Eircom's profits fell 30 per cent to €131 million (£103.1 million) in the first half of the year, despite an increase in sales by 14 per cent to €1.1 billion. The fall was attributed to a 37 per cent increase in costs due to the expense of expanding the mobile business and the impact of increasing competition in the fixed line market.
Mobile customers increased by 59 per cent to 1.2 billion, while revenue from Eircell - the mobile business - grew by 49.3 per cent to €327 million. Marketing costs and subsidies paid to mobile phone retailers in respect of new customers meant profits did not increase to the same extent.
"When you acquire a mobile customer, you pay up front," said Mr Alfie Kane, Eircom's chief executive. Profits before tax at Eircell rose to €50 million from €34 million. Eircell now accounted for 27 per cent of group revenue, he said.
Revenues from the fixed line business grew by 4.7 per cent to €848 million and fixed lines customers grew by 6.2 per cent to 1.8 billion.
Pretax profits fell to €109 million from €136 million despite a 5 per cent increase in traffic, reflecting significant reductions in the price of retail calls and also of wholesale interconnect rates - the price charged to other telecom companies to use Eircom's network.
Wholesale traffic has risen by 117 per cent as a result of the opening up of the market to 70 other operators which route traffic across the company's network. This type of traffic is considerably less profitable to Eircom than business it originates itself. "The reality is that the margins are low, if not zero," said Mr Kane.
Eircom still has an 83 per cent share of the fixed line market and is re-positioning the business to "improve cost competitiveness and to exploit the opportunities in the growth of data communications", said Mr Kane. Up to 3,500 staff will leave over the next three years, 1,250 of whom will be re-employed by an Eircom employment agency and contracted out to three joint venture companies supplying customer service and network services to Eircom.
The remainder will go in a voluntary severance scheme, under which 667 have already left with another 176 to go by the end of the year.
Eircom plans to offer high speed Internet, data and other services across its fixed line business but is awaiting a decision from the regulatory authorities as to whether or not it can offer broadcast and interactive television.
It plans to introduce the service - based on a technology called DSL which allows the transmission of digital quality signals across copper phone wires - in the first half of next year.
Plans to float the multimedia businesses have been put on hold pending discussions on the possible sale of Eircell and the fixed line business. Revenue from this business area nearly trebled in the six months to September, from €15 million to €43 million, but heavy investment costs meant it did not contribute to profits. Losses at the division mounted to €32 million before tax, depreciation and interest from €15 million.
The board has left the interim dividend unchanged at 1.6 cents reflecting the uncertainty at the company associated with the possible sale of Eircell and the fixed line business.
