Telecoms: Merger mania won't go away

The year ahead: What 1999 is going to mean for six crucial stock market sectors

THREE themes will dominate the British telecom industry in 1999 - regulation, consolidation and new technology.

David Edmonds, the head of the industry watchdog Oftel, has already been hitting the headlines over the past month forcing cuts in the cost of calling mobile phones and raising the possibility of British Telecom being forced to fully open its local network to competitors. The coming year will see the conclusion of that consultation and a similar probe into the workings of the mobile phone industry.

With the European Commission watching closely over Oftel's shoulder, the trend is likely to be towards increased competition. On balance, this is likely to be negative for established players such as BT, which will also have to spend most of the year trying to get its joint venture with AT&T past the regulatory authorities.

Consolidation will focus on some of the newer operators, who are under mounting pressure to join forces as the newly liberalised European market shapes up.

Favourite takeover targets are Colt and Energis, but Cable & Wireless could also fall to a break-up bid as it hunts for a new chief executive.

Meanwhile, further consolidation in the cable sector - probably involving Telewest - cannot be ruled out. BT and C&W should also at some point move to take full control of their respective mobile operators, Cellnet and One2One.

All this will be played out against a background of advancing technology. Data traffic will continue to grow rapidly, as will demand for networks using Internet standards. Faster Internet access over a normal telephone line and -from the spring - from your cable TV company will stimulate more people to go on-line.

Meanwhile, the mobile phone operators and a host of other bidders will line up for the auction of third-generation mobile phone licences in the summer. However, the winners are unlikely to start offering services until 2002.

What will all this mean for share prices? A repeat of 1998, when three telecoms stocks -Colt, Telewest and Energis -were propelled into the Footsie and even sleepy old BT doubled in value, looks unlikely.

That said, huge growth potential and continued takeover activity should underpin most telecom share prices.