Cantillon: Never say never when it comes to Eircom

"I've been investing heavily in Ireland because I believe in it," said Denis O'Brien this week, in an interview with the Financial Times. Does he believe in Eircom? Some market observers believe the telco could come back into play this year. O'Brien would be an obvious bidder.

The billionaire, who is in Davos this week with his brethern, appeared to rule out investing in Europe’s technology industry in the same FT interview, due to the “failed policy” of the continent’s regulators.

But he has run the rule over Eircom in the relatively recent past, in late 2011 before it was taken over by its lenders. It could still interest him.

O'Brien walked away from a potential Eircom bid in 2011 because the company simply needed too much work. It had too many staff, no fibre, no strategy for clawing back the ground it had lost to UPC, and seemingly no future. O'Brien had bigger fish to fry in the Caribbean with Digicel.

After its examinership and a skilful restructuring overseen first by Paul Donovan, and latterly by Herb Hribar, Eircom is now a totally different company.

It is the only quad play – landline, broadband, TV and mobile – operator in the market. It has shed thousands of staff in recent years, although at a hefty cost – the company is reputed to have shelled out up to €500 million in severance payments since the boom collapsed.

Most importantly, it has invested heavily in the fibre that will secure its long-term future. Capital markets believe in Eircom again – the evidence in in the value of its bonds, which are trading well above their face value, at up to 125 per cent.

Rather than staying with Eircom to slug it out with UPC, its banker owners may well decide this year is the time to sell it and move on.

Property sector pumps up the market
If there was one small consolation in the property crash, it was the marked absence of property indices and weekly reports talking up an already overblown market.

As the figures stopped making good reading for those in the market, the issuers quietly dropped their prominently sponsored productions.

Part of the reason, of course, was the very belated decision of the Central Statistics Office to put together an altogether more low-key residential property price index in the middle of the bust – May 2011. Fifteen months later, despite all sorts of lobbying, the Property Price Register finally opened for public review.

With the market becalmed and two authoritative sources now available, the more naive among us assumed we had seen the end of marketing dressed up as research. How foolish.

With the market finally gaining a little traction, AIB was first out of the traps this week with a new Housing Market Index bearing the imprimatur of the ESRI think tank which,before the bubble burst, had been crunching the numbers on behalf of Permanent TSB’s now forgotten House Price Index for 15 years.

Prices are going up, it told us, and people believe they will continue to rise.

A day later DNG produced its annual review. Where authoritative surveys had pointed to stability at best outside Dublin, it reports a sharp increase in “transactions”, neatly sidestepping the issue of price. Lest we fear we had missed the boat, chief executive Keith Lowe holds out the prospect of 15 per cent increases this year in Dublin.

The Society of Chartered Surveyors Ireland which, in case we forget, is now also home to the State’s estate agents, kept the industry “recovery” message going 24-hours later with results from its annual survey pointing to prices growing in all regions of the State – and up to 5.7 per cent outside Dublin.

To put all this in context, Eurostat told us that house prices in the third quarter of last year rose faster than every other state in the EU bar Estonia. Some comfort.

Fortunately, Standard & Poor's has restored some sobriety to the debate. While it sees a rise of 3.5 per cent nationally this year, it points to a weakening to 2 per cent in 2015 because of the prevailing credit climate and the ongoing problem of mortgage arrears.

Discrepancy on VAT hinders digital age
Newspaper and magazine publishers have repeatedly called on the EU powers that be to harmonise VAT rates between digital and printed publications, which would correct an anomaly that sees printed publications subject to a reduced rate, while digital editions are charged at the standard rate.

In Ireland, print publications are subject to VAT at the temporary reduced rate of 9 per cent (previously 13.5 per cent), while the standard rate of 23 per cent is applied to digital editions.

The French government, however, has now moved to back the implementation of the same VAT rate for all press products and services regardless of the platform on which they are published, which the European Newspaper Publishers’ Association (Enpa) and the European Magazine Media Association (Emma) have described as a welcome “first step” to change at EU level.

The two umbrella organisations are now calling for urgent change to align the two VAT rates, arguing that it would “encourage a pluralistic, independent and vibrant press sector” in Europe. Every little helps.

When it comes to making the transition from print to paid-for digital editions, newspaper and magazine publishers could certainly do without being hindered by the arcane vagaries of VAT law.

The pressures on the pricing of digital products remain downward for now, with publishers finding that those readers who are prepared to pay for digital subscriptions would rather not pay as much for them as they do for printed ones.

Of course, a little creativity and risk-taking when it comes to reimagining publishing business models wouldn’t go amiss. But the VAT situation, as it remains, is an invisible barrier to innovation and one that is not in keeping with the EU’s much-trumpeted Digital Agenda.