The smart money is unlikely to bet on this phone firm

Analysis: Eircom's decision to cut off Smart Telecom's connection to its network last night has been looming since May of last year when the incumbent teleco first issued a termination notice against its upstart rival.

The Smart network was cut off at 5pm, leaving 40,000 subscribers and their families with a very limited phone service. Smart issued no warning to customers before last night, even though Eircom had extended its latest termination notice three times in the course of the past month.

Earlier termination notices did not end up at this point but Eircom's new owners Babcock & Brown appear to have adopted a stronger line with Smart than its previous owners.

While relations between the two companies are not good, some in Smart are said to have been surprised at the development.

As Smart's board met late last night to discuss their predicament, there was no firm indication as to the path they might pursue.

Already in the grip of a cash crisis that is burning away up to €3 million per month, the move to cut off its connection to the Eircom network means the company's future looks more uncertain than ever.

"We regret any inconvenience to customers and we are currently working to rectify the situation and come up with a solution," said a spokesman. He declined to comment further.

But with Smart kept afloat only by the grace of businessman Brendan Murtagh, its biggest shareholder, the immediate options are limited.

Difficult as it is to see how the termination does not bring Smart a step closer to a final desmise, the company is understood to be assessing whether it can raise yet more finance to Eircom's satisfaction or seek some form of court protection.

With the cut-off dealing a severe blow to Smart's credibility with customers, liquidation is a distinct possibility.

Eircom has promised to maintain incoming calls and 999 services for a period of only one week, so time is short. To say the very least, refinancing Smart would be difficult.

For sure, the company has in the relatively recent past secured backing from business figures as prominent and wealthy as former AIB chairman Lochlann Quinn and insurance magnate Seán Quinn.

But with the bulk of its customers cut off from a full service, investing more in Smart now ranks among the riskiest propositions there are.

Hundreds of staff have lost their jobs in recent weeks as Smart struggled to contain costs and effect a turnaround. As the cash crisis deepened early last month, founding chief executive Oisín Fanning resigned on health grounds. Smart when been burning up €2.5 to €3 million per month when NCB Corporate Finance was hired three weeks ago to review its options for raising capital. Those options have now narrowed considerably.

The company's great hope was the awaited judgment in its High Court action against ComReg over the loss of its 3G licence. A favourable outcome might have thrown it a lifeline but Eircom's intervention last night makes an already difficult situation worse.

Eircom took the ultimate step over an outstanding debt of €4 million, more than €1.5 million of which is in arrears. Well known as a tough defender of its patch, the incumbent has played it strongest hand against a weakened rival.

ComReg, which has no formal role in debt disputes, said only that it that it will provide information available to customers so that they can make alternative arrangements.

"Provision will be made for people not to be left without services for a period," it said.