Eircom aims to cut mobile costs by 20%

The cost of using mobile phones will fall by up to 20 per cent over the next three to four years, according to promises made yesterday by Eircom. The firm was announcing its planned acquisition of Meteor, the smallest of the Republic's three mobile networks.

Eircom has agreed to buy the company from its US owners, Western Wireless, for €420 million. The acquisition, which is being funded with a discounted rights issue, will see Eircom returning to the mobile market for the first time since selling Eircell to Vodafone in 2001.

"It's a day for celebration," said Eircom's chairman, Sir Anthony O'Reilly, as he outlined the deal to shareholders at Eircom's annual general meeting in Dublin. He said the addition of Meteor would double the value of the telecoms market available to Eircom from €2 billion to €4 billion.

Meteor has 410,000 customers, up from 181,000 a year and a half ago. This translates into a 10 per cent share of the mobile market, with the remainder dominated by Vodafone and O2. Eircom wants to double the mobile firm's market share within three years and it is targeting the bill-pay market for most of this growth.

About 95 per cent of Meteor's existing customers pay for their calls by buying credit in advance rather than with monthly bills.

The average across the market is, however, 75 per cent prepaid, with 25 per cent of customers on billing agreements that are more lucrative for mobile companies.

The weak position of Meteor in this postpaid market is reflected in its average revenue per user (Arpu) figures, the standard measure of performance for mobile operators.

While Vodafone and O2 have monthly Arpus of about €50, Meteor's Arpu has been at about €30.

Sir Anthony said there was "a fair amount of room" for Meteor to up its game by cutting the cost of bill-pay services in particular.

He acknowledged yesterday that it would have been "a very bad day for Eircom" if the firm had not been successful in its bid to re-enter the mobile market. Fixed-line business is "going down" and Eircom needed to address that, he said. Eircom expects to complete the Meteor deal around the end of this year, provided it wins approval from the Competition Authority and from its own shareholders.

The firm's largest shareholder, the Eircom Employee Share Ownership Trust which holds a 20.9 per cent stake, has already decided to support the deal and will take up its full allocation under the rights issue.

Eircom shares closed 14 cents weaker at €1.73 yesterday as investors considered the extent of the planned issue and how it could dilute their existing stakes.

Employers' group Ibec was less concerned, focusing instead on the lower prices that the deal could deliver.

Both the Green Party and Fine Gael urged the Competition Authority to be mindful of the new advantage Eircom would have in the overall telecoms market.