SBPost: EU could dash Eircom mobile hopes

Eurorunner

(i know its not the internet side of things, but i think its fair to say that all things eircom are of interest to visitors of this board)..

31/10/04 00:00

By Kathleen Barrington

A decision by the European Union to ask the Finnish telecoms regulator towithdraw its mobile access proposals could frustrate Eircom's ambitions to enter themobile phonemarket here.
Earlier this month, the EU requested Finnish watchdog Ficora to withdraw proposals to designate TeliaSonera as the dominant operator in the mobile market.

The regulator's proposals could have forced TeliaSonera to open up access to its network and disclose the contents of various agreements it had signed with operators.

O2 chief executive Danuta Gray cited the move as an example of the European Commi s s ion ove r t u r ning a decision by a national regulator that an operator was dominant in the market.

O2 andVodafone have been lobbying the commission after Irish regulator ComReg earlier this year designatedVodafone and O2 as joint ly dominant in the Irish mobile market with a combined market share of 94 per cent. The regulator's move could be a prelude to forcing the mobile operators togive fixed-line operators, such as Eircom, access to their mobile networks. Eircom has signalled its ambition to become a Mobile Virtual Network Operator (MVNO). An MVNO effectively piggy-backs on an existing mobile operator's network. However, Eircom has so far been unable to agree commercial terms with any of the existing mobile players.

French stockbrokers ODDO Securities said the EU decision means that regulators "will have to build extremely solid cases in order to prove that competition is not strong enough'' to encourage the signing ofMVNOagreements with service providers.

It said the EU decision on Finland was "fairly beneficial for all of the listed mobile operators''. The EU found that, despite TeliaSonera's hefty 60 per cent market share in mobile call origination, it did not benefit from a powerful position in the access market because the regulator's case neglected current market dynamics and did not provide sufficiently convincing arguments.

O2 and Vodafone deny that they are jointly dominant in the mobile market. O2's Gray said there had been a reduction of 38 per cent in pre-paid tariffs since 2000, while postpaid tariffs had fallen by 25 per cent.

Eurorunner

31/10/04 00:00

Tony O'Reilly's determination to gain access to the mobile market is being met with a frosty reception from O2 and Vodafone. Industry observers are eagerly anticipating ComReg's next move, writes Kathleen Barrington.
A major battle between fixed-line operator Eircom and the country's two mobile phone giants is looming after Eircom chairman Tony O'Reilly twice signalled his intention to take on the mobile phone "duopoly'' in recent weeks.

O'Reilly drew a furious response from Vodafone and O2 when he complained earlier this month that the regulatory regime was unfair.

He said the regime forced EirCom to open its network to competitors at cost, but did not allow Eircom access to other companies' networks on similar terms.

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O2 and Vodafone responded by saying that O'Reilly wanted access to their networks on the cheap while refusing to shell out the cost of a mobile phone licence himself.

Undaunted, O'Reilly launched another attack on the mobile operators in an interview with the Sunday Tribune last weekend in which said it was a matter of urgency that the mobile phone duopoly in Ireland be tackled.

He argued that the mobile market was dominated by Vodafone and O2 with a combined market share of 94 per cent, while mobile call charges were five times more expensive than fixed calls.

O'Reilly's public comments come at a time when regulator ComReg is preparing to issue a direction on ways of improving competition in the mobile market after ruling earlier this year that Vodafone andO2 have "joint dominance of the market''.

One way to improve competition would be to allow Eircom piggyback on O2 or Vodafone's network, which is Eircom's preferred option, provided it can negotiate a deal on favourable terms.

Eircom has already had discussions with the mobile operators about concluding such a deal, but so far the parties have not been able to agree terms. Industry sources believe it is unlikely that either Vodafone or O2 would wish to help a competitor in the telecommunications market unless it is forced to do so by the regulator.

However, ComReg faces the prospect of a legal challenge from the mobile operators if it forces them to open their network on terms they consider unfair.

Already, they are known to be lobbying at domestic and EU level against the regulator's finding that they are jointly dominant. Danuta Gray, 02's chief executive, rejects any suggestion that her company and Vodafone are dominant.

She said there were three players in the market ifMeteor is included. A fourth operator, 3, is expected to launch early next year. Gray added that it was premature for the regulator to make a dominance finding ahead of 3's launch.

"We will challenge this all the way.We do not believe we are jointly dominant," she said.

Gray also argued that it was never a condition of 02's mobile licence that it could be forced to allow a rival to piggyback on its network. "We bought a licence and we expect to make a return on it over 20 years," she said. Paul Donovan, Vodafone's chief executive, said Eircom should put its own house in order before trying to enter the mobile market. He accused Eircom of line rental hikes ahead of inflation and a failure to roll out broadband, or high capacity telecommunications, at a fast enough pace.

