Telecoms revolution shakes phone monophones

THE sale of a stake in Telecom Eireann comes against the background of unprecendented change in the international telecommunications industry. The forging of new alliances, change in the US regulatory regime, new rules opening up the EU market and the privatisation or part privatisation of telecommunications companies across Europe is ushering in a new era. Meanwhile technology is transforming the operation of the industry and opening up a host of new opportunities.

In Europe, deregulation is sweeping the industry and most markets will be open to full competition by the start of next year. Ireland is one of a small number of states granted a derogation from full competition in basic voice telephony. But this expires in 2000 and already there is competition for many business services and a second mobile phone service is due to launch shortly.

Competition and the increasing demand for international telecommunications services has led to a myriad of new alliances being formed in recent years. Last year British Telecom linked up with US company MCI. Unisource - the EU consortium which numbers KPN and Teila amongst its members - is linking up to US giant AT&T and the German and French companies are linked to US company Sprint. Industry observers believe that the industry - worth an estimated $500 billion a year - will soon be dominated by a few major operators with the clout and international reach.

The two biggest international players are AT&T and the British Telecom/MCI alliance - known as Concert. But changes are also sweeping local markets as an industry which used to be dominated by domestic monopolies is opened up. The US still retains a limit on foreign holdings of its operators, but this may change and in the meantime deregulation has allowed local companies to become tough new competitors for long distance services with the giants. In response to such competition the major US players have also been changing, as shown by AT&T's decision to split into three separate divisions last year to allow a new focus, on telecommunications.

In Europe the industry is also changing as governments and telecommunications companies equip for a new era of competition. At the moment the focus is on Italy, where the government is preparing to sell off the state telecoms holding company, STET in what has been dubbed the "the mother of all privatisations". This has caused fierce political controversy in Italy, culminating last week in a government decision to fire STET's senior management. Having faced severe criticism from Brussels for not completing the sell off last year and blocking the start up of a second mobile operator, the Italian government now appears committed to pressing ahead with the sell off. STET is the last of the major international telecoms companies not to be part of a major alliance.

Meanwhile the stockmarket flotation of France Telecom is due to take place in May and will raise more than £2.5 billion as the state sells off a 20 per cent stake. The government hopes to attract large numbers of private investors to subscribe to the sale, but has said that it intends to hold on to a majority stake in the firm. This is in contrast to what happened in Germany, where the government sold off Deutsche Telekom.

Across Europe, governments are facing the same issues in handling the telecoms sector. When to introduce competition? How to regulate a liberalised market? And how to best manage the transformation of former state owned monopolies?