TELECOMS: Esat Telecom has said it is not pulling out of the Irish market but is instead planning a goodwill writedown to clean up its balance sheet and help set it on the road to profitability.
The State's second largest telecoms operator has also embarked on a cost-cutting and reorganisation programme aimed at turning around its loss-making operations.
"Unequivocally, we are staying and we are going to fight in this marketplace," interim chief executive, Mr Bill Murphy, said after Esat's parent, BT, released full-year results yesterday. "At the end of the day, we are financially viable and the legitimate number two to Eircom."
Doubt about Esat's future surfaced after BT said recently it had decided to close or sell its loss-making overseas subsidiaries from March 2003.
Esat reported a loss of €40 million before interest, tax, depreciation and amortisation in the year to March, up from a €28 million loss a year earlier.
But in a move that will boost earnings, Esat plans to write down the €454 million goodwill valuation of its assets on the balance sheet.
Company executives declined to say yesterday what percentage of the €454 million would be written off but said it would be decided over the next few weeks before the company files its end-year accounts.
"The impact of this on Esat's books will be substantial," said Mr Tom Byrne, Esat's chief financial officer, noting that it would substantially help earnings.
The planned write-down follows a similar move by BT, and other telecom groups, and reflects the falling value of telecom assets like networks.
BT, which reported pre-tax profits of £1.27 billion sterling in the year to end-March, has taken a one-off charge of £1.9 billion sterling (€3.1 billion) in the fourth quarter from writing down goodwill relating to its investment in certain of its European activities. This includes writing off the full value of its investment in Esat Telecom which it purchased, along with a 49.5 per cent stake in mobile phone arm Esat Digifone, for $2.5 billion more than two years ago. At the time, Esat Telecom accounted for around half the total purchase price of $1.25 billion, analysts said.
Esat has also embarked on a cost-saving and restructuring programme aimed at eliminating overlaps that remain following the takeover by BT.
"The company never joined up," Mr Murphy said. "We have multiple IT departments, multiple networks. We are joining the company up and cleaning up the corporate structure as well."
Esat's existing seven brand names will disappear, to be replaced by two. The Esat brand will deal with the small business and residential market while BT Ignite will cater for large corporate and governmental customers. Esat is aiming to increase turnover in this area by 30 per cent.
It is also aiming to save an eight-figure sum in operational expenses through a variety of means including rationalisation of office space and a headcount reduction. The company, which employs around 1,300 people in the Republic, has already begun the process of shedding 200 jobs.
But it plans to continue investing in the Republic, spen-ding €45-€50 million this year on top of a similar amount last year.
Mobile operator O2, formerly Digifone, has dropped its mobile termination rate by 13 per cent, in a co-operative move with the Office of the Director of Telecoms Regulation and Eircom. The reduction follows a similar move in recent weeks by operator Vodafone.
The mobile termination rate is the amount O2 charges other telecoms operators to carry a call made to a number in its own network. The new rate is down two cent, from 14 cents to 12 cents.
