The telecommunications market next year will be characterised by an intense battle for the small and medium enterprises (SME) sector, industry sources have predicted. They also expect further price cuts and have not ruled out some consolidation in the market.
The partial flotation of Telecom Eireann will be another pivotal event next year. Up to 35 per cent of the State company could be sold, raising in excess of £1 billion and bringing share ownership to virtually every phone owner in the Republic.
The sector has undergone huge changes this year with many existing and new operators being granted licences to operate in the now liberalised market. This was made possible by the Government which asked the EU to lift Telecom Eireann's derogation on voice telephony a year earlier than expected.
For rival companies, such as Esat Telecom, it meant bringing forward by one year plans to attack the residential market. Few people will commit to switching operators until after Christmas and building market share will be an expensive process for the new entrants. Esat is seen as the main challenger to Telecom, but industry analysts believe there will be little real competition on price while a duopoly exists.
However, it is in the corporate market that competition will be greatest as a range of players vie for business. Traditionally considered the most lucrative sector, it is fiercely competitive, and already contains global operators such as MCI Worldcom and Ocean. The Republic is a rich market for them because of the large number of multinational companies located here. The top 5,000 companies are estimated to account for 70 per cent of the £1.5 billion yearly telecoms traffic.
But, say sources, the small to medium business market (with firms employing fewer than 50 people) is still largely untapped and underdeveloped. "SMEs usage of telecoms is well below that of the US," says one source. "They have not yet adapted technology in any significant way."
It is a market which companies such as Esat are targeting, as part of their small office/home office, offer. It is approaching companies which spend less than £200 a month on their phone bills.
All telecoms analysts believe data will continue to become increasingly important as a means of communications. Some companies will build or part-build their own infrastructure to enable broadband capacity - the high-speed transfer of voice, video or data - to be increased. In this regard, Telecom Eireann is expected to become a major reseller of capacity to smaller operators, as well as being an operator itself.
Telecom Eireann is to spend another £100 million to develop broadband infrastructure as part of its overall £350 million capital investment programme. It will lead to an 80 per cent increase in the availability of high-speed fibre optic cable in the network.
Around 30 telecommunications providers got licences on December 1st; many more did not need them because of the types of services they provide. The operators will be able to use Telecom Eireann's infrastructure to compete in the market, by paying Telecom an interconnection fee (for delivering to or originating calls from their customers).
A keen interconnection rate is likely to attract more players into the market. The new players then decide what margin they will take from the service they offer.
Sources say there will be downward pressure on prices, although the bigger players will not be aggressively leading it. However, they will be forced to follow the new operators on price to some extent, because these entrants will be trying to build market share and will be prepared to lose money while doing so.
Telecoms companies are extremely confident about the market and the economy in general. Gross National Product (GNP) is forecast to grow at 6 per cent next year and one source says the telecoms market normally grows at 5 per cent above GNP. Esat chairman Mr Denis O'Brien believes the market will grow by 1012 per cent overall.
Telecoms operators will also be keenly awaiting developments on the sale of Cablelink. Currently 75 per cent owned by Telecom Eireann and 25 per cent by RTE, the company could be sold by April. Estimates on its value vary, but it could fetch up to £200 million.
Cablelink has 350,000 customers and an extremely strong presence in Dublin, but it needs a further investment of £120 million-plus to upgrade the system. Cablelink and other cable operators will be positioning themselves to offer a host of additional services, ranging from the Internet and video on demand to telecoms services.
It is expected that likely bidders will include NTL - which already has a presence in Northern Ireland - a consortium led by TCL, which is a 50 per cent shareholder in cable company Princes Holdings, with Independent Newspapers and perhaps Esat Telecom. Esat is expected to link up with a cable operator.
The mobile phone market this year has been characterised by the incredible growth in the number of users. Almost 20 per cent of the population now has a mobile phone, spurred by the introduction of the pre-paid offer from Eircell and latterly from Esat Digifone.
The entry of the Meteor consortium, the third operator, has been delayed by court proceedings which failed applicant Orange took against the Director of Telecommunications Regulation. This case will not be heard until March and if the result stands, Meteor is still unlikely to be competing in the market until the end of the year.
Analysts agree that as time goes on, breaking into the market will become more difficult for Meteor.
