Right broadband strategy could secure bright future

Falling profit margins and increased competition have undermined the value of Eircom's fixed-line network but, with strong management and an aggressive broadband strategy, the company could have a bright future.

Eircom remains dominant in the telephony market, with more than 80 per cent of the fixed-line market and some 1.8 million customers. Its two Internet service providers have a major slice of the market.

The fixed-line network generated €848 million (£668 million) in revenue in the first half of last year and margins could be improved by introducing more efficient practices and marketing a new suite of high-tech products.

Mr Denis O'Brien's plan to aggressively roll out broadband services would enable the company to offer a wide range of Internet and multimedia services direct to consumers.

The deployment of digital subscriber line (DSL) technology would enable Eircom to provide services including video-on-demand, home shopping, home banking, high-speed Internet and perhaps television.

The fixed-line network, together with Eircom's two Internet service providers, would act as a powerful distribution channel generating revenue and acting as a customer acquisition tool.

With a decision expected soon on whether it will be able to offer television services, Eircom may be able to offer attractive bundled packages of services to customers.

The commercial introduction of these value-added technologies is expensive but Eircom may be helped by signs that some of its competitors may not offer similar services.

NTL recently announced it was delaying the introduction of an alternative digital network which would have competed directly with Eircom's own residential telephony and Internet customer base. Other major competitors including Esat, which is owned by British Telecom, are feeling the cash squeeze affecting the global telecoms sector. Six companies have decided not to proceed with DSL trials because of the costs involved and difficulties in gaining access to Eircom's local network. This leaves only Esat and Eircom likely to offer these technologies from April. Esat will remain at a disadvantage to Eircom as it will have to pay rental charges to the incumbent operator for using its network.

Eircom's competitors are pinning their hopes on a process known as local loop unbundling, which will enable other operators to access an incumbent's fixed line network. Despite being mandated by the European Commission, this process has failed to deliver so far in almost every European market where it has been tried.

So, while Eircom's network will continue to lose traffic as more people switch to mobile communications, the fixed-line business is likely to remain a solid asset capable of generating substantial revenue and enabling customer acquisition.