Magnet boss blames LLU market failure for Smart Telecom examinership

31 Aug 2009

The market failure of local loop unbundling has been blamed by a leading telecoms figure as a key reason why Smart Telecom is filing for examinership.

In the early part of this decade under the leadership of Oisin Fanning, Smart made a robust entrance to the Irish fixed line market place, unbundling up to 40 local exchanges and signing up close to 50,000 fixed line customers and 18,000 broadband customers.

Failure to pay a €4m bill to Eircom in 2006 saw the incumbent cut off its fixed line service and soon after it lost its status as preferred bidder for Ireland’s fourth 3G license.

Future Human

The company was taken over from founder Fanning by businessman Brendan Murtagh after it racked up losses of €55.6m.

Murtagh subsequently raised €39.5m to repay creditors. However, it is understood that the company has incurred further trading losses and is unlikely to achieve profitability and positive cashflow and this year laid off 60 of its 90-strong workforce.

Up until recently two bidders – Complete Telecom and Planet 21 –  were interested in buying the assets of Smart for between €12m and €15m.

It emerged over the weekend that Smart had entered into examinership, a vital step in resolving financial issues at the company ahead of any potential acquisition.

Smart Telecom’s rival in the independent broadband and telecoms market Magnet Networks responded to the news that Smart has filed for examinership citing a difficult regulatory framework for fixed line telecoms in Ireland.

“While Smart had internal funding issues over a number of years, we believe telecoms regulator ComReg has to take some responsibility for the company’s current state,” Magnet CEO Mark Kellett said at the weekend.

“The slow pace of reform of regulation has ensured that only the best funded companies can survive and compete against the incumbent. With the financial backing of its parent CVC, Magnet has been able to build out the largest alternative LLU network in the State, but it is obvious that other operators without this investment may be at risk from a poorly regulated market. We call on the Minister to immediately examine the market in the context of today’s announcement from Smart.

“ComReg and Minister Ryan have recognised the need for Next Generation Networks (NGNs) as a means of encouraging inward investment into the economy. Without a fair and competitive telecommunications market there is little incentive or ability for alternatives to invest in this infrastructure. The basis for healthy competition lies in the application and enforcement of appropriate regulation designed to facilitate competition.

“The Government and ComReg have failed to provide for such an environment thus far through LLU and Magnet would question their competency with regard to regulating the next generation if they continue to fail with the current generation.”

Based in Dublin, Magnet Networks is a subsidiary of private equity investment company Columbia Ventures Corporation (CVC), holder of extensive telecoms interests on both sides of the Atlantic including One Communications, the largest privately owned alternative telecom operator on the US east coast.

CVC has continued to invest in telecom infrastructure projects in Ireland with Magnet Networks’ sister company, Hibernia Atlantic, recently winning the €30m Project Kelvin contract, to build and manage a transatlantic cable linking Northern Ireland with America.

Project Kelvin will also bring direct connectivity to 13 towns and cities across both the North of Ireland and the Republic.

By John Kennedy

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