STT to buy Eircom for €130m

gerky

SiliconRepublic wrote:

STT to buy Eircom for €130m

14.08.2009
It has emerged that successful Far East telecoms player Singapore Technologies Telemedia is to buy Ireland’s incumbent telecoms operator Eircom for €130m.

In June, STT originally offered €120m for Eircom, in a move that was strongly supported by the Eircom Employee Share Ownership Trust (ESOP).

STT, which is understood to have interests across Asia and owns fibre optic cable player Global Crossing, has bid €130 to buy Eircom Holdings, formerly known as Babcock & Brown Capital.

The deal is expected to be concluded next week subject to a number of issues being addressed, namely the management fee that STT will p[ay to run Eircom.

Eircom, which has debts of €3bn, still has an integral role to play in ensuring Ireland has the telecoms infrastructure it needs for the future of the economy and it is understood STT has met with the Irish Government about addressing infrastructure deficit.

It has been suggested that Eircom may return to the stock market by 2011 to enable STT to get a return on its investment.

By John Kennedy

Independent.ie wrote:

By Ailish O'Hora Business News Editor

Friday August 14 2009

Former state telecoms firm Eircom will be sold off to Singapore Technologies Telemedia (STT) by the end of next week, sources close to the deal have confirmed to the Irish Independent.

STT recently offered a revised bid worth a total of about €130m for Eircom's Australian parent Eircom Holdings (ERC), formerly known as Babcock & Brown Capital.

When a deal is concluded, STT will hold about 51pc of the new vehicle bidding for the parent, known as BidCo, while the Eircom Share Ownership Trust (ESOT), which already owns 35pc of Eircom, will transfer its stake to the new firm which will be registered in the Cayman Islands.

The ESOT has already informed the Revenue Commissioners of its plans to transfer its existing stake to the new vehicle and it is understood that the tax treatment of the trust will not be altered as a result of the deal.

Close

Following conclusion of the deal, Och-Ziff Capital Management, one of the world's largest hedge funds, will own about 7pc of BidCo, while the remaining 7pc will be held by a number of other shareholders.

The deal is close to being concluded with a number of issues yet to be ironed out, including an agreement on the management fee to be paid by STT to run Eircom.

The STT side of the deal is being headed up by STT's head of international business development, Anupam Garg.

ERC's chairman Kerry Rosburgh, has been in Singapore and Dublin recently as the deal edged closer to being signed.

STT representatives have also met members of the Government and both sides have had preliminary talks on their plans for Ireland's beleaguered telecommunications infrastructure.

It is understood that investment by STT in Eircom has been discussed as have government plans for a next generation network to upgrade broadband speeds across the country.

The prospect of Eircom being taken over by a telecoms firm is a new departure for the incumbent which has been in private ownership for almost all of the 10 years since its flotation in which many investors lost millions following the collapse of the firm's share price.

Now, Eircom is laden with debts of over €3bn. It is also struggling to fight off competition from the mobile sector and has also been hit by the recessionary environment.

The €130m price represents the debt level at Eircom.

It is understood STT will expect handsome returns for its investment in Eircom and the proposal terms include a clause that would mean Eircom returning to the stock market as early as 2011. This would provide STT with means of cashing in through the sale of shares.

The proposal also includes a clause whereby STT would be entitled to a performance fee in certain circumstances if existing shareholders sold out after making a return.

Paul Donovan, the former Vodafone Ireland boss, was recently made chief executive of Eircom.

- Ailish O'Hora Business News Editor

http://www.siliconrepublic.com/news/article/13621/business/stt-to-buy-eircom-for-130m
http://www.independent.ie/business/world/singapore-company-to-take-over-eircom-by-the-end-of-next-week-1859906.html

drunkmonkey

Is Meteor included in that price?

paulm17781

drunkmonkey wrote: »

Is Meteor included in that price?

Yeah, they bought the holding company so that would be everything. It's a low price because it comes with €3bn dept.

bk

drunkmonkey wrote: »

Is Meteor included in that price?

Yes

The value of Meteor and Eircom as a whole is being vastly pushed down due to their massive 3billion + debt.

Really STT are not only paying €130 million for Eircom, they are paying €130 million + €3 billion debt.

