Broadband 'cannibalising' Eircom revenue

De Rebel

From The Sunday Business Post 15th Aug 2004 (Both paper edition and online edition)

Confirming whats been known here for a long time.

Broadband 'cannibalising' Eircom revenue

15/08/04 00:00

By Eamon Quinn
Eircom is losing money from the rollout of broadband as its new internet services ``cannibalise'' revenues from its fixed-line business, Merrion Stockbrokers has warned in new research.

Analyst Brid White said that the phone giant was running out of options to generate new growth from new businesses, and any plan to relaunch mobile phone operations by piggybacking on Vodafone, O2 or Meteor was a complete ``non-starter'' for the company.

The research is among the first since Merrion and other stockbrokers have been free to comment on Eircom. Their brokerages were involved in promoting the sale of Eircom shares last March.

Merrion Capital chief executive John Conroy is a director of Eircom.

Eircom is shedding both call units and millions of euro in revenues as customers use broadband instead of its traditional dial-up internet services, or use their fixed-line phones less by switching to mobile phones altogether, said White.

She predicted that Eircom would report an 8.5 per cent slide in its unit call volumes when first quarter earnings are reported on August 27.

Revenues in the quarter will drop by €10 million from a year ago, to €399 million, she said.

According to the analyst, Eircom's monthly broadband fee of €39.99 has not covered advertising and the high costs of providing sign-up fees, installation and a free router to customers. Together with the drop in revenues from its traditional fixed line business, Eircom is losing money from broadband.

White said that Eircom shares would continue to trade below their €1.55 offer price for ``the foreseeable future''.

© The Sunday Business Post, 2004, Thomas Crosbie Media TCH

damien

According to the analyst, Eircom's monthly broadband fee of €39.99 has not covered advertising and the high costs of providing sign-up fees, installation and a free router to customers. Together with the drop in revenues from its traditional fixed line business, Eircom is losing money from broadband.

Is that actually true ? I would have thought they were still making a profit. They make money from their own broadband products but they also make money from reselling their service to all the other ISPs too. You'd swear the broadband market was eating into profits. According to Comreg in that last Amarach Report 81% of people still get online using dial-up so they are still happily screwing over the consumer.

81% of households connect to then net via dialup Q2 2004
3% of Households connect to the net via ADSL Q2 2004


So if 3% of users are having them lose millions, what are they making from the 81% ?

LFCFan

Aw! Poor Eircon. Hopefully people will continue to leave them in droves and once NTL have completed their upgrade in Dublin it should eat more into their profits

seamus

It's all relative isn't it really? You can read "Eircom are losing money by having broadband", or you can say "Eircom are making less profit by having broadband". The two statements say exactly the same thing, but mean something completely different.

Broadband is performing exactly as expected. It's levelling out the playing field and bringing some normality to the profits generated from suplpying internet access to consumers.

Blaster99

I wouldn't be surprised if they're losing money on the line rental because people are switching to mobiles instead and it sounds like the article/analyst is implying that this is the case.

Losing money on broadband seems a bit unlikely when you consider that other broadband alternatives are typically cheaper and most of their competitors don't have existing infrastructure to fall back on. But I suppose they're not making the ridiculous amounts of money they made when everyone was dialing up, but that situation was never going to last.

Sleipnir

Blaster99 wrote:

I wouldn't be surprised if they're losing money on the line rental because people are switching to mobiles instead and it sounds like the article/analyst is implying that this is the case.

I'm moving house this week and won't be getting a phone line put into my new house.
€300 euro per year before you even make a phone call is just too expensive for a basic utility. I have a mobile and all the net access I need, I get in work.
I'd just rather not give them the money to be honest.

kida

Moving to NTL broadband next week and once its up and running I am leaving Eircon for good. Broadband is the only reason I have eircom(and even then its thorugh IOL). As more and more people switch to NTL and wireless broadband the amount of land -line subscribers will drop.

Cryos

i couldnt see eircon doing well in the mobile market not with the name they have for themselfs. They are royaly screwed when vodafone compleets its 3G coverage of ireland as its an amazing service. We have it on trial at the moment here in work and i can say hand to heart if vodafone get the price down an little and put the caps up loads they will have most of ireland on their service.

I hope eircom go tits up

Blaster99

If the mobile operators had any imagination beyond selling ringtones, they would have offered landline type of rates when people are calling from their homes. That would kill Eircom stone dead.

Ripwave

Blaster99 wrote:

If the mobile operators had any imagination beyond selling ringtones, they would have offered landline type of rates when people are calling from their homes. That would kill Eircom stone dead.

