EIRCOM’S DECISION to request examinership, to protect the company from its creditors for up to 100 days and to allow it time to restructure its debt, is a landmark event.
If, as seems likely, the High Court assents today, it will be the largest examinership in Irish corporate history, closing another depressing chapter in Eircom’s story of ownership change and mounting debt. The Republic’s largest phone company will – once the examinership process is completed – be owned by its senior lenders.
In 1999 the outlook seemed so much brighter when Telecom Éireann, a State monopoly, moved from public to private ownership via a stock market flotation, and became Eircom. It was the largest privatisation in the State’s history, raising €6.3 billion for the exchequer. Eircom was then a profitable and debt-free company with a promising future. More than a decade later Eircom has had six owners in 13 years. The company now carries a mountain of debt – some €3.6 billion before debt restructuring is completed – and faces a very uncertain future. In management schools, were students to study business failure as closely as they analyse business success, Eircom would be a textbook case of the former.
The Eircom story has been uniformly disappointing for most, though by no means all, its various stakeholders. In 1999 many retail investors, with much encouragement from government ministers, bought shares in the company. Most did so as a buy and hold investment. They lost money. Eircom has, however, made money for some – notably private equity groups, such as Sir Anthony O’Reilly’s Valentia consortium. It took Eircom off the stock market in 2001, before refloating the company a few years later at a huge profit. Others too have done well, including members of the Eircom Employee Share Ownership Trust (Esot). By last year Esot members had received over €750 million from Eircom.
At its simplest, Eircom failed to change with the times and to adjust its business model accordingly. Eircom sold its hugely profitable mobile business to Vodafone, and over the past decade has made insufficient capital investment in its fixed line business to meet rising public demand for better broadband services – which would allow users faster Internet access, via high-speed fibre networks.
Others who have made the necessary capital investment have stolen a march on Eircom, and reaped the financial reward. Companies lsuch as UPC, that offer customers a triple play service – combining phone, internet and television – have made it harder for Eircom to compete, either on cost or service. Eircom’s singular failure to develop a national broadband infrastructure has proved critical. That reflects greater shareholder concern for short-term profit than for longer-term investment in the company’s future. That short-term approach has left the country without the infrastructure needed to support fully a knowledge-based economy, and left an insolvent Eircom, petitioning the court to enter examinership.