Only one key bidder remains

AND then there was one. Recent months have seen a succession of bidders fail off in the slow bicycle race to become Telecom Eireann's strategic alliance partner. However, the decision by British Telecom and its US partner MCI to drop out is by far the most significant, as they were seen as one of the leading contenders.

At the moment, a consortium of KPN of the Netherlands and Telia of Sweden, two of the largest members of the Unisource consortium, are the one remaining favourite bidder. Tele Danmark and Bell Atlantic, the other main companies in the race, look unlikely to be able to offer enough on their own. However, such is the speed of new alliances in the telecommunications sector that some fresh combination of existing or even new bidders may yet emerge.

The risk for the Government is that it may now have to deal with just one main contender. It would much prefer to have a few strong runners to play off against each other. And the key question now is whether the same factors which caused BT to pull out will dissuade the Unisource companies from putting in a strong offer.

BT says it pulled out as an investment in Telecom Eireann (TE) would not fit in with a European strategy which is to take on, rather than partner, the state operator. However BT did have a look at TE and decided that the risk of the investment outweighed the reward.

The risks for BT were clear. Telecom Eireann is a state owned company in need of restructuring, with all the difficult labour issues that will bring. While its financial performance has improved, TE's debt still stands at over £850 million and getting an early return on an investment of up to £500 million would be very difficult. Also, the rewards were limited as BT already has a large share of the UK/Ireland traffic and could increase its marketing drive to big companies in the Republic. It also has many larger attractive international markets to explore with MCI.

A key issue for any potential partner, yet to be clarified, is the long term future of the 60 per cent plus of the shares which will remain in

State ownership.