Eircom service & inrastructure separation and the strike

Dangger · 22-06-2007 1:30pm #1

I'm a little sketchy on this as I'm piecing together various news bulletins, but I'd appreciate any further input.

From what I can gather the potential Ericom strike is about Babcock & Brown's refusal to pay the increase due under the Towards 2016 national wage deal until workers agree new terms and conditions.

The new terms and conditions appear to be around wavering the unions right to objecting to business units within Eircom such as the fixed line and broadband units being sold.

One report I heard on Newstalk appeared to be suggesting that the government have had discussions about the long hoped for separation of infrastructure and service recently with Eircom top brass.

If this is the case could we be about to see our shiny new minister begin with presiding over the much called for splintering of Eircom whilst at the same time at loggerheads with the union? It's going to be painful for the workers for sure I can appreciate that but this could be a seismic shift of the volcanic landscape that is telecoms in Ireland. Or am I off track here completely?

Victor · 25-06-2007 12:07pm

Interesting spin here: http://home.eircom.net/content/unison/biznews/10637076?view=Eircomnet&cat=Business

Fergus Cassidy · 26-06-2007 6:20am

It's a very strange and unique situation. A company is negotiating with one of its unions, which also happens to be trustee of the employee's shares in the company. In effect the CWU owns 35% of Eircom.

Is that enough to block (for example) the sale of some of the company's business units or splitting the company into two?

It seems surprising that Eircom would get into an dispute over an already agreed 2% pay increase when there are bigger fish to fry.

The mention in the Indo article linked to by Victor speculates on the increasing influence within the CWU by the 'posties'. That wouldn't surprise me as the postal market in Ireland is facing full de-regulation starting in 2009.

Postal workers (predominantly CWU members) will be faced with the same scenario as their former Telecom Eireann colleagues once were - the full introduction of the free market into what was previously a state monopoly.

I think this is the one big issue which the new communication's minister is going to be spending a lot of time dealing with. Politically, it is a minefield.

Liam Byrne · 26-06-2007 3:52pm

Is that enough to block (for example) the sale of some of the company's business units or splitting the company into two?

It seems surprising that Eircom would get into an dispute over an already agreed 2% pay increase when there are bigger fish to fry. Is that enough to block (for example) the sale of some of the company's business units or splitting the company into two?

It seems surprising that Eircom would get into an dispute over an already agreed 2% pay increase when there are bigger fish to fry.

Nail, head, methinks - I think you've answered the question yourself.

Sponge Bob · 26-06-2007 4:28pm

B and B only EVER wanted wholesale...they are infrastructure investors.

They would love it if Biddy took eircom retail lock stock and barrel and if the ESOT only held shares in retail that would be even better.....especially as retail is worth about the ESOT stake in the whole.

Varkov · 12-07-2007 9:47am

Another major "work practice reform" Eircom want to implement is that workers relinquish their civil servant status. Meaning it would be alot easier for Eircom to lay off more staff.

seamus · 12-07-2007 10:16am

Dangger wrote:

Is that enough to block (for example) the sale of some of the company's business units or splitting the company into two?

In order to break the company in two, those people who own existing shares would be entitled to some form of compensation, probably in the form of shares in both companies - similar to what happened when eircell was sold to Vodafone.

Union workers aren't exactly shrewd investors or agressive speculators. If B&B wave some money under their noses, then the union's support will collapse. As it is, they're only interested in milking as much money as they can from the company. If B & B say "We'll pay you full price for your shares, *plus* you get to keep your existing shares in the new retail company", I can see most union workers wagging their tails and rolling over.

In my opinion, an eircom retail arm would be worthless as companies go - it would be overpriced, bloated and inefficient compared to its competitors. The government may have to buy/bail it out, which would give the ESOT even more money as the government pay way over the odds for the shares.

thegills · 12-07-2007 11:11am

It's going to be painful for the workers

I'm sure the twice yearly tax-free payment of approx. €8k will ease their pain.
thegills

Tom Young · 12-07-2007 10:30pm

Sponge Bob wrote:

B and B only EVER wanted wholesale...they are infrastructure investors.

They would love it if Biddy took eircom retail lock stock and barrel and if the ESOT only held shares in retail that would be even better.....especially as retail is worth about the ESOT stake in the whole.

This is correct.

The debt load is not leaving the company with much choice.

I'd have picked my battle a little better if it was me. This could be suicide for the current management.

The lads are tied in till either '09 or '12 with ESOT, so it makes for lots of employee traction.

