‘Collaboration between telecom networks is the future, but it will be a hard nut to crack’
Eircom CEO Paul Donovan says the operator has a vital role in defining Ireland’s economic destiny
NO ONE can be in any doubt of the battle incumbent operator Eircom faces in restructuring its business amidst one of the worst recessions in living memory. The national operator has to contend with a €3.3bn debt mountain, the need to reduce its headcount and at the same time ensure it can provide the state-of-the-art infrastructure the country needs to remain competitive.
Equally it is hard to doubt the resilience and determination of CEO Paul Donovan who is over a year at the helm of the company.
One of the main speakers at this year’s TIF 17th annual conference, which takes place at Dublin Castle on 12 October, Donovan is a seasoned telecoms industry veteran.
After running the marketing departments of consumer brands like Mars, Coca-Cola and Apple in the early Nineties, Donovan entered the telecoms business via BT. What followed were myriad roles with operators like One2One in the UK (now T-Mobile) and the Australian mobile and TV company Optis, while between 2001 and 2005 he was CEO of Vodafone in Ireland.
Having seen through Eircom’s €140m acquisition by Singapore-based STT, Donovan has since embarked on an organisational restructure that will make Eircom a force in wholesale, global IP transit, digital television and next-generation mobile.
In recent months, he instigated a major €100m upgrade path for next-generation broadband so entry-level 1Mbps broadband will automatically move to 8Mbps and broadband customers on 1Mbps, 3Mbps and 7Mbps broadband will be upgraded for free.
The company also revealed that 10,000 homes and businesses in Sandyford, Dublin and Wexford Town are set to experience fibre-to-the-home (FTTH) broadband, with speeds of up to 150Mbps possible, as part of a €20m trial programme. The aim of the trial is to gather the facts for Eircom and other operators on how much costs, materials and civil engineering goes into implementing FTTH broadband.
A national upgrade to FTTH, Donovan says, could cost anything between €1bn and €2.5bn, as estimated by TIF and Analysys Mason. This no doubt will make investment by telecoms companies harder to achieve. Telecoms industry investment is tipped to be €400m, down from €700m during the economic boom.
“The critical question is when are we coming out of recession? The telecoms industry is a good bellwether for economic activity and to be really honest there are no signs. If anything, we’re seeing a shrinking revenue and profit pool.”
Either way, Donovan is certain Ireland needs to embrace next-generation networks and he is adamant that Eircom will play its part, despite its own financial battles. The key, he says, is co-operation. But getting the ball rolling will be tricky.
“At the last TIF conference [Digital Britain architect] Lord Stephen Carter said the starting point is to define the role of the incumbent.
“What is most challenging for us is there is not yet really explicit Government policy that links the overall ambition for the smart economy, which everybody accepts is how economic growth has to happen, and what happens for CEOs like myself on a day-by-day basis in terms of laying down the foundations to help that,” says Donovan.
“You talk about the fact that more competition is the answer. I’m not sure that is true; there is plenty of competition here. What we need is a climate that balances competition on the one hand and encourages investment on the other.”
The key stumbling block is the large investment in fibre that needs to be made. “What every CEO of every telco in Europe, particularly incumbents, is trying to figure out is exactly what is the business model that can justify such a large and incremental investment. Eircom has often been criticised for not leading the way in terms of fibre investment but if there was a business case there would be people queuing up and saying ‘forget Eircom we’ll do it ourselves’.
“What we need in the future is to avoid the sins of the past where, in a drive for competition, we actually had multiple networks overbuilt one above the other. I don’t think there are going to be four LTE networks in Ireland and I don’t think there are going to be four or five overlaid complementary fibre networks.
“As an industry incumbent the onus is to find a way of making sure we don’t just invest in the affluent urban market but spend that same capex so that the digital divide is as narrow as it possibly can be.”
At last year’s TIF conference Donovan laid down the gauntlet to the industry and asked the CEOs in the room to write a cheque for €10m each to get the ball rolling. In that Dragons’ Den moment no one took him up on his offer.
Instead what Donovan has done is invested €20m on a plan to trial fibre to the home in 10,000 homes in south Dublin and Wexford. The pilot is open to other telecom operators to join in.
He says one of the key changes he has instigated at Eircom is a more open approach to wholesale and allowing rivals to access its network.
“It is vital that if we are going to achieve this rational deployment of capital we play a much more active role in wholesale.
“We do have local loop unbundling (LLU) and line sharing that makes it easy and economic for competitors to use the network on a wholesale basis, competing with our retail business, and this would deliver a better return on assets than retail alone. There are solid business reasons to embrace wholesale as well as stepping up to regulatory requirements.”
Donovan says his plan is to leverage STT’s competencies in telecoms to improve Eircom’s products and services portfolio. STT, he says, has taken a long- term view on Eircom’s future.
One of the jewels in Eircom’s crown, he says, is its Meteor mobile subsidiary. “We will operate a dual brand strategy where Meteor serves the consumer market and business customers will be served by Eircom Mobile.
Looking to 2011, Donovan says he is determined the collaboration amongst operators that has been long talked of must happen.
“The old world of copper and 3G will shortly be coming to an end and to generate sufficient funds to invest in fibre and LTE-based networks into the future, we need a new formula for doing business in this country.
“Collaboration between the networks is the way to go. The challenge is to crack that nut.”