[Irish Times] Smart Telecom takes Eircom to High Court

damien

http://www.ireland.com/newspaper/finance/2005/0616/3496258969BZSMART.html

Smart Telecom has taken a High Court action against Eircom, accusing the former State company of abusing its dominant position in the telephone market.

It served a notice of motion and a plenary summons under the Competition Act 2002 in which it asked the court to impose an injunction on Eircom to remove alleged restrictions on its broadband service.

These include a notice of termination that Eircom served on Smart on May 20th over its refusal to provide a €4.9 million deposit as a form of security for future trading.

Eircom's demand for such a deposit follows a credit assessment on Smart by Dun & Bradstreet, which Smart claims to be hopelessly flawed.

Smart claims Eircom is mis-using the Dun assessment by seeking to impose unfair and completely onerous commercial conditions on it.

Smart also claims that the demand for a deposit bears no relation to the alleged financial risk that Eircom claims it faces as a result of the assessment. Smart offered a €2 million rolling security which was rejected by Eircom.

Smart employs 330 people. It had revenues last year of €25 million and made a loss of €8 million before interest, tax, depreciation and amortisation.

Its backers include businessmen Lochlann Quinn, formerly of Glen Dimplex, and Kingspan's Brendan Murtagh.

Smart said it paid revenues of €10 million to Eircom last year and has paid €14 million to Eircom so far this year.

While the case has yet to be aired in public before the court, Smart is seeking compensation from Eircom for the alleged "commercial damage" it has suffered as a result of the restrictions.

Smart has some 70,000 customers for its voice service. However, the company says its new broadband customers cannot retain their phone number when they transfer from Eircom.

Smart says that customers who have switched from Eircom through wholesale line rental cannot move directly to Smart but must revert first to Eircom. It also says that customers who want to switch from an Eircom broadband service to a rival offering must have their connection switched off before moving.

Smart argues that such conditions make it difficult for it to activate accounts and maintains that Eircom is using such tactics to retain its dominant position in the broadband market.

It says the objective of the restrictions it faces are a result of Eircom's intention to create logistical difficulties for its customers.

Sponge Bob

I hope they ask for exemplary damages from the court for this persistent anti competitive behaviour , c. €100 Million should help Smart make a nice downpayment for Meteor .

cgarvey

Oh dear God, please let them win!!

Of course eircom will blame ComReg for not directing a process for LLU+number portability... but even without that direction/process definition, surely, beyond reasonable doubt, that's a deliberately anti-competitive action?

What do BT Ire do when unbundling (or do they just refuse to now?!), or what did ESat BT do back when they were unbundling? I can't remember very well, but I've a feeling that they were offering me to unbundle completely and have DSL, but no voice. Or to do some partial unbundling keeping voice (and number) with eircom.. IIRC then eircom will probably just point to that to defend their action (saying "it's nothing to do with Smart, it's what we'd do for all customers, without ComReg defining a process).

.cg

damien

The current LLU process was agreed a few years ago by eircom, ComReg and the OLOs. When Smart entered into the LLU process they should have been aware of how things worked in that they didn't. LLU is broken in Ireland.

I'm interested in why eircom wanted such a large security bond from Smart before doing further business, was it justified or a further way of blocking Smart from rolling out?

Sponge Bob

damien.m wrote:

I'm interested in why eircom wanted such a large security bond from Smart before doing further business, was it justified or a further way of blocking Smart from rolling out?

The Bond bit was Eircoms BIG MISTAKE.

They had agreed an LLU process without there being a Bond in the Process doc.

They unilaterally introduced the Bond into the agreed LLU process and therefore proved that modifications to the process could be 'reasonably requested' as they would see it.

ScHmart 'reasonably assumed' thereafter that modifications to the LLU process could be 'reasonably requested' not only by themselves but also by others who LLU , Leap and ESAT come to mind.

Of course Eircom decided that THESE particular process modifications were NOT reasonable and now its all gone a Courtin' . I would say that ESAT will be a witness along the line ....wonder why I think that ?????

Had Eircom introduced the Bonding into the overall process there would be no case because it would have been a pre condition , introducing same ex ante is capricious and arbitrary as the man sez

Hornet

Bonds are a normal thing if you expect that your customer could easily get into financial difficulties and as a result will not be able to pay the bills.

If Dun&Bradstreet has given such a desastrous credit assessment about Smart that their suppliers are getting (maybe "have to get") worried, what does that say about Smart's situation?

Sure, Eircom will use anything to stop competitors, but could it be that Eircom's reaction to the credit assessment is justified???

If Smart has paid EUR 14 million so far this year, it could be around EUR 30 million by the end of the year. A security of 5 million is not that high, it seems. And a security of 2 million (Smart's offer) seems VERY low.

Smart has raised EUR 15 million last year, but they say they have 330 employees. With an average per head cost of EUR 30k, that is EUR 9.9 million in personel cost per year, so the 15 million could be long gone.

The debt financed package (http://www.enn.ie/news.html?code=9593896) that they put together recently was meant to provide EUR 20 million, but it seems to be dependent on the number of broadband contracts signed. No surprise that the company offered 100,000 customers a line-rental free contract if they sign immediately (which would help to reach the conditions to get the 20 million). It seems that that target is still far away, because then a similar offer was launched for 25,000 businesses.

All this is pure speculation and based on an interpretation of Smart's press releases, so it could be all rubbish.

But if a reputable company like Dun & Bradstreet gives you a bashing, it is usually based on facts, not on "they hate us"-motives.

Maybe Smart should just sort out the "hopelessly flawed" Dun & Bradstreet credit assessment. If it is incorrect it should be corrected and the better credit assessment would maybe even change Eircom's view? The report didn't say anything about Smart suing Dun & Bradstreet, or did I miss that point?

--Hornet

Cuauhtemoc

Smart has raised EUR 15 million last year, but they say they have 330 employees. With an average per head cost of EUR 30k, that is EUR 9.9 million in personel cost per year, so the 15 million could be long gone.

Could be, but they do also get some income from the 25,000 odd households they supply phone services to, amongst all their additional services, payphones the (ever so slowly) growing number of broadband customers etc.
€25 million according that article. I would assume thats growing this year.

Mr_Man

It should be fairly easy to calculate a reasonable bond level for the Smart/Eircom instance. You take the credit period (say 30 days) and multiply the revenue owed by Smart to Eircom in the credit period by a factor of two.

For example if the amount owed by Smart in 30 days is €1m then a bond of €2m should be enough. If Smart haven't paid by the end of the second credit period then they are cut off and Eircom have the revenue owed.

Looking at figures in the article it would seem that the Eircom bond demand is on the high side and would lead to suspicion of another effort to block a competitor. It would be helpful if Eircom were to explain how they arrived at the figure of €4.9m.

M.

Sponge Bob

Smart put their CPS thru carriers other than Eircom. Their big (only really) bill due to Eircom is line rental on LLU and WLR

c. 10k wlr x €18 pm = €180k
c. 2k x llu x €15 pm = €30k

1 Month = 210k

2 x months of that bonded (per the Man) = €420k . Smart offered more than that.

€210k x 23 = €4.83 Million , Eircom have demanded 2 years current recurring revenue off them up front.....in effect .

Thats a court case

sixtysix

i think you are all being extremely polite here.
this looks suspiciously like an attempt to drive Smart out of business.
Should Eircom succeed it will be the end of all competition.
It reminds me of the attempt by British Airways to drive Richard Bransons virgin airways out of business. Branson, if you recall won the resultant court case.
eircom should be taken back into public ownership pronto.