Playing what is a quasi-statutory pay increase is really not the best idea.

The separation was mooted when B&B were moving in ages ago. The program for Government now has this in it. I'd imagine its a pre-agreed item.

In relation to Mary O'Rourke and her advisers, if you decide to sell a state asset again, please insert a few poison pills and make sure that the company and nation can't be taken to the cleaners now twice already. I'd not consider this as Fianna Fails best hour/day. I guess in comparison to another party black sheep this is possibly a minor indiscretion.

eircom should remain persona non-grata within the ranks of the civil service, who have kindly retained this line now for 7 years.

damien · 13-07-2007 12:24am

Keep in mind that eircom mobile is launching in the next while and maybe eircom mobile willbecome a complete MVNO. Exit Meteor from Babcock then?

Solair · 20-07-2007 3:48pm

Well, if eircom's split it can only really be good for competition.

Meteor and eircom retail may well be better of with a link into a bigger telecommunications operator. As it stands meteor's absolutely tiny and has no links into big roaming blocks, handset buying power etc.

You're already seeing that to some extent with Meteor's increasingly poor line up of handsets. The O2, Vodafone and 3 can possibly get a much better deal as they now purchase their handsets centrally so, can really bully the manufacturers down on price.

SkepticOne · 20-07-2007 4:02pm

Solair wrote:

Well, if eircom's split it can only really be good for competition.

I agree with this. I think the main effect (and this is why I believe the Australian owners are pushing it) is that it will get rid of the artificial margin imposed by ComReg. Currently, many of Eircom's retail products have to be a certain percentage above their wholesale price in order to enable resellers like BT Ireland to exist and prevent margin squeeze. Once this is done away with BT Ireland will be forced to compete as opposed to resell. Eircom Retail (or whatever it is going to be called) will just be another reseller like BT.

I think they are looking for 1.8 billion for the retail division. The real value is in the infrastructure, however, as copper is still the dominant last mile technology although this is gradually changing.

damien · 20-07-2007 9:39pm

A wholesale only eircom will treat all telcos equally (like dirt) and might be able to convince a useless DCMNR and ComReg to let it be NGN only in Dublin and do oldstyle in the rest of the country. Selling their Dublin exchanges could get them from 600M to 1Billion. They'll then tell the Govt if they'll help them bridge the digital divide in Ireland by co-funding an NGN roll-out to the rest of the country.

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Sponge Bob · 21-07-2007 9:54am

something like. If you look at the math

1. eircom ( called BCM Ireland Holdings) owe about €4bn now .
2. much is that is high yield ( junkish to pure junk ) bonds. These are getting harder to pay the interest on.
3. selling off retail ( ideally to Biddy who will exit BCM Ireland) would net €1bn
4. Selling off meteor ( with or without 3g licence) would allegedly net €800m
5 Debt comes down to €2.2bn and the worst bonds ( the B and BB tranches can be redeemed)

http://investorrelations.eircom.net/news/rns_369.htm

BCMIH is pleased to announce that it has finalised the terms of its debt financing package in relation to the recommended offer (the “Offer”) for eircom.

Rob Topfer Executive Director of Babcock & Brown Capital (“BCM”) said “eircom is a highly recognised name in the European credit markets and we worked with our underwriting banks to achieve a very attractive rating and debt package”

“The Senior Debt Facilities and the Floating Rate Note benefited from exceptionally strong investor demand, with the pricing on both facilities significantly below that assumed in our business plan. Assuming a 3 month EURIBOR rate of 3.19%, the weighted average cost of debt would be 6.00%. Assuming swapped rates of 3.71%, the weighted average cost of debt is 6.52%1.”

“Moodys and S&P have assigned corporate ratings of Ba3 / BB- and subordinated ratings of B2 / B.”

The debt financing is comprised of €3.65 billion of Senior Secured Facilities (including €150 million of undrawn revolving facility) and a €350 million Senior Floating Rate Note. = €4Bn

Then as damien sez they offload say €1bn of property in the 5 big cities.

That leaves debt at about 100% of turnover but the remaining debt would be against infrastructure not 'goodwill' and would have amuch higher rating than BB or Ba3 so would be much cheaper to service.

Widening spreads on an unsplit eircom will crash it .

Solair · 21-07-2007 1:30pm

The other telcos are going to have to lobby extremely hard to make sure that whatever shape the eircom NGN network takes, it will be capable of providing local loop unbundling.

