Eircom to embark on major restructure and technology shift

12 Feb 2010

Eircom has begun a major organisational restructure and plans to embrace a more open approach to wholesale broadband opportunities as well as fibre enable its mobile base stations, its new owners have confirmed.

Eircom’s new chief executive Paul Donovan and the managing director of Singapore Technologies Telemedia (STT) Terry Clontz told Siliconrepublic.com yesterday that the company is about to undergo a transformation that will make the company a force in wholesale, global IP transit, digital television and next-generation mobile.

Last month, Singapore Technologies Telemedia (STT), a subsidiary STT Communications, finalised its €140-million acquisition of Eircom, Ireland’s incumbent telecoms operator, including the company’s substantial €4-billion debt. STT Communications is a private investment arm of the US$185-billion Singapore Government-owned Temasek Holdings, which also has significant stakes in StarHub, Equinix, Indosat and Global Crossing, which has landing stations in Ireland.

Long-term outlook on Eircom

Clontz said STT is taking a long-term view on Eircom. “We are strategic long-term investors. Global Crossing, which a lot of people wouldn’t touch with a bargepole, but we saw opportunity there. We went after it.

“We typically manage the properties – we invest in management, look for competent managers to run the business and we support them; that’s precisely what we intend to do here with Eircom. Global Crossing has been a success story. Our theme is to invest in global IP, because we see an enormous amount of growth in global IP and wireless technology.”

Clontz acknowledged that Eircom, with its ageing copper network and €4-billion debt burden, will be a challenge. “We take the long-term view – it may take five years, it may take 10 years to be exactly where we want to be with this company.”

Donovan said that having talked to various stakeholders it is clear that Eircom will be central to any digital future Ireland may have, but the company needs to change its practices and structure. “As Ireland embraces a smart economy, the company does have a central role to play. But if it is going to do that then it is going to have to undergo a process of modernisation.

“There have been many owners of this particular business over the past decade, more perhaps than most people can cope with from a change perspective, and it is particularly comforting to have an investor in STT who is prepared to take a long-term view of the company.

“Many of the things that have characterised the past have been about short-termism and in a large-scale complex capital intensive industry like telecoms, which is going through change, you really have to set a path and stick to it.

“During the coming weeks, we will have a firm view in terms of direction of the company going forward. I think we are well placed to play a central role in future of the industry, but only if we change, only if we keep pace with what is a dynamic, fast-paced industry, only if we update our work practices and only if we get to a benchmark level of cost-protectiveness because cost structure is quite high. We really are looking at paring down the costs, not for the sake of cost cutting but to make savings to invest in infrastructure.

“If we do all that, modernise and reduce cost structure, we will create the space to a play part in investing in future. In the past three years, Eircom invested €1.1 billion in terms of capital expenditure (capex) – roughly 40pc of total capex of industry in Ireland – which I don’t believe we get enough credit for.

“It is a first-rate fibre-based core network, there has been significant investment in updating exchanges which will allow us during the next few months to significantly increase speed of broadband services. We have the most advanced 3G network covering more than 50pc of country – in the West of Ireland Meteor is achieving speeds of up to 14Mbps, which is high performance.”

Eircom and the modern telecoms world

Donovan said the plan is to make Eircom battle-fit for the modern telecoms world but also aggressively leverage the brand strength of Meteor in the mobile space, particularly in youth markets.

“We have a unique set of assets, we have definitive strengths and if we address the challenges which face us which are around structure and operating practices, we can free cash to invest in the future so the company can take a central place in the way that the industry moves forward. It is not a 30-day wonder; it requires a systematic approach and a long period of time at a detailed level of changing the way that we do things.”

Donovan said Eircom is about to undergo a major organisational change. He cited a new structure for technology at the company. “Previously, Eircom’s IT and networks divisions operated very distinctly from each other and Meteor independently, as well. Under Brendan Lynch, managing director of technology, we are bringing those organisations together to be able to realise synergies and efficiencies in what is becoming an increasingly converged world.

“So, for example, over the mobile network we are going to backhaul substantial amounts of data that will require us to fibre-up base stations whereas previously microwave and leased lines were adequate. Having mobile network embedded in fixed network is going to enable us to create an architecture that will allow us to deliver higher bandwidth, better speeds, better reliability at lower costs.

“Finance and HR, which were dotted all over company, are now being turned into shared services operations that will allow us to deliver consistent levels of service across organisation as we transform it.”

Growth opportunities in global IP networks

Clontz said he believes global IP networks is where the growth opportunities lie and sees a lot of synergies between Eircom and Global Crossing coming together.

Donovan said Eircom is determined to get the digital terrestrial television (DTT) license under its OneVision consortium as a vital step in the direction of a converged future where TV services will be enmeshed with music and internet services over fixed and wireless networks.

“In Singapore, 70pc of every new mobile is a smart phone – that changes completely the way people think about consuming media and we need to reorganise our way of delivering services. Being just a telephone company is not a strategy that will have any longevity at all – it is vital that we embrace IP networks, raise our game in wireless, as well.

“As bandwidth becomes the determiner of quality of experience, then fixed access is going to be important. Yes, we need to be a broader business.”

Donovan said he believes that in terms of future mobile infrastructure, Meteor will definitely pursue Long Term Evolution instead of WiMax and is anxious that LTE spectrum is priced at a level that provides incentive for the deployment of the technology. Unlike 3G, he said there will need to be an “understanding that the returns of the future will not be as high as the past.”

Clontz pointed out that already ST Telemedia is deploying 42Mbps broadband in Singapore via its HSPA+ 3G infrastructure and is fibre enabling 3G base stations with 40Gb and 80Gb Ethernet backhaul.

Donovan confirmed that a major change in religion in terms of how Eircom has treated wholesale and dealing with other operators is sorely needed. The company, through its many previous reincarnations, has been criticised for protecting its retail base to the detriment of competition in the Irish marketplace.

“I see that (wholesale) changing very substantially and we recognise that in the future we are going to need to be much more open to the wholesale business. One of the reasons for that is there is a limited capital pool available for communications infrastructure in Ireland and one of the tragedies in the future would be if everybody took a small geography and overbuilt.

“To date, a significant amount of the fibre networks in Ireland actually follow the same railway or electricity line and that isn’t spreading availability to the number of people who need to access it.

“One of the roles we are going to have to play as an incumbent is going to be we’ll have to engage with the rest of the industry in really figuring out what kind of open business models are going to be necessary in order to get as much bandwidth to as many people at as low a cost as we possibly can because otherwise the country will fall behind international competitiveness.

“Everything in the future will be more integrated – in a world of falling ARPUs we will need to reinvent things and the high returns of the past are a thing of the past. In the fixed network we will need to be much more open minded and certainly the signals we give out now will be different than the ones in past.

“In the past, we tended to be inward looking, closed and retail oriented. But into the future we’re going to need to be forward looking. This will mean more open partnerships and recognising that the provision of wholesale services will be a more important part of the strategy than it has been,” Donovan said.

By John Kennedy

Photo: Eircom’s chief executive Paul Donovan

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years