The 2001 sale of Eircom’s mobile division was a contributing factor in the telecoms incumbent’s downfall, a new report has said.
According to Moody's, the lack of a strong mobile subsidiary weakened the groups' competitive position, making it one of the few incumbents that did not have a mobile business.
The group sold Eircell to Vodafone – now Ireland's top mobile phone network - for €3.9 billion a little over a decade ago.
Eircom subsequently bought Meteor in 2005 for €419 million, and established the eMobile brand in 2010. The mobile business now accounts for about 25 per cent of the group's revenues, but a combination of the reduction in mobile termination rates and increased competition has led to a weaker operating performance in the mobile business compared to its fixed line counterpart.
The report highlights a number of other factors contributing to Eircom's eventual default, including the frequent changes in ownership that led to a lack of consistent strategy for the business and cutbacks in investment at a time when upgrading networks to fibre is necessary to compete with cable rivals. Moody's warned that such cutbacks in operating and capital expenditure could not be sustained over a long period of time as they weaken long-term business prospects.
The deep economic crisis in Ireland has also led to difficulties for the firm, but unlike the banks, telecommunications firms are not seen as having the same systemic importance as banks and as such are less likely to be rescued by governments.
"Telcos are important, but a default of one telco does not necessarily have broader implications for other companies or sectors," Moody's said.
Eircom's default is the first involving a telecoms incumbent in Europe, and is the largest corporate insolvency in Irish history, with net debts of €3.8 billion, according to Moody's.
