Ringing change at Eircom

THE FRIDAY INTERVIEW/Paul Donovan Eircom chief executive:LOOKING ACROSS the Phoenix Park from a room on the seventh floor of Eircom's impressive glazed head office beside Heuston station, Englishman Paul Donovan remarks on the many "hidden gems" in Dublin.

“I went to the Botanic Gardens last week with my daughter and it’s fantastic,” he says enthusiastically. Donovan has been getting reacquainted with Dublin and Ireland since taking over as Eircom chief executive 15 months ago.

He had previously spent three years here – 2001 to 2004 – running Vodafone. Ironically, he started in that job two weeks after the company had acquired the Eircell mobile phone company from Eircom and was responsible for its rebranding.

On Wednesday, Donovan launched eMobile, a new mobile brand that will operate alongside Meteor in the Eircom family. “So here I am trying to turn Ireland purple [eMobile’s striking corporate colour] having already turned it red [with Vodafone],” he says with a grin.

Donovan’s career would undoubtedly have taken a different path if Eircom hadn’t sold Eircell to Vodafone. Similarly, Eircom would probably be a healthier business if it had held on to Ireland’s biggest mobile operator.

“In retrospect the company [Eircom] would have been much stronger with a fully-fledged mobile offering over the last 10 years or so but . . . I can’t deal with decisions that happened in the past. I can only deal with today.”

Donovan is coy about his targets for eMobile. “Those are not a matter for external consumption frankly,” he says. “I prefer to be judged by results.”

The plan is for eMobile to attract an older customer base than that targeted by Meteor. It will also be bundled with Eircom’s fixed-line and broadband services to try to stem the bleed to rival operators like UPC and Vodafone. “We have a wonderful mobile phone brand [in Meteor] and we’ll have another now.”

Mobile is already a congested space. Just Mobile will launch soon as a virtual operator, selling through Spar retail outlets. Can they all survive?

“The world is littered with underfunded MVNOs [mobile virtual network operators] which have come and gone,” Donovan says.

EMobile, along with a next generation fibre network, is part of a growth strategy that Donovan is trying to formulate to counterbalance a decline in its traditional fixed-line business.

Eircom is losing 1,300 customers a week and revenues declined in the first half of its financial year by 8 per cent. It has been hammered by the recession. Only cost-cutting allowed the company to hold its Ebitda steady and avoid breaching covenants on its hefty €3.8 billion debt pile – a legacy of fancy financial engineering by previous owners.

Donovan made it clear recently that the company could breach its covenants in the next year to 18 months if Eircom wasn’t overhauled. He wants to lop €90 million off its staff costs by mid-2013.

“We are a company that, in many respects, is eight to 10 years out of date and many of the things that I have to do now, in most European telcos have already been done. That is simply a fact.

“If the company is to survive, and to ultimately thrive, there needs to be fundamental change in almost everything we do.

“I certainly wouldn’t want to try to do that in a unilateral way. It needs to be through consultation and through dialogue and it needs to be done with sensitivity.

“We do not yet have absolute clarity on how we will deliver our €90 million cost reduction. It will be a number of weeks before we do have clarity on that.”

More than 1,500 staff agreed to leave Eircom by July of this year and reports suggest that the same again, or even a higher number, will have to leave as part of Donovan’s new plan for the business.

“I know I sound sometimes like a broken record . . . but in this particular case, there is no specific headcount target and so I can’t give you one,” he says. “I don’t really mind how I get to my €90 million reduction. The key thing is that I have a path to deliver a certain cost base.”

Donovan believes much has already been achieved at Eircom. The pension deficit has been tackled through an agreed solution with its unions. A high-speed fibre broadband trial is slated for early next year and Donovan has signalled his intent to foster better relations with Comreg.

Its Australian shareholders were replaced by Singapore-based STT, which, we are told, is prepared to take a long-term view. Little is known though about STT’s intentions for the business. Can Donovan shed any light on this? “It would be inappropriate for me to speak on behalf of one of my shareholders, so no.”

Donovan has also shaken up senior management at Eircom, with a number of high-profile departures, including Cathal Magee, who now heads the Health Service Executive.

“It was quite clear to me that there were quite a few people who had a long time to figure out a future game plan who hadn’t taken the opportunity to do so,” Donovan says matter of factly. “I now have a team that is focused on a shared vision of what the company actually needs to be.”

A key issue for Donovan is tackling Eircom’s massive debt. “This is not a need-to-fix-tomorrow kind of issue. We have €400 million cash in the bank so we have plenty of cash. We also have a track record of repaying debt – more than €500 million over the last three years.”

Advisers have been appointed and Donovan says a solution to the debt issue is being worked on and will be revealed in due course. Was he shocked at the level of debt held by Eircom?

“We have gone from a situation over a 10- year period where a company that was entirely debt-free had a period where there was roughly €2 billion of debt and, actually, €2 billion would be a level that would be sustainable and allow for a degree of flexibility. But it went in leaps and bounds to almost €4 billion.

“Now we have to build value, not release value, that’s the name of the game. Leverage is no longer an option.”

Donovan’s decision to return to Ireland surprised many observers, not least because the country was gripped by recession.

He left Vodafone at the end of 2008 after 10 years, latterly as head of its assets outside western Europe. “I was travelling for around 200 days a year and I just decided that I didn’t want to do that any more.”

Donovan says he wanted a “challenging” CEO role with a standalone entity. “Eircom nicely met all of those criteria.”

He currently commutes between Dublin and his family home in Oxford, which involves a 4.15am start most Mondays to catch the first flight from London. “I’m very happy to be here. It’s a hugely challenging, hugely enjoyable job and I believe I’m making a difference, which as a CEO is all you can ask for.”

Donovan’s career spans 30 years and four continents. It includes spells with Mars, Coca Cola Schweppes, British Telecom and Apple.

Outside the office Donovan is an interesting chap. He loves football and is a keen Arsenal fan. This allegiance didn’t stop him putting the Vodafone name on Manchester United’s shirts some years back when he was commercial director in the UK.

“That was quite something for a Gooner to do; it was all business and no pleasure.”

He is also a keen gardener and plans to take up beekeeping next year in Oxford. “They’re fascinating creatures,” he says, “probably the most vital creatures on the planet and in danger from the environment as it currently stands. They’ll certainly add something to the garden.”

What will he do with the honey?

“I plan to give away all my honey to grateful friends and family if the bees are kind enough to produce any.”

On the record

Age: 52

Family: Married to Anne. Has a son and daughter.

Homes: Oxford and Dublin 2

Hobbies: "Avid" reader and "keen" tennis player. "I enjoy rugby but football is my passion."

Something we might expect: "Originally hails from west Cork ."

Something that might surprise: He speaks fluent Swedish. And he wants to keep bees.