BLUECHIIP: BT has world at its feet - but domestic threat looms

There is growing evidence that BT (428.5p) could gain regulatory approval as early as May for its proposed merger with MCI of the US.

BT and MCI had said a timetable for the merger should see regulatory approval reached by the autumn.

Last weekend, the prospects for a green light received another strong fillip, when the World Trade Organisation reached agreement on further liberalisation of global telecommunications. Participants also agreed in principle to grant companies greater freedom to buy foreign operators.

If that is the view from the WTO, then the deal appears inevitable.

BT shares, buoyed by the announcement, have been strong over the last two months, and there will be gains to be reaped from such a tie-up.

Concert, as the new company will be called, will offer some of the cheapest international UK and US telephone charges, with enormous clout to compete on these routes.

Likewise, BT is forging ahead with alliances in Europe, and now has joint ventures in Germany, Italy, Spain, Sweden, the Netherlands, France and Switzerland. However, many of these will require many billions of pounds in capital investment before they pay off.

While any early decision on approval for the deal is likely to lift BT's shares again, the main core of its business, the UK, will determine its future growth prospects, at least over the next few years.

And here the picture remains less than rosy. Growth is likely to be sluggish as tariffs decline, with new players continuing to enter the market. Competition from the cable companies will only intensify, while other foreign operators can expect to try and build beachheads into the UK.

Although the shares may continue to rise ahead of the merger, and for a while thereafter, there are limited prospects for strong dividend growth, so the shares are probably best rated a strong hold. Copyright: IOS & Bloomberg

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