[IT]Eircom's dividend yield will reward patient shareholders

viking

Wow, loads in the Irish Times today mentioning eircom.

A piece in the Investor section of the IT, details some of the challenges eircom has in the current market:

This quite sharp retreat in the share price seems to be due to a stall in the speed at which Eircom's broadband product is being taken up. The firm's target of 500,000 broadband connections by December 2007 is very challenging. This target can probably be met but only if the price of Eircom's offering is reduced.

Fairly obvious..

High promotional spend and more competitive pricing means that it will take longer than previously thought to achieve profitability in broadband.

Oh no! This might mean no more Kathryn Thomas extolling the virtues of buying concert tickets in the loo, time for a cheaper, less attractive, face to front the campaign... David Mc, are you busy?

It is clear that Eircom is having to work very hard to just stand still. In 2003, it generated revenues of €1,682 million, which declined to €1,628 million in 2004 and are forecast to decline to €1,603 million in 2005.

There is still scope to improve profitability through greater efficiencies but the medium-term imperative of succeeding in broadband and mobile is clear. Until there is greater visibility in broadband revenues and the mooted mobile re-entry, the share price is likely to remain volatile.

Eircom faces many challenges and sustained appreciation in the shares will require sustained progress in broadband rollout and mobile re-entry.

Why did they think a costly time-based product was going to help increase their BB numbers? Some people may be loyal to a particular brand and purchase a new product from them, but people are not thick enough to fall for an overpriced, crippled product.

Mr_Man

Given the pressures that Eircom faces on all sides it would take a brave investor, or a very high dividend yield, to invest in this company.

BB competition is only going to intensify and once the LLU mess is sorted the return for Eircom will decline as more competitors move away from selling their bitstream product and introduce their own services, which in turn will put further pressure on Eircom's margins.

The costs base which Eircom has is difficult to reduce, given the large debt load, and the influence of the CWU will make it difficult to git rid of biddy and her pals.

Any further attempts to raise line rental will be strongly resisted by the public and the politicians so there is limited scope to make money there. Increasing line rental will also cause further mobile replacement of the fixed line which in turn hits Eircom's revenues.

As BT noted in to-day's paper unless there is a complete change of culture Eircom will find it increasingly difficult to compete, although with the kind of packages also revealed in the paper getting rid of the incumbents may be hard to do.

The mobile phone market, even when Eircom do get back in, will be a lot different from when Eircell were around. With the arrival of 3, and possibly Smart taking over Meteor, not to mention the two incumbents things will be a lot more competitive.

Many of the assets which the company did have were sold off when it was taken private so scope to raise funds that way is restricted.

Even though many peoples pensions may be invested in this company it would take a brave man or woman to invest in this company, even for the long haul.

M.

DonegalMan

viking wrote:

but people are not thick enough to fall for an overpriced, crippled product.

Unfortunately most people are not clued into these things and a lot of people will fall for it.

My fear is that we this will lead to a sub-culture of believing that Broadband is not necessarily a full-time product and people will just use this product as a substitute for Dialup to check their email, never getting a true Internet experience.