Anger at Eircom demand for Govt subsidies

21 Apr 2008

Amidst emerging news that Eircom has shelved plans to split its wholesale and retail divisions and sell its Meteor mobile division, mobile operator 3 has hit out at the revelation that the incumbent operator is seeking government subsidies to support the rollout of nationwide next-generation networks (NGNs).

In recent days, it emerged that Eircom has submitted a proposal to Government seeking support for a potential €500m broadband upgrade which would affect nine ‘gateway’ towns. These would then in turn supply 70pc of the nation’s broadband needs.

These towns include: Dublin, Cork, Limerick/Shannon, Galway, Waterford, Dundalk, Sligo, Letterkenny, Athlone, Tullamore and Mullingar.

In return, Eircom would promise a level playing field for other operators to access this 25Mbps network, provided there was scope for a return on investment for the former state-owned operator.

The news coincides with the development that Eircom intends to halt the planned “structural separation” of its wholesale and retail divisions into separate companies due to adverse market conditions led by the global credit crunch. This structural separation would have turned the divisions into ideal investment vehicles for Eircom’s owners, Babcock & Brown.

Eircom, which has a net debt of €4.1bn, was also planning to sell off its Meteor mobile division. This division had netted a strong revenue performance for the company, until tumultuous market conditions intervened.

Now Eircom is faced with a double investment headache of providing for the overdue upgrade of its nationwide network, as well as supporting the build-out of a 3G network.

Previous requests for state subsidies to cover the remaining 10-15pc of the country not provided with broadband had fallen on deaf ears. The Government instead announced a National Broadband Strategy where Eircom and two other bidders, 3 Ireland and BT, have tendered for the deal. A fourth entrant, consisting of a consortium including the Irish Farmers Association and Motorola, has dropped out of the race.

On Friday, 3 Ireland chief executive, Robert Finnegan, described Eircom’s proposal for the State to subsidise a €500m network rollout as an ultimatum whereby Eircom won’t provide broadband without finance from Government.

“For a private company to offer such a stark ultimatum to the Government amounts to nothing short of blackmail. It is a clear attempt by Eircom to stifle competition in the telecommunications market.

“Effectively, Eircom is looking for a subsidy for a broadband service which, due to its own complacency, it failed for years to provide,” Finnegan railed.

Finnegan said that 3 Ireland has already invested €400m to deploy its 3G network and suggested it is entirely feasible for mobile broadband to achieve speeds of 100Mbps within five years.

“But even with state aid, Eircom only promises speeds of 25Mbps within five to seven years. Eircom has also reportedly given the Government a ‘Plan B’ which would see it provide broadband to 70pc of the population within five years.

“In return, the Government would agree to provide tax incentives for an investment which would extend to exchanges where converting to fibre optic would not normally be commercially viable.

“Any subsidisation or tax incentive – outside of the National Broadband Scheme which is ongoing – should also be made available all operators, including to 3. We do not believe the Government should be subsidising one private operator in the rollout of a commercial service,” Finnegan added.

In conclusion, Finnegan said Eircom’s proposal amounts to asking the taxpayer to partially cover the costs of providing slower broadband inside a longer rollout timeframe to do the same job.

By John Kennedy