Barry O'Halloran examines what the future may hold for Smart Telecom

Smart Telecom's customers were understandably miffed last week when they lost their service without warning as a result of a row between the company and its wholesaler, Eircom, over a €4 million debt.

That issue now looks like it will be resolved, but Smart's customers should spare a thought for its shareholders, who have lost their shirts, with little immediate prospect of getting them back.

Over the last 12 months, Smart's price on London's Alternative Investment Market (AIM) has fallen from a high of 27.25 pence sterling to 0.3 of one penny.

This is a fall of more than 98 per cent in the value of their investment, as close to a total wipe out as it's possible to come.

Smart attracted its share of "retail" investors - that is, individuals rather than institutions or companies, who bought small stakes in the company.

Its biggest backer, businessman Brendan Murtagh, owns 19.99 per cent of the company and, while he is an individual, he does not really fall into the retail category.

Mr Murtagh, former Smart chief executive Oisín Fanning, and a range of institutional investors, owned 64 per cent of the company at the end of last June.

Of this, Goodbody Stockbroker Nominees held 4.95 per cent. The beneficiaries may or may not have been small private investors. It's not possible to quantify the number of small shareholders, but there are a lot of them.

They - and all other shareholders - have lost most of their investment. Broadly speaking, if they bought in the company a year ago, by the close of business last night, they lost €98.15 for every €100 they invested in the company. If they bought at Smart's peak 37.5 pence sterling peak in February of last year, they have lost more than €99 for every €100.

The company issued shares twice last year, once at 15 pence and once at 22 pence. If investors took advantage of the first issue, they have lost exactly €98 for every €100 invested. If they took advantage of the second, they have lost more than €98.50 for every €100.

Shareholders still have the option of hanging in there, because, despite everything, Smart is going to continue in business. But it's going to be a very different Smart. In fact, it's going to be a different company altogether, called BidCo, which plans to take over Smart's business and its €40 million liabilities. Bidco is the vehicle that Mr Murtagh created last week to rescue Smart.

In return, Smart is getting €1 and 10 per cent of BidCo. Smart's shareholders will have to approve this at an extraordinary general meeting (egm) towards the end of the month.

If they do, they will end up with 10 per cent of Smart's existing broadband business, which includes 160 corporate customers and 17,000 residential customers (assuming they have stayed with the company after last week).

In addition, Smart will hold on to its 10 per cent interest in Broadband Communications Ltd (BBCL), whose sole asset is 120km of fibre optic telecommunications cable and 800km of ducting (which allows more cable to be connected up to the existing one) in Dublin.

The other 90 per cent of BBCL belongs to Brendan Murtagh, and his sons Alan and Fergal. They and Smart bought the company from its owner US firm Connect Electronics, in 2004, for a reported €7 million. Smart has the option to acquire this for €10.5 million by the end of next year.

This values BBCL at €11.05 million, so Smart's - and its shareholders' - stake in this is worth over €1.1 million. Murtagh also has an interest in that 10 per cent, in that he has a charge over it as security for a €2.4 million loan he gave to Smart last month. If Smart defaults, he gets the remaining 10 per cent.

What all this means is that, if they agree to it at the egm, Smart's other shareholders are getting into bed with Mr Murtagh and his family on what could really be described as a new broadband venture.

Mr Murtagh has invested between €20 million and €25 million directly in Smart. Between that and loans to ensure that it has working capital, the whole exercise has probably cost him closer to €30 million. His stake was worth around €400,000 at last night's close.

As a result of that investment, or loss if you prefer, and the purchase of BBCL in 2004, he will end up with control over this "new" broadband venture, as Smart operates BBCL's fibre optic cable.

That cable has two critical advantages, it is close to the State's biggest telecoms market, and Eircom does not own it. Its potential value could well be a lot more than the €11 million price tag placed on it by the Smart-BBCL option deal.

But that is only potential value at this stage, and the fact that Smart has had access to it since 2004 gave the company little or no advantage when it was trying to carve itself a chunk of the Republic's nascent broadband market.

Added to this is the fact that its potential value can only be realised with further investment, and it is hard to see anyone rushing to throw money at a business with €40 million in liabilities, unless Mr Murtagh's pockets are deep enough to allow him to do this and take further risks.

For the small shareholders, it's a question of whether or not they believe they can recover some or all of their cash by sticking with BidCo and Murtagh. If they do not they can sell up, or vote against the proposal at the egm. Whatever they decide, they could do with a bit of luck.