Mobiles and price caps hit revenues

Eircom's poor financial performance in the year to the end of March 2002 shows it is being hurt by the success of the Republic's mobile firms and a strict price cap on its services which has been imposed by the regulator.

But it also reflects a turbulent year for the telecoms group when management spent more time closing business units and trying to sell the company than focusing on developing innovative revenue streams and winning customers.

The huge loss was undoubtedly boosted by exceptional items caused by the write-down in the value of Eircom's local network but it also highlights a weak operating performance without Eircell.

The €12 million drop in revenues at its retail division and the poor performance of its payphone business - which turned a €6.5 million loss - show fixed-line firms are losing customers who are increasingly using their mobiles for calls.

Eircom has been relatively slow to tackle head on the challenge posed by mobile firms, and only declared full scale war on mobiles in July when it launched a fixed line handset with mobile features.

Eircom's one-year delay in launching its new high speed internet service iStream due to a regulatory dispute also hit the group's revenues. Other fixed line operators, such as British Telecom, are looking to these new services to boost flagging revenues, and Eircom will hope iStream, which finally launched in May, will help it boost revenues.

Eircom chief executive, Mr Philip Nolan, can shoulder little of the blame for the financial performance outlined in the new figures, as he was at the helm for just three months during the period. But Mr Nolan is sure to use the financial loss to lobby the telecoms regulator to remove the current price cap on Eircom.

The price cap, which is currently being reviewed by the regulator forces Eircom, which is a dominant operator, to reduce the price of many of its services by a formula set at the consumer price index minus 8 per cent. Mr Nolan has already stated publicly that he wants all caps on Eircom's retail prices removed in January, however the regulator has so far resisted this action, arguing that consumers would be affected.

In light of Eircom's performance over the past year, the company's new owners, the Valentia consortium, will be hoping Mr Nolan wins this battle.