Eircom posted a pre-tax loss of €16 million in the three months to the end of June yesterday and said it was determined to enter the mobile phone market, writes Jamie Smyth, Technology Reporter

The firm also announced that its voluntary severance scheme was running ahead of schedule and employee numbers could fall to 7,300 by the end of the year. This compares to a headcount of 8,412 at the end of the June 2003.

Eircom booked a restructuring charge of €48 million in its results to cover severance payments to 400 staff, amounting to an average payout of €120,000 per person.

This charge, together with interest payments worth €33 million made to service debt, pushed Eircom to a pre-tax loss of €16 million, compared to a profit of €2 million in the same quarter 2003.

Earnings before interest, tax, depreciation and amortisation (EBITDA) before restructuring charges and pension amortisation charges increased 10 per cent to €156 million. Earnings growth was driven by lower operating costs, which fell €6 million to €153 million as a result of a lower wage bill as staff numbers fell.

Analysts welcomed the results, which showed better earnings growth than had been expected.

Mr Neil Clifford, analyst with Goodbody Stockbrokers, said the results were a step towards persuading investors that the firm could deliver on its dividend.

"The share price has been weak since its flotation mainly because investors have not been comfortable that Eircom can deliver over the next two years."

He said strong cash flow and management's comments about the firm's €256 million pension deficit should ease concerns.

Eircom's chief financial officer, Mr Peter Lynch, said new accounting regulations next year would not require Eircom to make an immediate payment to cover its pension deficit in 2005.

Turnover fell 2 per cent to €402 million in the first quarter compared to the same period last year as voice and data traffic fell 10 per cent during the period.

Eircom conceded that it lost 4 percentage points of market share in the voice and data market in the quarter as competition in the telecoms sector increased. This means alternative telecoms operators now have about 76 per cent of the overall market in Ireland.

Access charges, driven by Eircom's hike in line rental charges this year, were up 16 per cent, netting €133 million for the firm.

Eircom management also signalled that the firm was now determined to enter the mobile phone market. In a conference call with analysts, chief executive Dr Philip Nolan said it was a question of timing. Greater clarity on the issue should be provided before the end of 2004, he said.

He confirmed Eircom management was still in commercial discussions with mobile operators about signing a deal to become a virtual mobile operator. But he said the margins that would enable Eircom to use a mobile firm's network to provide its own service had not been offered.

Dr Lynch said the firm was looking for the same kind of margins - of between 65 and 70 per cent - that Eircom provided in the fixed-line market.

He also sought to reassure investors on the conference call that the firm would take no action that would undermine its ability to pay its bond holders or a dividend to its investors.

The company said it now had 73,000 broadband customers and was confident of reaching a goal of 100,000 users by December 2004.

Eircom shares closed up three cents at €1.49.