Eircom to take €35m hit on cut in phone subsidy

Eircom has taken a €35 million hit as a result of the budget measure to reduce the value of the phone allowance for elderly people in the household benefits package.

The Department of Social Protection is to cut the subsidy, which forms part of a household benefits package it gives to all people over 70, to people between 65 and 69 who satisfy a means test, and to certain people with special needs.

The reduction in the subsidy, to €9.50 per month from €22.60 per month, will result in the cost of the measure falling to €61 million next year, from €108.4 million this year.

Eircom’s income from the measure will drop by €35 million to €25 million.

Eircom gives a credit to customers which is slightly larger than the amount it receives from the State. It is understood the company is in contact with the department to discuss the budget announcement.

Non-Eircom customers get the subsidy by way of a monthly payment.

Elderly customers

Eircom chief executive Herb Hribar said yesterday it was looking at how the cutback in subsidies would affect its elderly customers.

He said it was too early to say how the reduction of the subsidy would hit those affected. He said the announcement was “very much not expected”.

“It’s too early to give you a definitive steer. It’s going to impact on our earnings and we have got to find ways to mitigate it. It does force us to have a look at our investment programme.”

The company yesterday announced that revenue for the first quarter of its financial year, to the end of September 2012, declined to €363 million, a fall of €26 million, or 7 per cent, on the same quarter in 2011. Despite a 4 per cent reduction in operating costs for the period, earnings before interest, taxes, depreciation and amortisation decreased by €14 million, or 10 per cent, on the previous year to €124 million.

Eircom chief financial officer Richard Moat said costs were not coming down fast enough and the current situation was not sustainable.

However, he said Eircom was performing ahead of the plan put together at the time of its examinership and its plan was not dependent on Irish economic growth.

Mr Hribar said planned investments and initiatives would help the company retain and win back customers.