Eircom entered the fray at a time of merger mania

When the Government deregulated the Republic's telecommunications market last December, everyone in the sector predicted a busy 1999. But few expected such a spectacular pace of change, and no one predicted that 12 months later Telecom Eireann (now Eircom) and Esat would be in play.

For domestic and business users alike, however, the year ahead is likely to bring even greater changes. The Irish telecoms sector is now firmly part of the global market, and the drive to electronic business will produce unparalleled infrastructural investment, and real benefits.

Telecom Eireann spent the first half of the year gearing up for the largest flotation in Irish corporate history. As the first shares were traded in New York, the Minister for Public Enterprise, Ms O'Rourke, smiled, turned to the company's chief executive, Mr Alfie Kane, and informed him: "You're on your own now, chum!"

He was, and so were the hapless shareholders, who watched the stock soar for a week or two, then plummet; the share has been loitering around the issue price ever since.

But from the start of the year, the company faced competition in both the residential and business markets. The newcomers spent significant sums building their brands and tailoring their products.

Twelve months later, however, even among the top 1,500 companies, Eircom still controls 65 to 70 per cent of the market, with Esat, Ocean and MCI WorldCom sharing the remaining 30 or 35 per cent between them.

For the residential market, comparisons between the different carriers and packages soon became difficult as Eircom, Esat, Ocean, Spirit, Swiftcall and Switchcall battled it out. According to the telecommunications regulator, Ms Etain Doyle, there are now 53 licensed players in the Republic.

Ocean stole a march on the rest in the Internet market, unveiling a "free" (i.e. no-subscription) service, and distributing thousands of CDs in petrol stations and other outlets. They were followed in this direction by Esat, and others.

Before its flotation, Eircom sold the television cable company Cablelink. It had expected to fetch "as much as £360 million [€457 million]"; a controversial bidding process and two court appeals later, NTL paid £535 million.

An Post managed to sell IOL/ Postgem to Esat for £115 million, a price that caused even greater amazement among some industry observers.

The regulator had an extremely busy year, and proudly reports that the Irish market is now ranked third in Europe in terms of its progress towards optimum liberalisation. In September 1998, the Republic was in ninth position, out of 10. She took an overtly pro-consumer position as her office developed new rules on interconnect rates, digital and cable television, MMDS, and more.

The regulator's reputation took a battering, however, when the High Court overturned her decision to award the third mobile licence to Meteor. The judgment was highly critical, and revealed that draft reports from the evaluators of the two applicants were altered to generate a result which could "readily be perceived to be biased" in favour of Meteor and against Orange.

The regulator has appealed the decision, and the affair will now drag into 2000.

The row has held up the granting of the licence since September 1998, and the two existing operators, Eircell and Esat, have taken the opportunity to expand rapidly. At the start of 1999, the Republic's mobile penetration rate was 24 per cent of the population; 12 months later it is close to 34 per cent.

Within this burgeoning market, the fastest-growing area of growth has been pre-paid, with Digifone's Speakeasy and Eircell's Ready-To-Go targeting younger users in particular.

The frenetic local changes reflected the pace in the European and world market. In January, Vodafone bid $66 billion (€65 billion) for Airtouch, the world's largest wireless phone company. MCI WorldCom considered a rival bid, but dropped out.

One month later, Olivetti warned Telecom Italia that the former State company could "fall into foreign hands" if it did not accept the €53 billion (£41.74 billion) hostile bid. But even though Olivetti raised its bid to €60 billion, Telecom Italia ran straight to the arms of Deutsche Telekom. The plan was to create a European telecommunications giant worth €200 million, but it all fell through when minority shareholders in Italy, led by the teachers union, applied political pressure. Olivetti won out.

But this deal was dwarfed by MCI WorldCom's $129 billion purchase of Sprint. The move created a serious rival for AT&T in the US market.

After Mannesmann paid €33 billion for Orange, there were more gasps from the gallery when word leaked that Vodafone-Airtouch was plotting a €156 billion hostile takeover of Mannesmann. When the bid actually came through, it was for a paltry €124 billion; Mannesmann is still fighting it off.

Analysts say these acquisitions form part of a race for scale; many believe the shake-out will continue until Europe has perhaps a dozen large companies offering service right across the European Union. This is seen as being of particular importance in the mobile market; the first company to offer customers a panEuropean service with no "roaming" charges is likely to gain market share.

The Irish telecoms sector has already been rocked to its foundations by this trend - when Sweden's Telia and Norway's Telenor decided to merge, it inadvertently put both Eircom and Esat in play.

Telia held 14 per cent of Eircom, parent of Eircell, and Telenor held 49.5 per cent of Esat Digifone. The EU approved the merger only on condition that the new company divested its stake in one or the other. Telia chose to leave Eircom, and the Dutch firm KPN, its partner in Eircom, decided to sell its 21 per cent too. Anyone buying the whole 35 per cent stake - or anything over 29.9 per cent - must, under stock exchange rules, make an offer for the entire company.

While the range of possible suitors for Eircom stretches to dozens of companies, analysts say the most likely suspects are British Telecom (BT), two US giants, Bell Atlantic and SBC Ameritech. All three are said to be anxious to expand their operations in Europe, but a purchase of Eircom would present BT with an immediate marketing boon, as it could offer a seamless mobile service by merging Eircell and Cellnet.

Meanwhile, Telia-Telenor, using the temporary name "Newtel", decided that buying Esat and therefore control of Esat Digifone would be a good signal to send to the market in advance of its flotation. Esat's share price rose on speculation that the $72 a share being offered would be trumped by someone else, or raised by Newtel.

The fact that the two Nordic governments then reversed the merger, does not make Esat's future any more predictable. In his defence document against the takeover, Esat's chief executive, Mr Denis O'Brien, stressed that he "never stated to Newtel that I was not interested in any offer at any circumstances".

Even more fundamental changes lie ahead, for the consumer at least. The cable companies and the telephone companies are gearing up to wire hundreds of thousands of Irish homes and businesses for broadband in the coming months. This will see companies such as NTL and Irish Multichannel offer rapid Internet access and telephone service, as well as digital television signal.

But Eircom and Esat are planning to combat this threat with a new technology, ADSL, which can convert an ordinary copper telephone wire into a broadband pipe. Eircom could introduce the rapid Internet and other services associated with this technology immediately; Esat and the others must wait until the regulator "unbundles the local loop", allowing them access to Eircom's local exchanges.

This, combined with the €76 million pipeline being built by Global Crossing and the Irish Government to link Ireland to the world, should allow citizens and commerce to take their place in the digital sun.