Customers looking for new improved Eircom

Business Opinion/Jamie Smyth: Ms Joanne McGinty doesn't care much for dabbling on the stock market. But the young mother living in Doohoma, Co Mayo, has probably spent more time talking to Eircom than most Irish fund managers in recent months.

Along with several people living in her community, Joanne has been waiting for an Eircom phone line for more than five months. She needs it for her telesales and to contact her fiancé, who is joining the UN peacekeeping mission in Liberia. So if Joanne's unfortunate situation is not a priority for Eircom, what is on the firm's "to do" list these days?

Readers of these pages over the past five years cannot fail to have observed Eircom's penchant for corporate finance. Since privatisation in 1999 hardly a month has gone by without some sort of deal going through or a crisis emerging.

Under Mr Alfie Kane's tenure the telecoms firm invested in a range of new economy firms and the latest broadband technology. But when the bubble burst Eircom's management pulled the plug on these ventures and, in a spectacular display of defeatism, sold the firm, lock, stock and barrel, to a group of venture capitalists at the bottom of the market.

In hindsight it was surely a big mistake. But of course, life at the top of the corporate world is not without its perks, and Mr Kane bagged a payoff from Eircom worth €3.8 million.

Eircom's new managers at Valentia have had more success. But the pressure to prepare the company to float again has led them to spend two-and-a-half years tinkering with the firm's finances, rather than addressing customers' requirements.

A $2 billion debt restructuring last year enabled Valentia's venture capital and ESOT owners to extract more than €400 million from Eircom's coffers. And last week's IPO provided the opportunity for Sir Anthony O'Reilly and private equity groups, Providence and Soros, to almost double their initial investment in the firm.

Eircom's corporate advisers have had a field day. What makes all this wealth creation even more staggering is that it has taken place at a time when Eircom's corporate credit rating languishes at junk bond status because of its huge debts - and its network badly requires investment. The 400,000 former Eircom shareholders who were forced to sell their shares to Valentia can only look on ruefully.

Supplying telephone lines to rural locations is an expensive business and one that the new streamlined Eircom can do without. Last year it told ComReg, the Commission for Communications Regulation, that it wanted to abandon its obligation to provide telephones to all homes and businesses in the State. The universal service obligation costs it about €40 million per year and Eircom wanted to make consumers living in certain rural areas pay some of the costs of being connected.

After several months of lobbying Eircom failed to get its universal service obligation removed. But new regulations introduced in July 2003 do not specify a time frame for delivering a phone line, which is just the kind of "wriggle room" that Eircom can exploit.

Indeed the firm has become an expert in the dark arts of regulation. Successive legal challenges to the regulator's decisions have paralysed competition. And even without resorting to the courts the firm regularly manages to frustrate new processes. For example no rival firms can provide line rental yet, despite a regulatory decision to introduce it in 2002. A new deadline for the product set by the regulator for April 1st 2004 still looks optimistic.

And consumers are paying the price. Three hikes in line rental charges in just 12 months have hit those least able to pay. And a vulnerable user scheme, which the regulator forced Eircom to offer, has been advertised poorly, leading to abysmal take-up.

Few can escape blame for what has happened over the past five years. The Government's decision to sell the firm without retaining a golden share or splitting the wholesale and retail arms of Eircom was a bad one. The decision of the former Eircom board to sell out at the bottom of the market was the wrong option.

The weak regulatory regime must also share some of the burden of blame. Maximum fines of €3,000 do little to scare a billion euro firm and the regulator's failure to ensure that deadlines for the introduction of new products are met have hit consumers.

After months of delay and representations to local politicians, Ms Joanne McGinty has finally been told she will get her Eircom phone in a matter of weeks. But how many other people are still waiting? These are the questions that Eircom's new owners will have to consider.

After all business is ultimately meant to be about serving customers. Isn't it?