EIRCOM'S FUTURE investment plans for broadband and other new services may have to be redrawn following a decision by the Communications Regulator limiting the return it can make on investments.
ComReg yesterday imposed a cost of capital on Eircom of 10.21 per cent.
Known as the weighted average cost of capital (WACC), this regulatory instrument is a key input into the prices Eircom can charge for landline telephone services and other regulated products.
In a statement released last night, Eircom said the decision by the regulator was a "concern" as it "does not address the high risk premium for future investment in new telecommunications infrastructure in a market of Ireland's scale".
Last November, ComReg said it was considering imposing a weighted average cost of capital in the range of 7.77 per cent to 11.08 per cent and asked for industry input on its proposal.
It is understood that in its submission Eircom proposed a range of 9 to 14 per cent and sought that it be set at the mid-point of 11. Eircom's current WACC is 11.5 per cent. A one percentage point change in the WACC could make a difference of tens of millions of euro in earnings to Eircom over the three-year to four-year period during which it is likely to be in force.
ComReg considered the WACC applied to other regulated Irish organisations including Bord Gáis, An Post, the Dublin Airport Authority and the ESB, as well as the rate allowed to other European telecoms groups.
It did not consider Eircom's proposal for next generation networks. ComReg and Eircom are at loggerheads over the status of its proposal to roll out higher broadband speeds. Eircom made a proposal called Fibre Ireland to Government recently which would see it introduce 25Mbits/sec broadband to 70 per cent of the State. Using a different technology, another 20 per cent of the country could avail of speeds of up to 12Mbits/sec.
Eircom has asked the Government to provide €150 million towards the €500 million cost of the plan. ComReg officials believe the proposal from Eircom is too vague and has too many conditions attached to it.
ComReg said that, in setting WACC, it did not have "specific and detailed plans from Eircom on next generation access investment".
It said the information it requires would have to "define the level and type of investment and to demonstrate the specific higher risks associated with this investment" before it would increase the return Eircom can make on such investments. The Eircom statement points out that it has publicly committed to €1 billion of investment over three years and has "recently offered a further commitment for substantial investment in fibre if the regulatory conditions are favourable". An Eircom spokesman said the regulator "has our Fibre Ireland proposal".
Eircom is seeking Government funding because it would be unable to raise the investment on its own due to the ongoing credit crunch. For this reason, the company has also shelved proposals to split the company into retail and wholesale divisions.
It also wants to sell off its Meteor mobile division, but rival operator 3 Ireland recently pulled out of negotiations on a purchase. Eircom was understood to be seeking €1.2 billion for Meteor.
