The telecoms company's new chief promises greater investment, but will unbundle the local loop only if the price is right, he tells Arthur Beesley, Senior Business Correspondent

Incoming Eircom chairman Pierre Danon was burned when he made a personal investment in France Telecom some years back, so he can see why negative sentiment still surrounds the Irish telecoms group. He doesn't claim Eircom will be loved under his watch but insists his time will be marked by higher investment, more broadband and the opening of the local loop.

Danon is front man for Babcock & Brown, the Australian investment fund that leads an agreed bid for the telecoms group with the Eircom Employee Share Ownership Trust (Esot).

Formerly associated with Xerox, BT, and, briefly, Capgemini, he has made a commitment to stay with Eircom for five years. Not only that, but he will have a "significant chunk" of his own money at play in the company once the deal is done in September.

"For my family and I, missing at Eircom would be a very bad idea, personally," he says.

In Dublin this week to search for an apartment and meet key industry players, Danon says Eircom has been managed well since Sir Anthony O'Reilly's Valenita consortium took over in 2002. "This is a company that has been well run and that is not in crisis," he says.

The fund's basic business case is predicated on there being no separation of the telco's retail and infrastructure divisions, but his door will be open if the Government wishes to pursue that option.

"If the Government and regulator want to talk about that to us we will listen positively. We are not saying we want to do it. We are saying we will listen with an open mind. Let's see if we can make this thing work."

Such a discussion could take months or years, he says. While Danon has plenty to say about the importance of new consumer technologies to his plans for the company, the prospect of a price hike for basic line rental may be of more immediate concern to consumers.

He dismisses as "speculation" the suggestion that line rental might rise by 6 per cent to reflect the impact of inflation in the past two years. However, he acknowledges that inflation is a driver of cost. While the cost of the overall "basket" of telecoms products might drop, line rental is likely to go up. He does not say when, or by how much. "My understanding of the company is that price should now increase roughly in line with inflation."

Of keen concern, too, is the argument that yet another period of private equity ownership will see the telco starved of investment. Danon says that is simply not so. "In our plan we have said that we plan to invest materially more than the current trajectory of investment. The investment now is somewhere in the vicinity of €220-€230 million if I am not mistaken. We have not indicated any numbers, we have just said materially more . . . We plan to actually increase it."

Still, Eircom's debt will rise by €2 billion to €3.8 billion when Babcock & Brown takes over. Danon says that will not inhibit investment because money previously used to pay dividends will be available for interest payments. "When you shift equity to debt, you shift dividends to interest and actually you are better off," he says.

"If you compare the two flows, it's roughly equivalent. So we are not adding to the burden at all. You might in your mind say, 'Why is that?' It is because dividend yield for telecom companies to sustain their price are quite high, you know, 5-6 per cent. It's higher than interest."

For all that, Danon accepts the risk profile vis-a-vis investment is higher because dividends can be cut or cancelled if trading deteriorates. This does not hold for interest payments.

On the low rate of broadband penetration, Danon says Ireland is in a "doom loop" and adds that money alone is not the answer. He insists Eircom is not to blame but acknowledges that underinvestment in the network is problem. "The network for a number of reasons that I'm not going to comment on has been underinvested in over the last 10 years. That has nothing to do with the Valentia consortium.

"Broadband is such a community issue that it starts to work if everything works together. Where there is one wheel or one engine that doesn't work, everything has a tendency to collapse. It's a doom loop and then you get into bitterness and finger-pointing. Ireland is exactly there.

"Money is not always the only answer. I really think that the answer on broadband is co-operation . . . Eircom needs to play ball, and what I can guarantee you is that, under our watch, Eircom will play ball."

He is at one with Eircom's current owners in his criticism of State investment in the Metropolitan Area Networks (MANs) scheme and says it is simply illogical to invest in two separate networks. Pointing to state investment in the Northern Ireland backbone network as an example, he implies that the solution is to divert public funding into Eircom's system from the MANs. Eircom will need to be "open with the regulator and the industry and the government" to resolve the issue, he adds.

As for the telco's dogged defence of its network in the face of Government and competitor demands for local loop unbundling, Danon indicates that change may be on its way. So long as Eircom receives the right price for opening the last mile of its system to rivals, he says he will not have the company play defensively against unbundling. "I am profoundly convinced that unbundling the local loop, well managed, is the right solution for Ireland and I will really do my best to make it work."

Still, it does not follow that Eircom will adopt a "masochistic" stance on pricing. "There are some requests that are unreasonable for unbundling the local loop and I will not support those requests. The price of the loop needs to be at a reasonable price in order that Eircom can make money at selling the unbundled local loop and the cost is the cost."

Crucial to that is the question of facilitating the migration of clients from Eircom to its rivals. "I think we need to find a reasonable way of migrating customers from Eircom's service to an unbundler's service," he says, adding that he respects the view that it's impossible to offer a decent service if migration means interruptions to the service and a change of telephone number. "I will always err on the side of the reasonable, but be careful. Reasonable doesn't always mean masochistic.

"I have no doubt that it is good for Irish economy so I will make it work. What do you prefer, 50 per cent of a huge market or 80 per cent of a tiny market? I think 50 per cent of a huge market is better."

As for the newly acquired Meteor mobile unit, he says he would be happy if it captured 20 per cent market share with good profitability. "We are going to try. Are we going to jump at O2 and Vodafone? Let's be humble."

Danon says he is obsessive about customer service. He aims to prove so in the next five years.