Esat BT slowly bridging the gap


1 Aug 2003

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It is half past eight on a Monday morning and as I wipe the last evidence of sleep from my eyes, a focused and the CEO of Esat BT, an exuberant Bill Murphy (pictured), is describing how he’s been on the go since arriving off the 5.30am red-eye flight he takes to Dublin every week after spending the weekend with his London-based family. He notices I am using a portable email device and says it is a similar weapon to the one he uses to keep the jump on colleagues no matter where business and life takes him.

“I have had all of Friday’s emails answered by 7am — even before I reached the office — and I am on top of things for the week ahead,” he says matter-of-factly. The week in question is the week in June that flat-rate internet access, otherwise known as FRIACO, came into being and Murphy, like a brigadier general mounting a surprise offensive on the enemy, is in a no-nonsense state of mind, anxious to be back in the driving seat. Murphy clearly views being interviewed by journalists as a necessary evil to tolerate as a No 2 player trying to break what he perceives as the incumbent telco’s (Eircom) seemingly inflexible grip on the marketplace. His answers are brusque, to the point and reflect steely ambition.

In more than 20 years in the telecoms business, Murphy has garnered something of a reputation as a market maverick within the BT Group, enabling the company to expand across the US and Europe on the back of deregulation and has held the head honcho position across numerous BT virgin ventures. Fighting an incumbent is something he has been trained to do. His career began in 1980 in New York with ITT World Communications. Eight years later he joined BT, helping the company establish its now strong presence across the US.

Since London called him in 1989 Murphy has built up something of a kaleidoscope of career patterns in Europe, ranging from expanding BT’s interests across Europe as deregulation of telecoms markets became the norm to running the telecoms needs of the City of London business arena as well as running BT’s enterprise business. A two-year break from BT saw Murphy experiment with entrepreneurialism as president of European broadband infrastructure provider Viatel Inc. Returning to the BT fold, he ran a 50-50 joint venture between BT and Accenture called e-peopleserve, a provider of HR solutions to the multi-corporate market, which was subsequently sold back to Accenture. Murphy embarked on his foray into the Irish telecoms market in March 2002 as CEO of Esat BT.

What he discovered on his arrival in Ireland, albeit at the height of a worldwide telecoms industry downturn, was a local telecoms company whose costs were spiralling out of control to such a degree that it faced closure by its new UK-based parent. Murphy’s challenge? Break even at an operational level or face closure. Murphy has risen to the challenge and in May revealed that despite losses of €185m last year, the group met the challenge and reported €18.5m earnings before interest, tax, depreciation and amortisation (EBITDA), up from a €47.5m loss on this basis in 2002.

Esat BT’s turnover fell to €253.2m in the year to March 2003, down from €259.8m, due to a major review of its business and a sharp fall in the number of residential customers from 120,000 two years ago to around 60,000 today, which the telecoms company blames on Eircom’s aggressive customer win-back tactics. Under Murphy’s guidance, the firm divested itself of non-core activities such as that of cable firm Kedington in April.

The arrival of ADSL (asymmetric digital subscriber line) and the long-awaited arrival of FRIACO are amongst the elements that will enable Murphy to transform Esat BT into a cash-rich and lean, but effective, No 2 player in the Irish market, building on its own infrastructure strengths as well as its ownership of internet service providers Ireland On-line and Oceanfree.net. However, it is on the company’s corporate strategy that much appears to be changing.

In the past few months, Esat BT appears to have made the most of its connections with its BT parent to enable it to win major infrastructure projects in the Irish market. This began with the recent signing of a €100m contract with 3G licence holder Hutchison to build the first phase of its 3G network in Ireland. In recent weeks, another major deal, this time with the Bank of Ireland, should steer Esat BT into profitability. The deal with the bank will see Esat BT’s revenues increase by €160m over the next seven years after winning the right to manage the bank’s telecom services in Ireland and the UK. The deal is understood to be worth €23m a year over the deal’s lifetime, the equivalent of a 9pc boost in its annual income.

Looking back on the last 12 months, Murphy says: “I think we had a very positive year. We did a great deal of restructuring and we have come out the other side much stronger. We are viable and a vibrant No 2 player to Eircom. We challenge it every day of the week and the fact that businesses and consumers have choice is a huge difference to the situation three years ago. But it is a difficult market, in that the economy has slowed and the customers are demanding value. That said, Ireland presents a good opportunity for BT. We view Ireland as one island and will leverage as much as possible with our Northern Ireland operations.”

On the corporate front, major deal wins such as Bank of Ireland and Hutchison are giving Esat BT the credibility it craves, says Murphy. “It is interesting that small to medium-sized enterprises in Ireland are seeking quite advanced telephony services as well as fast connections to the net and watertight security,” he adds. “In Ireland, it seems that businesses, whether large or small, seem to want the same things. The Hutchison deal will give us a great deal of credibility in providing services from a design and build perspective and a great boost of confidence.”