Donovan said Vodafone had paid E110 million for a mobile phone licence and was committed to investing about E1 billion in its network, while Eircom spent a far smaller share of its revenue on capital expenditure than Vodafone.

He said O'Reilly was saying he would give consumers the Ryanair of the mobile world if only he could access the O2 and Vodafone mobile networks on favourable terms. "But really he is saying: 'I want to sell seats on Michael O'Leary's plane,"' saidDonovan.

For years Eircom resisted giving rival fixed-line operators access to its network on favourable terms. The shoe is now on the other foot, as Eircom is demanding access to the mobile networks.

Damian Mulley, chairman of lobby group, Ireland Offline, contrasted O'Reilly's complaints with the rate he was charging competitors to access Eircom's local loop. Unbundling the local loop allows part of Eircom's telephone network to be rented by a competitor.

"If Eircom want a fair price for accessing the Irish mobile networks I suggest they first lead by example and significantly bring down their local loop unbundling costs which are the second highest in Europe," said Mulley.

"Since they also want to offer more choice and better pricing to consumers, as a test of faith, why not reduce one of the highest line rental charges in Europe?"

"It would be a great shame if ComReg easily gave Eircom access to the mobile network without first making them more competitive and consumer caring in the market they currently dominate," Mulley said. He said that while he welcomed competition inthemarket, he noted that Eircom "wanted access to some of the best-run and maintained networks in Europe, while they themselves have a network beleaguered with broadband line failures and split lines''.

Some industry players may be taking pleasure from what one termed "the delicious irony'' of O'Reilly's position,but the question facing policymakers is how to deliver a cost-effective and efficient telecommunications market for business and consumers.

In that regard, a report from the National Competitiveness Council earlier this month tends to support O'Reilly's claims that the fixed-line market is more competitive than the mobile market. It found that Ireland "is relatively cheap for fixed-line telecommunications'' compared with 15 OECD countries, though it noted that "prices have increased substantially recently''.

By contrast, the report found that Ireland remains more expensive than the EU average for a range of user types on mobile call charges. That may explain why Ibec's telecommunications users group this weekend appeared to side with O'Reilly on Eircom's ambitions to re-enter the mobile market. "Any competition is good competition," said Paul McSweeney, chairman of the Ibec group.

"If Eircom or any other operator plans to re-enter the mobile market and give the two dominant operators a serious run for their money then this can only be a positive development for Irish business users." Numerous analysts believe that Eircom, which re-floated on the stock market earlier this year, needs to be able to offer its customers a mobile service if its business is to grow.

The analysts say this is important as some users are dispensing with fixed-line services in favour of wireless options.

Eircom sold Eircell, its mobile business, to Vodafone, just a few years ago.

d-j-k

I can see no problem with having eircom, or any other player, in the mobile market? I mean, Vodafone and O2 are EXTREMELY dominant and until recently Meteor's been pretty much irrelevant due to lack of coverage issues.

The designation that Comreg gave Vodafone and O2 has allowed Meteor to be able to negociate a roaming agreement with O2 giving it full nationwide coverage and should let it have some impact on the high-spending business / contract customers for the first time. I suspect when "3" launches its services commercially we will see a similar deal.

If eircom gets into the mobile market it'll be a mino and will have to compete hard to gain customers.

Anything that creates more competition is good!

There is equally nothing to stop Vodafone or O2 entering the fixed line business and offering mobile/fixed call packages... they could do that by partnering the likes of Esat or Smart telecom or by launching a fixed service.

While I don't agree with Tony O'Reilly on a lot of things he says about eircom I do agree that the mobile market here has lacked any true competition. It's effectively been a duopoly for far too long.

Ripwave

d-j-k wrote:

If eircom gets into the mobile market it'll be a mino and will have to compete hard to gain customers.

Eircom has about a million fixed line customers. It plans to offer combined, single bill fixed line and mobile packages. Some minnow!

There is equally nothing to stop Vodafone or O2 entering the fixed line business and offering mobile/fixed call packages... they could do that by partnering the likes of Esat or Smart telecom or by launching a fixed service.

An monthly LLU charge of €14.something plus VAT is a significant barrier to anyone else entering the fixed line business. I'm sure if O2 or Vodaphone was able to charge eircom €25 per month per customer, plus per minute call charges, there wouldn't be any problems allowing eircom to resell mobile services. But it appears that eircom doesn't want to pay the mobile equivalent of "LLU".

