25 March 2002 Finnish telecoms operator Sonera and its Swedish rival Telia have confirmed that they are in merger talks. A deal may presage a new round of consolidation in the telecoms sector, say analysts.

Merger talks between the two in the summer of 2001 failed, but industry observers are now more confident that this deal will go through. With a market capitalisation of about €17 billion, the combined group would be the largest in Scandinavia. A merger would also be the first between two major national telecoms carriers in Europe.

The official announcement by the companies followed persistent speculation in the Scandinavian media over the weekend. Finnish prime minister Paavo Lipponen broke the news of the negotiations yesterday. Shares in both companies rose in response to the news.

Consolidation of the Nordic telecoms industry is considered a necessity by analysts, given the relatively small size of the various national operators. One of the main driving forces behind the merger is the high cost of installing third-generation mobile telephony networks and the potential for cutting such costs by pooling resources.

In the past, political interference and issues of national pride have complicated matters – both Telia and Sonera are still majority state-owned. This time round, both the Swedish and Finnish governments are reportedly backing the merger plan.

Sweden’s Telia is the largest telecoms carrier in the region and is keen to expand further abroad. However, the Swedish company is losing money in both Denmark and Finland. Telia was partially privatised in June 2000. Sonera has accumulated debts of €4 billion and has been plagued with financial and management difficulties.