It is Murphy’s view that in terms of free market competition of telecoms, Ireland is behind the times and needs to catch up fast. “From an economic point of view, Ireland’s strongest ties are with the US and UK, both of which deregulated their markets in the 1980s,” he says. “The good news is that Ireland has moved quickly, it is only behind in two areas: broadband and internet penetration. We’ve been negotiating with Eircom to introduce FRIACO for some time. It’s been in the UK for almost six years now and PC and internet penetration is above 50pc of the population there. The Government in Ireland needs to take a more aggressive role in sorting out these problems. The US was quite aggressive, Germany was aggressive, the UK was fast on FRIACO but slow to introduce broadband. But the UK introduced broadband 18 months ago because it realised it would help the economy. Ireland needs to do the same.”

Esat BT’s introduction of FRIACO, with an ‘all-you-can-eat’ introductory offer of €20 per month, has sparked something of a price war amongst alternative players, including UTV Internet, Perlico, Anu Internet Services, Netsource and Elive. There is still no indication of a FRIACO offering from Eircom. “In the UK, FRIACO drove internet penetration and it will do the same in Ireland. However, the real difference will come when everybody can access DSL broadband in their homes. My two children are net literate and the experience for them was revolutionary,” he notes.

While Esat BT envisages having some 56 local loops unbundled this year to enable a wide spread of DSL broadband throughout Ireland, Murphy believes that FRIACO will help carry the slack and drive Irish PC and internet penetration to European standards. “We’ll be investing upwards of €4m this year on FRIACO alone. We’ve invested €200m in the past three years on bringing our data infrastructure up to speed.

“When broadband finally happens, ideals such as teleworking can finally happen and businesses will find it acceptable if it costs them only €30 a month to allow executives to work from home. The option of broadband or FRIACO will stimulate teleworking and change the way people live their lives,” he explains.

But before any of this can happen, Murphy warns, the issue of competitiveness in the telecoms market and Ireland’s slowness in embracing change is already having a real impact on our economic environment. “You are simply not seeing the same levels of investment in communications as four years ago. Apart from ourselves, Eircom and the two top mobile operators, the remaining telecoms companies have limited infrastructure. We need to create an environment that attracts investment. Ireland has such potential, but right now we are stifling that potential,” he says.

The conversation inevitably swings to the ongoing court battle between Eircom and the Commission for Communications Regulation (ComReg). Eircom recently obtained a stay in the High Court overruling ComReg’s directive ordering Eircom to reduce its charges for competitors accessing its network. Eircom claims that reducing its charges would cost it tens of millions of euro. The court case, which has been adjourned to a later date, is an issue that has Murphy seething. “I think it’s outrageous that Eircom has taken the regulator to court,” he says. “What is it thinking? It seems to want to bully the regulator into a compromise. If you consider the fact that broadband prices in Ireland are the highest in Europe then it is an unbelievable situation. The move is relatively small and the impact to Eircom would be minimal.

“I believe that we are at a crossroads in Ireland in terms of competition. Every consumer and business I talk to wants choice and innovation, competitively priced. It is important that ComReg creates an environment whereby the bullying tactics of the incumbent can be stopped. The market is big enough for the both of us. Eircom should focus on enhancing competition, not trying to put it out of existence. If you don’t have a free market then you’ve no place to go. Eircom needs to view Esat BT as a customer. It needs to stop suing the regulator and just get on with providing services,” he adds.

But the mood is changing, Murphy believes. “At present 98pc of government telecoms spend is with Eircom. We are seeing that mood change slowly. The various departments want choice and local government wants to see good business fundamentals and have more willingness to change. Throughout Europe, particularly Spain, Belgium and the Netherlands, most of our service wins have been with government, but we haven’t had it here. But I am confident that this is changing.

“My fear is that Eircom is trying to delay competition or go for arbitration. In either case, Ireland loses. We should be concentrating on consumers as well as businesses and the thing that I find shocking is that the industry has been in consultation with Eircom and the regulator for over a year. The amount of time, effort and money spent has been profound and for Eircom to play a surprise and sue the regulator was shocking. The country needs to be competitive and anything that inhibits competitive communications here has to be stopped.”

Murphy concludes, stoically: “At the end of the day, whatever decision is reached in the High Court, we will have to adapt our strategies accordingly. But I am optimistic that a proper decision is reached, the regulator has been right in this instance. After a year of work and effort I can’t see it all going to waste. My view is that there will be a positive outcome, and if there isn’t, then there are other ways to compete.”

By John Kennedy