While I don't agree with Tony O'Reilly on a lot of things he says about eircom I do agree that the mobile market here has lacked any true competition. It's effectively been a duopoly for far too long.

A duopoly is still twice as many competitors as Monopoly O'Reilly has in the market for line rental.

Moriarty

Ripwave wrote:

An monthly LLU charge of €14.something plus VAT is a significant barrier to anyone else entering the fixed line business. I'm sure if O2 or Vodaphone was able to charge eircom €25 per month per customer, plus per minute call charges, there wouldn't be any problems allowing eircom to resell mobile services. But it appears that eircom doesn't want to pay the mobile equivalent of "LLU".

What's stopping them from just buying minutes off eircom like every OLO does for phone calls?

Ripwave

Moriarty wrote:

What's stopping them from just buying minutes off eircom like every OLO does for phone calls?

They'd still be looking at prices that are broadly in line with current mobile prices. The termination charges for calls between mobile and landlines would remain the same. Eircom reckons that if they get access to the mobile networks, they'll be able to pay that termination charge to themselves, effectively, and undercut everyone else.

In the long run, they'd use your lnie rental to subsidise their entry into the mobile market, a source of subsidy that isn't available to anyone else.

damien

Ripwave wrote:

Eircom reckons that if they get access to the mobile networks, they'll be able to pay that termination charge to themselves, effectively, and undercut everyone else.

Don't they have to offer the same termination charges to everyone ? Or will they have ComReg direct that since the other two are dominant they have to pay a higher termination charge ?

SkepticOne

d-j-k wrote:

Anything that creates more competition is good!

What do you mean by competition here?

Eircom aren't really getting into the mobile market since they aren't providing services. They want to resell someone else's service.

It is like a town with only one over-priced barber shop. Obviously if there were more than one shop, people would switch to the cheaper one and prices would eventually be driven down as the businesses compete for business.

However, the equivalent of 'competition' in the sense that you are using it here corresponds to one barber and other's calling themselves barbers but whose only function is to collect money on behalf of the real barber. There is no incentive to improve services.

This is ComReg's and Eircom's idea of competition applied to hair cutting. Put in this way it is easy to see that this conception of competition is rubbish, yet for some reason people don't tend to see this when applied to telecoms.

Real competition in telecoms does exist in other countries and it is these countries that we read about advanced broadband services. Countries that rely on just one underlying provider (i.e. Eircom in the case of Ireland) also have crappy services like Ireland.

De Rebel

Having spoken to a few eircom heads on this topic, it appears that the main incentive for them is to be able to revert to offering a "one-stop-shop" for businesses voice and data requirements. They see it as a means to stop the hemoraging. They are no more interested in offering real competition than the man in the moon. Reselleing somebody elses service is the perfect solution; no capex, margin on the offering itself and an additional product which helps retain its existing user base, especially its lucrative business clients.

damien

It's be nice then if they gave the same access to fixed lines to Vodafone that they want from Vodafone.

Creating a cross-product all in one package would surely automatically mean they are a monopoly in that area as nobody else is doing it. Would they in turn then have to offer this bundled package to the other operators that resell their packages ?

SkepticOne

damien.m wrote:

Creating a cross-product all in one package would surely automatically mean they are a monopoly in that area as nobody else is doing it. Would they in turn then have to offer this bundled package to the other operators that resell their packages ?

If Eircom got their deal woth O2 or Vodaphone via some regulation from ComReg, then the deal from the mobile firms would have to be made available to Esat et al so there would be no need for Eircom to provide it. So I could see Esat reselling O2 services too. But none of this would mean better prices since no extra real competition is entering the market.

Ripwave

damien.m wrote:

Don't they have to offer the same termination charges to everyone ? Or will they have ComReg direct that since the other two are dominant they have to pay a higher termination charge ?

Termination into the landline network isn't the problem - it's termination of calls from landlines to mobiles that's expensive. If eircom just buys minutes from the existing providers, they'll still be faced with that termination charge. They want to get access to the mobile networks much farther up the chain, where they can keep the termination fee for themselves, instead of paying it to O2 or Vodafone.

damien

Can you explain how they can get away with paying the charge ? Or will it be paying a hell of a lot less ?

Ripwave

damien.m wrote:

Can you explain how they can get away with paying the charge ? Or will it be paying a hell of a lot less ?

My understanding is that Monopoly O'Reilly isn't just complaining that O2 and Vodafone won't quote him a cheap enough price for wholesale minutes. I am under the impression that he wants to be given access to their infrastructure to run his own mobile network, without building his own infrastructure. (At least, the arguments put forward by O2 and Vodafone against him suggest that that's what he wants).

