Lowry can choose contacts or cash

IT may be coincidental that the three companies still interested in taking a stake in Telecom Eireann are each state utilities which have restructured themselves extensively. To have remained in the race while several others withdrew, both Tele Danmark and the Dutch Swedish consortium KPN/Telia must be confident that they can make the radical changes necessary to prepare Telecom for competition.

Telecom itself has accepted the need to reduce its £300 million wage bill by one third over the next five years. Although this would involve about 2,000 redundancies, it has repeatedly been suggested that considerably more employees will have to be laid off.

But, although both Tele Danmark and KPN/Telia have experience of radical restructuring, this is far from an even race.

Tele Danmark, which recorded turnover of 19.8 billion Danish krona (£2.2 billion) in 1994, is a relatively small operator. In the same year, Telia and KPN's combined turnover was equivalent to £10.7 billion.

More importantly, both Telia and KPN are members of Unisource, a consortium of European telecommunications companies which also includes Swiss Telecom and Telfonica de Espatia. Unisource, in turn, has teamed up with AT&T, the largest telecommunications company in the world, to form Uniworld.

According to Unisource the partnership allows it to "provide a single integrated service portfolio for the European business market with international business communications needs".

Having strong partners is seen as one of the keys to growth in the increasingly competitive telecommunications sector. The need to form such partnerships is one of the principal reasons for Telecom's search for a strategic partner.

Tele Danmark can offer little competition to KPN/Telia in terms of access to international partners. It can, however, offer something which is almost as attractive money.

According to international consultants, Tele Danmark is flush with cash at the moment. It has been scouring the world looking for opportunities to spend its excess cash and recently purchased a stake in the Belgian telecommunications company, Belgacom.

Although Tele Dan mark may not be short of cash, analysts suggest that forming another alliance so soon after completing the Belgacom deal may spread the company's management resources a little thinly.

The Government is seeking a strategic alliance partner for Telecom Eireann, which is willing, to pay generously for a 35 per cent stake and which can enhance Telecom's access to international markets. The eventual partner will also assist Telecom in competing on the domestic front.

Although Telecom is already fending off limited competition for its business customers, it will remain protected from full competition until the year 2000. This is the date which has been set by the Government for deregulation.

When the market is liberalised, a plethora of lean, efficient and aggressive companies will compete for Irish customers. Telecom, on the other hand, is not only overstaffed but, according to a report being prepared by the consultancy group Analysys, has a lower number of lines per employee than any other company in Europe.

In contrast, KPN is the most productive company in Europe and a high line/employee ratio allows Telia to offer cheaper calls than any other European company. In terms of their ability to compete in both the international and domestic markets, Telia and KPN would seem to be well ahead of Tele Danmark.

Even when some of the largest telecommunications companies in the US were listed among Telecom's suitors, the KPN/Telia consortium was ranked as one of the clear favourites. At the same time, sources in both Telecom Eireann and the Government were dismissing Tele Danmark as a serious contender.