BT Buys Esat Telecom


British Telecom's bid to buy Esat Telecom, which now looks set to succeed, is a significant development in the Republic's telecommunications market. It should usher in a new era of competition, as a major international company enters the market to compete with Eircom. BT will want to earn a return on its investment and so will compete aggressively to try to build market share, particularly in lucrative and fast-growing areas of the mobile telephony and Internet markets. As has already been seen in the telecommunications markets - largely thanks to Esat itself - competition benefits consumers by driving down prices.

There are still some issues to be sorted out. The Esat board is recommending the offer to shareholders and their acceptance is likely. The situation in relation to Esat Digifone, the mobile phone company is more complicated. BT, through purchasing Esat, has also bought its 49.5 per cent of Digifone. It also says that it has bought a further 1 per cent share owned by Mr Dermot Desmond's International Investment and Underwriting (IIU), a crucial purchase as this gives it majority control.

However Telenor, which owns the other 49.5 per cent of Digifone, is disputing BT's right to buy IIU's 1 per cent stake. It remains to be seen whether BT and Telenor can reach an amicable agreement, either to work together to run Digifone or for BT to buy out the Telenor stake. Telenor, the Norwegian company, was itself bidding for Esat Telecom and has conceded that its offer, now trumped by BT, will not be increased.

The longer-term implications of the move for the market here will take time to emerge. Eircom shares, for example, rose yesterday as the price BT is offering for Esat Telecom underpins the value of its assets. However the former state monopoly will now realise that it will face a new competitive force in the market here. Fears that BT and Eircom will eventually become an uncompetitive duo-poly are likely to prove misplaced; new competitors, such as cable companies NTL and Princes Holdings, are also targeting the telephony market, while other niche players will compete in specific areas.

It will be the job of the Telecommunications Regulator, Ms Etain Doyle, to do everything possible to promote competition, following BT's entry. Consumers will hope that the remaining high-charge areas - such as the charges levied on mobile phone customers when they are overseas - will now disappear. The future ownership of Eircom, of course, is also in doubt. It is possible that it could also be the subject of a bid in the weeks ahead - or in the longer term - which could conceivably leave both the major players in the Republic's telecommunications market owned by foreign companies.

Whatever happens to Eircom , it is clear that the sale of Esat to BT brings the full force of global competition to the market here. Mr Denis O'Brien has been the driving force behind the development of the company, bringing it from nothing to a group subject to the biggest take-over bid yet seen in the Republic. Now BT, a global player in the sector, will bring fresh resources and expertise; together with a fast-developing Eircom, this should ensure that the services here are on a par with the best in the world. It has been clear for some time that the telecommunications sector is going through a period of revolutionary change and the entry of BT to Ireland can only accelerate the development of the market here.