EU likely to back Telecom alliance deal


THE European Commission is expected to announce today its approval for the proposed strategic alliance between Telecom Eireann and the Swedish and Dutch national telephone companies.

Under the deal KPN of The Netherlands and Telia of Sweden plan to invest £183 million for an initial 20 per cent of Telecom. The two companies have an option to buy a further 15 per cent for £200 million.

Approval for the deal had been anticipated, but there has been speculation about what conditions the Commission would demand in return, particularly in relation to Telecom's 75 per cent shareholding in Cablelink.

It now appears likely that the Commission will not push for the sale of the stake, but will accept Telecom's assurances that it will open it up to other service providers as a vehicle for them to provide a whole range of multi-media services, including telephony.

However, the Commission is likely to take another look at this issue as part of a review of the cable industry across Europe which is now under way and is expected to continue next year.

Approval from the Commission will allow Telecom's alliance with KPN/Telia to be completed. The deal was submitted for approval on November 14th and the Commission had one month to either approve the deal or order more in-depth examination. It is expected to announce today that it is approving the deal.

Under the complex terms of the deal, KPN/Telia will pay a minimum of £183 million for an initial 20 per cent stake and may pay more if certain financial targets are met. They have an option to buy another 15 per cent for at least £200 million. The injection will allow Telecom to further reduce its debt.

One attraction for the alliance partners was Telecom's derogation from full competition in voice telephony until the year 2000, which the Commission recently approved.

However, in return the Commission demanded that extra competition be injected into the Irish market through ruling that closed-user networks - networks owned by big companies such as CIE and the ESB - can be used as vehicles to compete against Telecom Eireann from next July.