Eircom to seek line rental price rise

Eircom chairman Pierre Danon has signalled that the company will follow its commitment to increase capital expenditure by €300 million over three years with a price increase for line rental, its first since early 2004.

The telco promised the additional investment, which will bring its capital expenditure to some €1 billion in 2007-2009, as it published financial results for the six months to September.

The figures, the first since Australian fund Babcock & Brown bought out Eircom in August, showed half-year operating profits rising 4 per cent year-on-year to €167 million on the back of a 22 per cent rise in turnover to €977 million.

Babcock and Eircom's employee share ownership trust (Esot) control the telco. However, Mr Danon told journalists yesterday that a number of private individuals - some of them Babcock clients - held shares in an 8 per cent tranche with subsidiaries of the fund.

At the same time, chief executive Rex Comb said that two in every three of the 40,000 subscribers to Smart Telecom's defunct fixed-line service had signed up with Eircom.

Babcock will also launch a €425 million payment-in-kind (PIK) note offering. While Mr Danon said the offering will provide equity for Eirom's shareholders, rating agency Moodys put the telco on review for a downgrade. "The proposed issuance of the PIK notes signals a more aggressive financial policy than originally expected ... as it allows an early return of equity to shareholders," Moodys said.

The telco must apply to ComReg for a price rise, so the €24.18 bi-monthly rental charge is unlikely to rise before the end of the year. "It's something we're looking at. We haven't made any decision," Mr Comb said.

However, Mr Danon said the telco's rising wage bill was a big factor in its review of pricing. "You can expect that we will aim to increase line rental in line with inflation," he said. Although firm information is not yet available on the price rise under consideration, Eircom is unlikely to apply for a rise reflecting the accumulated increase in inflation in the 33 months since its last rise.

Mr Danon said the next round of capital spending will be used to enhance Eircom's IT systems, build a "fibre to the curb" broadband network in major urban areas and invest in Meteor, the mobile service that had 734,000 subscribers in September.

Eircom did not break down the expenditure, but the telco also plans to use some of the funds to build a 3G network if it gets the licence that Smart recently lost. As underbidder, Eircom expects to secure the licence.

Eircom said the "fibre to the curb" service will provide a network speed of 25 megabytes, up to 50 times faster than standard broadband services and capable of supporting services such as video-on-demand and internet protocol television (IPTV).

Mr Comb said Minister for Communications Noel Dempsey was very keen to upgrade for broadband the 550 exchanges in which such services would be "uneconomic".

Up to €100 million in public money will be required for this task and Eircom will tender for the funds, he said.