Pressure on margins as Esat expands

Telecommunications provider Esat Telecom has suffered a fall in its operating margins in the three months to the end of last September, compared to the same quarter in 1996, with sales falling from £2.8 million to £2.7 million even though billable minutes rose 61 per cent to almost 27 million minutes and customers rose from less than 2,000 to more than 3,000.

Losses for the third quarter rose from £3.4 million to £10.8 million, while in the nine months to the end of September, losses increased from £8.1 million to just over £31 million.

In his review of operations, chairman, Mr Denis O'Brien says the average revenue per billable minute fell from 17.7p in 1996 to 10.3p this year.

This was due to competition from Telecom Eireann which brought in price reductions in the period and a higher proportion of lower-priced and lower-margin international long distance traffic.

Operating expenses in the quarter rose from £2.2 million to £2.9 million, mainly due to higher staff costs. For the nine months, operating expenses rose from £4.9 million to £7.7 million.

Interest expenses during the quarter totalled £2.4 million compared £141,000 in third quarter of 1996 while Esat also suffered an exchange loss of £2.1 million on its dollar-denominated senior notes.

Esat, however, is in sound financial shape with cash of more than £51 million its balance sheet following last month's fund-raising and flotation on the Nasdaq market.

The losses in the third quarter include £3 million from Esat's 45 per cent shareholding in the Esat Digifone mobile phone company compared to a £1.6 million loss at Esat Digifone in the third quarter of 1996 when Esat's stake in Digifone was 40 per cent.

Esat Digifone's losses for the nine months were almost £12 million with Esat Telecom's share of the losses being £4.1 million.

With the ongoing construction of its mobile phone network, Esat Digifone's expenses rose in the quarter from £3.7 million in 1996 to £13.9 million.

Subscribers to the second mobile phone service totalled 80,000 at the end of October compared to 65,000 at the end of September, giving Esat Digifone well over one-third of the GSM mobile phone market.

Esat Telecom's share of Esat Digifone's capital investment in the network totals £33.7 million. Of this, £18 million was paid as of the end of June and a further £3.6 million contribution was paid over in August. The remaining £12.15 million will be paid to Esat Digifone this year and next.

Esat Telecom has also announced the appointment of a new chief operations officer who succeeds Mr Leslie Buckley, who has been acting chief operations officer.

Mr Sean Corkery joins Esat Telecom from AST Computer where he was vice-president, worldwide. Mr Corkery is a native of Cork.