The bounce in Eircom's share price this week can be attributed to a couple of key factors - continued speculation about what will happen the KPN/Telia stake and, more generally, the boost the European telecoms sector got in the wake of the Vodafone/AirTouchMannesmann link-up.
That deal, worth $185 billion (€187.5 billion), is the world's largest single merger. It makes Vodafone/Mannesmann the world's biggest telecoms company by market value at $339.7 billion.
Analysts say that the move is set to spark a wave of telecoms mergers across Europe. "It will accelerate mergers," says Mr John Jensen, a telecoms analyst at Salomon Smith Barney.
It is estimated that Vodafone will have 50 per cent more customers in Europe, than Telecom Italia, the next largest operator, provided the deal gets clearance from the European Commission.
The combined operations will have a presence in 12 European countries including the lucrative markets of Britain, Germany, France, Italy and the Netherlands.
What's driving consolidation is mobile telephony and the move towards downloading data through mobile handsets. As handsets and services develop, it is forecast that using mobile phones for a wide range of e-commerce applications ranging from checking bank accounts and paying bills, to surfing the Internet in an unlimited way, will become an integral part of life. Land-lines and fixed-networks will still be used, but increasingly for pure data transmission - such as those used by large corporates - rather than for voice.
"It is interesting that three months ago Vodafone started off its bid for Mannesmann because it wanted control of subscribers," says Mr Jensen. "It ended up being a wireless/data issue. I think that's very significant."
Analysts believe that it is only a matter of time before Europe is seen as one market. At present, mobile phone operators allow users to "roam" their networks, (use their networks for making and receiving calls) when abroad. But this is very expensive as roaming costs are high.
"In a few years, Europe will become one roaming area," says Mr Robert Hussey, a telecoms analyst with NCB Stockbrokers in Dublin. "There will be more focus on WAP (wireless application protocol) technologies and data services. This [Vodafone] deal really puts the pressure on others to consolidate."
Mr Hussey believes that it puts particular pressure on Deutsche Telekom, a company whose name has been linked to a possible bid for Eircom. "They are now competing with a powerhouse in their own backyard [Mannesmann] and with Vodafone in Britain."
Deutsche Telecom bought mobile operator One2One in Britain last year. Like other mobile operators, including Esat Digifone and the Eircom-owned Eircell in the Republic, the move to a single uniform call charge in Europe would increase pressure on them to compete by dropping their own prices.
Esat Digifone's position in the Irish market has been bolstered by British Telecom's (BT) $2.5 billion buyout of Esat Telecom, which owns 49.5 per cent of Digifone. The under-bidder Telenor (also a 49.5 per cent shareholder in Digifone) has an option to take 33 per cent of the combined BT/Esat group.
That deal augers well for Digifone - provided Telenor remains on board - because it could leverage the technical expertise of the Norwegians in developing data and Internet products - and the market power and position of BT which owns Cellnet, the successful second mobile phone operator in Britain.
For example, Digifone could offer a single call rate between the UK and the Republic, to both fixed and mobile networks. A proposal to offer fixed mobile rates between Britain and the whole of Ireland was contained in the unsuccessful bid by Orange for the Republic's third mobile phone licence. The proposal caused the existing operators some chagrin - it would obviously cut margins and pose a healthy challenge, and was one which Orange was confident would boost its chances of winning the licence.
It is a fact - accepted even by Eircell and Digifone - that there will be no real price reductions here until a third operator enters the Irish market. The licence was won by Meteor, a US/Irish consortium, but the issue is currently before the Supreme Court.
Ironically, Orange will be a key player in what happens next in Europe and possibly in the Republic. The company, which is highly regarded, is owned by Mannesmann. It will have to be sold as part of the merger agreement with Vodafone. It is estimated to be worth in excess of £25 billion sterling (€40.8 billion).
Put in context, Eircom's current market capitalisation is just under £10 billion (€12.7 billion). Although any company buying Eircom would have to pay a premium, those price differentials serve to underline how the world is going both mobile and global.
The competition to buy Orange will be keenly contested. The company has a number of licences in Europe, as well as a strong brand in Britain. Dutch Telecoms operator KPN which is selling its 21 per cent stake in Eircom has said it is in talks with Orange, a statement which sent KPN shares soaring last week. There are others too. MCI/ WorldCom, which has developed a strong presence in the Irish market - through sales to the corporate sector - is the world's fifth biggest telecoms operator. Last year, its chairman Mr Bernie Ebbers said he realised that mobile was the way to proceed. The company bought US mobile operator Sprint and is said to be happy with its presence in the US. Now, Mr Ebbers has said, his next acquisition would be a mobile operator in Europe. Orange could well be in its sights which could see the mobile operator finding its way here.
This would pose a further challenge to Eircom. MCI/WorldCom is a well-regarded player with very deep pockets.
Eircom needs to become part of a global operation, otherwise it risks being marginalised by bigger players, more interested in taking its customers than buying its business.
This fact is not lost on Eircom. Brokers believe it is a well-run, well-positioned company with strong Internet and mobile offerings. However, it has lower productivity rates, compared to its European peers according to Mr Hussey.
He believes that the company could be attractive to a US operator, seeking to use the Republic as a gateway to Europe, or a European operator seeking a gateway to the US. Possible buyers mooted include Deutsche Telekom, SBC (a US telecoms group) and Vodafone.
Mr Jensen is not convinced. He says Vodafone will probably buy some "bits and pieces", perhaps do a deal with a content provider. The Vodafone/ Mannesman deal, aside from certain economies of scale, will allow the company to have a greater influence on the future mobile platforms to be used to deliver content and others services, as well as being able to leverage that content at a competitive price.
Mr Jensen says the deal puts the spotlight on operators in the countries in which Vodafone and Mannesmann operate - such as Britain, France, German, Italy and Spain.
"If you wanted to build a panEuropean mobile network, would you look at Denmark, Portugal and Ireland first? I don't think so," he said.
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/VR3765MFOBH2NMV2QNICYDF67M.png)