And how would they tell that you were calling from your home?

jwt

With Broadband, VoIP and Mobiles all taking a chunk of of the fixed line market, all operators are painfully aware that the landline telephone days are numbered. There will always be a core requirement, in offices, hospitals etc but for joe public the above are the way to go. Given how quickly we adopted/adapted to mobiles do not be suprised to see VoIP take Ireland by storm once the connectivity issues are sorted. At that point telco's have two choices, shrink back to leased lines and critical landlines (there will always be a need for 24/7 guaranteed uptime secure leased lines ) or jump into the value added stuff broadband can deliver. (Video conferencing, combined mail/voice messaging with video etc)

It will happen, Intel is making big moves into this arena and have astronomical budgets set aside for this (WiMAX anyone). Big core players will speed up the delivery time of technology, drop prices and make GBS and GDS easier, more affordable and increase penetration.

You can be dammed sure that the bean counters in Eircom have seen the writing on the wall, and while they may kick and scream during the transition they know that sooner or later it will happen.
However every day that they can postpone it, another x number of euros is made.

I believe in 5 to 10 years time we will look back at these dark days and shake our heads ruefully.


John

seamus

Ripwave wrote:

And how would they tell that you were calling from your home?

Were a mobile telco in Britain not running a similar scheme, whereby you registered your home base station (i.e. the one nearest your home), and you got cheap calls whenever you rang from that base station?

Or was it a dream?

Tom Dunne

jwt wrote:

I believe in 5 to 10 years time we will look back at these dark days and shake our heads ruefully.

I think that will be 5 to 10 years time
in other countries . It will be 15 to 20 years time in Ireland.

Blaster99

I'm pretty sure T-Mobile has that "calling from home" scheme as well. Certainly technically possible.

jwt

tom dunne wrote:

I think that will be 5 to 10 years time
in other countries . It will be 15 to 20 years time in Ireland.

Hey!

We live in hope
Hope springs eternal

Quote:
Hope is a bad thing. It means that you are not what you want to be. It means that part of you is dead, if not all of you. It means that you entertain illusions. It's a sort of spiritual clap, I should say.

Author:
Henry Miller 1891-1980, American Author

The Insider

Ripwave wrote:

And how would they tell that you were calling from your home?

Its already available in cetain countrys, were you can use your home phone and mobile as one..

http://cityfido.ca/en/index.shtml

is one example

carrotcake

Ripwave wrote:

And how would they tell that you were calling from your home?

http://www.boards.ie/vbulletin/showthread.php?t=177671

Ripwave

seamus wrote:

Were a mobile telco in Britain not running a similar scheme, whereby you registered your home base station (i.e. the one nearest your home), and you got cheap calls whenever you rang from that base station?

Ah, so you meant "in your neighbourhood", rather than "at home".

Someone mentioned being withing 500 metres of your home - I can see how that might work in a densely populated area where the number of base statations would make that practical, but with even our biggest city being the least densely populated city in the EU, I'm not sure whether there would be practical issues with such a scheme in Ireland, with the base stations being more spread out than in other cities?

I'm sure it would be a big seller, all right. But with such a high penetration of mobiles already in use in Ireland, what would be in it for the Mobile companies?

seamus

Ripwave wrote:

I'm sure it would be a big seller, all right. But with such a high penetration of mobiles already in use in Ireland, what would be in it for the Mobile companies?

Higher revenues. For each person who ditches their landline and takes up the offer, the mobile telco is essentially stealing all of eircom's business.

Of course, to make sure people ditched their landlines, and didn't just make the same amount of calls for less money, you'd have to charge people to avail of it. €10 a month should do. "Save €12 on your line rental", etc.

DonegalMan

LFCFan wrote:

Aw! Poor Eircon. Hopefully people will continue to leave them in droves and once NTL have completed their upgrade in Dublin it should eat more into their profits

Whilst there would be something sweet about seeing Eircom get their comeuppance, we need to consider who is going to pay the real price.

The shareholders and bean counters will probably be last to suffer, what will happen is that Eircom will spend less and less on maintaining the infrastructure, let alone upgrading it, so we - the consumers - will pay the highest price.

The hidden scandal in the original selling off Eircom wasn't the money lost by the ordinary investors, it was handing over a vital piece of the national infrastructure to a commercial company and allowing them to do whatever they wanted with it.

I shudder to think what the network is going to be like in 4 or 5 years time and the sort of money it will take to restore it (which we, the taxpayers, will probably have too pay for again)

bminish

The Insider wrote:

http://cityfido.ca/en/index.shtml
is one example

Another thing that is interesting about this one is
the option of transferring your current home number and a free white pages listing

I wonder will comreg ever allow that level of number portability ?

