Union's entry into Eircom debate could derail project

Business Opinion:The entry of the Communications Workers Union into the debate on whether or not Eircom should be split up has the potential to derail the entire project.

The union has so many conflicts of interest when it comes to Eircom that it pretty much approximates to the voice of reason.

Many of its members are also members of the Employee Shareholder Trust (ESOT), which owns 35 per cent of the company whose interests at this stage are all but identical to those of Babcock & Brown, the Australian private equity fund that owns the rest and now wants to break up Eircom.

Its is informative, then, that the CWU appears to be on the verge of coming out firmly against the splitting of Eircom into a retail and a network business, and several other possible sub-divisions after that.

Equally instructive is that their opposition - as set out in the executive summary of a confidential draft document obtained by this paper - is based on pragmatic economic arguments rather than ideology.

Well, almost; the summary does take the time to remind readers that Babcock & Brown represent capitalism red in both tooth and claw by quoting from the prospectus of the Babcock fund that owns Eircom with its emphasis on "extracting value".

But, fundamentally, the document is a demolition of Babcock's arguments for structurally separating Eircom, which the CWU summarise as: increasing competition; accelerating and enhancing broadband penetration; lessening regulation; enabling investment and, finally, unlocking value for shareholders.

The CWU first undermines the initial premise of Babcock's argument, which was that separation was going to be forced on Eircom by EU competition policy in any case.

This may have been a possibility in 2006 when Babcock bought Eircom, but has not been true since November 2007, when the EU recommended that functional separation was an adequate remedy. The EU believes the inefficiencies induced by structural separation far outweigh any possible gains, says the CWU.

Structural separation "is a radical and untested scheme which . . . will significantly increase the returns to BCM [ Babcock] as owners but at the expense of investment and innovation in the Irish telecommunications industry", it argues. What is interesting here, but unsaid, is that structural separation would also mean significant gains for CWU members who are still ESOT members.

The CWU document then goes on to argue that under structural separation, the network business would be fossilised as it will be run as a utility. This may work for industries such as water or gas where there is little incentive to invest or innovate, but inappropriate for telecoms, says the CWU.

The other central plank of the CWU argument is that structural separation will result in two companies looking to make a profit where previously there was only one.

They also warn of a regulatory nightmare as the various users of the network, including the former Eircom retail businesses squabble over contracts and prices.

The CWU paper amounts to a very strong argument against Eircom's proposed course of action, which it says would be the latest in a series of legal lootings of the national telecommunications infrastructure. It is given weight because it goes against the financial interests of a significant number of past and present CWU members.

Babcock & Brown has a fight on its hands.

jmcmanus@irish-times.ie