Merger could shift balance of world power

A MERGER of British Telecom and Cable & Wireless could shift the balance of power in the battle for global business communications contracts towards BT and its partner, MCI Communications.

Although a merger remains highly speculative, news late on Thursday that BT and Cable & Wireless were in "exploratory talks" confirmed by BT again yesterday reinforced belief that the two companies could unite to challenge rival alliances led by AT&T and Deutsche Telekom.

The telecoms rivals between them employ almost 180,000 worldwide and have a combined annual turnover of some £20 billion pounds.

The news throws into sharp focus Telecom Eireann's hunt for a strategic alliance partner. British Telecom's decision to drop out of the race may have been due in part at least to its interest in what would be major deal with Cable & Wireless

However the speculation again underlines the need for Telecom to gain access to a global network through a partner.

One bidder for the 35 per cent stake in Telecom the KPN/Telia consortium of the Dutch and Swedish phone companies is part of Unisource, which has a link to the AT&T global network. However the higher cash bidder, Tele Danmark is not part of such a network although it does have some finks to British Telecom/MCI. Tele Danmark is now believed to be searching for a partner for its Telecom Eireann bid, to provide it with access to a global network.

Speculation on the British Telecom/Cable and Wireless deal continued to mount in London yesterday. Shares in both firms powered ahead on Friday on merger speculation. BT added 21p to 369.5p and C&W rose 20.5p to 532p.

While industry analysts noted that both BT and C&W have lined up with competing alliances in Germany, Europe's biggest telecoms market, these ties are of less concern in the context of their global operations.

Amid signs that a deal could emerge, analysts have been contemplating the benefits to BT and C&W in their bid to be key players on the global market for business communications and how a merger could benefit BT's European expansion.

The alliance would have strong footing in the United States Europe and Asia, linking BT and MCI's Concert venture with C&W's "global digital highway" and its telecoms businesses in Hong Kong Japan and Australia.

This strong presence in the world's three most important telecoms markets could attract businesses to the Concert services offered now by BT and MCI.

US telecoms giant AT&T has a loose alliance called World Partners, which includes KDD of Japan and Unisource NV in Europe, a joint venture of Koninklijke PTT Nederland NV, Telefonica de Espana and the state telephone companies in Switzerland and Sweden, two of whom are bidders for Telecom.

But a merger of BT and C&W also raises questions and could set off a new round of deal making between local telecoms alliances ahead of European deregulation in 1998, of which Telecom Eireann may be a part.