Basically, they could move to a fiber-to-kerb model which would look a little more like a cable tv network than a telephone system. Eircom's network is already extremely distributed, we've more exchanges per capita than most other countries which has made LLU rather tricky as it is. Lots of these exchanges are really no bigger than an office telephone system. As we all know, new estates and far flung outer suburban spots have often been served by "RCUs" which have sometimes had no DSL equipment installed...

With an NGN network, you further distribute the system again i.e. high capacity fibre optic backbone connects access nodes (basically tiny exchanges) which are located closer to end users i.e. possibly in cabinets on the street. This has the advantage of increasing broadband capacity and speeds, reducing the complexity of the network and making it more robust, but it has a major downside if it's done the wrong way - it shuts out the competition !

The problem is that such a system would make it very difficult for other telecommunications companies to access end users directly as they would need to co-locate equipment in the kerb side boxes/local access nodes and have fibre optic access to all of them. This means, that eircom wholesale would effectively monopolise the entire network again and other companies would have to buy capacity from them!!

There are ways of maintaining a compeditive situation and it has been done elsewhere. It's important that pressure is kept on Comreg and the Department to ensure this happens and that best practice is employed.

Various possibilities exist : e.g. ensuring that all new equipment is designed to facilitate other carriers i.e. with sufficient space, power, neutral fibre, ducting etc etc.

NGN would be great, but it has to be done right!

Victor · 21-07-2007 7:05pm

Solair wrote:

The problem is that such a system would make it very difficult for other telecommunications companies to access end users directly as they would need to co-locate equipment in the kerb side boxes/local access nodes and have fibre optic access to all of them. This means, that eircom wholesale would effectively monopolise the entire network again and other companies would have to buy capacity from them!!

With the gas network, you have a similar, but different set of problems.

Bord Gais own the transmission network (between major destinations) and the distribution network (to individual small customers). The energy regulator has barred BG from going into certain towns and tendered the distribution network in those towns for an extended franchise period (20 years?). On the transmission side, it is Shell not BG who are doing the pipeline from Belmullet to Galway and I suspect they or their subcontractor will do the towns along the way. In par the problem with Bellanaboy is that Shell are doing it on a privatised basis instead of BG doing it on a public utility basis.

Similarly, ComReg could bar eircom from putting an exchange in new suburbs / developments and put them out to tender and/or force them to sell off particular exchanges.

What one has to be careful with is infrastructure competing with infrastructure and both failing, because the focus should be on service.

I don't see a problem with fibre to the street cabinet of fibre to the home.

Sponge Bob · 21-07-2007 7:10pm

My bad. eircoms debt , according to todays indo, is now €4.2bn .

Solair wrote:

With an NGN network, you further distribute the system again i.e. high capacity fibre optic backbone connects access nodes (basically tiny exchanges) which are located closer to end users i.e. possibly in cabinets on the street. This has the advantage of increasing broadband capacity and speeds, reducing the complexity of the network and making it more robust, but it has a major downside if it's done the wrong way - it shuts out the competition !

If it's done the right way - it shuts out the competition Solair, surely

Your analysis is of course absolutely correct and this is where County Development Plans are absolutely vital.

eircoms proposal is to squat on street corners (public property) and sell their existing sites. They propose to squat widely in 4 main provincial cities and in 4 Dublin local authority areas.

It is vital that those 8 county development plans are worded ( they are mostly up for review in the next 2 years) to

1. ensure LLU continues to exist in a meaningful and economic way .
2. allow full co lo in every squatted location in a standard and economic manner .
3. are configured to move the proposed NGN squats towards existing fibre assets not into the bowels of housing estates
4. will charge an economic rent on behalf of the public for these myriad squatted locations and will use those funds to advance telecommunications infrastructure in those local authority areas in general .

It is further vital that minister for environment Gormally issue a standardised directive to each local authority on how to word and plan for these NGN issues. One does not want to accidentally see a huge windfall of €1bn on property disposals heading into Biddys grasp and into Australian speculators pockets ......does one.

Solair · 21-07-2007 10:23pm

This is also where the local authorities can have a lot of leverage i.e. these cabinets have to go on public land!!

It's also 2 entirely green party controlled departments !!

Sponge Bob · 22-07-2007 1:40pm

Todays sunday independent has a list of prospective buyers who have been ' approached ' to buy eircom retail and/or meteor ( without the 3g licence I think) for E1bn and 800m respectively .

It includes BT . It even includes Swisscom .

Ha ha ha HAH hahahhahahahhahahahahahahh HA! HA!

Sorry !

Eircom service & inrastructure separation and the strike

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