Ireland Readies for Telecoms Deregulation: Industry Spotlight
Dublin, Nov. 27 (Bloomberg) -- Ireland's booming economy
will make the country an attractive target for the
telecommunications industry when it belatedly joins most other
Europe Union nations and opens its markets to full competition
on Dec. 1.
Like Spain, Ireland was exempted from rules obliging member
states to phase out their phone monopolies at the beginning of
the year. However, demands from companies such as Microsoft
Corp., which has based its European headquarters in Ireland,
prompted the government to go ahead with liberalization this
year, well before the EU's extended 2001 deadline.
Ireland's economy, which the EU forecasts will grow 11.4
percent this year, almost five times the European average,
relies heavily on foreign investment. The telecoms industry,
worth around $2 billion, or about 1.2 percent of the European
market, is central to Ireland's efforts to attract foreign
investment and its hopes of becoming an electronic commerce hub.
''The telecom industry has a strategic importance for
Ireland,'' said Bhawani Shankar, a senior analyst at U.K.-based
Dataquest. ''Ireland is fast becoming a major center for call
centers and there is a lot of voice traffic with the U.S. and
Japan. It is important companies looking to locate in the
country feel comfortable about the telephone services.''
Shankar forecast the Irish market will grow by between 4
and 5 percent by 2002 -- lower than the Belgian rate but higher
than the U.K.'s. It is difficult to predict the development of
the Irish markets until regulatory issues are resolved, he
added.
Regulatory Issues
Public Enterprise Minister Mary O'Rourke's decision in June
to end Telecom Eireann's monopoly on residential services by
Dec. 1 left six months to resolve regulatory questions.
The referee for the new market is independent regulator
Etain Doyle. Earlier this month, she said her office and Telecom
Eireann had sorted out the most contentious issue in telecom
regulation -- interconnect prices -- although the rates have yet
to be publicly announced.
Doyle said the deal will bring down interconnect rates to
the European average after Dec. 1. Telecom Eireann has said the
rates will be the third-lowest in Europe. The cuts have been
broadly welcomed by competitors although the remain critical of
the interconnect rates for Internet access.
''There's still a lot to be done on issues such as
interconnection,'' said Jemma Houlihan, a telecoms analyst at
ABN Amro. ''It's like many other European countries. It takes a
while, a few years, before things are really sorted out.''
Doyle plans to publish final rules on detailed issues
relating to numbering, directory inquiries and premium rate
services next month. The rates Telecom Eireann can charges rival
for these services will have a significant impact on their
costs. Other regulatory issues such as the allocation of
wireless local loop licenses will not be decided until next
year.
Telecom Eireann Cuts Costs
Telecom Eireann has not waited for liberalization and full
agreement on a regulatory framework before wooing customers by
cutting prices. In September it slashed the cost of long-
distance calls by a third and said it would cut mobile phone
costs by 17 percent.
Shankar forecasts competition will push down prices still
further. ''We have already seen signs of change. Telecom Eireann
has been cutting prices aggressively along a whole range of
services. There will be a mini price war in the spring.''
A survey by Dublin-based Amarach Consulting found 32
percent of those surveyed said they would definitely switch
telephone service provider in the next six months to get a
better deal. The most likely to switch are personal computer and
mobile phone users, the survey showed.
Telecom Eireann is also preparing for its initial public
offering next summer when the government disposes of its 80
percent stake in the group.
''The flotation will create huge interest in telecoms,
which will be good for Esat as well as Telecom Eireann,''
Houlihan said. She forecast Royal KPN NV of the Netherlands and
Sweden's Telia AB, which together have a 20 percent stake in
Telecom Eireann, will exercise an option to boost their stake to
35 percent. A further 14.9 percent will be given to employers
while the remaining 50.1 percent will be sold on stock exchanges
in Ireland, Europe and the U.S.
The local media has reported the government also plans to
shake up Telecom Eireann's management. The Irish Independent
newspaper said this month the government plans to hire new
directors for Telecom Eireann's board with experience of the
telecommunications industry to market the company to Irish and
overseas investors.
Rivals Gear Up
Meantime, companies such Ireland's second-largest telecoms
group, Esat Telecom Plc, and newcomer Ocean Plc are also pushing
ahead.
Telecom Eireann's longest established rival is Esat, which
has supplied telecoms services to Irish businesses for four
years.
Esat, which is listed on the Nasdaq and Easdaq stock
exchanges, said in November it had trebled the number of
business customers in the last year and now has a quarter of
Ireland's top 400 companies. It has yet to make a profit
although it has won high-profile customers such as Intel Corp.,
and the country's largest bank, Allied Irish Banks Plc.
Esat now plans to enter the residential market by targeting
high-spending private phone users. Esat said it has signed up
more than 1,000 residential customers even though it hasn't made
public its rates.
''Sales are going to be a little bit slower than
expected,'' Houlihan forecast. ''They will be doing well to have
10 percent, or 30,000, of their target customers by this time
next year,'' she says. Esat probably would start to make a
profit on its residential business in 2001, she added.
The second biggest rival is likely to be British
Telecommunications Plc's Irish joint venture called Ocean. BT
set up Ocean with Irish state-owned Electricity Supply Board in
June to target business and private clients
Ocean said in June the 50-50 venture would focus initially
on building BT's Irish corporate client base and later provide
services to homes. American International Group Inc., a New York-
based insurance and financial services company, will provide
financial backing through its 40 percent investment in ESBIT.
Ocean, which is already advertising heavily, plans to launch its
residential services in the Spring.
U.S.-led Group
Deregulation is unlikely to have an immediate effect on
Ireland's mobile phone market, which is divided between Telecom
Eireann's Eircell and Digifone, which is 45-percent owned by
Esat Telecom, Houlihan said.
''Ireland now has a 19 percent penetration rate for mobile
phones, around the same as the U.K.,'' Houlihan said. She
forecast 24 percent of the population will have a mobile phone
next year. ''The business end of the market is approaching
saturation point, new customers will tend to come from the lower
end of the market.''
The regulator has allocated a third license to a U.S.-based
consortium led by Western Wireless Corp. Seattle-based Western
owns 60 percent of the Meteor consortium, Ireland's RF
Communications owns 30 percent and Walter Group of the U.S. owns
the remaining 10 percent.
Orange Plc, a British mobile phone operator, has lodged an
appeal in the High Court in Dublin that could halt or delay the
planned start next March of Meteor's service.
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