New kings of convergence


26 Aug 2004

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“Eircom needs to find religion,” says Padraig Coakley, managing partner of Mason Communications Ireland, part of an international firm of communications market analysts. Coakley has not gone all spiritual – he is pointing out the immense challenges and the immense opportunities facing Ireland’s incumbent telecoms operator as single billing finally comes into effect.

From 1 April, under wholesale line rental rules from the Commission for Communications Regulation (ComReg), licensed telecom players were able to buy wholesale lines for a rental fee of €21.18, leaving room for a margin of 10pc compared to standard line rental fee of €24.15.

According to sources, after a period of 18 months ComReg and other licensed operators (OLOs) will push to have this increased to a 25pc margin, bringing line rental in line with the European average of €15, and giving room for OLOs to offer more competitive rates to Irish consumers. Eircom, no doubt, will battle this move.

Along with local loop unbundling, carrier pre-select and single billing are seen by telcos as major hurdles they face when trying to get customers to sign up for their services. The advent of single-billing will enable OLOs to charge for their services on one bill, instead of the present situation whereby customers receive an additional bill from Eircom for line rental on top of the services from a rival operator.

Despite constant criticism, an embattled ComReg has succeeded in making Ireland second only to Denmark in deploying single billing technology. Making the switch from Eircom to another provider or back again is a matter of changing a flag on a database.

“There are about 6,000 lines already transferred and running at 1,000 a week,” explains ComReg chairman John Doherty. “There will be teething problems, but at the end of this month 10,000 Irish homes and businesses will have made a switch through single billing.

“It’s a relatively simple product, but we’ve put in elements such as call barring and forwarding voicemail that make it more complex. We’ve done lots of testing to make it work perfectly and it’s up to the OLOs to make it work. There are some 290,000 homes and businesses availing of services under carrier pre-select so we expect them to be in the vanguard,” Doherty says. “I expect the telecoms landscape to shift in terms of calls and line rental but then you will see bundled offerings that make the most of DSL, for example.

“I hope that with the completion of its initial public offering Eircom is focusing on its strategic future and I believe this is in the area of value-added services and wholesale. Voice revenues in isolation are no longer a cosy channel. Data is the opportunity and voice is now a commodity. There is a real opportunity out there for Eircom to develop its wholesale business and to concentrate on broadband,” he adds.

Coakley echoes Doherty’s thoughts. “The danger that fixed-line providers face right now is that they have to come up with other reasons besides voice to sell a fixed line. Bundled offerings will therefore be key. The true winner will be able to bundle things such as broadband, fixed-line and mobile calls into one package. Right now, mobile operators are making plenty of money and see no strategic need to deal with fixed line operators. Eircom’s proposed return to the mobile arena is very interesting. However, Eircom is caught between a rock and a hard place. Its business is under pressure and it has got a lot of debt,” says Coakley.

“In the UK, BT played the same incumbent game as Eircom but eventually divided itself up into BT Retail and BT Wholesale, with each division aggressively pursuing business. Eircom, unfortunately, is caught up in an internal change of ownership and the market is not getting any sense of mission from Eircom. BT is a lot more driven, has been around for a long time, and has realised that broadband is key to protecting fixed-line revenue. If Eircom believes that internally, it is not being communicated externally,” Coakley warns.

Definitely not of the persuasion that Eircom has found religion and likening it more to the antichrist is Smart Telecom’s Oisín Fanning, who has alleged that Eircom is slow to transfer Smart’s customers to single billing and its faults and technical support service is insufficient.

“We’ve been using the single-billing system for three months and it is definitely not going to change the landscape. The so-called seamlessly automated wholesale line-rental system doesn’t work. Out of 30,000 Smart Telecom customers who have requested to be switched, less than 6,000 have managed to switch. It’s a disgrace. Eircom is not managing to convert customers even on a daily basis. It is only meant to be a slight database change. Esat BT, which is planning to introduce its single-billing service next month, will have its heart broken,” Fanning says.

Despite Fanning’s complaints, other telecom operators believe that their experience in dealing with Eircom on single-billing has been exemplary so far. Peter Evans, product director with Esat BT, is currently in the process of putting the final touches to his company’s single-billing product. “We are quite positive about it. What ComReg and Communications Minister Dermot Ahern TD have done is unprecedented. We’ve been testing the product for the past year and are ready. The first bills to customers will be posted on 24 September.

