Suday Tribune interview with Richard Cooke

lukin

The business section of last Sunday's Tribune had an interview with the chief executive of Esat, Richard Cooke.
Here's the full article:


ESAT chief executive Richard Cooke is under no illusions about the importance of the backing of it's parent company, British Telecom, to the Irish business's future existence.
"The reality is that if we weren't owned by BT we'd probably be out of business. The market has changed fundamentally and there isn't a huge opportunity for debt or additional funding for second operators."
But while being a subsidiary of BT will keep the wolf from the door, like most telecoms operators Esat has been looking at its costs in recent months and trying to stem the haemorrhage of cash from the business. Esat announced 10 days ago that it was cutting 200 jobs and merging its business and residential operations into a single unit. Cooke said the restructuring was "a step on the road to generating cash".
He argued that, while losing staff is never an easy option, the restructuring will "safeguard the future of the company" by making the operation more efficient. Stemming the losses at the company, which will employ 1,100 people after the restructuring, is a key task for Cooke as BT Ignite, the division that includes Esat, has stated that it wants all its businesses to move into operating profit before interest, taxation and depreciation in the next financial year. Cooke said Esat will do its part in meeting that target.
"We've got to make our contribution and we will. We believe we can be not only operationally profitable but actually generating cash. In 12 months we'll be EBITDA (earnings before interest, taxation, depreciation and amortisation) break-even and after that we are cash-generative."
To achieve that position will require a significant improvement in the company's performance. As a part of BT, East's results are now broken out by the company However the company still has outstanding US bonds which predate the BT buyout and Esat has to file financial data with the US Securities and Exchange Commission to inform holders of its current financial position
The most recent SEC filing, which provides details of Esat's performance for the six months to the end of last September, shows that the business is still losing large sums of money. Losses for the half year were €80m on a turnover of €114m. Losses before' interest, depreciation and amortisation were €17.3m for the six months. On the positive side it does appear that Esat's financial position is improving as EBIDA losses for the second quarter were €7.6m compared to about €9.7m in the first quarter
Cooke said he couldn't discuss the SEC filing as BT does not break out the performance of its separate geographic units but he claimed the company's performance had improved since the period covered by the data. While he would not give figures Cooke said Esat's revenue had doubled since the year 2000 and was budgeted to grow by a further 25% this year "We feel that's achievable," he said.
Cooke believes the restructuring of the business was the most effective strategy to generate a return from the business. The plan to merge the residential and consumer businesses was generated by Dublin management rather than the parent company, he said.
Most of the business units in BT Ignite focus solely on the corporate sector but Esat, as the second player In the Irish telecommunications market, also has a consumer operation which will be retained, according to Cooke.
Esat claims to have 20% of the business telephony market, almost 10% of the consumer market and 40% of the Internet market. The large corporate sector provides the greatest revenue opportunities currently as Cooke argues that Esat's attempts to make significant inroads into the consumer and SME sectors have been frustrated by the slow pace of deregulation in Ireland.
Cooke believes the ODTR has to be "very strong" to force through competition in the local loop, which will allow companies such as Esat to go directly to consumers and small businesses rather having them pay Eircom a line rental. "Until you get proper unbundling of the local loop we will not be able to deliver real competition."
Cooke is highly critical of Eircom, which he claims slows the process of market liberalisation at every turn. He argues that the existing penalties that the ODTR can levy on Eircom are relatively meaningless.
"The ODTR can fine them £1,500 (£IR1,900) but that's fairly ineffectual to a large company like Eircom. The other power they have is to take away their licence. But that's not going to happen."
The Esat boss s concerned that the Communications Bill, which will change the regulatory environment by replacing the existing ODTR with a three-person commission and introduce new penalties, could fail to get through the Dali before the general election.
"Given that we had the outline bill two years ago you would have to conclude that this is not a priority for the government."
Cooke believes this is a huge mistake as he argues that, given that Ireland is no longer a low wage economy, telecommunications infrastructure and ensuring an open market is just as important as upgrading the road and rail network.
Despite the fact that the bill contains much stronger penalties than the existing rules - fines of up to €1m are expected - Cooke feels thatunder the new system Eircom could still frustrate the pace of liberalisation.
His main complaint is that the incumbent wil mount a legal challenge whenever it is unhappy with the new rules. This legal process can take well over a year during which time there is often "massive uncertainty" over whether the new structure applies or not.
Cooke is unhappy that the penalty for taking a case merely to slow the onset of new rules is to be €1m whereas previously there was a plan that it would be as high as 10% of turnover. "In some cases they (Eircom) could live with that level of fine.
Cooke believes Eircom has been competing more strongly in the consumer and SME markets buut this has come at a price for the incumbent. "If you look at their last published figures as a public Company they had 23% decrease in EBITDA, so they are reclaiming market share but at a price." However he added that Eircom's recent moves had had "zero impact" on Esat's data hosting, corporate internet or large corporate customers.After the restructuring the new business will operate as the Esat Group as Cooke and his executive team feel the Esat brand still has a great value in the Irish market. But the BT link will be emphasised to customers and eventually "when there's plenty of cash to do it", the BT name might even be fully adopted by the Irish operation. In the current economic climate Cooke argues that being a BT subsidiary gives Esat a slight edge in the market. "In an era when Global Crossing has filed for Chapter 11, Energis is pulling out of Europe and NTL Is worth less than it paid for Cablelink, being owned by BT is not a bad position to be in. The market is in turmoil whereas BT is in reasonable financial shape. It has got it's debt right down." The "one bright light" in the current stormy condition is that, aside from Eircom, Esat's competitors are continuing to fall away "We are the number two player and the only really serious competition to Eircom. As number two we're in pole position. Esat may well be in pole position to take on Eircom once the market is fully liberalised. However, Cooke and his executive team will be hoping the company doesn't run out of gas before the lights turn to green.

