Meteoric rise in customers

THE FRIDAY INTERVIEW Larry Smith, Meteor:LARRY SMITH, the veteran of the mobile industry who heads up Eircom's mobile arm Meteor, may hail from Alabama, but he is far from the stereotypical US southerner.

Sitting in a Dublin hotel this week, Smith, who has 24 years' experience in the mobile industry, is basking in the glow of Meteor having just signed up its one millionth subscriber. In keeping with a brand whose major sponsorship is the annual Meteor Ireland Music Awards and whose subscriber base is skewed towards the 18-30 year-old demographic, the landmark was celebrated with a concert from Paddy Casey and indie hopefuls the Coronas in Dublin's George's Dock.

The rapid growth of Meteor is remarkable in a market where handset subsidies, a low level of electronic payments and 18-month contracts conspire to keep customer churn between operators low.

Back in 2004, Meteor had just 200,000 customers and was overshadowed by 02 and Vodafone.

Smith, who had just come on board as chief operating officer, believes that the seeds for growth were planted at that time.

The network's then owners, US-group Western Wireless, ponied up €70 million to invest in the network to allow it to support higher data speeds and improve the back-office systems.

A national roaming agreement was signed with O2 to give nationwide coverage and Meteor launched what Smith describes as "creative promotions, which allowed us take off like a record".

Although he is proud of the achievement, particularly given that Meteor competes against subsidiaries of global telecoms players Telefónica and Vodafone, the next challenge is the launch of its 3G network, which will probably take place in the first quarter of next year.

He declines to say exactly how much Meteor will invest in building and launching its 3G network, but says that it is being funded as "part of Eircom's total capital expenditure envelope".

He points out that the cost of the licence alone "is not cheap" and, when added to the cost of building out a network, the total bill will run well into the hundreds of millions of euro.

Meteor will pay ComReg €114 million for the 3G licence, which was initially awarded to Smart Telecom. In a decision later upheld by the High Court, ComReg withdrew Smart's licence in a dispute over the lodgment of a €100 million bond. The initial tranche of €44.4 million was paid by Eircom in April 2007, with the balance due in instalments over the following 15 years.

To give an indication of the scale of investment involved in building out the network and a customer base, rival network 3 Ireland has invested €500 million in the Irish market, which has attracted just over 280,000 subscribers, according to the latest ComReg statistics.

Smith plans to launch with 3G services for handsets, but also with mobile broadband, which has been a lucrative niche for his competitors.

"We would see a lot of growth in mobile broadband yet to come," says Smith. He says that he has "been on everybody's back" about managing the expectations of what mobile can deliver, but he believes the coming speed upgrades will make it even more popular.

While broadband should attract new customers, for his current users he believes user-generated content such as social networking sites and games will prove popular, but he doesn't expect to get into a bidding war with other operators for premium video content such as Premiership highlights.

"The content side of the business has been difficult for operators," he explains in his soft southern drawl. "Trying to figure out what content your segment likes is very challenging."

While it may be late to the party, Smith believes that Meteor was fortunate in that it missed out on the years that 3G was a black hole for cash.

"I think our original owners did the right thing by waiting - whether it was a good decision or an accident, they did the right thing by not taking the 3G licence at the time," he laughs.

In the meantime, there is plenty of money to be made from voice and texting. Eircom's results for the year to the end of June last show that profits at the company before interest, taxes, depreciation and amortisation (ebitda) level jumped 78 per cent to €116 million.

In contrast, ebitda at the parent's fixed-line business was down 1.35 per cent to €582 million. Meteor's average monthly spend by customers was €40.20, an increase of 4 per cent and getting close to the €41.70 Vodafone reported in July and the €43.20 that O2 achieved in the same quarter.

The difference is that Meteor's average revenue per user is growing, while it is falling at its rivals. In a mature market with 115 per cent population penetration of mobiles, Smith and his team have clearly been wooing customers from the big boys.

"If you do the math, obviously a lot of our customers come from the others," says Smith. "At just under 20 per cent, we feel as if we have some more share of the market to garner because we feel we offer a very good service."

Smith maintains that speculation about Meteor's ownership and the actual changes in ownership that have taken place in its relatively short history have not distracted his staff from their task.

Meteor was originally owned by a consortium led by Western Wireless. In January 2005, Western Wireless was acquired by Alltel, which didn't waste much time off-loading Meteor to Eircom later that year.

Babcock Brown's acquisition of Eircom in 2006 meant that Meteor has had four owners since its launch in 2001. The speculation about a sale, which led Eircom boss Rex Comb to issue a denial last May, has resurfaced this week with the ongoing travails of Babcock Brown.

Smith doesn't comment, but says that his team of 875 staff are focused on the task at hand.

"We have a very well put-together business plan that's detailed by department and by business area," says Smith. "This is going to be a challenging year to meet our targets, so everyone just stays focused on that on a day to day basis."

He says that ownership has not come up in meetings with staff, nor are they obsessing about it. "The guys in Meteor in Citywest see themselves as Meteor," says Smith. "They know they are part of the Eircom group, but we are treated as a separate company. I think that insulates us from a lot of the other news."

While Meteor has been performing well, in the week that Merrill Lynch and Lehman Brothers ceased to exist as independent companies it would be naive to think that wider economic issues will not impact on performance.

"You would have to have your eyes closed not to be aware of what's going on," admits Smith. "So far we have been insulated - there has been no impact on Irish sales so far, but I am not sure that's going to hold."

With the clock ticking on Eircom's investment in 3G, Smith could be nervously watching news about the wider economy in the coming months.