Sale of Eircell contributed to Eircom's decline, says Moody's

THE 2001 sale of Eircom’s mobile division was a contributing factor in the former State telecoms company’s downfall, a report has revealed.

According to Moody’s, the lack of a strong mobile subsidiary weakened the group’s competitive position and made it one of the few such firms in Europe that did not have a mobile business.

The group sold Eircell to Vodafone – now Ireland’s top mobile phone network – for €3.9 billion a little over a decade ago.

Since then, mobile phone use has increased dramatically, with recent trends indicating a growing number of people are ditching land lines in favour of mobile phones.

According to Bloomberg Industries, the wireless sector of the telecoms industry grew by an average of 2.4 per cent year on year between 2004 and 2010, while the fixed-line sector declined by 0.7 per cent annually.

Eircom subsequently bought Meteor in 2005 for €419 million, and established the eMobile brand in 2010.

The mobile business now accounts for about 25 per cent of the group’s revenues, but a combination of the reduction in mobile termination rates and increased competition has led to a weaker operating performance in the mobile business compared to its fixed-line counterpart.

The report highlights a number of other factors contributing to Eircom’s eventual default, including the frequent changes in ownership resulting in a lack of consistent strategy for the business and cutbacks in investment at a time when upgrading networks to fibre is necessary to compete with cable rivals.

The deep economic crisis in Ireland has also led to difficulties for the company.

Unlike the banks, telecommunications firms are not seen as having the same systemic importance as banks and are less likely to be rescued by governments.

Eircom’s default is the first involving a telecoms incumbent in Europe.

Moreover, it is the largest corporate insolvency in Irish commercial history, with net debts of €3.8 billion, according to Moody’s.

The group has changed ownership on five occasions since it was privatised in 1999 and has cut staff numbers from 14,000 to 6,000.

A further 1,000 redundancies are planned and employees agreed in March last year to a number of measures that would save €92 million in staff costs.

These included a 10 per cent pay cut for a similar reduction in working hours.

Eircom applied for examinership last month after it failed to make a coupon payment on its bonds due in February.

A restructuring proposal for the group submitted by majority owner STT was rejected by lenders in December, causing STT’s nominated directors to resign from the board.