STT to buy Eircom for €130m

SkepticOne

Steviemak wrote: »

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.

Can you show me evidence of Eircom requesting a reduction in line rental from ComReg? Would love to see that.

The reality is that Eircom go to ComReg requesting an increase in line rental and ComReg grants it.

drunkmonkey

BigEejit wrote: »

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.

Broadband without line rental, or line rental with free broadband could sway back a few of those 300,000 odd mobile brodband users, I can see this happening shortly, they haven't much choice if there really going to start winning back customers....

Tom Young

Someone above asked about comparisons. The EU Commission publishes an annual implementation report, the current is the 14th Implementation Report and the Commission working paper. The Line Rental graphs can be gotten there.

eircom are entitled to a CPI increase on line rental on an annual basis. There is a price capping scenario also which I have a view on in relation to elements of the economic basket that go in to making up the price.

There will not be reductions in this in my view.

STT: I've worked with and against Singtel, they're as bad [defensive], if not worse than the old guard in eircom. Mind you, anything is better than the situation we are in as a nation. Hopefully, we can start to confidently move on the Information Society agenda again.

Tom

Steviemak

SkepticOne wrote: »

Can you show me evidence of Eircom requesting a reduction in line rental from ComReg? Would love to see that.

The reality is that Eircom go to ComReg requesting an increase in line rental and ComReg grants it.

They are only allowed to decrease charges if they can reduce their costs. But as the network is deteriorating its becoming more and more expensive to maintain. Hence they are hamstrung.

With regards to reducing staff. This has happened. Over the last 10 years the staff have decreased from 14K to 6K as is currently being reduced to 4.5K.

As for court cases see the latest one that ComReg brought against eircom for giving customers free calls to Meteor.

Tom Young

The court cases are running in parallel. I think the bundled elements are more to do with fixed line dominance that purely addition or allowances of bundling of calls to Meteor. That is not regulated in the way it used to be.

SkepticOne

Steviemak wrote: »

They are only allowed to decrease charges if they can reduce their costs. But as the network is deteriorating its becoming more and more expensive to maintain. Hence they are hamstrung.

With regards to reducing staff. This has happened. Over the last 10 years the staff have decreased from 14K to 6K as is currently being reduced to 4.5K.

As for court cases see the latest one that ComReg brought against eircom for giving customers free calls to Meteor.

The question remains. You say they want to lower charges. Why then have Eircom themselves been the driving force behind line rental increases?

Steviemak

SkepticOne wrote: »

The question remains. You say they want to lower charges. Why then have Eircom themselves been the driving force behind line rental increases?

All I said was that eircom have no way to reduce prices except by reducing costs.

Eircom are not allowed to increase prices. All changes are costed by ComReg. Therefore if eircom costs go up they are required by law to go to ComReg and thus increase line rental charges. Its a crap system. Eircom are not allowed to set their own prices. They effectively set by ComReg.

I assume thats why eircom have consistantly lobbied the government and ComReg to remove their SMP obligations. If this was removed costs and then line rental would fall significantly. I think the current state of the voice market (mobile and fixed) has eircom at about 30-40%, hence the lobbying.

SkepticOne

Steviemak wrote: »

Eircom are not allowed to increase prices. All changes are costed by ComReg. Therefore if eircom costs go up they are required by law to go to ComReg and thus increase line rental charges. Its a crap system. Eircom are not allowed to set their own prices. They effectively set by ComReg.

What law requires them to request an increase even if they don't want one?

watty

SkepticOne wrote: »

The question remains. You say they want to lower charges. Why then have Eircom themselves been the driving force behind line rental increases?

They need it to pay off the debts caused by leveraged buyouts.

Last time they argued phone poles only last 15 years. 45 to 75 is the reality. They do book keeping showing rapid devaluation of assets etc and high costs to argue the need for high rental. Also overestimate cost of future upgrades such as ATM to IP Fibre

watty

BigEejit wrote: »

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

We are now the most expensive. Possibly anywhere.

iMax

How is it possible to run a company with €3BN debt ?

Surely that's a hole you can never dig out of ?

SkepticOne

watty wrote: »

They need it to pay off the debts caused by leveraged buyouts.

Last time they argued phone poles only last 15 years. 45 to 75 is the reality. They do book keeping showing rapid devaluation of assets etc and high costs to argue the need for high rental. Also overestimate cost of future upgrades such as ATM to IP Fibre

The point of my question was not why Eircom might want an increase but why they would have to request one by law even if they don't want one.

