Speculation on acquisitions and mergers is all the talk of telecoms

If there's one feature that drives the telecommunications industry it is talk - not just in terms of revenue generation but in the seemingly endless rumours which surrounds the sector. The latter is generally dominated by the latest speculation on mergers, acquisition and consolidations and, in the case of the Republic, Esat Telecom has been a regular subject of such talk.

But says Mr Sean Corkery, Esat's chief operating officer, "Nobody is particularly knocking on our door. We see developing our network and growing our business as the best way forward."

He maintains that it is the small companies like Esat and Colt (City of London Telecommunications group) in London which are shaking up the telecoms market, because they are more flexible and can respond faster than traditional large telecoms groups.

Two weeks ago Esat signed a £40 million (€50.7 million) deal with the Canadian telecoms equipment group Nortel, which has operations in Galway, to upgrade its network over two years. Included in the deal is an increase in Esat's backbone network from 2.5 gigabits to 10 gigabits immediately with full capacity to reach 320 gigabits. For the non-technical, this is the equivalent of 3.5 million people in the Republic having a simultaneous phone call.

Mr Corkery says Esat's corporate business will account for 90 per cent of its revenues this year. Demand is coming mainly from data and Internet growth, hence the need to upgrade the network.

Esat believes that by the end of next year the revenue it derives from corporate data business will exceed the revenue it gets from voice revenues. At present, the market in the Republic for sending data is estimated to be approaching £130 million per annum.

"One year ago it was difficult to sell data services," he says. Now, it is a different story. He says Esat now has the highest level of network capacity of any operator, including Telecom Eireann.

Of course Telecom will not stand idly by: "I think Telecom will catch up and then we will have to move ahead again".

The company currently has more than 6,000 corporate customers, including 2,000 customers, which Mr Corkery says were signed up within two months of launching the service, aimed at the small business sector.

Esat clients include NCB, the VHI, RTE, TV3, KPMG and AIB. It provides a range of services including ATM and frame relay (for sending large amounts of data downline at very high speeds) and VPN services (virtual private networks) for companies such as Bank of Ireland, where up to 20 sites are interconnected.

Mr Corkery admits that Esat, which was founded in 1991 and always positioned itself as a cheaper alternative to Telecom Eireann, has been "hit hard" by the recently floated former State company's aggressive price reductions on voice telephony - particularly international and inland long distance calls.

"In volume terms that side of the business is growing at 40 per cent per annum, but in revenue terms it is only growing at around 10 per cent," he says. "Last year we carried 250 million minutes of voice traffic, this year we will carry 600 million minutes.

"It is one reason why we are diversifying from voice," he says, adding that data business has a very high margin.

Esat, which listed on the Dublin Stock exchange a month ago, should be EBITA positive - earnings before interest, tax, and amortisation - by the middle of 2000, according to its chairman Denis O'Brien. Mr Corkery says Esat should then make "a small bit of money" and reduce its debt.

He says Esat will make a number of announcements over coming months on developments on Internet and broadband. Its two key strategies are to be the dominant number two in the market and to be the number one player in the broadband market. "We want to be the strongest player in the Internet market," he says. Esatnet, its Internet operation, has about 45 per cent of the business to business market, he says. "The highest growth in the Internet sector is not new connections, it is usage," he says. Esat also has a residential element - EsatClear - which was launched on November 1st last and which is marketed as a separate company. Although no figures have been released yet, Mr Corkery says Esat is happy with its performance to date. He admits it is a difficult sell and that there is not a huge incentive for people to change telecoms companies.

"It is not a huge part of our revenue, but it is important to have it because we want to be the dominant number two player. We are the only operator taking on Telecom Eireann in all areas of its business."

Like other operators Esat's existing and future business is constantly under attack from niche players and new entrants. US cable group NTL which bought Cablelink for £535 million will enter the telecommunications market offering a package which includes telecoms and programming services.

Esat made a highly publicised bid for the company, even taking the issue to the High Court as it was dissatisfied with the tendering process. In an affidavit to court, chairman Mr O'Brien spoke of its importance to Esat and how it could hurt Esat's business if it did not win it.

Mr Corkery, however, seems sanguine and philosophical about not securing the valuable franchise. "You have to have a strong affidavit when you go to court," he says. "We took the view that if we got it, we got it, if we didn't, forget it." He says for Esat it was "another access point" whereas for companies such as NTL and UPC (another cable group) it was "an entry to market".

Esat Telecom is a 49.5 per cent shareholder in Esat Digifone, the mobile operator which has been extremely successful in winning customers. Digifone has also featured in a High Court action, where the other major shareholder Telenor wanted two directors of IIU Nominees Limited removed from the board. The High Court ruled this week that those directors, Mr Dermot Desmond or Mr Michael Walsh, should not be allowed to vote at board meetings, but that one or the other could attend them, pending the results of arbitration on the issue of representation. Telenor holds 49.5 per cent of Digifone and IIU just 1 per cent.

Mr Corkery, who declined to comment on the row, says Digifone has been phenomenally successful and has been very important to Esat. He says that in the mobile telephone market too, the focus is now moving to data and Internet services.

Mr Corkery is well-versed in developing technology trends. Appointed to his current role at Esat 18 months ago, he previously served as senior vice-president of worldwide operations of AST computers - although that company's operations in Ireland have since ceased. He spent 12 years with Apple Computers, in various roles, including senior director - Pacific operations, covering Japan, Australia, the Far East and Latin America. He was instrumental in establishing Apple's European Macintosh operation in Cork in 1984. Mr Corkery, who holds an economics degree from University College Cork, is also a member of the Government-appointed Information Society Commission. He believes that the recent announcement that Global Crossing, with the support of the Government, will build a fibre cable linking the Republic to its infrastructure at Lands End in England and then to Europe and the US is a good move.

"I think it is good for Ireland Inc and for carriers like us. There is no question but that Ireland has suffered from a perception that it has had a capacity problem - at least internationally. Part of the reason is that if you did a website survey on all of the major carriers of the world to find out where they would be laying their cables you could almost guarantee that Ireland wouldn't be mentioned.

"I think this kept coming up as an issue and Global Crossing now fixes that from a perception point of view. Global Crossing is one of the two key brand global cable layers.

"The fact that the Government is involved sends the signal that Ireland is being directed from the very top towards the digital economy. I think it will bring in more business to digital parks," he added.