'Comreg stymied by Eircom at every turn' - Citigroup

bealtine

Retyped article from the Sunday Business Post
(apologies to the unnmaed author for any typos)

‘Comreg stymied by Eircom at every turn’ - Citigroup

With the dust settling on Eircom’s sealing of the Meteor deal, the focus of investors and consumers will switch back to the legal wars being fought between Comreg and Eircom to dictate the opening up of the Irish telephone market.

It is already abundantly clear that the pace of change is being dictated by the dominant phone company as it continues to decide on the ability of rivals to gain access to its telephone exchanges.
And it’s a regulatory war – as a major investment report published last week underlines – that Eircom is winning hands down.
The Citigroup Smith Barney report baldly states that such is the total success that Eircom has had in its dealings with the regulator that the only danger it faces is from a potential tougher stance from the Minister for Communications, the Marine and Natural Resources, Noel Dempsey.
With the regulatory regime at best not working, the last line of defence for the Irish consumer my be the fact that the government holds one trump card in being the single biggest customer of Eircom.
Eircom’s latest victory against the regulator following a judicial review has raised questions as to whether the regulatory regime as currently constituted will open up competition.
The regulator’s threat of imposing sanctions on Eircom for its failure to speed access to its unbundled exchanges such as BT and Smart Telecom has been turned down.

“Trench warfare characterises the Comreg/Eircom relationship as the regulator attempts to engineer a boost to nascent competition” writes Citigroup analyst Mike Williams.
However, Comreg’s inability to enforce structural change – as a result of the Judicial Review – has enabled Eircom to reinforce its market position.
The list of ongoing regulatory reviews, consultations nd appeals is long and far ranging.
However, as the recent judicial review aptly demonstrated, Eircom is well equipped to repel its boarders”
Citigroup concludes that Comreg has been “stymied at every turn” and that the regulator, despite its commitment to boosting competition “lacks the teeth to bite” back at Eircom.
Moreover, the broker states that the local loop unbundling process looks “dysfunctional”, while Eircom’s ability to fight its own corner under the current rule book “is beyond doubt” and skewed by its considerable market power.
As a measure of the success that Eircom has enjoyed in protecting its market dominance, the broker warns Eircom management against triumphalism by urging it to trim its approach and start talking constructively to the regulator.
“Eircom seems to be using all the loopholes at its disposal to frustrate the (local loop unbundling) process. It would be easy to conclude that this is simply an attempt to delay for as long as possible before the flood gates eventually burst.” writes the broker.
“However in our view, Eircom is actually playing a clever game to enhance its negotiating/bargaining position.”
Ultimately, the company must know that the processes will be defined as there appears to be too much commercial pressure around for this not to be the case”
This is where Dempsey will have a role to play.
According to the broker, the danger for Eircom investors is that the Minister for Communications “runs out of patience with the way the game is being played and increasingly intervenes in the market”
The minister could give “the regulator more power (which would take time due to legal challenges) or simply by bringing pressure on Eircom – either by the issuance of policy directions to Comreg or possibly more subtly by the government’s status as a big customer of Eircom”

eircomtribunal

There's also an article on the subject in the Indo. The Citigroup report itself is much juicier with close-up, in-your-face detailing the failed regulatory and governmental approach.

Broker notes low take-up of State fibre
Friday August 5th 2005

LONDON brokers Citigroup Smith Barney has said the take-up of the Government-funded alternative telecommunications infrastructure has been "disappointing".

So far 20 Metropolitan Area Networks (MANs) have been built around the country. These are part of a plan to build between 110 and 120 such MANs at a cost to the Exchequer of around €250m.

According to the brokers report from Citigroup, BT Ireland is the biggest user of the MANs, and its take-up is just 11 fibre pairs spread across eight MANs with an annual spend of just €150,000.

So far, the Government has spent around €50m building this infrastructure, and the Limerick-based company Enet manages and markets the service.

But Enet's marketing director John Lawlor said the figures from Citigroup were out of date, and that so far this year it has signed up €1m worth of business.

He said the infrastructure will do €3m worth of business this year and currently has all of the major telecommunications companies, except Eircom, as customers. Mr Lawlor added that 27 MANs will be operational by the end of this year.

In its report on Eircom, which it recommends as a buy, Citigroup says the price list for fibre capacity on the State network equates to between €3 and €5/metre/annum versus an equivalent cost of digging and building in the region of €200 to €250 per metre.

The report lists a number of reasons for what it says is the disappointing take-up, which include "the fact that the MANs that have been built to date are in business areas already well served by multiple infrastructure based providers like Eircom, BT Ireland, C&W, MCL and Colt.

On the regulatory environment Citigroup says that ComReg "appears frustrated at its lack of power to enforce decisions and at Eircom's continual use of the appeals process and judicial review procedures as a delaying tactic".

It goes on to warn of the risk that the Minister for Communications could decide to intervene directly in the market by giving the regulator more power or "by simply bringing more pressure to bare on Eircom".

Richard Curran

It is worth noting that while citigroup recommends a "buy" on the eircom shares it has changed the risk evaluation from "medium" to "high", stating a range of measures how the shenanigans of eircom could be brought to a halt by gov action.
P.

Sponge Bob

eircomtribunal wrote:

Comreg appears frustrated at its lack of power to enforce decisions

Would that be why Comreg have taken to repeating Eircoms lies about BB penetration rates.........frustration ?