Future of Esat Business unclear as it undergoes BT rebranding

Bill Murphy, interim chief executive at Esat, must address the problem ofEsat's leaky balance sheet, but says, although job cuts are inevitable, the company has no plans to pull out of the Republic altogether, writes Jamie Smyth

ESAT Business, the most successful operating division of Esat, will be rebranded BT Ignite within the next three months. The future of Esat's consumer and small business divisions will be decided following a review of the firm, according to Mr Bill Murphy, the new interim chief executive of the Esat Group.

Mr Murphy, a US-born executive who was appointed just three weeks ago by Esat's parent British Telecom, will attempt to propel Esat to break-even within 12 months by stemming operating losses running at €42 million per quarter during 2001.

In his first interview since taking on the chief executive role at Esat, Mr Murphy sought to calm fears that Esat would pull out of the Irish market and emphasised the Republic was different from other BT operations in Europe.

"What Denis O'Brien built with Esat and Digifone here in Ireland, he did a good job," says Mr Murphy. "We'll be in the the marketplace, its the degree that we are in which is the question."

Further job cuts among Esat's 1,300 staff are inevitable but the scale of these has not yet been decided. It's important to stem the losses but also necessary to grow the business, he says.

"We've made commitments and we'll stick to these challenges," says Mr Murphy, who BT sources are promoting as a new type of leader at Esat capable of addressing its leaky balance sheet.

Mr Murphy joins Esat from E-peopleserve, a former joint venture between BT Group and Accenture, which specialises in human resources. Most observers believe he will need people skills to keep morale at the Republic's second-largest telecoms firm steady during the restructuring process.

As with other BT subsidiaries in Europe, Mr Murphy has decided to move quickly to integrate Esat's business division into BT Ignite, which will operate as a pan-European business. This will mean a rebranding of Esat's most successful operating division.

"Esat is a strong brand in its own right but so is BT Ignite. We're going to launch the BT Ignite brand into the market here. We will work on this internally in Esat in June."

This division, which serves corporates in the Irish market, and sources say is EBITDA positive already, will adapt to focus more on delivering complete business and technical solutions to clients.

"Clients increasingly want us to do more for them to lower the costs of doing business whether its in manufacturing, retail or industry. We believe we can launch in the Irish market and do what we've done in the UK."

BT is planning to ride the rising tide of outsourcing, which has created profits for firms such as EDS, IBM and Accenture. Esat will be a competitor to these firms but will also seek partnerships with them to deliver services to clients.

However, top of Mr Murphy's agenda will be deciding what do do with Esat's heavily loss-making residential business, which serves less than 100,000 people. There is less clarity on strategy and the hard decisions will be taken after a review of Esat business.

However, press speculation that BT will withdraw from the consumer and small and medium-sized enterprise (SME) business across Europe is downplayed by Mr Murphy.

"We are a serious financially viable competitor to Eircom. We are different from the rest of Europe. We have good marketability and a good network. The question is how do we leverage that, and where do we put our money and investment. . . There is a lot of brand equity in the Esat name for the SME and consumer end of the market."

But he admits there are big problems, especially in the residential market. "We have less than 100,000 customers and are under aggressive attack from Eircom on a win-back customer campaign," says Mr Murphy. "There is an issue with Carrier Pre-select \ and we feel the process needs to be completely reviewed."

CPS is a technology that enables customers to receive a telephone service from Esat but still pay line rental to Eircom. It was embraced by competitors as a method to break Eircom's monopoly of the local access network. But most residential competitors exited the market last year, claiming it was too difficult to compete with Eircom. Esat is now the only major competitor to Eircom in the residential sector.

Likewise, a different process called local loop unbundling will offer Esat entry to the market but may not justify heavy investment unless there is a shift in regulation, according to Mr Murphy.

"The Government needs to take two steps back and look at the telecoms landscape today and look at where it wants to get to," he says. "If it wants innovation, choice for the consumer and to create new jobs and inward investment, it needs a different approach."

But rather than blaming the current telecoms regulation regime for today's predicament, Mr Murphy believes financial rationalisation within the telecoms industry has prompted the need for a rethink. "Eircom almost has a clear run. [The Government needs to ask\] what will need to be changed to prevent that?"

To address Esat's loses, Mr Murphy will analyse possibilities that could be created from closer integration between Esat and BT Northern Ireland. An all-Ireland board established by BT and Esat prior to his arrival will now be moved on, he says.

This may enable Esat to cut costs by amalgamating call centres and other services with BT. This would represent a major shift for Esat, which is an aggressive competitor in the Irish market, while BT is an incumbent with a dominant market share in the North.