Cantillon

Inside the world of business

No wonder they wonder at Eircom’s new mobile brand

EIRCOM CHIEF executive Paul Donovan was a little tetchy when asked by reporters about the cost of the telco’s new eMobile venture yesterday. Even when pressed on the matter Donovan cited commercial considerations and would only confirm it is a multimillion-euro investment. Later in the day the former State firm revealed the marketing spend for the initiative will be €2.5 million.

But was Donovan more concerned about his competitors or Eircom’s bondholders who must be wondering how the new venture is going to pay down its €3.8 billion in debts?

Eircom already has a successful mobile subsidiary – Meteor – which has cornered over 20 per cent of the market. But Donovan and co suggested the brand has been a victim of its own success having signed up “about half” of mobile users under-25. EMobile has been created to go after the “mainstream” mobile market. It is effectively a virtual operator which will piggyback on the infrastructure of Meteor, although eMobile will also have a physical retail presence.

A single telco operating two mobile brands is an unproven strategy. Eircom’s execs were unable to point to another operator in Europe who does this. Donovan quickly dismissed the idea that creating the new brand might be precursor to selling Meteor. Instead he said it was about “efficient asset utilisation” and likened it to a soft drinks factory that makes Coke one week and Fanta the next.

Donovan is not lacking in knowledge of the mobile sector, having spent 10 years in senior roles at Vodafone, including a stint as Irish boss during the halcyon days of fat profits and growing revenues in the early noughties. But the now saturated mobile market is very different and revenues per user continue to fall for every operator. Establishing a new mobile brand, even one that already has a network in place, is not going to throw off cash to service the debt mountain straight away. Is it any wonder people have speculated there may be more to the move?

Zamano moves with times

It has been a tough few years for Zamano. The mobile data services company has seen revenues slide as new platforms such as the iPhone have brought a new dimension to the mobile industry.

Founded in 2000, Zamano has tried to carve out a space for itself in the mobile markets, providing services such as premium-rate SMS and mobile video platforms. Only two years ago, it was predicting that it would breach the €50 million mark. It came close, recording revenues of more than €41 million in 2008. But yesterday, the mobile data services said its revenue had fallen again to € 8.75 million in the six months to June 30th, about a third less than the €13.3 million recorded in the first half of 2009 and back to levels recorded in 2007. With analysts expecting another €7.5 million in the second half of the year, this means its revenue for the full year will be less than sales recorded in the first six months of 2008. That was when revenue reached €23.7 million, following the effect of its acquisitions of Red Circle and Eirborne.

The company has blamed the recession and the challenging economy for the dip. Part of the problem is the changing mobile phone market that has seen Zamano’s previous business focus become gradually sidelined, a victim of the rapidly shifting tastes of consumers. Mobile phone ring tones, once big business, have fallen out of favour to a large degree. At the same time, there has also been a shift away from advertising in print and TV to advertising on mobile devices. Consumer expectations of content are changing, with demands for richer, more interactive applications available on mobile phones.

It seems, however, as its legacy business falls away, Zamano has plans to change with it. After dabbling in the app market, Zamano is is now turning its attentions to the mobile web. Its technology was used to build the Setanta goals service, due to launch next month, which will send videos of goal to subscribers’ handsets within minutes of them being scored.

By concentrating on mobile web, it is trying to skirt the platform war, committing itself to neither Android, Google nor Symbian.

However, with such a balancing act, it also risks falling between three stools.

Looking for Lady Luck

Since the sharp downturn in the State’s economic fortunes there has been occasional mention of the response the economy had in 1987 to the cutbacks then imposed.

The MacSharry cuts coincided with the beginning of the extended period of economic growth that became known as the Celtic Tiger and some, including of course many in Fianna Fáil, have sought to claim a causal link.

The logic is that the announcement of public sector cuts boosted confidence in the private sector that the tax burden would not increase, and so promoted private sector activity.

The matter was considered in a chapter of a review of the economy published by the ESRI in 1997. The authors, who included the now governor of the Central Bank, Patrick Honohan, reviewed the existing literature on the subject and concluded that external matters such as a fall in international interest rates and tax cuts in the UK combined to produce an unexpected “positive shock” to Ireland’s external environment at the time of the MacSharry cuts. Irish policymakers, the authors suggested, had been “lucky”. Here’s hoping that Lady Luck shines once again.

Today

It’s all about the banks, with the estimated full cost of the Anglo bailout to be revealed, along with news on the future funding needs of AIB.

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