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Friday, 4 February, 2000, 13:10 GMT
Deal puts pressure on rivals

BT - put under pressure by the merger

The deal between Mannesmann and Vodafone puts pressure on other UK telecoms companies.

In particular, BT, until recently the largest telecom company in the UK, will have to convince investors that it has an effective international strategy.

BT has been shedding staff to try to stay competitive
The deal, which will force the sale of Orange, the UK's third biggest mobile phone network, could also open the way for big US or Continental telecoms players to gain a vital foothold in Britain.

Vodafone will now be by far the most dominant mobile phone company in the world, with about 10% of the world market, or 42 million customers.

It will also be the leading player in the fast-developing field of mobile internet connections, which it plans to launch later in the year.

"There will be nobody that has a global mobile proposition other than this enterprise,'' said Mark James of Nomura International.

"The power that this company will have to call the shots in wireless internet is enormous.''

Mobile phone ownership is expected to double to 1 billion in the next four years, and many experts believe that more people will connect to the internet via their mobile phone than via their personal computer.

Vodafone has already signalled that it wants to continue its aggressive strategy of expanding overseas.

Vodafone chief executive Chris Gent, who led the company through its US and European acquisitions, now says it wants to focus on Asia.

BT lags behind

In contrast, BT has been losing market share in its fixed lines in the UK, and has failed to capitalise on its internet and mobile phone services.

The company announced a fall in profits and major job cuts earlier in the week.

Unlike the former state telephone companies in Germany, France, and Spain, BT is not the dominant internet service provider in the UK. It has to cope with competition from other free ISPs, like Freeserve, who have a bigger market share.

BT Cellnet, its mobile phone business, has been the fastest growing part of its operation.

BT is now worth 63bn, down by one-third and only one-quarter the size of Vodafone.

It failed in its plans to move into the US market when its merger with MCI was stymied by WorldCom several years ago.

And although it has entered into several alliances, especially with AT&T for corporate data services, it now lacks the global clout to compete with Vodafone abroad, and faces the threat of increased competition in its home market.

Meanwhile, newer rivals into the UK telecoms market like Energis, formerly part of the National Grid, and Colt, the business telephone network, have also been gaining market share at BT's expense.

But it is the global rivals that may now dominate the telecoms world.

New entrants possible

The sale of Orange, the UK's third-largest mobile phone company, may open the way for one of them to enter Britain.

Vodafone will have to divest itself of Orange in order to satisfy competition concerns in the UK, as it could not own two of the four main mobile phone companies.

Vodafone says it plans to float Orange as a separate company on the stock market.

But Orange, which was bought by Mannesmann for 20bn in November, would be an attractive target for another telecoms company.

Its appealing package of pay-as-you-go tariffs meant it added more subscribers this Christmas - 1.4 million - than any other UK mobile operator.

Vivendi, the French telecoms and utilities company that signed a deal with Vodafone last weekend, would be interested.

Other European state-owned telephone companies, like France Telecom and Telecom Italia Mobile, owned by Olivetti, might also be interested. But Deutsche Telekom, which already owns One2One, would not be eligible.

So would MCI, the aggressive US company which recently acquired Sprint in order to enhance its US mobile phone interests, but is known to be interested in moving into Europe.

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See also:
02 Feb 00 |  Business
The challenge facing BT
02 Feb 00 |  Business
BT to cut 3,000 jobs
11 Jan 00 |  Business
BT makes 1.5bn entry into Ireland

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