As another fund queues for a spin on the Eircom merry-go-round, the State's own broadband programme is in crisis, writes Fintan O'Toole
A LITTLE over a week ago, Eircom appointed a new chairman, Ned Sullivan. He is a highly respected businessman. He has, however, been rather unfortunate of late. His three main directorships are at food group Greencore, builder McInerney and Anglo Irish Bank. None of them has, shall we say, performed in a manner that suggests the possession of a Midas touch.
Greencore suffered a major fraud at a Scottish subsidiary, costing it more than €20 million. The company's share price in January was €4.63. Yesterday it was €1.28.
In August, McInerney posted an interim pretax loss for the first half of the year of €54 million. Its shares were worth €1.39 in January. They can now be picked up for 25 cent each. And Anglo Irish Bank, as everyone now knows, was at the leading edge of property-based lending and is painfully exposed to the consequences of the crash. Its shares were worth €17.56 in May 2007, €8.61 in January this year and €2.15 yesterday.
I am not, of course, suggesting Sullivan is personally responsible for any of these disasters. But if you'd followed the principle adopted by some punters of backing all the horses ridden by a favourite jockey, your returns on Ned Sullivan would be somewhat disappointing. If you'd bought 100 shares in each of Greencore, McInerney and Anglo Irish Bank last January, it would have cost you €1,463. You'd now have assets worth €368.
The point here is that Sullivan's appointment is a microcosm of the whole sorry Eircom story. The privatisation of this vital national asset was based on the belief that private ownership is innately more productive, more efficient and more dynamic than public ownership. This article of faith is demonstrably wrong and in the case of Eircom utterly disastrous. The effects of privatisation have been almost entirely negative, not just for the company itself, but for the Irish economy.
To get a sense of how serious this is, you only have to reflect on the unpublished study for IDA Ireland, which was reported on in the Sunday Independent.
It found that almost half of foreign firms located here regret their decision to invest in Ireland. The main source of dissatisfaction is the state of our infrastructure, especially the availability of high-quality broadband.
This is not at all surprising. While the achievement of a world-leading position in broadband provision has been a supposed national priority for a decade, the reality makes a mockery of these pretensions.
Of the 15 countries rated by European Competitive Telecommunications Association last year, the Republic ranked 12th. Progress towards the EU average, never mind the world-leading position we actually need, has been painfully slow. South Korea has 93 per cent household broadband penetration and the leading countries are moving rapidly towards 80 per cent. We're on 23 per cent. And these raw figures do not take account of the quality of service.
The main reason for this potentially catastrophic failure is the incredibly stupid decision of the Fianna Fáil/PD government to privatise Eircom in 1999. Just at the time when it was grasping the crucial importance of a massive upgrade in our telecommunications infrastructure, it flogged off the only tool it had for making that upgrade happen and trusted it instead to the market.
Instead of the genius-level private-sector management that was going to make Eircom a dynamic national champion, the company has been passed around like a joint at a student party.
It was floated on the stock exchange in 1999, taken off the market in 2001 by Tony O'Reilly's consortium, floated again in 2004, and then acquired by Australian bank Babcock Brown in 2006. At each stage, Eircom has been loaded with the debt borrowed in order to acquire it - it currently has debts of €4.26 billion. In this game of pass-the-parcel, the only object has been to squeeze as much short-term profit out of the company as possible. Long-term investment of the kind needed to create a world-class IT infrastructure has been the last thing on anyone's mind.
Even now, as the entire model of vulture capitalism is collapsing, another fund is queuing up for its spin on the Eircom merry-go-round. Babcock Brown Capital is apparently in the process of being bought out by an Isle of Man-based company, LIT plc - setting up Eircom's fifth change of ownership in less than 10 years. With a market capitalisation of just €125 million (a fraction of Eircom's value), LIT is clearly not interested in pumping capital into our telecoms network.
This farce has to stop. The State's own broadband programme is in crisis - the money set aside for it has had to be reallocated.
Instead of throwing more money at it, the Government must show a bit of leadership and take Eircom back into public ownership. This would be a vastly better investment for the National Pensions Reserve Fund than throwing money into companies like Greencore, McInerney or Anglo Irish Bank. It would also show that the Government is grasping, at last, that the economic model that created such disastrous decisions has run its course.
