ENN Year in Review 2006: The telecoms year unbundled

27-12-2006

by Maxim Kelly

It's been a tumultuous year for the Irish telecoms sector, and a year of transition and convergence at both European and global levels.

Domestically, the Irish telecoms industry -- already red in the face last year from calling for Eircom to sort out its infrastructure to facilitate broadband competition -- had to continue holding its collective breath as the former state telecommunications firm changed hands for the fourth time in its 22-year history.

Here come the Aussies

In May we learned that Eircom was to be sold to Aussie investment house Babcock & Brown in a deal worth a hefty EUR2.4 billion. The arrangement was approved by shareholders in July with the Eircom Employee Share Ownership Trust (Esot) retraining a minority stake. Eircom was de-listed from the Dublin and London stock exchanges, and Eircom big guns Phil Nolan and Tony O'Reilly stood down in September to be replaced by Frenchman Pierre Danon as chairman, and Australian Rex Combs as chief executive.

The same day B&B's Combs was appointed to his new role, Eircom and its latest owners were barraged by demands to remove infrastructural restrictions that make it difficult for consumers to change their broadband providers, and the ongoing saga of Ireland's poor broadband record has continued unabated throughout 2006.

A month previously, in April, BT Ireland dramatically pulled out of round table negotiations with Eircom, ComReg, Communications Minister Noel Dempsey, and other broadband players because of its stated exasperation with Eircom.

Dial-up Dempsey

This development seemed to galvanise Minister Dempsey who then began making noises about getting his oft-remarked upon (but heretofore never seen) Communications Miscellaneous Provisions bill before the Oireachtas. Several senior government sources have all independently told ENN not to hold our collective breaths for this legislation which, amongst other things, should give ComReg the enforcement powers it needs to bring proper competition to the broadband market.

The other 'stick' Minister Dempsey seemed to wield against a stuck-in-the-mud Eircom was Project Dingle. This carefully media-managed leaking of information to several Irish journalists now seems a bit of a red herring. The minister was apparently looking at consolidating the communications and fibre-optic resources of several semi-state bodies to create a state-owned telco that could get the ball rolling on improving broadband penetration. Nothing about this plan has been heard of since.

Going, going, Goggin

ComReg itself is inextricably linked with the Irish telecommunications sector, and 2006 was a bit of a drag for the seemingly forever-embattled regulator.

Its lack of powers in terms of enforcement, and the fact that it has never levied a fine on an intransient telco, has earned it criticism from all sides: telcos, industry bodies, lobby groups, the media and politicians of all shades. ComReg chairperson Isolde Goggin stepped down in December to be replaced by fellow commissioner Mike Byrne; industry watchers will be keeping an eye on the regulator next year to see if there is a change of emphasis at the Lower Abbey Street HQ under a new skipper.

However ComReg's fortunes have been improving recently, with an unseasonal summer surge in broadband take-up something to brag about, and the vanquishing of ComReg's bete noire: Smart Telecom.

The Smart money

Senior management at Smart seemed to funnel all of their energies during 2006 into duelling with ComReg in the High Court over its stalled application for the State's fourth 3G licence. Company accounts show Smart wrote off EUR9.9 million to pursue the licence.

In October, Justice Peter Kelly ruled that the regulator was spot-on to withdraw its offer of the 3G licence to Smart, citing irregularities concerning a EUR100 million bond Smart was obliged to lodge with ComReg to secure the lucrative licence.

Even so, in terms of what Smart will be remembered for in 2006, it will most likely be the day Eircom pulled the plug on nearly 45,000 of Smart's fixed line customers, ostensibly because of an unpaid debt due to the infrastructure owner.

Newspapers the world over marvelled at how such a drastic occurrence could transpire in a supposedly high-tech, liberal, western economy, and it is still not clear what damage this has had on not only the telecoms sector's reputation but Ireland Inc in terms of foreign investor confidence.

To be fair to Smart's acting chief executive Ciaran Casey (who took the helm when larger-than-life Smart founder Oisin Fanning unexpectedly retired for health reasons), he said the company's board took full responsibility for the mishap, yet called on the Government to "reassess" the telecoms market in the wake of the debacle; diplomatic speak for "sort it out lads".

Fanning's chum and Smart Telecom backer Brendan Murtagh of the Cavan-based Kingspan construction dynasty took over struggling Smart in October. For the grand sum of EUR1, moneybags Murtagh bought EUR40 million worth of Smart's debt and around 17,000 broadband customers. Not known as a man who flies by the seat of his pants, it will be enlightening to see what Murtagh does with Smart in 2007.

Ice, Ice baby

It's been a busy year for other movers and shakers in the Irish telecommunications space too. Former FAI boss and Baltimore Technology founder Fran Rooney entered the fray in 2006 with his daughter Yvonne's Ice Broadband, and in January mega moneybags Ken Peterson's Magnet Entertainment launched a massive marketing blitz in an attempt to position it as Ireland's premier provider of triple-play services.

UPC, the new parent of NTL and Chorus, did the same in June with the roll-out of the first phase of its triple-play product in Ireland. The American-owned UPC appointed Robert Dunn as its Irish managing director in May, and the subsidiary of US giant Liberty Global claims extensive success with its triple-play packages in other European countries, adding fuel to the fire that 2006 was the year of telecoms and entertainment 'convergence' in Ireland and abroad.

C'mon infotain me

Infotainment and convergence were the themes of the annual Telecoms Industry Federation love-in held in October where TIF head honcho Gerry McCabe told attendees the sector is now worth EUR4.4 billion, and accounts for 3 percent of the Irish economy's GDP. Eircom's new suave chairman Pierre Danon gave his first proper public address at the event in Dublin's Mansion House, where he said entertainment content such as music, television and video-on-demand facilities were key to selling broadband to Irish consumers. This likely caused fellow TIF member and BT boss Danny McLaughlin to choke on his truffles as the Scotsman has spent 2006 banging on about how Eircom's obstructionism in relation to local loop unbundling (LLU) means he can't offer Irish broadband customers in the Republic the same fancy services he can in the North.

Now these fancy services are already largely available in Britain and on the Continent, helping to drive the European telecoms sector to an estimated market evaluation of EUR339 billion for 2006, according to a forecast made by the European Information Technology Observatory. In October the EITO also suggested the European telecoms sector will have grown 2.5 percent by year's end, and predicted a slower growth rate of 1.7 percent for 2007. The Irish telecoms sector, meanwhile, is expected to achieve a rate of 1.3 percent this year, and grow 1.2 percent in 2007.

Down the slippery telecoms poll

Towards the end of the year, the European Competitive Telecommunication Association (ECTA) scorecard relegated Ireland to ninth place in the table of 17 European nations, having been ranked fifth last year. The ECTA survey ranks countries in terms of their attempts to liberalise their telecoms markets, and the usual suspects immediately blamed both Eircom's market dominance and ComReg's weak regulatory powers as the root causes of this ranking.

An Irish telecoms round-up would not be complete without mentioning one usual suspect who has continually berated government and needled the private sector on Ireland's poor communications record. We leave the last word to Ireland Offline's chairman Damien Mulley: "2006: not magic, not Smart, just not impressed."