I think most people are aware that Eircom are up to their eyes in debt and desparately want an increase. It has nothing to do with being forced to request an increase by law, though I stand to be corrected if someone comes up with the law.

bk

iMax wrote: »

How is it possible to run a company with €3BN debt ?

Surely that's a hole you can never dig out of ?

Line rental €25 per month x 12 months = €300
€300 * 1 million lines = 300 million from just line rental
They could pay off the debt after 10 years.

Of course it isn't quiet that simple, they have to pay staff, etc. but this is the general idea.

This also shows how many debt free European telecos can easily invest in fibre to the home. Even with a line rental of just €10 per month, you could pay off the €1000 install cost for FTTH in just 10 years and don't forget fibre will last at least 30 years and with the ability to sell IPTV, HDTV, VoD, etc. on it, you can easily see the return on investment for financing FTTH.

bealtine

SkepticOne wrote: »

The point of my question was not why Eircom might want an increase but why they would have to request one by law even if they don't want one.

I think most people are aware that Eircom are up to their eyes in debt and desparately want an increase. It has nothing to do with being forced to request an increase by law, though I stand to be corrected if someone comes up with the law.

There's no "law" however there is a model. I forget the name of this model (LR-BRIC) or something. If the input costs go up then eircom can apply for an increase in line rental, which they intend to do I guess and Comreg will just rollover and grant it.

However, in light of recent falls in the CPI due to the economic slowdown, it seems reasonable that eircom should expect a reduction in line rental of about 5-10%. This would still leave us with the most expensive line rental on the planet...

SkepticOne

bealtine wrote: »

There's no "law" however there is a model. I forget the name of this model (LR-BRIC) or something. If the input costs go up then eircom can apply for an increase in line rental, which they intend to do I guess and Comreg will just rollover and grant it.

Yeah that is basically correct. Steviemak I think was arguing the opposite that Eircom are compelled by law to request an increase even if they don't want one, if their costs increase. Which is the point I was disputing.

Tom Young

There is law, if they've SMP in the fixed line or other relevant market. This currently comes from the EU Electronic Communications Framework Directive of 2003, which is in force in Ireland.

This SMP and Line Rental is subject to a price cap that is build or made up of an economic basket of elements which eircom or any other regulated operator are allowed to recover.

I am unsure whether this is LRIC based or not, I'd assume it might be but not 100% sure whether ComReg are using a LRIC model for this, but it makes sense that they would, possibly a FL-LRIC model. That meaning Forward Looking - Long Run Incremental Cost model.

USO is an element of the basket. We as a nation had a demographic distribution which causes problems in relation to returns and requisite investment models to cover the population.

In any case, whether the model is reviewed in relation to inputs to the economic basket, there is a CPI - Consumer Price Index, annual increase allowed on these things, which is generally allowed by Regulators and or governments.

Tom

EDIT: There is no compulsion for ComReg to allow price increases!

Tom Young

The market I am referring to is: Fixed Narrow Band Market Access.

BrotherGrim

04/01/2010 - 13:47:21
The final step in the sale of the Australian-based eircom Holdings Ltd (ERC’s) shareholding in eircom was concluded today with Singapore Technologies Telemedia’s (ST Telemedia) acquisition of a controlling interest in the company in a €140m cash and shares deal.

eircom Chief Executive, Mr Paul Donovan said the finalisation of the sale was good news for eircom customers, good news for employees and good news for Ireland.

“This heralds a new era. We will be working closely with the new shareholders to develop a business model for the long term future of eircom that delivers an unbeatable customer offer, transforms our operations, and drives a return for the shareholders who have invested in our business.

"At the same time, we will continue to work tirelessly to reduce our operational costs, streamline our business processes and work more efficiently and effectively as a team.”

Read more: http://www.breakingnews.ie/business/final-step-in-eircom-shares-sale-concluded-440655.html#ixzz0bf6T2rF6

CelticTigress

Great, what's the address of their Complaints Department?

Slutmonkey57b

Steviemak wrote: »

All I said was that eircom have no way to reduce prices except by reducing costs.

Eircom are not allowed to increase prices. All changes are costed by ComReg. Therefore if eircom costs go up they are required by law to go to ComReg and thus increase line rental charges. Its a crap system. Eircom are not allowed to set their own prices. They effectively set by ComReg.

