THE race to become the first global phone company has taken a dramatic twist with British Telecom's planned acquisition of MCI, America's second biggest long distance company.

Now, only AT & T and the BT / MCI alliance have the clout to harbour global pretensions. Both are positioned to compete around the world because of their financial strength, global reach and the flexibility that comes from operating in a deregulated environment.

This week's news of the BT / MCI merger - the largest takeover ever by a British company - has led to a surge of takeover speculation throughout the industry, some of it surrounding the big Continental EU telecom companies in France and Germany, which may move to deepen their existing "Global One" alliance with US company Sprint. France Telecom and Deutsche Telekom already each owns 10 per cent of Sprint.

The other main alliance forged by European companies is between Unisource - itself a consortium of smaller European operators - and AT & T, which has still to get fully up and running.

Close attention will now be paid by all the big players to pending deregulation in Japan, where the government is deciding whether to break up the giant NTT company.

AT & T, the industry leader, with estimated revenues of $45 billion, has long regarded BT and MCI as the main threat in a $500 billion market that encompasses not just long distance but also local calls, wireless communications, data transmission, video and Internet access. The ultimate goal is to become the world's dominant phone company, serving households and businesses in every continent.

While the notion of a global phone company seems incongruous in an industry still rife with state owned monopolies, deregulation is spreading fast. US vice president Al Gore has already mooted scrapping the restrictions that limit foreign ownership of US phone companies to 20 per cent, provided other countries also open their markets. And most European telecoms markets are set for full liberalisation in 1998; Ireland is one the states seeking a derogation until 2000.

Rapid deregulation of an industry whose hallmark for years had been the presence of large monopolies protected from competition is changing the industry rapidly.

AT & T girded itself this year for this new world by breaking itself into three.

The manufacturing arm has been spun off as Lucent, and NCR, the computer arm, will be divested early next year. The rationale is that the break up will allow AT & T to focus on the telecommunications business. In another move to prepare itself for the new era of unfettered competition, Robert Allen, the embattled AT & T chairman, recently announced the appointment of John Walter, an industry outsider, as president and heir apparent.

Changes in the US have been numerous and rapid. The regional phone companies have not been idle and have also been consolidating. In a particularly unsettling alliance for the long distance companies, Nynex and Bell Atlantic announced in April plans to form, in a $23 billion deal, the second largest phone company in the US.

That particular combination will hold sway in a region covering 13 eastern states and 26 million local customers, and containing about 30 per cent of America's wealth. About $30 billion of US long distance calls either start or end in the region, as do a further $4 billion-$6 billion in international calls - a third of total overseas calls from the US. Both AT & T and MCI betrayed their nervousness by calling on the Justice Department to investigate the merger.

Meanwhile, the long distance companies face another Baby Bell alliance in the south and west, with the $16.7 billion merger of Pacific Telesis and SBC Communications.

In the competition for long distance business, MCI had insisted that its marketing skill and scrappy background would allow it to hold its own. Various studies indicate, however, that the local phone companies could grab as much as 10-15 per cent of the long distance market in their home regions.

By subsuming itself into BT, MCI is acknowledging that its own skills and resources may be insufficient to confront a potentially more formidable AT & T and bigger Baby Bells with massive amounts of cash, not to mention the threat from cable.

As cable TV systems gain voice calling capabilities, they can provide the links to millions of homes. Sprint, America's third largest cable company, is putting its heaviest bets on cable, while Time Warner, the entertainment conglomerate, is offering local phone service in US cities.

MCI faces the added challenge of working with a company based outside the US. But at least BT and MCI are familiar with each other, having co operated since 1994, when BT acquired a 20 per cent stake in MCI for $4.3 billion. MCI has a history of making abrupt twists and turns. That is part of its attraction for BT, which has been impressed by its American partner's ability to quickly turn an idea into a product.

Bert Roberts, chairman of MCI, has cast far and wide for partners - from BT to News Corp and Microsoft, even when these alliances seemed at cross purposes. Mr Roberts has justified these partnerships by saying: "I'm not so visionary that I know where all the bucks are going to flow five years from now."

In allying himself with BT, he has ensured that, as the stakes get higher, MCI has access to BT's deep pockets.

The European industry has also not been idle, as deregulation approaches. As well as the Global One alliance, Unisource will be keen to build on its link with AT&T. Two of the Unisource consortium - KPN of the Netherlands and Telia of Sweden - are the companies due to buy a stake in Telecom Eireann.

However the Concert consortium already has a head start on the Europeans. BT has held a stake in MCI since 1994, when the Concert link started. The concept was to offer a "global supercarrier" service, an operator able to offer a range of advanced service to major multinationals.

While it is early days in the link up - Concert has yet to make a profit - the early indications are good. The difficulties of persuading two different companies to work together appear to have been contained and $1 billion of orders are in the pipeline. It has a two year start on Global One and the AT & T/ Unisource link - known as World Partners, both of which have yet to achieve full regulatory approval from Brussels.

The next move after the news of the BT/ MCI link is unclear. The merger itself has still to get regulatory approval. But it looks likely to do so, bringing the clearest possible sign of the changes sweeping the international industry.