No-frills telecom player has big plans for State

Managing director of Tele2 Ireland talks to Barry O'Halloran about its entry into the Republic

The odds are that, up to this week at least, few people in the State will have heard of Swedish telecom company Tele2.

It's the latest player to dip its toe in the not-fully deregulated waters of the Irish telecoms market. It launched this week and immediately set itself the task of winning the broadest possible brand recognition.

And while it's coy about numbers, it is likely to spend more than €1 million on a marketing campaign that Tele2 Ireland managing director, Mr Mark O'Toole, seems confident will have the name tripping easily off most of the Irish public's lips within a comparatively short period.

Tele2 has a big profile in most of the rest of Europe. Stretching from an area that encompasses part of Russia, through Scandinavia, France, the UK and Spain, it has just fewer than 25 million subscribers to its services, namely fixed-line, internet, mobile and cable television.

According to Mr O'Toole, Tele2 will initially be keeping it simple in the Republic, offering only fixed-line services to domestic and business users.

"We are going to operate a very, very simple, very clear product, very easy to understand, no catches, just cheaper calls.

"But we are not looking at cheap and cheerful, pile 'em high, sell 'em fast. We have all the backend infrastructure that you would expect from a company that has 24.9 million subscribers. You don't get there and keep those by having second-rate customer service," he says.

One of Mr O'Toole's colleagues compares Tele2's business model to Ryanair, in that it is a low-cost, no-frills provider. According to Mr O'Toole, it will employ just six people to get the operation up and running over the next three months.

They won't be operating out of an expensive office block, and he won't be driving a company Mercedes. Its existing European infrastructure will be used to support the Irish operation, providing customer support, billing and other ancillary services.

Tele2 is not saying precisely how much it is going to invest in the State but it's clear that it will not be a lot. On the basis that it will be establishing an operation that is cut to the bone, it looks like the marketing spend will be the biggest part of its investment.

Mr O'Toole argues that the fact that it is not spending massive amounts of money here is not an indication of any lack of commitment to the market. He points out that it is here for the long haul. The company has a target of breaking even in three years and is hoping to achieve a market share of more than 10 per cent.

It does have deep pockets, according to its results. At the end of the first half of 2004, it had net cash of almost 3.2 billion Swedish kroner (€350 million). The results show that, not surprisingly given the nature of its business, it generates large amounts of cash and had pre-tax earnings of just over €150 million in the first six months of the year - slightly ahead of its full-year figure for 2003. Also, it is not servicing large amounts of debt.

Tele2 attributes its healthy cash position to its culture, which is not a million air miles away from Ryanair. It prides itself on making savings wherever possible. Like the airline's vociferous boss, Mr Michael O'Leary, Tele2's president and chief executive, Mr Lars-Johan Jarnheimer, favours casual clothes, to the point where he once forced a number of bankers to turn up at a company presentation in jeans.

Changing bankers' dress habits is one thing but convincing people to change their telecoms company is another. Tele2 bases its approach on keeping it straightforward.

Potential clients just need to own a phone, ring Tele2 and complete some basic paperwork. After that, Mr O'Toole claims it will be offering discounts as big as 77 per cent on some Eircom rates, and competing directly with other operators.

"We'll use carrier pre-select, which means using the cheapest carrier available. What we'll bring to the table is that we have relationships with every carrier available in Europe," according to Mr O'Toole.

But while there is a choice of wholesale carriers abroad, Tele2 is coming into a market where Eircom owns virtually all the infrastructure, even though there are 30-40 big and small operators.

Mr O'Toole points out that Eircom's control of the infrastructure is "just the way it is, that's the regulatory environment".

But it means that, when it comes to local and national calls, Tele2 is effectively limited to Eircom, which is also it's biggest competitor.

It's no worse off than any other operator in its position, but it is pitching itself as one of the cheapest, so how is it going to manage this? "We will leverage on our volumes and our arbitrage," he says, adding that the company will monitor whatever else is available out there.

At the same time, the Irish market has been far slower to open up the local loop, which connects customers' phones to their local exchanges, than many other markets.

Fewer than 2,000 lines, or 0.075 per cent, have been "unbundled", that is, are being used by Eircom's rivals to offer competing service. By contrast, in Sweden, Tele2's home market, the percentage is 11.7 per cent, and the Netherlands, where it is a significant player, the rate is 24.5 per cent, the best in the EU.

The regulator, ComReg, this week announced a new initiative aimed at redressing this, but neither that nor the snail's pace rate of change in the Republic seem to be exercising Mr O'Toole's mind too much. In fact, he is much more excited by the advent of wholesale line rental.

This will allow the companies selling the call minutes to consumers to rent lines at wholesale rates from Eircom, and cut out the need for customers to pay separate bills for calls and line rental.

"In the next six months to a year, it will be the standard product," he says. "It reduces confusion and enables us to build a full relationship with the customer, it enables us to 'front end' other products and services if we want to. It also means that there is a single bill, it sounds simple, but that's what customers want."

Single billing is close to being the standard here, although Tele2 will not be offering it immediately.

It has one other advantage, which is that if someone switches from Eircom, the relationship is over. At the moment, the fact that Eircom is still renting lines to customers gives it extra scope to win them back. The company pursues its former customers aggressively, and has become adept at "win back". The company has managed to hold on to an 80 per cent market share.

Some of the alternative players have raised this with ComReg. However, the reality is that Eircom's policy of pursuing people is a feature of competition.

Nonetheless, Mr O'Toole says that ComReg's recently-appointed chairman, Mr John Doherty, has a strong commercial sense, and he believes that the commission is generally more supportive of competition in the Irish market than before.

Factfile

Name: Mark O'Toole.

Position: Managing director, Tele2 Ireland.

Background: He has worked in the telecommunications industry for 15 years, beginning his career with Telecom Éireann (now Eircom), where he worked in various levels of management before moving to Nevada Telecom, where he ran its carriers and wholesale division and managed switches in Dublin, Belfast, and London. He then joined Smart Telecom at the start-up stage, where he says he was involved in everything from installing switches to working at the regulatory side. He went from there to new entrant Tele2 Ireland, via its calling card subsidiary 3C, which has a facility in Carrickmacross, Co Monaghan.

Family: He is married to Catherine and has one five-year-old daughter, Josephine.

Interests: One of the few Irish business people who does not play golf, he plays guitar and piano and is involved in community radio in Tallaght. He also fishes regularly on Blessington Lake in Co Wicklow.

Why is he in the news? Tele2, a European telecom with 25 million customers, launched a fixed-line service in the Republic this week.