BT's McLaughlin targets Eircom's broadband grip

New chief executive aims to increase BT Ireland's market share and challenge Eircom's dominance through new services and further investment, writes Barry O'Halloran.

During the first week of his career with BT in Glasgow, a live rat hit Danny McLaughlin in the chest. It occurred during part of his initiation as a 17-year-old apprentice engineer that involved his colleagues depositing him in a manhole.

It doesn't sound like an auspicious beginning but given that 34 years later he has just taken over as chief executive of BT's businesses in Ireland, Scotland and Wales, it might actually have been a good omen. Back when his job involved regular trips down manholes, BT was (like Eircom's ancestor, Telecom Éireann) a telecommunications monolith that belonged to the British state. It was also a one-trick pony.

It provided lines with telephones on which its customers made and received calls and, he says, "not everybody even had a phone back then".

It was a far cry from the industry that is now firmly in the middle of most technological change, or at least most of the changes that have a lasting impact on people's lives.

Change has been slow to come in the Republic's telecoms industry. The availability of broadband, the high-speed internet technology that is the next stage of the telecoms revolution, is well behind that of the countries with which we compete for investment.

Broadband is available to 10 per cent of the Republic's telecom customers. Britain has up to 30 per cent availability, and McLaughlin points out that customer numbers there are reaching the critical mass needed for businesses to begin investing in a whole range of extra services to consumers and business.

It's at that point that the service begins to accelerate, as demand begins to grow throughout the market. We are a long way off that point, but there is disagreement in the industry about the reasons for this.

"Late start," McLaughlin says. "We're all agreed about that, but then we tend to disagree with each other." The "we" to which he's referring is the telecoms industry and the main flashpoint within the sector is between the dominant fixed-line player, Eircom, and all the rest, led by BT Ireland, which is the second biggest operator in the market.

The chief bugbear is the rate at which Eircom is opening up the links between its exchanges and customers' phones and PCs. Its competitors argue that this connection, known as the local loop, is vital to promoting competition and increasing broadband availability. While BT Ireland has about 2,000 customers on local loop lines that have been opened up, most are supplied through lines leased from Eircom.

Neither the industry, nor its regulator, ComReg, are happy with Eircom's proposals for progressing this. Eircom says it is doing everything possible.

McLaughlin argues that it requires a mindset change. "We [ BT Ireland] came to see the future of the company as being a broadband company and we only started to accelerate penetration when that point was reached," he says. "I don't think Eircom are there yet.

"You have to put the money behind it and you have to take the risks with your traditional business because if you have 100 per cent of something today, and the best that you're going to end up with is 50 per cent of something else tomorrow, that introduces a measure of risk. You have to have the confidence that you can still have a decent business, albeit a different business after you make this change."

He points out that companies like BT Ireland and Eircom started out as "narrow band" businesses, but will have to adapt to the new technology to survive.

He agrees that Eircom has done a good job of protecting its existing business, and acknowledges that it was a good short-term strategy. "But they've missed an opportunity," he says.

McLaughlin argues that, as a player whose position in the market was particularly difficult to challenge, Eircom had every chance to steal a march on its rivals and invest in getting broadband in place around the State while competitors were still finding their feet. That would have given Eircom a foundation from which it could meet the changes that are inevitable (despite its efforts to resist them) and preserve its position at the top of the tree. "As it is, they're only going to end up with about 40 per cent of the market, if people still like them enough," McLaughlin says.

He believes that the change is inevitable, largely because the Minister for Communications, Noel Dempsey, recently made it clear that, if necessary, he would introduce legislation to force Eircom to open up its network.

You could accuse McLaughlin of swopping poaching for gamekeeping. In the UK, BT is in an equivalent situation to Eircom in that it's the incumbent holding off the challenges of the various newcomers. Here, BT Ireland is one of the challengers.

So does it do one thing in Britain and change its tune when it comes over here? McLaughlin concedes that, in the past, BT in the UK took stances very like those taken by Eircom, but it has changed its tune, and now works with the regulator.

He clearly relishes the fact that he is in charge of a company that is the challenger.

"That's one of the things I like about working here," he says. "Here, we're the challenger and they [ Eircom] are the incumbent."

The company is doing a good job of challenging. At this stage, it has 40 per cent of the corporate market, with clients that include Bank of Ireland. It also built a third-generation mobile network in the State for Hutchison Whampoa, which operates under its 3 brand name here.

Another client on its list is the State itself, for which it operates the schools broadband network. This brought it into contact with Cara Group, one of the oldest providers of technology products and services in the State.

BT Ireland bought it for €15 million and McLaughlin says it is going to chase other acquisitions. "We are always on the look out for opportunities on the acquisition front if they are at the right scale and the right fit," he says.

"I have access to whatever investment capital I need. Our ambition is to grow much more quickly than the market, thereby increasing our share."

BT Ireland has one advantage in this - the fact that does business on the island of Ireland. This gives it an edge in terms of scale and efficiencies. For example, its corporate clients here tend to have a presence on both sides of the Border, but they only have to deal with one help desk.

Ireland is BT's biggest business outside Britain, and now turns over €1 billion for the company. McLaughlin says the added scale and the combined infrastructure will be an advantage when BT brings its 21C broadband-based services to this market. This will include a facility to make phone calls over the internet and broadband television.

This will require a group-wide investment of €13 billion. In Ireland, the company intends spending €100 million to bring it to this market. That investment has been earmarked on the assumption that the local loop issue is sorted out, something McLaughlin believes will happen.

"It is inevitable, it could take 18 months or two years, but it's going to happen," he says.

Factfile

Name: Danny McLaughlin

Position: Chief executive, BT Ireland, Northern Ireland, Scotland and Wales.

Background: Began his career as an apprentice engineer with the company at the age of 17. Through a combination of work and study, he earned several promotions and ended up with responsibility for the engineering field force. In the 1980s he switched to sales and spent a few years in Europe, building up the parent group's subsidiaries. In the 1990s he took over BT's energy business unit.

Since then he has run various units within the company. He has only recently taken up his new position.

Family: Married to Mary with two daughters, Nicola and Beth.

Hobbies and interests: Skiing and building cars.

Why he is in the news: He has recently taken over as chief executive of BT's business here. The company has just bought technology company Cara Group and plans to grow its Irish business aggressively.