Monday 19 March 2018

Richard Moat: The fibre diet will get Eircom moving again

Battle with ESB and the end of landlines are on the agenda for former T-Mobile boss and new Eircom CEO Richard Moat

Eircom chief executive Richard Moat pictured in Eircom's headquarters in Dublin. Picture: Damien Eagers.
Eircom chief executive Richard Moat pictured in Eircom's headquarters in Dublin. Picture: Damien Eagers.
Adrian Weckler

Adrian Weckler

Richard Moat is talking about ditching copper lines. The backbone of Ireland's communications network for the last century may be close to retirement. "Right now, the reason for having a landline is increasingly to get access to broadband," says Eircom's recently-appointed chief executive and former chief financial officer.

"But the way things are going, we soon may not need copper. The National Broadband Plan [which promises fibre to every rural home and business] will effectively become a universal service obligation for broadband. Then, you're talking about voice services over fibre. And we would retire the copper, take it out of the network altogether."

This, he says, would be a good thing.

"Copper is vulnerables," says Moat. "It's heavy when it's carried on poles and it's more vulnerable to wind and lightning strikes. If you can get fibre in, it's much lighter and more resilient. It makes much more sense, down the road."

An incumbent telecoms operator that aspires to getting rid of its copper network? Welcome to the new Eircom. It's a company that is "very close" to financial "stabilisation", according to its new boss, and which intends to move on from some of the historical mistakes it's made.

"Eircom has gone through many difficult years," says Moat. "There wasn't enough investment in products and services for a long time. But when Herb [Hribar, recently departed CEO] and I arrived, that all changed overnight. We set off on a €1.5bn investment programme and we've spent almost €900m to date. It's revolutionised the business. We've reached almost 1.1m of our 1.6m fibre homes target, were the first to launch 4G and have launched quad-play services with TV included."

All of which has led Eircom to a point, he says, where it is ready to start long-term hiring plans for the first time in almost a decade.

The company has announced a new plan to hire 375 people - a combination of apprentices and graduates - over the next five years. Moat says that Eircom is the only telecoms company investing in technical staff "at scale" in this way in Ireland.

English-born Moat has more high-level experience in the telecoms world than most rival bosses here. A 23-year career with phone companies has included time as MD of T-Mobile in the UK and deputy CEO of Everything Everywhere (EE), T-Mobile's successor.

He joined Eircom in 2012 as chief financial officer, just as the company was emerging from Ireland's biggest corporate examinership, with more than €1.5bn of debt written off.

The telecoms organisation he joined continues to face big competitive threats from UPC's fibre broadband rollout, a declining landline market and new entrants into the fixed-line market, including a joint fibre broadband venture between the ESB and Vodafone.

So how does he expect to grow Eircom's revenue and make money?

"We've got a legacy base of access landlines which has continued to decline albeit at a much smaller rate than a few years ago," he says. "The growth has to come from other products. The core product is fibre broadband and that has been growing very well. We have 20pc take-up of homes passed and on the back of that, we've built bundles including quadplay."

Moat says that a fifth of Eircom's customers now buy 'bundles', which is good for customer retention and boosting household spend on Eircom's products. He also says that the company's mobile units (Meteor and eMobile) are doing as well as its wholesale business.

"We think this will stabilise revenue before the end of our financial year in June and that it will actually grow next year."

But there are plenty of hurdles yet to clear. A new joint venture by the ESB and Vodafone, which plans to roll out fibre broadband to large Irish towns from next year, has become one of the company's most targeted challenges over the next two years.

But it's not taking the threat lying down. In response, it has submitted an application to launch a new fibre-to-the-home broadband service in 66 large towns and cities across Ireland. The product would have a speed of 1,000 megabits per second (Mbs) and would priced as a "premium" service, according to Moat.

"We want to launch it as soon as we get regulatory authority for it," he says. "It will be demand-led based on what we see in a particular apartment block or housing estate. We're not going to roll it out like fibre to the cabinet because that would be too expensive.

"Since we've already got fibre to the cabinet in all of those 66 communities, it's relatively simple to run fibre out to a drop point [such as a home or business]. We're not starting from scratch in terms of network architecture. So that's our strategic response."

The product is currently undergoing a trial in Belcarra, Co Mayo, with further trials scheduled for Kilkenny, Sligo, Letterkenny and Cavan.

"We're taking the ESB joint venture very seriously, even though we don't necessarily think it makes sense to overbuild in areas where there's already fibre installed. But as the joint venture looks like it will roll out, we have to make sure we have products in place to compete."

But if rival operators have sparked Eircom into retaliatory action, it is far less perturbed by the existential threat of online services such as Google, Facebook, Netflix and Skype.