Hopefully STT have a long term plan to make money, that includes investing in a next generation network. Under the right ownership and with the right investment, Eircom could be quiet a valuable investment over the long term.
If not, then Eircom will continue to become less relevant and to lose market share to UPC and the mobile companies.

kmick

If I were STT I would be buying back that debt at .15c on the euro.

Kensington

bk wrote: »

Yes

The value of Meteor and Eircom as a whole is being vastly pushed down due to their massive 3billion + debt.

Really STT are not only paying €130 million for Eircom, they are paying €130 million + €3 billion debt.

Hopefully STT have a long term plan to make money, that includes investing in a next generation network. Under the right ownership and with the right investment, Eircom could be quiet a valuable investment over the long term.
If not, then Eircom will continue to become less relevant and to lose market share to UPC and the mobile companies.

Sadly I think that will be the ultimate outcome. Ever increasing line rental charges to fund the debt and little or no investment in improving the network.

bealtine

Let's hope that STT have a plan to grow market share for new company.

The most important thing would be to stem the loss of fixed lines throughout Ireland. The fixed line penetration is now down around 60+% down from the highs of yesteryear. The main reasons are the silly and exorbitant line rental and the insistence on selling useless call packages.

Most people, I think, want their line for broadband and maybe a few calls. The psychological barrier to growing market share is that others (UPC/Mobile) have hit the sweet spot for supplying broadband at the right price and basically eircom look silly at their pricing of around e50 per month, for basic broadband.

The first thing that needs to be done is lower the crazy line rental and supply reasonable broadband packages for around e30 per month (or less). Then and only then can eircom stem the hemorrhaging of customers to other competing platforms...

The regulatory regime (I think) is responsible for this utterly insane situation and the only solution seems to be to abolish Comreg or apply the correct structural reforms to this utterly pointless entity. Then, and only then, can the country move forward. Keeping prices artificially high to "encourage competition" is patently utter nonsense and has been clearly demonstrated by the utter lack of so called competition in the marketplace. Most of the illusion of competition are simply resellers of over priced eircom lines. LLU/SLU is still broken after 10 years...Comreg cannot even get simple things like links on their website to work and clearly cannot be trusted to run a flawed regulatory regime.

SkepticOne

Kensington wrote: »

Sadly I think that will be the ultimate outcome. Ever increasing line rental charges to fund the debt and little or no investment in improving the network.

Not sustainable, of course, because people will simply drop them and rely increasingly on mobile and VoIP for voice and LLU, cable, wireless for internet as they are beginning to do. The sooner things come to a head the better.

bealtine

SkepticOne wrote: »

Not sustainable, of course, because people will simply drop them and rely increasingly on mobile and VoIP for voice and LLU, cable, wireless for internet as they are beginning to do. The sooner things come to a head the better.

This is clearly what is currently happening, people are leaving in droves. Fixed line telecommunications is simply too expensive to be sustained.

SkepticOne

bealtine wrote: »

This is clearly what is currently happening, people are leaving in droves. Fixed line telecommunications is simply too expensive to be sustained.

Where I think I differ from others is that I don't see this abandoning of the legacy telephone infrastructure as a bad thing. Things coming to a head is what needs to happen, imo.

bealtine

SkepticOne wrote: »

Where I think I differ from others is that I don't see this abandoning of the legacy telephone infrastructure as a bad thing. Things coming to a head is what needs to happen, imo.

I'm not sure that the majority of alternatives are ready for the "big time" as yet. UPC and Wisps are fairly thinly spread, although where they are active they do eat into eircom's user base. However the economies of scale don't allow a nationwide rollout (as yet).
The Wisps seem to price themselves against eircom's models which essentially means they don't fit into the "sweet spot" where people have no problem in paying their monthly subs.
UPC is mostly an urban phenomenon and won't be a nationwide alternative any time soon...

Mobile midband is nowhere near ready to be considered a viable alternative.

So in the interim we are stuck with fixed line telecommunications...

But yes coming to a head is important and we seem to be reaching that point rather quickly.

SkepticOne

bealtine wrote: »

I'm not sure that the majority of alternatives are ready for the "big time" as yet. UPC and Wisps are fairly thinly spread, although where they are active they do eat into eircom's user base. However the economies of scale don't allow a nationwide rollout (as yet).

