Telecoms sector needs to attract investment

7 Oct 2005

The Irish telecoms sector needs to be positioned to be capable of attracting more investment capital if it is going to transform infrastructure and deploy next-generation networks, the chief executive of Eircom Dr Philip Nolan said yesterday.

Speaking at the Commission for Communications Regulation’s (ComReg) annual CEO forum in Dublin, Nolan also took the occasion to reaffirm that the company is not in talks to be acquired by Swiss telecoms giant Swisscom. “We are not in discussions about selling our company,” he told senior executives in the Irish telecoms industry.

Nolan took the opportunity to call for a regulatory regime that facilitates innovation and investment rather than a piecemeal approach to issues. “An overriding thing to say is it is time for coherence. We have gone through a long time of piecemeal moves, which is not conducive to a healthy industry. I’ve yet to see an industry that fully satisfies consumers. At the same time people who invest have to make a return.”

Nolan said the pace of scale and change in the telecoms industry is massive. “The challenge is not to fix the old but concentrate and focus on the new world that is emerging. Issues are more acute than we think. Key words are investment and innovation, but also for consumers it’s price and utility. To increase utility to add value and at the same time invest and innovate — they are at two ends of the scale.”

The telecoms industry, Nolan continued, needs to be able to grow and attract capital if consumers are to get services at the right price. “This is about finance and people — put them together they create services and products. Creating an attraction for capital is important.”

Nolan reminded senior industry executives of inflated value for internet and telecom stocks between 1999 and 2000. “We’ve seen what happens when the capital market decides telecoms is no longer a healthy industry — it’s not pretty,” Nolan said, adding that right now feedback from the markets indicate that investors believe valuations are at a realistic level.

Nolan explained that regulators such as ComReg have a role to play in making the telecoms industry conducive for investment. “Going forward we could get the roles right; there’s a strong role for regulation but the regulator’s role has to be to develop a framework to encourage investment. However, the current mindset of where can we find the next place people are going to abuse — it’s not a great starting point.

“Companies need to be free to manage their investment — the regulator cannot set a company’s capital expenditure.”

Responding to criticism over Eircom’s line rental increases of last year, Nolan compared the decline in prices of Irish telecoms with gas and electricity as well as the rate of inflation. “Before we look at the future you have to admit we’ve achieved a lot. If you look at prices, consumers have benefited magnificently. Eircom’s prices in two years are down 18pc at a time when the consumer price index has gone up 31.5pc. And this is in a market with inflation,” he said.

Nolan also argued that although Eircom is the incumbent operator it has to compete against overseas operators with deeper pockets and yet receives a high burden of regulation. “Not many appreciate the cast list of major global investors in Irish telecoms today. Vodafone is enormous, Hutchison is enormous, BT is a €40bn company, O2 is a €20bn company, Sky is huge and Liberty Media is consolidating the cable market. In terms of valuation Eircom is at the bottom, we are not a huge global player. We need to make returns here. We are an Irish company. Unfortunately we have 99pc of regulation yet our network is open for all of these companies to take advantage of.”

By John Kennedy