EIsland has issued the following response to an article published in the Business Opinion column on these pages on Monday.
In The Irish Times on Monday, Denis O'Brien's abilities as a manager of a large fixed-line telephone business facing unprecedented competition, were questioned.
As chief executive of Esat Telecom, Denis O'Brien built the most successful second operator in the fixed-line business in Europe. The competition which the company faced was indeed unprecedented, the competitor being the monopoly State company. It also faced an extremely hostile regulatory framework in its early years. While the company was founded in 1991, it did not start operations until 1994 because it was blocked from doing so.
Esat Telecom debuted on the Nasdaq in November 1997 at $13 per ADS and was sold in January 2000 at $100 per ADS (American Depository Share). For 12 consecutive quarters, it maintained positive quarter-on-quarter growth and delivered on analysts' expectations.
At the time of its sale, Esat Telecom had 12,750 corporate customers at the high end, large corporate customer market, many of whom had multi-sites. This was in excess of 10 per cent of the corporate market. But it was not recalled in the article that the company had become the largest corporate internet service provider (ISP) with more than 50 per cent of the market as well as having more than 30 per cent of the data market.
The fact is that unlike Eircom, Esat moved from being a voice-centric business to one where over 70 per cent of revenue came from non-voice services, which culminated in gross margins in excess of 40 per cent. Esat was well ahead of its second operator peers in Europe in this regard. So counting the corporate voice customers is not in any way an accurate reflection of the make-up or success of the business at that time.
The article also suggests that when BT bought Esat, what it was really paying for was the mobile division. The facts are that of the $2.46 billion paid by BT, $1.22 billion was attributable to the fixed-line assets of the company, that is more than 49 per cent. This can be verified through analysis of the recent transaction between Telenor and BT for the remaining 49.5 per cent stake in Esat Digifone, the price of which was struck at the same time as the Esat Telecom transaction.
It is suggested that Eircom rose to the challenge presented by Esat Telecom and therefore stemmed the growth of Esat. The facts are that Esat was successful and, furthermore, that the only strategy Eircom used during this period to compete was to cut prices with no improvement in terms of quality of service or results. This culminated in continued lower EBITDA (earnings before interest, tax, depreciation and amortisation) figures for Eircom as shown in the company's most recent results. They did not "rise to the challenge" in any strategic manner, as you suggest.
Perhaps the most important aspect of The Irish Times article was that the writer questioned Denis O'Brien's experience in dealing with organised labour. When Esat first started, there were 60 employees, within six years there were more than 2,000 employees. Surely Mr O'Brien must be credited with some negotiating/people skills in being able to grow, manage and retain the services of over 2,000 people. It should also be noted that over $250 million was paid out in invested shares to employees on completion of the BT deal.
The eIsland directors have considerable experience in the Irish and international telecoms markets over many years. If eIsland proceeds to make an offer for Eircom plc (excluding Eircell), this experience will be required in full measure to give customers in Ireland a service and a future which keeps us in line with international standards and trends.
