Telecoms:Dominant Eircom maintained its grip on the exchanges while rival Smart Telecom's shareholders saw most of their investment wiped out, writes Barry O'Halloran

For the telecoms industry, 2006 was a case of the same names and the same regulatory problems.

Dominant player, Eircom, and rival Smart Telecom, were both making news for different reasons as 2005 closed and 2006 began; both pretty much stayed in the spotlight for the rest of the year.

Eircom had just been the target of an aborted bid by Swisscom and was clearly in play. Smart won the right to a potentially lucrative mobile licence, giving credence to its ambition to be one of the key players in the Irish market.

Industry regulator ComReg began holding talks aimed at getting the dominant player to open up its exchanges to its rivals, and allow full competition in the broadband and fixed-line markets.

The industry's other big player, and most credible competitor to Eircom, BT Ireland, announced far-reaching investment plans but warned that these depended on the advent of full competition and access to the vital link between telephone exchanges and customers' homes and businesses.

As the year comes to a close, the problem, along with associated logistical difficulties for customers who want to switch providers, remains, although the parties involved acknowledge that progress is being made.

Eircom consolidated its reputation as a corporate target with its fourth change of ownership in seven years.

Early in 2006, Australian venture capitalist Babcock & Brown, launched a bid for the company valuing it at just shy of €2.4 billion.

By August, the deal was done and new management headed by executive chairman Pierre Danon were in charge.

The company de-listed from the Dublin and London stock exchanges and passed to the ownership of Babcock and the employee share option trust (Esot) controlled by its workers. As in previous changes of ownership, the Esot played a king-making role this year.

While all this was going on, Eircom maintained its grip on the exchanges, ensuring a tough time for its rivals, including Smart, which found it hard to recruit customers to its broadband services.

Back in 2004, Smart had hoped to win 64,000 customers by the end of this year. To date, the figure languishes closer to 17,000 - the result, its chief executive Ciarán Casey told investors in October, of Eircom's intransigence.

By year end, Smart has become a much-reduced business 90 per cent-owned by Brendan Murtagh, the driving force behind building products manufacturer, Kingspan.

Its shareholders, who saw almost 99 per cent of their investment wiped out this year, own the remaining 10 per cent.

Along with the 17,000 broadband subscribers, Smart has 160 large corporate customers using its service. Its debts are in the order of €40 million and it is committed to paying them.

In early October, 40,000 Smart voice customers, who were on the old-fashioned wholesale line rental system, were cut off as a result of a row between the company and Eircom over cash due to the latter for providing wholesale lines.

At that stage it emerged that the company was losing €2.5 million a month, and Murtagh, who at the time owned 20 per cent of the business, was providing its working capital.

He put together the eventual rescue plan, which led to a de-listing and sale of 90 per cent of the business for a nominal sum to the Murtagh-controlled vehicle, Calally.

Despite some cage-rattling from understandably disillusioned shareholders, the transfer to Murtagh went ahead smoothly in October. In the process it became the second Irish telco to delist from the Dublin and London exchanges this year.

Coincidentally, the meeting at which shareholders agreed on the transfer happened the same day that the High Court ruled on a dispute between Smart and ComReg over the regulator's decision to withdraw the offer of a third generation (3G) licence to Smart.

Although it was more or less academic by that stage, Smart lost the case and the licence is now destined for Eircom, which came second in the competition for the licence award back in November 2005.

ComReg had withdrawn the offer to Smart on February 13th after it said the company failed to provide it with acceptable performance bonds for €100 million by an agreed deadline of January 30th. Smart said it provided ComReg with draft bonds, which should have been acceptable, on January 27th.

Towards the end of the year, Isolde Goggin stepped down from her second one-year stint at the head of the three-person regulator.

It subsequently emerged that she was leaving the agency altogether. Fellow commissioner, Mike Byrne, has succeeded her as chairman.

Replacing Goggin will be one of Minister for Communications, Noel Dempsey's tasks as 2007 opens.

A key focus for the industry in 2007 will be legislation that will boost ComReg's powers and possibly, but not definitely, speed up the process of opening up Eircom's exchanges to competitors, a move that is seen as vital to increasing broadband penetration.

There are other developments on this front. The two biggest mobile operators, O2 and Vodafone, are installing technology that will facilitate mobile broadband. O2 plans this as part of a €250 million investment in its network, and will be introducing this next year.

It could well be that next year will bring us a bit closer to the point where Eircom, its exchanges and the ongoing regulatory wrangle can be bypassed altogether, but we're unlikely to reach that stage within 12 months.

In the meantime expect more of the same from the telecoms industry in 2007.