Esat BT is reviewing its participation in the residential market for the second time in just 18 months because its business model is unsustainable in the current regulatory environment.
Mr Bill Murphy, Esat BT chief executive, said Eircom was still frustrating regulation by failing to introduce key products and continuing to engage in anti-competitive practices.
Esat BT is the second-biggest firm in the residential market with 60,000 customers. A decision to pull out of the residential market would greatly reduce competition, as Eircom provides telephone services to more than 90 per cent of residential homes.
Mr Murphy made the comments at Esat BT's half-year results yesterday, which show that the firm cut its net loss in the six months to September 30th to €29 million, down from €113 million in the same period of 2002.
Improved operating performance was generated from an 11 per cent rise in turnover and better cost control at the Irish subsidiary of British Telecom.
Esat BT increased revenues in the six months to September 30th to €138 million, up from €125 million on the same period last year.
Operating expenditure fell to €40 million during the first half of its current financial year, down from €45 million in the same period in 2002/2003.
Gross margins fell to 37 per cent in the first half the year, down from 45 per cent in the first half of 2002. Esat BT said the fall in margins was due to a €6 million once-off payment made by Eircom in the first half of 2002 following regulatory intervention.
Mr Murphy said Esat BT aimed to turn a profit before March 2005 and said the results for the first half of the year were extremely positive. But he targeted the residential market as a an area of particular concern.
"We are at a real crossroads with industry and regulation. We look at the market and see Eircom increasing its market share by 2 per cent. This is probably the only market in Europe where this is taking place." Mr Murphy said Esat BT was reviewing the residential market to assess whether it was sustainable in the long term.
Voice revenues collected from residential users account for just 10 per cent of Esat BT's half-year revenues, some €13 million. It is a loss-making business for Esat BT.
Mr Murphy highlighted Eircom's failure to provide a fit-for-use wholesale line-rental product some 18 months after it was first proposed by the regulator. This was a crucial product for consumers, many of whom do not like getting two bills for telephone services, said Mr Murphy.
Mr Murphy said he thought the Commission for Communications Regulation (ComReg) needed stronger penalty powers to force Eircom to comply with its decisions. "We need crisper regulation with proper enforcement or there will be no competitive residential market at all," he added.
Eircom last night rejected Esat BT's allegation that it had engaged in any anti-competitive practices. The company also said that it had introduced a viable wholesale line-rental product.