THE announcement that KPN and Telia are to be Telecom Eireann's strategic partners concludes a search that began over three years ago when Cable & Wireless first expressed an interest in the company.

The process only really began in earnest last January and, at one stage, 10 parties had declared an interest. By late spring the number had dwindled to only two, the winning consortium and the Danish group Tele Danmark.

Early in March the process was dealt a blow when British Telecom and its US partner MCI withdrew from the bidding. BT had been one of the favourites to become Telecom's strategic partner.

The process, which has cost almost £5 million in consultants' fees, has also been beset by problems, including arguments over the future of the 65 per cent that will not be sold.

At the last moment, US company Bell Atlantic failed to lodge a bid. Another US company, GTE, and Singapore Telecom both dropped out at an earlier stage.

In the end only KPN Telia and Tele Danmark went as far as making indicative bids, but it has been clear for a matter of months that KPN Telia was the favourite, particularly after Tele Danmark admitted having problems finding an international partner.

The minimum of £383 million being offered by KPN Telia for 35 per cent of Telecom Eireann is substantially more than the £250 million it initially offered in March.

However, it is still considerably below the £460 million previously offered by Cable & Wireless for a 40 per cent stake. The Minister for Transport, Energy and Communications, Mr Lowry, has argued that the £460 million offer was based on Telecom being protected from competition until 2005, but the best that could be offered was protection until January 1st, 1999.

This was still a major attraction. In April, when the Government formally decided to enter negotiations with the two bidders, it stressed that Telecom's monopoly position in providing voice telephony services would be protected until 1999. Most EU telecommunications markets will be liberalised in 1998.

The Government also moved to prevent Esat Telecom and other private phone companies offering new customers voice telephone services through Telecom Eireann's network in order to drive the price of the stake higher.

The decision to take this action, which removed the main factor driving down the cost to business of telephone services, indicated that the Government was coming under pressure to realise the £500 million it was hoping for from the sale of the 35 per cent stake.

The complex arrangement now entered with KPN Telia has enabled Mr Lowry to achieve his objective. If every thing goes according to plan and the consortium exercises its full options to take 35 per cent and the company exceeds its targets the Government will get its £500 million.

Telecom will get the £223 million it has been promised for investment and the remainder will be used by the Government to offset the Exchequer's estimated £250 million liability to Telecom's pension fund.

The capital injection will be welcome at Telecom, which last month posted a record set of results, including a sharp £159 million reduction debt. Profits were boosted to £116 million from £49 million the year before. Turnover exceeded £1 billion for the first time. However, the company is still small in comparison with its new partners. In 1994 Telia and KPN's combined turnover was £10.7 billion.

The most powerful weapon in the winners' armoury is that both are members of Unisource, a consortium of European telecommunications companies which also includes Swiss Telecom and Telfonica de Espana. Unisource has also teamed up with AT&T, the world's largest telecommunications company, to form Uniworld.

This combination proved very attractive to the Government, which wanted Telecom to have an ally which could help the debt ridden semi State to have as much help as possible to survive deregulation of telecommunications markets at the turn of the century.

Another key issue which will have to be addressed is the total number of jobs lost.

Telecom has also accepted the need to reduce its £300 million wages bill by one third over the next five years. Although this would involve at least 2,000 redundancies, it has been suggested that even more employees will have to be laid off.

Last night neither side was prepared to specify the number of job cuts which will be necessary to bring Telecom to a position where it can successfully compete in the new market. However, the KPN Telia consortium must be confident that it can make the radical changes necessary to prepare Telecom for competition.