I don't know the details of how that would work, or what sort of licensing would be involved (Meteor do something like this, but they are a fully licensed mobile operator), but one of the features of such a network would be that eircom would control the end-to-end pricing of a landline to mobile call, and would probably be able to price calls from "their" landlines to "their" mobiles in a very attractive way. But because they have a monopoly on landlines, nobody else would be able to compete with such a package.

The interesting question is - this sort of competition from eircom might be good for the consumer in the short-term but would it be good for the market in the long term? It's similiar to the way eircom uses income from it's monopoly land-line service to subsidise it's competition for call minutes against companies who rely on call minutes exclusively to survive. There's no question that we're getting great rates on international calls these days, but the cost of local calls has hardly changed, and the cost of infrastructure has sky-rocketed.

Moriarty

From what I read in the article in the sunday times, Eircom is just annoyed that O2/vodafone are giving them a crap wholesale minutes rate - they mentioned they're offering [consumer price - 20%] to eircom, when the usual arrangement on the continent is [consumer price - 50%] apparently.

Ripwave

Moriarty wrote:

From what I read in the article in the sunday times, Eircom is just annoyed that O2/vodafone are giving them a crap wholesale minutes rate - they mentioned they're offering [consumer price - 20%] to eircom, when the usual arrangement on the continent is [consumer price - 50%] apparently.

So, does that mean that mobile users on the continent are being ripped off even more than we are

viking

Anyone got the ST article?

Moriarty

Sunday Times Article (Business & Money Section, Page 1) October 31, 2004

Eircom rejects Vodafone and O2 'piggy-back' offers

Vodafone and O2 have both told Eircom that it can re-enter the mobile market using their networks to sell mobile services, but neither has come up with a price that the former state-owned operator considers competitive, writes Tom McEnaney.

According to industry sources, the rates being offered by O2 and vodafone are broadly similar and equate to a 30% discout to retail prices.

It is understood that Eircom has developed a business model for its return to the mobile market which would see it compete aggressively on price, offering calls at a 25% discount to the existing operators.

It has told O2 and Vodafone, which between them control 94% of the Irish mobile market, that it can only compete if offered a wholesale rate which is about half the retail price.

Industry sources say that "retail minus 50%" is the average rate paid by mobile operators across Europe who piggy-back on other networks.

Piggy-backing would be the cheapest and easiest way for Eircom to re-enter the mobile market which it left when it sold Eircell in May 2001. Eircell has since been rebranded as Vodafone.

Alternatively, Eircom could acquire Meteor, the third-placed player, but this would mean a significant upfront investment. Eircom, which now has a commitment to bondholders and shareholders, is keen to avoid spending money in significant quantitites.

By piggy-backing on another network Eircom could become an MVNO (mobile virtual network operator), which would leave it free to spend any available cash on marketing and advertising. Eircom is hoping to leverage off its existing customer base and brand.

This strategy would see it compete head to head with O2 and Vodafone. Neither company is obliged to allow third-party access to their networks, nor are there any limits on what they can charge for access.

However, there has been some political concern recently over the cost of mobile phone calls in Ireland.

The Irish market is one of the most profitable in the world for both O2 and Vodafone. Comreg, the telecoms watchdog, is also concerned. Last January it concluded that both companies have "joint dominance" of the Irish market.

The government and Comreg hare looking at ways of introducing greater competition into the market. In this environment Eircom executives are hoping O2 and Vodafone will agree to a commercial rate rather than having a rate imposed upon them.

Tony O'Reilly, Eircom's chairman, has made the ompany's re-entry into the mobile market his main goal. This will please the market, which feels that Eircom must make a breakthrough on the issue before Christmas.

O'Reilly has also signalled than [sic] once a new mobile strategy is in place he may resign as chairman.

Last week, in an interview with a newspaper he controls, he said: "If we can get successfully back into mobile, through whatever route, I might be justified in saying that my work was done".

Apologies for any typos, but I couldn't find it online.

De Rebel

viking wrote:

Anyone got the ST article?

Not a lot different to the SBP article, except for this nugget at the end.......

Tony O'Reilly, eircom's chairman, has made the company's re-entry into the mobile market his main goal. This will please the market, which feels that eircom must make a breakthrough on the issue before Christmas.

O'Reilly has also signalled that once a new mobile strategy is in place he may resign as chairman.

Last week, in an interview with a newspaper which he controls, he said: "If we can get successfully back into mobile, through whatever route, I might be justified in saying that my work was done."

Sic transit gloria mundia..........