Blaster99

Assuming that's ca as in Canada and Canada uses a system that's compatible with the US, it's not very difficult to do it there as mobile numbers are indistinguishable from landlines and the receiver pays for the call, not the caller.

jwt

DonegalMan wrote:

Whilst there would be something sweet about seeing Eircom get their comeuppance, we need to consider who is going to pay the real price.

SNIP

I shudder to think what the network is going to be like in 4 or 5 years time and the sort of money it will take to restore it (which we, the taxpayers, will probably have too pay for again)

It's a fair question, but I don't see the GOV getting involved directly ever again. However by lashing out money on alternative last mile solutions including GBS the taxpayer is already paying out for the continued neglect. Just in a different guise.

Alas the deed is done and the network that was handed over is degrading as we speak. Financially there is no incentive to Eircom to spend money on it.

Perhaps defining a minimum rate for functional internet access speed would leave Eircom with no alternative but to improve the network but only if the rate set was of a high enough standard and the penalties a sufficient incentive.

Otherwise it aint going to happen IMHO

John

eircomtribunal

jwt wrote:

Otherwise it aint going to happen IMHO

John

ComReg have been given the clear and unambiguous policy directive to bring the Irish enduser broadband availability and usage to at least the EU average by mid 2005.
Currently Ireland is nowhere near the bb availability and take-up percentages of the other EU countries, bar Greece.

It is a disgrace that they still explicitly allow Eircom to build in these babies,

which make bb impossible on the lines.

Comreg have not even started to understand that broadband development is primarily a supply issue.

When Eircom showed this absolutely shocking slide

in the conference in Tipperary, the ComReg man there had nothing to say about it, but blamed the "disinterested" Irish user for the slow broadband development.

What makes Comreg think they can keep the rate of line failures for bb (for which they blindly rely on the figures Eircom are forwarding to them!) a State secret?

P.

Wassabi

The heck with DSL we need coast to coast availability of cable modems. - Was

DonegalMan

jwt wrote:

It's a fair question, but I don't see the GOV getting involved directly ever again.

And what would happen if Eircom were to become bankrupt in a couple of years time?

It's not beyond the bounds of possibility IMHO.

spongebob

Good,

Biddy will have her pad in Spain Repo-Ed

Do a Railtrack on the Rest of it

M

DonegalMan

I'm not the least bit worried about Eircom getting broke up - I'd welcome it in fact - but I'm seriously worried about how bad the infrastructure will be if and when this happens

Something á la Railtrack is what should have been done originally but no-one seemed to really think it through at that time.

jwt

DonegalMan wrote:

And what would happen if Eircom were to become bankrupt in a couple of years time?

It's not beyond the bounds of possibility IMHO.

The infrastructure would be flogged off to the highest bidder by the receivers/liquidators.

happens everyday to companies that go bang

john

damien

jwt wrote:

It's a fair question, but I don't see the GOV getting involved directly ever again.

I think that is what they are truely hoping, but they're clever people in the Dept of Comms and I'm sure they've at least looked into a "What would happen if " situation and it probably worried the heck out of them.

It would be one of the biggest messes ever, fiscally and vote wise. Who wants to be the person or group to answer for having a broken telecoms infrastructure and having to tell the taxpayer they have to pick up the bill ? It's a pity Eircom are not more like BT who acted the bollox for a while and then copped on (a bit at least) and now are giving the people what they want.

lucernarian

I had a great idea one day. It involves renationalising eircom and a panel of 12 experts running the entire network similar to the ESB and the national grid. I have to say, I'm seeing lots of poles and wiring being replaced in my area, which shows state-owned bodies can actually maintain something. My plan was much more complex than what I have mentioned here and through some connections I have the FF Ard Comhairle will be reviewing it (I hope). It has already been supported by an esteemed party member.

bealtine

I had a great idea one day. It involves renationalising eircom and a panel of 12 experts running the entire network similar to the ESB and the national grid.
//
connections I have the FF Ard Comhairle will be reviewing it (I hope). It has already been supported by an esteemed party member.
//

I've a far far better idea. Lets vote out the idiots that left us in this sorry mess in the first place.
Don't forget it was the "esteemed party" in question that sold the infrastructure off without even thinking about it and sold it to one of their great supporters too, Mr Silly Title O Reilly.

Let's see if the "FF Ard Comhairle" can make a decision that will benefit our country instead of just pandering to the brown bag buddies.

