Eircom warns of more cost cutting

Eircom said today it will be forced to cut costs in the coming months as the Irish market failed to show improvement

The telecommunications company reported group revenue fell 9 per cent to €933 million in the six months ended December 31st 2009, while adjusted earnings before interest, tax, depreciation and amortisation slipped 3 per cent to €327 million.

Revenue for both fixed lines and mobile business declined over the six months.

“The operating environment in Ireland has not improved,” said chief executive Paul Donovan. “The Group’s revenues remain under pressure and our profits have declined in the quarter despite continued good progress on costs.”

The company reduced operating costs by 13 per cent as reductions in pay and staff numbers showed some savings. The company has cuts its staff numbers by 427, or 6 per cent, since December 2008, and direct cost of sales has also fallen, in line with the decline in revenue.

In the second quarter, ended December 31st, group revenue fell 10 per cent to €465 million, while operating costs slipped 12 per cent to €306 million and adjusted ebidta was €159 million, 5 per cent lower than the same quarter in 2008.

The company said it has signed up more than 750,000 fixed and mobile broadband customers, with more than 35,000 mobile broadband customers.

Mobile data revenues are on the rise too, the company said, rising 53 per cent in the quarter ending December 31st 2009 compared to a year earlier.

The telecoms company said it was close to launching new next generation broadband products. Ireland is currently lagging behind other countries in the roll-out of next generation networks, with a report published by Forfás last month while broadband accounts for 90 per cent of internet connections in Ireland and speeds have improved, they remain below the fastest speeds available to customers in other OECD countries. Only 0.6 per cent of connections in Ireland are fibre connections, compared to an average of 11.3 per cent in OECD-28 countries.

However, it noted the country had made “significant progress” in improving broadband coverage in the past two years, with an average of 21.4 subscribers per 100 people, compared with the OECD average of 22.4. This excludes mobile broadband, and countries like the Netherlands, which has a 38.1 average.

Eircom said the number of PSTN lines were down 81,000 to 1,505,000. Meanwhile, the company increased its mobile customer base by 46,000 over the six months, with 1,086,000 subscribers.

Mobile revenue fell 7 per cent to €239 million as average revenue per user (Arpu) slipped 10 per cent to €34.97. However, this was partially offset by customer growth. Mobile Ebidta was 6 per cent less in the six month to December 31st, falling to €51 million.

Eircom also said it had agreed proposals on pensions with the unions, in a bid to eliminate a deficit in its defined-benefit pensions and reduce risks in the scheme.

“Eircom’s annual contributions to the scheme will be contained at an affordable level, with a commitment to increase from 7.8 per cent of pay to at least 8.5 per cent, and will be subject to a floor for three years,” the company said in a statement.

In January, Australian-based Eircom Holdings Ltd (ERC) sold its shareholding in Eircom for €140 million, becoming the fifth owner the company has had in just over a decade.