UK set to take lead in telecom revolution

• The rise in UK interest rates by a quarter of a point to 5.75 per cent
last week, which the City had been expecting, immediately caused mortgage
lenders to increase their lending rates. Many analysts expect further increases
in base rates to keep the pace of economic growth and inflation under control.

Hike in interest rates set to be first in a series

• The UK is set to clinch pole position in the telecommunications revolution
when the Government sells licences for the next generation of cellular phone services
on 6 March. The proposed auction has generated strong interest from bidders
around the world. At least a dozen bidders lodged their submissions by the
application deadline date of 12 January. The line-up includes the four leading
mobile phone companies, such as Vodafone and BT. However, UK major media
companies such as Granada and Carlton did not register their interest for the
new generation mobile phones, which would have e-mail, Internet and video
facility. A total of five new licences are up for grabs and the Government is
expected to receive more than £1.5bn from the sale.

High street price war causes down turn in profits

Deflation in the high street is continuing to reap havoc on retailers’
profits. Dixons, the electrical retailer, saw its share price fall 20 per cent
last week. The group blames the profits downgrade on high street price war. The
most difficult battlegrounds are computer games and mobile phones. Some retail
sector analysts have predicted further obstacles in the sector and they say
that the smaller retailers are in danger of being forced out of existence
through price cuts. Kingfisher and Marks & Spencer continue to struggle
even though rumours about take-over have helped to cushion their share prices
in recent weeks.

Small fish shares sea with a killer whale

The media sector enjoyed a fantastic week thanks to the announcement of a
$350bn (£220bn) merger between America Online (AOL), the world’s largest
Internet company and media empire Time Warner. The merger deal, which provides
Time Warner with a short-cut to Internet, will generate combined turnover of
about £19bn per annum from its global activities. Many commentators in the
media and entertainment business see the link-up as bad news. It means that AOL
could risk upsetting various existing global alliances and it throws into doubt
the strategies of the traditional media and entertainment groups. It has given
rise to the crucial debate as to the extent to which vertical integration could
lead to unfair domination of the sector by the big aligned players. With BSkyB,
the UK’s largest media group valued at less than £20bn, it becomes a case of a
small fish sharing the sea with a killer whale.

Merger talks may lead to loss of 15,000 jobs

At least 15,000 jobs are on the line, according to unions, following the
resumption of merger talks between pharmaceutical giants Glaxo Wellcome and
SmithKline Beecham. If negotiations are successful, the merger will create the
world’s largest pharmaceuticals company, valued at about £115bn. But the unions
are particularly worried about possible devastation in areas of research and
administration. Both Glaxo Wellcome and SmithKline Beecham have said that they
will not reveal any details until after the deal is concluded.

By Paul Audu, Investment Manager

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