Up tax relief and we'll invest €500m - Eircom

bealtine

Company asks Cowen for extra support to expand its broadband network

Babock & Brown wants the taxpayer, thought Minister Cowen, to shoulder some of the broadband revamp costs

By Tom McEnaney
Thursday February 14 2008

Eircom has asked the Government for tax relief to support investment in the telecoms network to bring Irish broadband rates up to the highest available in the European Union.

The company told finance minister Brian Cowen yesterday that were the Government to introduce reliefs, it would invest as much as €500m in the network, over and above the €1bn already planned by the telephone company.

John Doherty, the chairman of Comreg, has said that broadband in Ireland is about two years behind what is available in other European countries.

Pierre Danone, the Eircom executive chairman, RobTopfer, an executive director at Babcock & Brown Capital (B&BC) -- an Australian venture-capital house which owns 65pc of the company -- and Peter O'Connell, Eircom's director of corporate strategy and regulation, met with Mr Cowen yesterday morning and are scheduled to make a similar case to communications minister Eamonn Ryan later today.

The three pointed out that the Governmnet had already introduced tax reliefs for private hospitals, which are allowed to write off 100pc of their capital investment over a seven-year period, and suggested that a similar initiative would make sense for investment in upgrading the network.

They said this would allow them to bring fibre from the exchanges to the nodes which are the final stage of the network before the wire is brought to individual homes.

Tax reliefs were only one of the incentives mooted by the Eircom/B&BC team. It also suggested that the Government might consider co-investing in the network to allow Eircom achieve the same end.

The Government is investing €100m municipal area networks (MANs), 27 of which have been laid and 80 of which are planned.

These are fibre rings supporting high-capacity broadband, which are scattered across the country, typically in direct competition to Eircom.

Eircom has asked that future MANs be designed to compliment, rather than replicate, the existing Eircom network.

It is understood that Eircom/B&BC also suggested that the Governmnet might intervene to lessen Eircom's regulatory burden or provide greater certainty for the company -- a move it argued would support greater investment.

Separately it is understood Eircom has established that failure to win the Government contract for the National Broadband Scheme would cost the company between €60m and €80m a year in lost revenues.

The scheme is designed to reach the 10pc-15pc of Irish homes which can not currently access any broadband service. Aside from eircom the two contenders for the contract, which is expected to be awarded by June, are 3 and a BT/Motorola consortium.

Bidders are tendering on the basis of what level of Government subsidy they would require to roll out the scheme, with bids expected to be between zero and €50m.

Eircom has calculated that were a rival to win the contract, its network would reach far more than the 10-15pc of the population it is aimed at and the company might lose as many as 10pc of its customers.

- Tom McEnaney

thefinalstage

Mooching fudge nuckers.

bealtine

bealtine wrote: »

Company asks Cowen for extra support to expand its broadband network

Babcock & Brown back with a begging bowl
Emmet Oliver Business Editor

http://www.tribune.ie/article.tvt?_scope=Tribune/Business/Business%20Week&id=83442&SUBCAT=Tribune/Business&SUBCATNAME=Business

THE long-distance trek to these shores by the Australians working for investment fund Babcock & Brown is increasingly looking like a trail of tears when it comes to their 2.4bn investment in Eircom, the country's largest telecoms operator.

When the purchase of Eircom was announced two years ago, the rationale for their takeover, when boiled down, was relatively simple: Eircom's fixed-line business was resilient, its mobile arm was surging and separation of the company into retail and wholesale divisions was achievable.

Underpinning these assumptions was a view by the Aussies they could grow Eircom by "capitalising on the strength of the Irish economy".

What Babcock and Brown Capital Ltd didn't say in its May 2006 offer document was that it required generous tax breaks to invest more in the country's broadband infrastructure, that the regulatory burden on the company should be lightened, and government attempts to install new broadband capacity in rural areas could slice off a chunk of its revenue.

The "Please sir, can we have some more" Oliver Twist pitch by Eircom executive chairman Pierre Danon and others is likely to receive a distinctly chilly reception from government representatives, already fuming over our lamentable broadband performance.

If Eircom does secure tax reliefs from the government to improve broadband infrastructure, it would certainly benefit its shareholders. Any state-supported move to upgrade the country's Eircom-owned branch telecoms networks to a fibre standard . . . necessary for a modern high-speed system . . . would mean that Eircom has little need for its hundreds of copper wire switches and exchanges around the country. Fibre systems need a computer the size of a large suitcase in your neighbourhood, not a small building as is the current standard. A sale of Eircom's wire exchange properties, mostly in dense urban areas, would net Babcock& Brown millions.

Since the takeover of Eircom from Valentia back in 2006, what has Babcock & Brown done with its acquired company? More importantly, what does it intend to do? So far it has sold properties in Dublin city centre and west Dublin, sold a radio mast business for 150m, increased the price of line rental, hiked the charges for making calls and declared plans to make 600 plus staff redundant. The company has not offered any commercial 3G product to date, after the licence was awarded to the company back in early 2007.

Based on these corporate strategies it is clear Babcock and Brown is pedalling fast to make its investment pay for itself. The price at which it bought Eircom raised more than a few eyebrows in Ireland, although putting the deal together was very beneficial for Babcock & Brown financier Rob Topfer, who was given a 6.5m bonus for his work.

Having done the easy things like selling properties and offering redundancies, the company's management, including Danon, may find it hard to pedal much faster towards their goal. They need to pedal fast, as shareholders in Babcock & Brown Capital, such as Irishman Seamus Fitzpatrick (founder of hedge fund Penvest) will want to hear some news by March about the company's investment in Eircom and how it could boost the Babcock share price which has been languishing. Fitzpatrick's fund previously wanted the firm wound up and what was left to be distributed to shareholders. Last week it was shying away from making any further pronouncements, but how long will this vow of silence last when the shares are 30% off their highs?

Already Babcock & Brown's parent is exiting property assets all over Europe and looking for new sectors to invest in which will outperform in the next two years as a US-led recession bites. Does a small regional telco operating in a slowing economy fit that bill?

The future of Eircom must be giving some of these guys nightmares. According to the last set of figures issued, the Irish telco represents its largest investment by some distance and even Babcock & Brown Capital's cash pile is smaller.

crawler

In fairness - eircom can ask for tax relief if they want to - the reality is that many organisations or lobby groups call for relief on capital investment to "encourage development and investment".

The reality is that if such relief was available that it would be for all infrastructure providers - including UPC, BT, Smart etc......it would have to be under EU regulation otherwise it would be a state subsidy directly into eircom and would stifle/kill competition (if it's not already mainly dead)

It would probably make more sense to allow tax relief on broadband subscriptions to end users and also offer something similar to the subsidy paid on phone line rental under the social welfare scheme as this would fuel take up - encourage take up of higher speeds (they would effectively cost less) and also offer broadband to those more disadvantaged. This would drive demand which would fund development and also offer a more open playing field for all providers.

My 2P worth.

SkepticOne

crawler wrote: »

and also offer something similar to the subsidy paid on phone line rental under the social welfare scheme as this would fuel take up.

Well certainly the ideal thing from Eircom's point of view would be to have the tax payer subsidise Eircom and their resellers. Currently they are losing a lot of line-rental business to the mobile firms. This is a good thing. It is precisely for this reason that the government should not subsidise them. Eircom have only really delivered for the consumer when they have been under competitive pressure.