international operations.
Armstrong said last month that AT&T's $48bn (£29.27bn) agreement to buy cable television giant Tele-Communications Inc. would not stop it from quickly strengthening its presence overseas. A partnership with BT would fulfil one of Armstrong's final goals for transforming AT&T.
Armstrong, who joined AT&T last November, said his priorities included strengthening the telecommunication giant's wireless, Internet, local telephone and international operations. International remains the only area still untouched.
AT&T had made international expansion a major priority. Under a internal code name, ``Project Athena,'' the company explored new overseas partnership possibilities, an industry source said. Armstrong said last month AT&T's current international strategy, mostly consisting of loose alliances, was not a good match for the company. He said AT&T wanted to control the communications networks over which it transmits voice and data traffic. A partnership with BT would give AT&T a way to provide a wide range of services with guaranteed quality to its large multinational clients, analysts said.
An alliance between AT&T and BT has been rumoured for months since BT will be free to forge new partnerships once former partner MCI closes its planned merger with WorldCom. When that merger closes, BT will receive about $7bn (£4.27bn) for its minority stake in MCI, giving it cash to invest in new ventures.
Reuters contributed to this report.