BRITISH Telecommunications' the dominant UK operator, is planning a strategic alliance with Telefonica of Spain in a move which will fundamentally reshape the global telecoms market and will damage the Unisource consortium, with which Telecom Eireann is now linked.

BT is negotiating to take a stake in Telefonica International (Tisa), Telefonica's international operation, which has holdings in a number of South American operators including Argentina, Chile and Peru.

The move would be hugely damaging to Unisource, an alliance of smaller European operators including KPN of The Netherlands, Telia of Sweden and Swiss Telecoms. It could lead to Telefonica, which took a 25 per cent stake in the alliance last year, withdrawing since belonging to two competing international alliances would not be viable. Telecom Eireann is linked to Unisource as two of its members, KPN and Telia, recently entered a strategic alliance with the Irish company.

The move would also be a blow to AT&T, the largest US operator, which has chosen Unisource as the vehicle for its European ambitions.

A stake in Tisa would give BT and its US partner MCI a powerful foothold in the fast developing South American market where neither is at present represented. The two partners, which in the course of a $20 billion merger, are already strong in Europe and in North America, and are developing partnerships in the Asia Pacific region.

Analysts believe BT and Telefonica - which have been competitors in Spain up to now - are close to an agreement with BT's chief Spanish partner, the major bank Banco Santander.

Banco Santander aided BT's entry into the Spanish telecoms market in 1993 when the two companies formed a data transmission joint venture, BT Telecommunications.

It subsequently joined forces with BT in a consortium that acquired Airtel, a mobile telephone operator.