Eircom earnings surpass expectations

15-05-2006

by Ciara O'Brien

Eircom's core earnings slipped 1 percent in the past year, but the firm still managed to beat analysts' expectations thanks to strong growth in its mobile unit.

The telecoms firm released its results earlier than expected, bringing them forward by ten days, in a move that some believe could indicate a takeover deal with Australian investment firm Babcock & Brown is close to resolution.

The telecoms firm saw its earnings reach EUR601 million for the year, beating the EUR582.1 million analysts had been expecting. The fixed-line business saw its EBITDA fall 2 percent to EUR597 million.

However, mobile unit Meteor saved the day somewhat, making up the remainder of the earnings. The firm intends to invest more than EUR100 million in the mobile network in the next 15 months. The mobile operator has some 625,000 subscribers, adding 60,000 in the fourth quarter.

Intense competition has hit Eircom's bottom line in recent times as more telecoms providers enter the Irish market. However, the company is confident about its future.

"This year Eircom has continued to deliver on the three strands of our stated strategy: driving performance in our core fixed-line business, growing broadband and capturing value in mobile," said Eircom chief executive Dr Philip Nolan. "All of this has been achieved against a backdrop of significant corporate activity, including the highly successful rights issue to fund the Meteor purchase."

Broadband penetration has also been a contentious issue in the Irish market recently, with many commentators comparing the Irish market unfavourably with other developed countries. It appears, however, that Eircom does not have the same concerns.

"Our investment in DSL broadband is now delivering consistent growth, with around 250,000 customers today," said Nolan. "Currently [around] 85 percent of our lines are connected to broadband-enabled exchanges, allowing around three-quarters of the population to access broadband. DSL broadband availability in Ireland is now at a comparable level to our European peers," he insisted.

Although Eircom sees the lack of broadband penetration largely as a problem of consumer apathy, others say that significant infrastructural problems remain.

Back in April, Damien Mulley, chairman of Ireland Offline, said that the 85 percent availability rate ignores the telephone subscribers who are connected to broadband-enabled exchanges, but whose lines fail the line-quality test that is a prerequisite for signing up for broadband. Mulley estimated the true availability to be around 64 percent.

Eircom has been the subject of much takeover speculation recently, with approaches by Swisscom and Babcock & Brown. It is believed the acquisition of Meteor made the firm a prime takeover target. The Swisscom deal stalled, but Babcock & Brown is believed to be in advanced discussions concerning a possible deal.

The Australian firm has bought some 28.8 percent of Eircom, and has teamed up with the Employee Share Ownership Trust (ESOT) to submit a joint proposal to Eircom's board. The offer gives shareholders EUR2.20 a share and a dividend of EUR0.052 per share, valuing the firm at more than EUR2.3 billion.