Future battles for Babcock & Brown

No doubt Eircom owners are lobbying strongly behind the scenes to ensure the break-up of Eircom into a retail and wholesale division is approved.

Robert Topfer, Babcock & Brown's global head of corporate finance and an Eircom board member, was in Brussels this month outlining his view on the financial perspective of separation. He explained how the network operation could be valued at 9-11 times earnings versus the 6x multiple currently applied to telecoms incumbents.

While the other operators in the Republic don't have a problem with separation in theory, they point out in private that it will only achieve that kind of multiple if its margins are increased.

In other words, long-suffering Irish telecoms customers, already facing the highest line-rental costs in Europe, could face price rises.

Although the proposal for separation that Eircom has submitted to ComReg and the Department of Communications remains confidential, Topfer's view on separation seems to be at odds with that of EU Telecoms Commissioner Viviane Reding.

Ahead of a major reform of EU telecom rules, which the commission will announce on November 13th, Reding said she favours giving national regulators the power to impose functional separation. In contrast, Eircom is proposing a structural separation with the retail arm being disposed - preferably to another European operator.

The alternative operators are concerned not about the ownership of the two new companies but that the network company will not have any competitors and will simply sell wholesale access to other operators.

In an analysis piece this week UK industry newsletter Telecoms Markets suggested that the proposed Eircom split could create "two incumbents". It looks like Babcock & Brown will have a battle on its hands - first to convince ComReg and the department and then to get EU approval for its plan.