“We have 60,000 residential customers and are No 2 in the market, but six years ago we had more than 120,000 customers who we lost through churn. We’ve stabilised that at 60,000 but its now time to grow and that will be done through single-billing. We believe that from our existing base we will be able to grow our revenues by €20m this year. Because customers will no longer have to worry about two bills we expect churn to halve. As a result, we expect to have 10pc of the marketplace – some 120,000 households – within 18 months. We were there before, we will be there again,” he says confidently.

Another player quite positive about single-billing is Access Telecom managing director Brian O’Donohoe, whose firm has brokered ground-breaking telecom deals with organisations such as GAA and ISME. For example, with the GAA, the company’s single billing product will be sold as a loyalty scheme that would return 15pc of revenues made through calls to the respective club or county board.

“I have to admit that I’ve found Eircom to be quite helpful in terms of single billing. We have spent a lot of time working on electronic interfaces with Eircom’s system and completed that process in July. Since then we have transferred more than 1,000 of our business customers. It has been a smooth process. In terms of execution, it has worked hard with Eircom and they’ve worked hard with us too,” says O’Donohoe.

David McRedmond, Eircom’s commercial director, believes that calls on Eircom to maximise its wholesale potential are somewhat premature and that the company faces a balancing act between competing on a fair basis and ensuring that it can continue to invest in its national network. “We’re prepared – it’s our product and we’ve launched it. We are the ones who know it better than anybody,” he says.

“We are at the cutting edge of European telecoms in relation to how liberalised the Irish market is. Apart from Denmark there is very little precedent and it is difficult to calculate volumes and level of take-up. In that context, all of us are entering the unknown. But we have ensured good product availability and we wouldn’t have introduced it if it didn’t work,” he says.

McRedmond argues that the 10pc margin is reasonable from a commercial standpoint. “Since other operators are not investing in the network, we have to very much ensure on behalf of the whole industry that there is sufficient return for Eircom. If Eircom doesn’t invest, who will? There is no issue around whether we are in position to wholesale, the issue is at what price? It is a question of coming up with a price that would encourage investment in the network for the future.”

In the months ahead, the true winners will be decided in the battle for the hearts and pockets of Irish business and residential phone users. And one thing is certain, they will vote with their feet.

On the horizon…

Bundles
The introduction of single billing has given OLOs the ability to provide greater clarity for customers by virtue of taking Eircom’s separate line rental bill out of the equation. Esat BT, for example, is planning an offering that includes ‘all you can eat’ phone calls, line rental and broadband for around €75 a month, this side of Christmas.

Convergence
The Holy Grail in the telecoms arena, convergence enables businesses and homes to reduce the cost of phone calls by turning calls into data across the internet in a process known as voice-over internet protocol (VoIP). By virtue of the growth of DSL-based broadband, both Smart Telecom and Esat BT are on the threshold of introducing VoIP services. Another player, Voice Ireland, is predicting 95pc reduction in call costs for business and residential users through the introduction of its own VoIP services.

FWA
Fixed wireless access (FWA) is a method of delivering electronic communications services by means of radio waves rather than conventional ‘wired’ connections. Many communications services can be carried by FWA systems, but typically voice telephony and broadband data services ranging from ADSL equivalent to leased line replacement can be provided.

The mobile-only household
The property boom of the past few years has thrown up many interesting phenomena, especially that of the mobile-only household. With mobile penetration at 88pc of the population and mobile networks getting increasingly sophisticated, many new home owners are opting not to bother getting a phone line connected to their home at all, believing that their mobile phone offers adequate enough connectivity. 2.5G and 3G data network cards enable laptop users to enjoy dial-up and DSL-quality broadband over wireless.

Smart homes
At the other end of the spectrum, new and existing home owners want the best of connectivity in terms of broadband. Property developers in Ringaskiddy in Cork, for example, are understood to be building housing developments purposely close to the Government’s metropolitan area network with broadband connections to each house. Esat BT is understood to be preparing bundles that pull together DSL, VoIP and wireless local area networks (WLANs) into a compelling offering for the home and business. The imminent introduction of the Bluephone by BT, as part of an alliance with Vodafone, will enable mobile users to make cheaper VoIP calls within a WLAN or Wi-Fi network whether in their own home or in a cafe.

By John Kennedy