Stonemason

Thats probably really gauling Eircom that Esats big brother BT is stopping them from being bullied out of the market like they have with smaller telcos .If any of the esat bods read this board id just like to say stick in there coz if we do finaly get unbundled i and i suspect quite a few others will sign on the dotted line just just to get the hell away from eircom.



Stone:D

Coyote

I wish people would stop thinking that Esat are good or any better that Eircom. they are just the same and just as bad. the only plus is that they are not a monopoly in ireland so they have to compete.
They are owned by BT who were just as bad as Eircom in the UK but they have better laws in the UK.
[UK]
one good point BT seem to have taken the view that it’s better that they install ADSL and sell it wholesale at a good price.
By doing this it means that when the local loop is opened up it will not be worth it to most companies to spend a lot of money installing new DSL in the exchange when they can use the BT installed DSL for nearly the same price.
So making it easier for them to keep a hold on the local loop.
[/UK]

Fergus

As number two we're in pole position

This legal process can take well over a year during which time there is often "massive uncertainty" over whether the new structure applies or not.

The thing is, I would have thought there's really very little uncertainly about things like LLU pricing. The prices imposed by the regulator will have to stick. The sooner Esat unbundle loops the sooner they have a real advance in their product offering and they can start earning serious revenue. The excuses all seem a bit feeble to me.

sceptre

Originally posted by Stonemason
If any of the esat bods read this board id just like to say stick in there coz if we do finaly get unbundled i and i suspect quite a few others will sign on the dotted line just just to get the hell away from eircom.
Stone:D

Agree firmly with this. I've still some amount of sympathy for Esat (though still waiting for an explanation why my fathers account in his house was cut off even when told it wouldn't be)

aidan_dunne

Originally posted by lukin
As number two we're in pole position.

As a motorsports fan, I just had to laugh at this statement. Richard, stay up this weekend and watch the Aussie Grand Prix so you can clarify Esat's position in the telecommunications market a bit better in future! lol

Oh, speaking of the GP, COME ON THE JORDAN BOYS!

Stonemason

I didn’t say Esat were any better i merely meant that at the moment i have two choices one is to give up the internet all together or two pay eircom silly money for this so called "privilege" so the way i see it is if someone i.e. esat can give me the chance to vote with my wallet ill be more than happy to show eircom what i think of their treatment of us their (hahahahahaha) valued customers.



Stone