Recent good news regarding the Irish economy continued unabated during the week with the Central Statistics Office figures showing that the number of people at work rose by an unprecedented 95,000 in the year to last April.
The public finances are in a very strong position enabling the Government to continue to pursue a fiscal strategy that should underpin growth over the medium term. While the Budget has inevitably got a large amount of media attention, the reality is that the annual budget on its own will not be the major determinant of the progress of the Irish economy over the medium term.
Arguably, the most significant economic event during the week was the arrival of a fully deregulated telecoms market from December 1st. As a vital step in ensuring that Ireland remains a competitive location to do business, this represents a major strategic move and one that should be applauded.
Many people will remember the antiquated state of the Irish telephone system in the 1970s. During the early 1980s the then government took the strategic decision of making a huge investment to leapfrog the Irish system to the most advanced available digital technology. The turnaround in the economy which began in the late 1980s and which has blossomed into the current boom could not have happened without this investment.
Deregulation of the market should open the floodgates to an acceleration in the rate of investment in our telecommunications infrastructure. It is a barometer of the maturity of the economy that the lion's share of new investment will be financed by the private sector. Licences were issued to 29 operators and a cursory glance at the list highlights that a number of the licences have been awarded to companies who have stock market quotes.
These include some of the international giants of the industry such as: WorldCom, Cable & Wireless, British Telecom and Reuters.
Naturally, the Irish business will only form a small part of these companies' overall business. However, Irish private investors can at least invest in these companies knowing that they are investing in the Irish telecoms market, albeit in a very indirect way.
The only pure, quoted Irish telecoms company is Esat which is totally reliant on the Irish market. It will of course be joined by Telecom Eireann during 1999 which is set to be privatised. Therefore, by late next year Irish private investors will be able fully to participate in the Irish telecoms sector.
How have telecoms stocks been performing? The telecommunications sectors of most major stock markets have performed exceptionally well in recent years. Indeed, along with pharmaceuticals and financials, telecom shares have led stock markets higher. For example, share prices of companies in the British telecoms market have virtually doubled over the past year. Relative to the overall British equity market the telecoms sector has outperformed by 75 per cent over the past 12 months.
However, not all companies in the sector do well and investors need to be particularly wary of some of the smaller start-up ventures.
The experience of the Irish-based Stentor, quoted on London's Alternative Investment Market, is a case in point. The company had to be rescued by new investors, but the original shareholders are likely to lose most of their investment.
For private investors the lesson is to stick with the big names who will deliver good returns if history is any guide.
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