I assume thats why eircom have consistantly lobbied the government and ComReg to remove their SMP obligations. If this was removed costs and then line rental would fall significantly. I think the current state of the voice market (mobile and fixed) has eircom at about 30-40%, hence the lobbying.

Steviemak wrote: »

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.

I've heard this line from Eircom employees recently.
Not that they would be getting fed ****e by the company and the Union to cover up the fact that reducing the number of biddies hasn't actually reduced costs all that much due to the guaranteed pension, huge payoff levels, and associated costs, which is all far higher than what the company spends "maintaining" the network, and always has been.

thepenpusher

BrotherGrim wrote: »

04/01/2010 - 13:47:21

eircom Chief Executive, Mr Paul Donovan said the finalisation of the sale was good news for eircom customers, good news for employees and good news for Ireland.

And will it be good news for ex-eircom members of the esop I wonder?

SkepticOne

eircom Chief Executive, Mr Paul Donovan said the finalisation of the sale was good news for eircom customers, good news for employees and good news for Ireland.

He's hardly going to say otherwise.

mds

any news about the esop

trebormurf

Anyone have news on a payout anytime soon??

watty

What you smokin' ?

Eircom boss Paul Donovan warned yesterday of further cost cutting at the company after group revenue declined 10pc to €465m in the quarter to the end of December and group adjusted earnings fell 5pc to €159m

From Indo


Some issues

• Percentage of households with fixed lines heading toward 60%
• Annual Income headed toward 1/10th of Debt and obligations (Pensions)
• Most of the existing backbone/backhaul is obsolete ATM /TDM compared to Digiweb, Magnet, UPC's NGN only IP. They need massive investment on backhaul.
• Tiny amount of fibre nodes / FTTC. Need massive investment. Even if EVERY exchange (majority are not) was 100% 24Mbps ADSL2+ / VDSL+ the vast majority of DSL lines would be 7Mbps and average could be as low as 3Mbps! 20% of those 66% with lines would not have DSL at all without investment in "Reach" technology and/or Fibre Nodes.

There has been net asset stripping and no net investment since privatisation. Eircom's "Jewel" at present is Meteor, which has not completed its 3G roll out and even HSPA+ can't provide rural Broadband on the number of bases Meteor has.

Also from article above:

Eircom said the average monthly revenue per user from Meteor customers fell 10pc to €34.97 in the six months to the end of December. Mr Donovan said the Meteor business remained "pretty well positioned" within the market. The number of its landlines in use around the country fell 5pc to just over 1.5m in the six month period. Eircom also said it had done a deal with unions regarding the pension scheme deficit.

Payout?

thepenpusher

There was a redemption of shares last June from which Esop members only received a portion. These shares were redeemed in the name of each individual member of the esop. At the very least we should receive the balance of this redemption.

The Esop exists for the benefit of the members. The majority of members are no longer employed by Eircom.

watty

Esop / Esot is and was a parasite. If they had any moral fibre they would give money back to eircom.

Money for doing nothing seems immoral in current climate.

Sponge Bob

The ESOP needed the money to pay all the legal fees and bankers fees they were charged for the latest takeover. This advice costs a lot of money you know.

I assume the trough will be filled with feed later this year and that the piggies will be allowed to get their snouts in as usual. Personally I would charge an 80% windfall retention tax on all future ESOP outpayments and will recommend this measure to Lenihan in his next emergency budget.

thepenpusher

Sponge Bob wrote: »

The ESOP needed the money to pay all the legal fees and bankers fees they were charged for the latest takeover. This advice costs a lot of money you know.

I assume the trough will be filled with feed later this year and that the piggies will be allowed to get their snouts in as usual. Personally I would charge an 80% windfall retention tax on all future ESOP outpayments and will recommend this measure to Lenihan in his next emergency budget.

Lol, such vitriol! At least it's an honest explanation of what happened to the money from last year. I've asked the question time and time again of the ESOT and they didn't see fit to give an honest and straightforward answer. Nice to know someone is privy to the information.

Oh! and roll on dinnertime!

Sponge Bob

The trough is about to show up empty

eircom has been put on " ratings watch negative " and a bond downgrade is imminent which means the collateral pool will have to be 'strenghtened' on the bonds.

Only 2 sources can be tapped for the cash to strenghten the collateral pool. One is the ESOP in with its guarantor hat on and the other is the STT shareholding entity.

Once the money is diverted to the collateral pool it is no longer available for an outpayment to the ESOP members.