EC to delay French-German telecoms alliance

The European Commission is to hold back approval of the proposed alliance between France Telecom and Deutsche Telekom until it receives assurances from a new French government concerning commitments to telecoms deregulation after 1998.

The second round of the French presidential elections scheduled for 7 May will pit Socialist Lionel Jospin against the Gaullist candidate, Jacques Chirac.

According to Commission sources, the alliance, which is to take the form of a joint venture to supply a range of telecommunications services under the name Atlas, has caused concern among telecoms competitors. The two telecoms companies - with combined annual sales of £60bn, half the European total for telephony services - would each take 50 per cent of Atlas.

The Commission also wants further details about a second-stage link involving US long-distance carrier Sprint, which is also before the Federal Communications Commission in the US.

That transatlantic alliance would see Deutsche Telekom and France Telecom both take 10 per cent stakes in Sprint. In addition, Atlas and Sprint would each own 50 per cent of Phoenix, a proposed new vehicle to operate the partners' global telecoms activities. It is the sheer size and scope of the alliance that has competitors such as British Telecom worried. BT is itself developing alliances with a range of smaller telcos in Europe and with Sprint's long-distance competitor, MCI.

BT is also concerned about the lack of commitment to deregulation in European capitals, a view that has won considerable support in Brussels.

The telecoms sector is to be deregulated by 1 January 1998 under draft legislation due to be circulated soon to European parliamentarians and the Council of Ministers.

Last month, the German government outlined plans to move towards full deregulation, in a move welcomed by the Commission but criticised by Deutsche Telekom, which said it would be disadvantaged by the liberalisation. Specifically, it was concerned that proposals to require interconnection between competitors and Deutsche Telekom's own network would unduly favour new entrants.

It is now expected that the French government will outline its own plans by this summer.

According to a France Telecom insider, the French telecoms company has already prepared internal documents outlining how it could be commercialised in advance of 1998.