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Old World on Brink of a Telecom Revolution : Alliances: With a $200-billion market at stake, every player wants to be the AT&T of Europe, including AT&T.

October 22, 1995|TYLER MARSHALL | TIMES STAFF WRITER

ANTWERP, Belgium — From his base in a tiny rented office on the southern fringe of this commercial center, Cliff Stice is a small cog in a big revolution. An executive of the American regional telephone company, US West, Stice works with a group of Flemish cable television companies in a joint venture--called Telenet Flanders--that is developing an alternative telephone system for Flanders, the Dutch-speaking region of Belgium.

Telenet Flanders, and the $1.8 billion it is spending to upgrade the cable television network to take voice communications, are part of a major upheaval under way in Europe--one that, in a few short years, is destined to turn the Old World's lethargic telecommunications industry upside down, end age-old government monopolies and put telephone companies in private hands.

Some markets, including those for mobile telephones, data transmission and private corporate nets, have already been opened up to competition. Other areas, including the use of cable television systems for telecommunications, are expected to follow soon.

But the big bang--full deregulation of voice telephone services, which make up 80% of the European market--is set for New Year's Day, 1998. The changes will effectively open for all comers one of Europe's biggest, richest, fastest-growing markets, one that today generates $200 billion annually in revenues and which could double in the next 15 years.

"We are witnessing the collapse of a system of cartels," summed up Laurence Heyworth, who tracks the telecommunications industry for Robert Fleming Securities of London. "What is at stake is who will become the AT&T of Europe. Everyone wants it, including AT&T."

Telenet, focused on a small niche of this impending free-for-all, is a modest player in a game that includes state-owned giants such as Deutsche Telekom (revenue of $38 billion), France Telecom ($28 billion) and British Telecom ($21 billion).

Yet in many ways, Telenet typifies the groups now challenging the established monopolies: Its partners have money, a network in place (97% of Flemish homes have cable television) and telephone know-how (in US West). Like many groups, it has an American partner and poses a direct challenge to the country's monopoly telephone company, Belgacom.

"We'll get a share of the business," Stice predicted. "But it's going to be a battle."

That may be an understatement. The Continent's biggest monopolies are preparing to fight, both against upstarts like Telenet Flanders and once-harmless neighboring monopolies that now loom as potential competitors.

Analysts expect the injection of competition in Europe will reduce prices and increase market volume, much as it did in the United States a decade ago. But advances in technology since the mid-1980s, coupled with the number of big European players, are expected to make deregulation in Europe a far more ruthless affair.

While MCI and Sprint went after a share of the American long-distance market using limited capacity microwave technology, analysts note the battle in Europe begins in an age where fiber-optic technology has a capacity that is virtually infinite.

"It's going to be much more brutal than the United States," Heyworth said. "It's all going to be about getting traffic. The fight for a customer base is going to be so important that we'll have massive price-cutting."

The implications of all this change are enormous.

For global players in telecommunications, it means access to what has historically been one of the world's largest, most profitable--and most protected--markets.

For Europe's state-owned monopolies themselves, it signals an end to fat, easily earned profits and the start of a new existence, in which they must compete to survive. For most of them, it will also mean privatization with the massive shedding of jobs that private ownership implies.

In the decade since then-Prime Minister Margaret Thatcher cut British Telecom free from government control, for example, the company has shrunk by 109,000 employees--to roughly half its original size. Others now face similar downsizing, with Germany's Deutsche Telekom alone expecting to shed some 60,000 employees before the end of the decade. Denmark's telephone monopoly Teledanmark's goal of cutting 4,000 jobs over a four-year period may seem small by comparison but it still makes up almost a quarter of the company's work force.

For European governments, the change means selling off lucrative cash cows for one-time windfall profits that could collectively total more than $50 billion by the time full deregulation begins in 1998. It also means confrontations with militant trade unions over the politically explosive hemorrhaging of jobs.

And for the beleaguered European consumer, the presumed beneficiary of the massive undertaking, deregulation heralds the beginning of an era of choice, with the prospect of better, cheaper service.

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