Let the "FF Ard Comhairle" consider this : it's their mess in the first place and it's their votes going down the toilet too.
I've never seen so many pissed off people around:
ripped off ex eircon shareholders and other hapless consumers who still have to use ancient eighties dialup technology so some "FF Ard Comhairle" gombeen/supporter can get even richer by ripping us all off.
It makes the Third world look like paradise.

They won't invest in their crumbling network, they can't provide basic (and I mean basic) 512/128 to 90% of their consumers because the cable is so rotten, even new lines won't support 512/128. And TitleHere O Reilly and buddies take millions out of eircom...

And we have BT providing 1Mb over ordinary lines to 98% of their consumers...up north they are aiming for 100% broadband coverage.

We need yet another tribunal and to get rid of these idiots that did this to us.

Moriarty

Let's not have this veer off into a political debate.

Ripwave

bealtine wrote:

And TitleHere O Reilly and buddies take millions out of eircom...

That's HUNDREDS of millions!

lucernarian

Hold on, there's a misinterpretation taking place. By "esteemed party member" I mean a person who is respected within the party. That's all. Certainly I am apalled at the shoddy way we are being treated and I can tell you not all FF members are happy about this either.

Btw I am not a member of FF, I just happen to have a couple of friends who are.

spongebob

Lets not have a Party Political debate . The whole issue of Universal Service is a political issue anyway . It boils down to

1. Those who want to throw Telecoms to the Market and let the market decide everything.

2. Those who consider Telecoms to be a Universal Utility, like water or lekky, and are prepared to regulate and act accordingly .

All political Parties contain an admixture of persons who are viscerally inclined towards either viewpoint 1 or 2 above. This Board is the same otherwise we'd all love and hug each other all the time .

M

bealtine

Muck wrote:

Lets not have a Party Political debate . The whole issue of Universal Service is a political issue anyway . It boils down to

1. Those who want to throw Telecoms to the Market and let the market decide everything.

2. Those who consider Telecoms to be a Universal Utility, like water or lekky, and are prepared to regulate and act accordingly .

M

For those who might like a different commentary on the wonders of this, imho failed, "free market economy" try reading http://www.gregpalast.com
Greg is no mere "looney leftie". He writes for The Observer and does lots of stuff for the Beeb.

eircomtribunal

First part of a Business article in the Sunday Times on the merits of having, buying or selling Eircom shares. link to the full article, with a second analyst recommending to "hold", but similar view on the Eircom situation: http://www.timesonline.co.uk/newspaper/0,,176-1226299_1,00.html

"August 22, 2004

Judgment Day: Should you buy shares in Eircom?
Wires still crossed for telecoms giant


IF investors were to give an award for the country’s most controversial company, Eircom would probably win it. The former state-owned telecoms giant had a short but eventful life as a public company when it was touted by the previous government as an unmissable investment opportunity.

That episode ended in financial disaster for most of the company’s small investors and also seems to have set back hopes of creating a shareholder culture in Ireland.

The company’s privatisation and subsequent return to the market last March was a low-key affair directed at institutional investors, but with an attractive dividend yield of over 7% also found favour with well-heeled private investors.

However, with the company facing pressure on several fronts a number of analysts believe the investment case is very weak.

The two experts below have been selected for their skills in several investment areas. They, or the funds they manage, may hold shares in the companies or sectors discussed.

Pramit Ghose, head of investment strategy, Bloxham Stockbrokers

IN this column in March we highlighted our cautious outlook on Eircom. Since then the stock has underperformed the Iseq index by about 13% and has failed to trade above its €1.55 flotation price.

Although Eircom retains a dominant domestic position in the fixed-line rental market, it is our view that growth prospects over the medium term are limited, so we reiterate our negative outlook on the stock.

Eircom reported broadly in-line full-year results in June, benefiting from tight cost control and improved gross margins. Earnings growth over the medium term is expected to be driven by a combination of cost rationalisation and improved operating efficiencies, with growth in access and broadband revenue compensating for reduced voice-traffic revenue.

However, the roll-out of broadband and upgrade of the network will require significant capital expenditure, expected to average between €180m and €220m annually over the next three years. The group is also expected to spend €140m over the next four years reducing its head count. Combined with high indebtedness (Eircom had net debt of €1.96 billion at the end of March), we are concerned that this may lead to stress on the high dividend payout, commonly cited as the primary attraction of the stock.
Although the group has indicated that it will re-enter the mobile business when a viable option emerges, the absence of a mobile presence since the sale of Eircell in 2001 further underlines the lack of significant growth potential.

With a shrinking fixed-line business, increasing competition from mobile substitution and a lack of attractive growth opportunities, we are yet to be convinced of Eircom’s long-term prospects. Our Contrarian Fund has positions in France Telecom and Vodafone, two stocks that we believe currently offer good upside potential.