But people abandoning Eircom's network will a) drive the development of competing infrastructure and b) worry Eircom. Both good things, imo.

Obviously they are not there yet, but the only way they will eventually be there is by people abandoning Eircom.

The hope for Ireland, imo, is that STT will not pump money into the legacy telephone network, but will try to milk the diminishing market share thereby accelerating the process that puts the legacy last mile into a minority niche position.

bealtine

SkepticOne wrote: »

The hope for Ireland, imo, is that STT will not pump money into the legacy telephone network, but will try to milk the diminishing market share thereby accelerating the process that puts the legacy last mile into a minority niche position.

That's what has been happening for the last 10 years, bilking the infrastructure for every cent and clearly it hasn't worked. The only hope is that eircom realize the bars of the prison they are in and try to break free of the cycle of slow and monotonous death. Again that's hardly going to happen so the inevitable is the only reasonable conclusion, as you say.
That,of course, presumes that eircom want to be relevant in the 21st century. They seem hell-bent of becoming irrelevant.

We should probably be investigating the badly implemented privatisation and the stupid regulatory regime.

In effect I am agreeing with you:)

SkepticOne

bealtine wrote: »

That,of course, presumes that eircom want to be relevant in the 21st century. They seem hell-bent of becoming irrelevant.

But what I don't understand is why we should care. That is Eircom's problem. Why are we trying to persuade Eircom to do this or that when what is really required ultimately is Eircom's demise as the default operator?

watty

paulm17781 wrote: »

Yeah, they bought the holding company so that would be everything. It's a low price because it comes with €3bn dept.

Closer to €5b if you include ALL liabilities and Pension short fall. Over €4B anyhow.

bealtine

SkepticOne wrote: »

But what I don't understand is why we should care. That is Eircom's problem. Why are we trying to persuade Eircom to do this or that when what is really required ultimately is Eircom's demise as the default operator?

because at this time there isn't a viable alternative...

SkepticOne

bealtine wrote: »

because at this time there isn't a viable alternative...

So how is it that people are abandoning Eircom? Is it for a life without electronic communication? I'm not saying alternatives are fully there yet or that Eircom should collapse tomorrow, but I see Eircom's reduction to a small player in a competitive market as the way things need to go.

bealtine

SkepticOne wrote: »

So how is it that people are abandoning Eircom? Is it for a life without electronic communication? I'm not saying alternatives are fully there yet or that Eircom should collapse tomorrow, but I see Eircom's reduction to a small player in a competitive market as the way things need to go.

Well if you are urban you can always go with UPC and mobile and the bill is still less than the most basic broadband from eircom and the multitude of resellers.

SkepticOne

bealtine wrote: »

Well if you are urban you can always go with UPC and mobile and the bill is still less than the most basic broadband from eircom and the multitude of resellers.

So you would agree then that there's viable alternatives in urban and people moving over to them is a good thing? (Note resellers don't really count as competitition ) It may not be perfect competition but better services will eventually come. We don't really want a lot of money coming in to Eircom so that it can reassert its dominance in urban areas.

That leaves us with rural areas. But here, Eircom's infrastructure is poor anyway. Would it not be better to encourage cheaper competing infrastructures here?

bealtine

SkepticOne wrote: »

So you would agree then that there's viable alternatives in urban and people moving over to them is a good thing? (Note resellers don't really count as competitition ) It may not be perfect competition but better services will eventually come. We don't really want a lot of money coming in to Eircom so that it can reassert its dominance in urban areas.

That leaves us with rural areas. But here, Eircom's infrastructure is poor anyway. Would it not be better to encourage cheaper competing infrastructures here?

Yes, I agree urban is reasonably well covered.

I don't particularly agree with the silly behaviour of UPC,they seem to have forgotten that they have "mere conduit" status. But that's an aside.

I don't think that eircom should be excluded from competing on an even playing field, it's just that they have excluded themselves really, with the collusion of Comreg, whose remit seems to be to keep prices artificially high so that others can "compete", thereby shooting themselves in the foot (not only shooting up their foot but blowing their whole damn leg off).

Those better services may indeed come, in time, but until that time we are stuck with an imperfect competition. One monopolistic competitor versus another monopolistic competitor (UPC vs eircom) but then that's only in urban areas.

