Sell-off heralds end for group as major player

 

The concept of break-up is a somewhat emotive one for Eircom executives, but the sale of the mobile business to Vodafone almost certainly heralds the beginning of the end of the former State monopoly as the biggest player in the Irish telecoms market.

Eircom chief executive Mr Alfie Kane strongly emphasised that Eircom would restructure the business, combining it into a single entity, focusing on developing an all-Ireland business and saving €10 million (£7.8 million) a year.

However, he admitted that if the company receives a fair offer for the fixed line business, he and the board have a duty to consider it. If they, and their financial advisers, believe the offer truly reflects the business's worth, they will have to recommend it to shareholders.

Such an offer could come from Mr Denis O'Brien's eIsland consortium which has already bid €2.2 billion for the business. This offer was politely turned down yesterday by Eircom. Many, including Davy Stockbrokers, who are Mr O'Brien's own advisers, are anticipating that he will up his bid by more than 10 per cent.

Analysts were divided over whether the sale of the mobile business would flush out new bidders for the fixed line operations. They were equally divided over whether e-Island will have to up its bid.

Mr Enda Hardiman, chief executive of Haridman Telecommunications Ltd, an international telecoms consultancy practice, said the Vodafone price was "in the ballpark, perhaps a little low. I would have expected a price of €4.8 to 4.9 billion."

Merrion Capital analyst Mr John Coolican described the price as "a bit of an anti-climax". However, he said the deal's timing was also dreadful as telecoms stocks had taken a pounding. Nor was he impressed with Mr Kane's presentation of Eircom going forward. He felt the company had not outlined a coherent strategy and the statement about saving €10 million a year was "a bit lame".

Given that the share has lost so much value since flotation, he said he would have liked "a little nugget" and "if that's it, I'm afraid I'm going to go hungry".

From Eircom's viewpoint selling Eircell means at least one major issue is resolved. Mr Kane said the market had changed dramatically over the past 18 months and nobody was going to buy the whole company. He also repeatedly stressed that the Vodafone deal was a way of unlocking value for shareholders.

There is also a belief among Eircom executives that mobile is a business in which it is only going to become more difficult to make money - WAP hasn't really taken off; the next generation (3G) licences are going to require massive investment and it is virtually certain that a major player such as Orange or Vodafone would apply and win a licence anyway.

They also argue that the best days of small incumbent telecoms companies are past - to achieve a global reach it is necessary to be part of a bigger group.

But for now, Eircom will have to take a twin approach: try to develop the business and entertain offers for the fixed line operations.

Eircom is also putting great store by the potential of ADSL technology. This will allow the company to boot large amounts of data down existing phone lines, offering a range of services from video-on-demand to email and shopping facilities.