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Long-distance tax-loss calls

Alternative telecoms carriers constitute a crowded market in Europe but they have finally started consolidating. In the past few months, a handful of mid-sized operators have been taken out. What hope does this offer to the UK's beleaguered operators such as Cable & Wireless, Energis and Colt?

TDC, a Danish mobile group, recently acquired Song Networks, a pan-Nordic alternative carrier. BT, the British incumbent, bought the shares it did not already own in Albacom, the second-largest operator in the Italian business telecoms market.

BT also spent significant sums buying a business that manages telecoms networks. So too did Kingston Communications, a UK alternative carrier.

Most of these deals are similar in one respect. A big ex-monopoly operator bought an foreign alternative carrier. Why is this?

The answer is that the deals were not driven by the usual merger maths of cost crunching. Rather, tax savings were the main motive behind them, although traffic economies have played a part.

At first glance, it might seem odd that companies are making acquisitions for tax reasons. But on closer inspection it isn't that irrational.

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