THE mega merger of British Telecom and MCI is the latest sign of the changes sweeping the global telecommunications industry, driven by technology, deregulation and competition. The merger comes at a key time for the Irish telecoms market, with the Government negotiating in Brussels to be allowed to protect Telecom Eireann from full competition when the Test of the EU market opens up in just over a year's time. Also, Telecom and the Government are seeking to finalise the deal under which Telecom will itself become a member of an international alliance, through the purchase by the Dutch and Swedish telecoms operators, KPN and Telia, of an initial 20 per cent stake in the Irish state company. This would give Telecom a link to one of the big international groupings which will face up to Concert, the merged BT and MCI. KPN and Telia are both members of the Unisource grouping of EU operators who are forging a partnership with the US giant AT & T.
Telecom may have to wait another month or so before the Commission rules on the derogation, probably because the KPN/ Telia deal is also being examined by Brussels. But even though Telecom may be allowed a derogation from full competition on voice telephone services until the year 2000, deregulation and competition are already transforming the Irish market.
And this will continue. The price of the derogation will be further liberalisation. Big companies will be allowed use their own infrastructures to route telecoms services, a third mobile phone licence will be issued and Brussels is also looking at the link between Telecom and Cablelink. Despite the derogation, the pace of change in the Irish telecoms market is set to accelerate.
The Department of Transport, Energy and Communications wrote to the Commission last May requesting several derogations from opening the market to full competition in 1998. The Government wants a derogation on full competition on voice telephony until 2000.
The Government also wants a derogation until July 1999 to implement the directive which will allow companies with alternative telecommunications infrastructure to compete with the existing national phone company. It is also seeking a four year derogation allowing mobile companies to handle international and trunk calls directly without having to route them through Telecom.
Informed sources say Telecom will get its derogation on simple voice telephony until 2000, but will have to cede ground on other derogation issues.
It is believed that the Commission may grant a derogation until 1999 on the issue of mobile phone companies handling international and trunk calls directly.
It is also expected that the Commission will insist on the Government offering a third mobile phone licence, mainly for use in the cities, next year. The system is known as the Digital Communications System 1800 (DCS-1800) and would be used mainly in urban settings.
Some industry sources believe there is unlikely to be a major demand for such a licence - where the technology is not as advanced as GSM. Others disagree. One industry source predicted that One to One or Orange in Britain which provide similar services would be the most likely candidates bidding for the licence.
The main beneficiaries of changes in access to alternative infrastructures would be business. It is believed the EU will insist on what are known as closed user groups - CIE, ESB, RTE, banks - will be free to offer or use their own networks without going through Telecom.
This would also mean alternative service providers such as ESAT Telecom, Cable & Wireless, and TCL would have an option of providing services via these networks. Although upgrading would be necessary, Telecom's competitors say such networks would enable them to provide cheaper services.
The Commission has also asked Telecom to set out clearly what its plans are for Cablelink. Telecom is a 75 per cent shareholder in the cable company. Informed sources say the EU has asked for very detailed information regarding Cablelink.
"There is a strong belief that the EU does not like a telecoms provider having cable television as well," said one source.
However, although the Commission has raised this issue, sources say it has not gone as far as recommending Telecom divest itself of Cablelink. "This may happen in the future, perhaps in a year or two, but they have not asked yet," says one source.
KPN/Telia is also "very keen" that Cablelink remains part of the Telecom operations, according to sources close to the consortium.
Industry sources believe that Telecom will be directed to offer competitors access to the Cablelink network, allowing them to use it for voice telephony. Telecom says its chief executive, Mr Alfie Kane has already said Telecom wants to offer its services to alternative service providers.
Cablelink is currently being upgraded and there are plans to extend the number of channels on offer to 30. The spokesman said the development plan for Cablelink is currently being finalised and will involve investing in excess of £100 million.
Industry sources say Telecom bought Cablelink "purely as a defensive mechanism" and has not done much with it to date. One source pointed out that cable services have not developed as quickly in Britain as originally expected. However, the source said there would still be a lot of interest if Cablelink was put up for sale.
The KPN/Telia alliance with Telecom, which will initially cost £183 million, for a 20 per cent stake in the State company, is viewed as a good one for Telecom, by its rivals in Ireland.
Sources close to the negotiations warned that the strategic alliance deal is by no means a done deal, but it is most likely to be signed.