Some analysts would see unfairness in that its eVision TV service costs €10 per month and gaining 30,000 subscribers while Netflix, which pays Eircom nothing for the large volumes of traffic it causes eFibre to bear, costs the same and has around 200,000 monthly subscribers.

This industry-wide imbalance has caused some telecom firms to agitate for industry action on making internet content firms "contribute" to the "free ride" they get on the backs of broadband networks.

Moat believes that the world has moved on from fighting such battles.

"I don't really see that the trend of using these service will reverse," he says. "So it's about working out what we need to do is to position ourselves as intelligently as possible in that evolving ecosystem.

After an abandoned stock market flotation last year, the company's medium-term future is uncertain. As the telecom sector continues to stagnate, consolidation - and the possibility of being bought by new corporate owners in a rising economy - remains an option.

"We didn't go through with the flotation because the market weakened at exactly the wrong moment," says Moat. "So right now, we're not considering any public market activities for the foreseeable future. It wouldn't make sense, anyway, until we established a pattern of top-line and bottom-line growth. And that remains some distance away."

All of which begs one basic question: why does Moat want to be chief executive of a complex firm with large legacy commitments in a difficult, stagnating industry? Even the most optimistic projections do not see Eircom - or any of its rivals - hitting breakout revenue or profitability growth. Down the road, meanwhile, a host of digital companies see double-digit growth and profits. So why choose to be CEO of Eircom?

"Because it's what I know," he says. "I've been in telecoms for 23 years. When I was in the mobile industry I always wanted to run one of the UK mobile businesses.

"Because I was working around the world and it's always more difficult to come back to where you came from and prove you can do it there. And I did it, I became the managing director of T-Mobile in the UK. So I was able to tick that box.

"My next ambition was to run a converged operator which was the leading player in its country. And this was the opportunity to do that. And I'm just really excited to be here. I wouldn't want to be anywhere else."

"We would retire the copper, take it out of the network. Copper is heavy and more vulnerable to wind and lightning strikes. If you can get fibre in, it's much lighter and more resilient. It makes much more sense, down the road."

'Cheaper' rural broadband plan in the  pipeline

Eircom is preparing to bid for the Government's upcoming National Broadband tender, a contract that could see it win hundreds of millions in public money to roll out fibre broadband to 700,000 rural homes and businesses.

"We're ready to go, we're ready to submit a proposal and we intend to win," says Eircom's chief executive Richard Moat.

The plan requires a minimum speed of 30 megabits per second (Mbs) to every premises, regardless of how remotely it is located.

But how much will it cost? The Government has previously said it would spend up to €500m subsidising the scheme. But Mr Moat says that the final overall cost might be a lot less than the €1bn on which the Government's initial €500m subsidy estimates was based.

An outlay of "€1bn would definitely be more than enough", he says. "I don't want to give away our commercial position on this, but I would say that it would be well under a billion.

"The cost of [fibre broadband] equipment is coming down. And our know-how on how to use existing assets is improving. The combination of those two means that the cost of rolling out rural fibre broadband is substantially less than either we or the market originally thought."

But would this be real fibre to the home and business or just a phone-line connected service? There is a big difference between fibre piped into someone's home and fibre that connects a local phone cabinet (which means much more limited speed, similar to Eircom's existing 'eFibre' product). Does Eircom see a rural fibre broadband plan physically delivering fibre into every single premises or simply to the local phone cabinets?

"We have a detailed plan for this and it is based on fibre to the home," says Mr Moat.

"You might think that given our huge experience bringing fibre to the cabinet that that is what we'd be recommending. But having looked at it in detail, we actually think that fibre to the home is a more sensible solution. Because we're talking about rural ribbon developments here. Putting cabinets in won't really work as it's not the same as more concentrated communities. Individual homes would be too far from the cabinet. So it's got to be fibre to the home. We've concluded that it's cheaper and easier and more logical to run fibre along the road and along the poles we already have."

If Eircom won the tender, would it want to own the state-subsidised network built or see it remain in state hands but licensed on a rolling basis?

"We would far prefer to own the asset," says Mr Moat. "And I would have thought that the Government doesn't really want to get into owning networks. Of course, they will want to know that proper regulation and competition is occurring. But I'm working on the assumption that the operator will own the assets." Eircom is confident that the National Broadband Plan will proceed - even though is yet to be financially provisioned for by the Government and which must yet overcome EU state aid rules?

"There might be some scepticism but as far as Eircom is concerned, we think it is going to happen. The Government appear to have assembled a very powerful team behind it. So we've put a big team behind it, led by Carolan Lennon, which is devoted to winning the National Broadband Plan.

"We were probably the biggest contributor to the Government's mapping exercise too, which is a building block for it to go ahead. So as far as we're concerned, it's happening."

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