Telecoms sector braces itself for cold winds of change

30 Oct 2008

The telecoms sector in Ireland spends €724m a year on infrastructure, but this rate of investment could be under threat as harsh economic realities emerge.

At last week’s Telecommunications and Internet Federation (TIF) Conference at Dublin Castle, TIF chairman and Vodafone strategy director Gerry Fahy told close to 300 delegates: “The €724m invested annually by the telecoms sector will take many years to achieve its outcome and can only do so through a facilitative regulatory environment.”

At a panel discussion between the heads of operators 3 Ireland, Eircom, BT, Vodafone, O2 and E-net, as well as communications regulator ComReg (Commission for Communications Regulation) the consensus was that achieving this outcome may be in danger.

Peter O’Connell, Eircom’s strategy director, put it bluntly in terms of ongoing recessionary threats: “We are going to witness less investment. There are players out there today who will be hurting. The traditional drivers for competition will be missing from the telecoms market. Any vision we had for positioning Ireland in the front line of telecoms was based purely on a normal competitive environment. That vision is now in tatters.

“Consumers are going to reduce spending. Anyone not thinking about cutting costs is not paying attention. We’ve had the earthquake and the tsunami is on the way. If you’re not weather-proofed, you won’t be around this time next year.”

BT Ireland CEO Chris Clark agreed with O’Connell: “I believe the doomsday scenario is pretty accurate, none of us should underestimate what we’re about to go through.”

But Clark doesn’t believe the industry should stop investing. In fact, Ireland as a whole should be investing sensibly in skills and technology for the future. “It’s really about striking a balance between keeping an open mind and investing for the future. Now’s actually a good time to invest.”

In terms of BT’s preparedness for the oncoming tsunami, Clark said the company is going to continue its £1.5bn sterling investment plan. “While we’re reducing capital expenditure, we’re not going to stop investing in the future.”

Cable infrastructure player UPC is currently investing over €500m in upgrading its network in Ireland. Chief executive Robert Dunn said that Ireland has a competitive market and his parent company, Liberty Global, despite debts of €20bn, has a window up to 2014 to repay.

“This gives us a longer-term view so we can invest and upgrade our infrastructure. We’re rolling out 20Mbps broadband in Ireland and 100Mbps in the Netherlands. It’s important to keep investing. We don’t quite agree with the doomsday scenario.”

Mobile operators, said E-net chief executive, Conal Henry, are actually cash-rich and in the current environment are more than likely going to continue investing in their infrastructure.

In the case of Ireland’s youngest entrant to the mobile market, 3, the CFO of its parent company, Frank Sixt, said in an earlier session that the company is backed by US$23bn in liquid assets and is committed to its Irish rollout.

3 Ireland CEO Robert Finnegan said there is better value in the Irish telecoms marketplace for consumers, and that this competition is driving investment. “What’s driving investment is consumer and business demand for broadband, particularly in the mobile sector.

“This demand has been pent-up for years and now it’s being satisfied by the mobile sector,” he said, referring to the fact that some 20pc of Ireland’s one million broadband subscribers use mobile broadband services.

Charles Butterworth, CEO of Vodafone Ireland, also took the long view: “We are investing permanently for returns that are a few years out. Economic cycles come and go. Short term we are focused on innovation, but that investment will be focused more clearly than ever before.”

O2 director Tony Hanway said the viability of fixed-line investments are under the spotlight, but agreed with Butterworth that wireless investments will take the company through any recession.

“Is there a tsunami coming? I’m not sure. Well-capitalised companies will come through it, but it’s a tough environment out there,” he said.

By John Kennedy

Pictured:attending last week’s Telecommunications and Internet Federation (TIF) Conference at Dublin Castle were (from left) Martin Cronin of Forfás, Eoin O’Driscoll of E-net and Guy Johnston of European Telecommunications Management

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