Wednesday, May 24, 2006

Aussie company takes over Eircom

Ireland’s largest telecommunications company is about to become Australian owned. The banking company Babcock and Brown have had a bid of €2.4 billion bid ($Aus 4.1 billion) accepted by the Eircom board. The bank already owns more than 50 per cent of Eircom in conjunction with its bidding partner, eircom's Employee Share Ownership Trust (ESOT.)

Babcock announced that Pierre Danon, a former executive of UK telecom BT, will become executive chairman if its bid is successful. He will take over from Irish media baron, Sir Tony O'Reilly.

The private company Eircom rose from the ashes of the state run Telecom Éireann when it was privatised in 1999. Like many ex-state Telco’s internationally, its network connects most homes and businesses in the country. Also as in other countries, Eircom is legally required to provide wholesale products to other operators and to switch calls onto other phone networks. Many resellers offer broadband resales of the eircom product.

The initial company was created by the Postal & Telecommunications Services Act, 1983 by the Fine Gael / Labour Party coalition government under Taoiseach Garret Fitzgerald.

The Minister for Posts and Telegraphs had been responsible for Ireland's postal and telecommunications services from 1924 to 1984. This hugely bureaucratic department was one of the largest in the country. The reform of the sector and department began in 1978 with the creation of the Posts and Telegraphs Review Group. In 1979, the department was split up into the Interim Board for Posts (An Bord Poist), chaired by Feargal Quinn, and the Interim Board for Telecommunications (An Bord Telecom), chaired by Michael Smurfit. These two boards were replaced the state sponsored bodies An Post and Telecom Éireann, respectively in 1984.

In 1986 Telecom Éireann set up its first mobile phone division called Eircell. The company introduced a Minitel system into Ireland in 1992. This was an eighties French videotex online service using dumb terminals which was successful in its homeland but did not transfer well to Ireland. It died a quick death thanks to the wonderful new invention by Tim Berners-Lee, called the World Wide Web, which revolutionised the internet.

The EU instituted new laws in 1995 which forced Ireland to commence privatisation of its telecommunications network. In July 1999, the new company was listed as eircom on the Irish, London and New York stock exchanges. In May 2001, they completed the demerger of its mobile telecommunications business, selling eircell to Vodafone. In the same year, they were delisted from the stock exchange after a takeover from the Valentia consortium led by Irish media magnate, former rugby international, and ex Heinz chairman Tony O’Reilly.

Eircom relisted again on the stock market in 2004. Babcock and Brown first registered interest in October 2005 buying a 12.5% stake in the company. They gradually increased this to a majority share, Babcock itself owning 28.8 per cent with employees through ESOP own 21.6 per cent.

Babcock and Brown is a global investment company listed on the Australian Stock Exchange since 2004. It has operations in 19 offices across Australia, South East Asia, US, Europe, UAE and South Africa. According to their 2005 annual report, they made a net profit of $AUS 251 million in 2005. Their share price has outperformed the ASX Top 100 index by almost 80% in the 2005 calendar year.

Eircom re-entered the mobile market this year by taking over Meteor Mobile Communication at a cost of €420million. Meteor has 14% of the Irish mobile market.

They have big challenges ahead. According to Forfas, the technology policy and advisory board, there are framework issues to be resolved such as poor bandwidth, quality of service and slow broadband takeup (Ireland is ranked 25 out of the leading 32 countries).

Despite the current sluggishness of Telco’s worldwide, Babcock and Brown are upbeat about the takeover. Executive director Rex Comb said: "In contrast to Telstra in Australia, Eircom has an increasingly superior market position and an outlook for top line growth with its re-entry into mobile. Eircom's market position is more like that of Telecom New Zealand."

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