Thursday 27 April 2017

Billion-euro battle to turn on Irish telecoms

Who is winning the war in Irish telecoms? The market is starting to separate the runners from the riders, writes Adrian Weckler

JD Buckley of Sky Ireland
JD Buckley of Sky Ireland
Tony Hanway of Virgin Media Ireland
Anne O'Leary of Vodafone Ireland
Richard Moat of Eir
Robert Finnegan of 3 Mobile
Adrian Weckler

Adrian Weckler

EIR; Ownership: Assorted banks and shareholders; Irish boss: Richard Moat; Quadplay: Yes; Strengths: Biggest national network; Weaknesses: Uncertain future ownership

Market prognosis; Eir is generally regarded to have turned a corner on its crippled infrastructure days, with sizeable investments in new fibre roll-out and rebooted DSL broadband on the majority of its existing landline network.

This has happened as it has cut its costs and returned to profitability. Its mobile arm, Meteor, is holding its own while its nascent TV service now has 45,000 customers.

It cannot shake questions over future ownership, however, with many analysts expecting it to seek an IPO whenever it thinks the market will allow it to.

Because it is the incumbent copper line network, its universal service obligations land it in choppy regulatory water more often than other telecoms firms.

Rivals are currently muttering about legal action over a failure to enforce fault repairs and other issues. Otherwise, the biggest challenges for the company include the gradual emergence of a new, well-funded fibre network rival in the shape of Siro - a joint venture between deep-pocketed Vodafone and the ESB.

It also arguably has most to lose if it does not win the government's state-subsidised National Broadband Plan tender, which could be worth up to €500m.

A rival operator taking ownership of thousands of kilometres of state-funded fibre networks is not something that would bode well for Eir's long-term competitive advantage.

VODAFONE

Ownership; Vodafone (UK)

Irish boss; Anne O'Leary

Quadplay; Yes

Strengths; 4G speed, biggest mobile base

Weaknesses; Limited fixed-line network

Market prognosis; Vodafone has benefited from over a decade of incumbency as the country's largest, most profitable mobile operator. This has led to a highly lucrative mobile customer base, although competition has resulted in its margins being eroding significantly in recent years.

Still flush with billions in cash from the sale of Verizon in the US, the company has been on an investment drive in Ireland, green-lighting hundreds of millions into network upgrades and ploughing €225m into a new fixed-line fibre network in conjunction with the ESB.

The new network, called Siro, is currently being built in large regional Irish towns and is scheduled to reach 500,000 homes and businesses by the end of 2018. The new network will address the gap in Vodafone's aspiration for long-term strength in the Irish market: building its own fixed-line network.

Although it is currently the third largest landline broadband provider in Ireland, it uses Eir's network for this service, leaving itself vulnerable on service issues and profit margins.

Last month, it launched a TV service with 83 channels to complete its 'quad play' offering here. It is very likely to tender for the government's state-subsidised National Broadband Plan using Siro as a model.

VIRGIN

Ownership; Liberty Global (US)

Irish boss; Tony Hanway

Quadplay; Yes

Strengths; Fixed-line broadband speed

Weaknesses; Declining TV subscriptions, limited network reach

Market prognosis; Having stood atop Ireland's broadband speed heap for years, Virgin now faces serious competition in the space from new fibre providers.

Its response this year will be to marginally increase the footprint of its 800,000-premises cable network and to focus on its new 'quad play' status, which came about last year when it launched a new Irish mobile phone service. Virgin has struggled to maintain its television subscription levels in Ireland.

While once almost level with Sky, it has fallen to around half its satellite rival's customer numbers (of over 700,000), largely because of more competition from Saorview and new players such as Eir.

However, it is likely to increase its broadband speeds in the near future (from a current top speed of 360Mbs) in an effort to re-establish itself as the broadband king of urban Ireland.

Virgin appears to have ruled out bidding for the state-subsidised National Broadband Plan this year, with chief executive Tony Hanway recently telling this newspaper that it wouldn't make commercial sense for the operator.

However, the company may soon get a lot closer to Vodafone: the two companies' corporate parents have been talking on and off for months now about a possible merger or asset-swap.

THREE

Ownership; Hutchison Whampoa

Irish boss; Robert Finnegan

Quadplay; No

Strengths; Mobile data allowances

Weaknesses; No fixed network

Market prognosis; Hong Kong's Hutchison Whampoa has had a rough decade in Ireland with its mobile operator Three. Its management here has frequently pointed to the €1.1bn profitless investment it lost since starting up here and before its O2 acquisition.

While its large 3G and 4G data allowances have helped shape the market, it has given the company scant return. Its acquisition of O2 Ireland from Telefonica last year for €780m instantly moved it into second place with 1.5 million extra customers, many of whom are higher margin subscribers than its home-grown customers.

However, the previous owners of O2, Telefonica, froze investment in the network for some time before it was sold and Three is now bearing the brunt of this, with significant challenges still facing its integration of the two networks.

Despite these technical challenges, the network has some advantages over rivals in the spectrum it acquired with its O2 purchase. This could yet prove to be very lucrative for the operator as data usage continues to soar.

The company has said that it has little interest in a quadplay offering with landline broadband, phone and TV, despite 25,000 landline customers inherited from O2. But Three may have had a different attitude had it succeeded in its €2bn bid to buy Eir (then Eircom) out of examinership.

SKY

Ownership; British Sky Broadcasting

Irish boss; JD Buckley

Quadplay; No

Strengths; TV subscriptions and content

Weaknesses; No mobile, lack of own fixed network

Market prognosis; Sky is approaching a watershed moment in its Irish business model. Does it continue to hold steady as a premium TV company with broadband as an add-on service over Eir's landlines? Or does it venture into 'quadplay' territory and try to launch a mobile service here?

In the UK, it is the latter strategy that Sky is adopting, with a new virtual mobile service to be unveiled later this year. Sky's Irish operation usually follows the UK business model (as it has done for broadband), but is often a year or more behind in its roll-out schedule.

It's not hard to see why Sky continues to focus primarily on telly. It now has a stranglehold over premium TV subscriptions in Ireland with no apparent weakening of its 700,000-plus audience. This is an impressive feat in an era where new services such as Saorview (300,000-plus users), Netflix (200,000-plus subscribers) Eir (45,000 TV subscribers) and now Vodafone are encroaching into Ireland's traditional television customer base.

The satellite broadcaster has also raced into a 10pc broadband market share from launch two years ago. Some analysts say that it is vulnerable in the long term if its broadband offering stays in the low-margin territory of reseller for Eir's wholesale network.

But Sky continues to bet that its massive investment in premium television content, particularly sport and movies, is its trump card. It says that this will not only keep customers from leaving but will persuade them to add broadband on to the bill, even if not quite as fast as some rival offerings.

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