The idea of encouraging cheaper alternatives is nice and that was where the Wisps came in. But then again the DECNR destroyed that particular avenue of competition with their silly NBS scheme.
That 79million spent on the NBS would have gone a long way to providing a vibrant and viable alternative radio infrastructure to eircoms wired infrastructure especially in rural areas but we (as a country) blew that.

Steviemak

ComReg is the problem. Everytime eircom try to bring in a price promotion ComReg try and stop them.

If eircom were to decrease line rental tomorrow ComReg would bring them to the High Court for below cost selling.

watty

Currently eircom want to increase Line Rental. Honest

Steviemak

watty wrote: »

Currently eircom want to increase Line Rental. Honest

And ComReg would let them. But if they wanted to reduce line rental ComReg would reject it for below cost selling.

See the problem.

SkepticOne

bealtine wrote: »

Those better services may indeed come, in time, but until that time we are stuck with an imperfect competition. One monopolistic competitor versus another monopolistic competitor (UPC vs eircom) but then that's only in urban areas.

The idea of encouraging cheaper alternatives is nice and that was where the Wisps came in. But then again the DECNR destroyed that particular avenue of competition with their silly NBS scheme.
That 79million spent on the NBS would have gone a long way to providing a vibrant and viable alternative radio infrastructure to eircoms wired infrastructure especially in rural areas but we (as a country) blew that.

I agree with that but I don't think it amounts to an argument that Eircom should be strengthened with funding. If promoting competition was the right thing but the government blew a chance to get it then it remains the right thing.

I think one of the problems is the likes of Comreg pandering to "The industry" here. The problem is that "The Industry" tends to prefer cosy reselling arrangements to proper competition leaving the consumer with little power and therefore choice.

SkepticOne

Steviemak wrote: »

And ComReg would let them. But if they wanted to reduce line rental ComReg would reject it for below cost selling.

See the problem.

ComReg may be too easy to grant Eircom line rental increases but it is Eircom pushing for them every time.

watty

Reselling builds Zero additional Infrastructure. That's the biggest "big picture" issue with that philosophy of "Competition". Bord Gais reselling Electricity?

SkepticOne

I think the problem here is that the we've given up on having proper competition (i.e. not "competition" as in reselling) because it is slow at arriving and therefore we've fallen back to seeking a nicer or more regulated monopoly.

Unfortunately, regulation can alleviate some of the worst aspects of monopoly and often when it does so it is at the expense of the development of competition, which is ultimately what is required. If a new technology emerges, regulation can't force the monopolist to implement it since the monopolist will always have arguments (no demand etc.) to use against the regulator, in court if necessary.

bk

watty wrote: »

Reselling builds Zero additional Infrastructure. That's the biggest "big picture" issue with that philosophy of "Competition". Bord Gais reselling Electricity?

The electricity market is a little different.

There is competition in two of the three areas. There is competition at the residential level and in the power generation level. Only in the network is there no competition.

As an example Bord Gais are building a massive new gas powered power plant, which is new infrastructure and will lead to lower prices.

Steviemak

SkepticOne wrote: »

ComReg may be too easy to grant Eircom line rental increases but it is Eircom pushing for them every time.

Eircom are only allowed to charge at a cost plus basis (i think its a couple of percent). Therefore if their costs go up ie maintaining a ****e network, then they have to raise prices. Otherwise, they will be below cost selling and pursued by ComReg.

It a ridiculous situation where everyone loses except mobile and cable companies.

It is similar to the ESB who are not allowed by the regulator to reduce their prices to compete with airtricity and bord gais.

If ComReg let eircom reduce prices then industry wide prices would fall as eircom wholesale at a retail minus price.

BigEejit

Has there been any recent comparison of Irish line rental charges versus the rest of Europe?



I am guessing that STT will not be able to cut the workforce due to the union so their options for increasing market share and profitability are down to either

a) increase prices to eye-watering levels and hope that the suckers customers wont switch.

b) lower prices to attract customers

From reading your posts above it seems that option B is not open to them so be prepared.

BigEejit

Also didnt Global Crossing get a 100 million of Irish Government money to provide a fibre link to europe but went bust or something and didnt complete? I cant remember details