Judgment: sell"

P.

DonegalMan

eircomtribunal wrote:

First part of a Business article in the Sunday Times on the merits of having, buying or selling Eircom shares.[/B]"

And the guy recommending 'hold' says inter alia:

"Another proposed growth initiative is re-entry into the mobile market; however, Eircom needs to be innovative in its strategy. " [size=-1](My emphasis)[/size]

'Innovative' and 'Eircom' in the same phrase has to be the joke of the century

lucernarian

originally posted by eircomtribunal
However, the roll-out of broadband and upgrade of the network will require significant capital expenditure, expected to average between €180m and €220m annually over the next three years. The group is also expected to spend €140m over the next four years reducing its head count. Combined with high indebtedness (Eircom had net debt of €1.96 billion at the end of March), we are concerned that this may lead to stress on the high dividend payout, commonly cited as the primary attraction of the stock.

It certainly needs at least this amount of expenditure but is it going to happen? How much could that money help the infrastructure?

On another point I thought of publicised Ireland's low broadband penetration rate. I know that Comreg does not release these figures but would anyone have a rough idea of how many lines are broadband-capable? I would estimate 200,000 contrary to eircom's 1,000,000. I don't know the latest figures for the actual number of home users of broadband but when they are used as a percentage of 200,000 I'm sure this would be much larger than around 4%-6% of 1000000

dahamsta

DonegalMan wrote:

'Innovative' and 'Eircom' in the same phrase has to be the joke of the century

Ah come on now Martin, Eircom is enormously innovative at both lying and stealing!

adam

seamus

The views of dahamsta in no way reflect the official views of boards.ie or its moderators. In fact he wants to take responsibility for his own utterances as he's absolutely dying to get eircom into court under any circumstances.

jwt

dahamsta wrote:

Ah come on now Martin, Eircom is enormously innovative at both ..........

adam

Oh God
I can see the solicitors rubbing their hands with glee.

I hope you have some serious evidence to back up that statement.

John

dahamsta

seamus wrote:

The views of dahamsta in no way reflect the official views of boards.ie or its moderators.

Or IrelandOffline.

jwt wrote:

I hope you have some serious evidence to back up that statement.

You can't libel a company, only a person. Unless of course someone in Eircom wants to stand up and say to the court that it was in fact aimed at them. It wasn't of course, since Eircom is also innovative at deflecting blame and hiding the ill-gotten gains; but I'd enjoy seeing the spectacle, and I'm sure the IrelandOffline members that'd turn up to see it would too. We mightn't get enough(!) at the GM's, but I'd give you good odds on a few hundred with those guys "giving evidence"*.

Besides, I've written far worse here. I believe that I actually called a particular Eircom employee a liar in 36pt bold at one point. Course they couldn't sue me, because there's plenty of evidence against that slimy little weasel...

adam


* Lying. Stay with me.

bealtine

jwt wrote:

I hope you have some serious evidence to back up that statement.
John

The truth always hurts....

jwt

dahamsta wrote:

Or IrelandOffline.

You can't libel a company, only a person.


adam

True but only in a criminal context, AFAIK civil proceedings can still be taken

We said that the damage caused by a libel on a company could be rectified in civil proceedings and that, in these circumstances, a libel upon a company should not be a crime. There was no dissent from this proposal.

Law reform society

However it your statement could be classed as a qulaified privilege

Qualified Privilege

· A good defence in the absence of malice

· Where a person has

a duty (legal, social or moral)

or an interest

to make it to the person to whom it is made

and the recipient has a duty to receive it.

· Fair and accurate reports in newspapers, periodicals and broadcasts

o Without obligation to publish explanations or contradictions:

Ø Of meetings and proceedings of

Foreign legislatures

International conferences to which the government send a representative

Foreign courts

Or extracts from registers open to public inspection

o With obligation to publish reasonable explanation:

Findings of associations for science or learning, professional interests or sport

Public meetings, bona fide and lawfully held, for discussion of matter of public concern

Meetings of local authorities, Commissions of Enquiry and statutory boards

General meeting of a public company

Government Notice or Garda Notice.

Any enough of this OT just me having a devious mind

John

Blaster99

So let's say NTL get their collective thumbs out and roll out broadband across the major cities and everyone starts using VoIP. Them will not be pretty days for Eircom. Never mind whatever money they're supposedly losing on broadband now, they have no choice but to invest heavily in that to fend off the competition. I wouldn't be surprised if Eircom are already planning for this but are dragging their heals for as long as possible to milk the market for what it's worth while they still can.