Thursday 15 November 2018

This time it’s different — Eir’s new owners taking a long view on Ireland

Eir’s first female CEO is steering the telco at high speed since its latest takeover. In her first major interview, Carolan Lennon speaks to Adrian Weckler

Carolan Lennon says her biggest break was getting into the ‘heart and soul’ wholesale side of the business. Photo: Steve Humphreys
Carolan Lennon says her biggest break was getting into the ‘heart and soul’ wholesale side of the business. Photo: Steve Humphreys

‘I wanted this job,” says Carolan Lennon, sitting in a giant boardroom overlooking a large chunk of Dublin’s city centre. “I said I wanted it, which sometimes women don’t do. And I got it. I couldn’t be happier.”

To say that Lennon has hit the ground running since ascending to the throne of Ireland’s most important privately-owned company is putting it mildly.

In the five months since becoming the telco’s chief executive — the first under its new French billionaire owner, Xavier Niel — Lennon has overseen the type of sweeping changes it usually takes companies years to implement.

In that time, around a quarter of the workforce has left. Those remaining are moving from the city to Citywest. The number of product options sold is being slashed. And Eir is about to replace its old copper network with fibre in most Irish homes, its biggest overhaul in 20 years.

On the face of it, it’s a reconstituted, re-energised company. Yet tell the person on the street that Eir has a new owner and you’ll risk seeing an eye-roll.

The story of Ireland’s incumbent telco has been of a firm which has changed corporate ownership 10 times in under 20 years, with billions sucked out over that time.

This has led to Eir being crippled by debt, unable to invest in proper infrastructure and a 2012 rescue by court examinership to avoid collapsing.

Lennon is aware of what people say about ‘yet another Eir owner’, but says that this time it’s genuinely different.

“If you look at this any way critically, you have to see the difference between a genuine telco investor with a track record in other markets and just another institutional investor. NJJ [Xavier Niel’s company] is an investor that doesn’t sell things, it holds onto things. So this is very, very different.”

When she moved from head of Eir’s wholesale network to the top job in February, Lennon’s first order of business was daunting. She had to oversee one of the biggest job layoff rounds in Irish corporate history — 750 people in a 3,000-person company.

The voluntary redundancies were relatively seamless to manage, she says.

“What helped a lot was that it was a good deal and the job market is good at the moment,” she says. “It was also pretty clear that NJJ were going to change things. People asked themselves ‘Is this for me’?”

Few companies will reduce their workforce by 750 people without some rancour.

“Sometimes schemes like this take over conversations internally in companies,” she says. “But if you look at what we’ve achieved in the last five months, it hasn’t stopped any progress. And those who stayed now get to work on some really interesting things, like increasing the mobile network by 25pc or designing urban fibre or working on taking media back in-house. And we’re also hiring. We’re taking on 50 new apprentices, while we’re also hiring IT developers to build our own IT stack, looking at what NJJ did with Salt (Telecom) in Switzerland.”

Financially, Eir is doing reasonably well. Its earnings before tax has consistently risen in recent years and did so again in the company’s most recent financial statement last week.

But revenue — sales, the company’s ability to produce and market things — has been falling. What is Lennon’s plan to increase sales?

Two ways, she says: get more mobile customers and rebuild the company’s broadband network from the ground up.

This latter strategy is a huge shake-up of Eir’s basic proposition as a service. It is the wholesale replacement of its copper landline network with state-of-the-art fibre, the biggest upgrade it has ever done.

“We haven’t had a product to compete with cable in some parts of the country,” said Lennon. “If you look at our market share, we’re under-indexing in those [urban] parts of the country. We believe we can take market share there. When we’re finished, we’ll have 1.73 million homes and businesses, around 76pc of the country’s premises.”

The five-year plan, squeezing fibre into the ducts that currently hold copper landlines, will cost €1bn. It’s a big bang, arguably the company’s most ambitious overhaul in 20 years.

“Our under-indexing in the cities happened a long time ago as [UPC-Virgin] cable rolled out and Eir didn’t respond or was slow to respond,” says Lennon. The result is that in cities, the most important Irish markets, Virgin currently has a near monopoly on high-speed internet infrastructure.

Was a failure to invest in fibre years ago a mistake? “Well, post-examinership [in 2012] we made a decision that our infrastructure investment should be about reach, not depth,” she says. “We only had a certain budget so we didn’t go head to head with cable. To an extent, that worked. We have 635,000 customers on our wholesale and retail network now. But in terms of direct competition with cable, where you have a direct fibre line into the home, we didn’t go there. So now we’re under-indexed in market share in the big cities and semi-urban areas. We now have TV, including sport, something we didn’t have at the time of the examinership. So as a bundle, fibre to the home will give us a real opportunity.”

Lennon’s other business plan is to ramp up its mobile offering.

“We’re going for a 25pc increase in the size of our mobile network,” she says. “In mobile, we’ve a good network, but we don’t have a great network yet. Our plan is to have the best one in the country. It’s particularly there for business postpay. I’m talking about bigger corporate mobile accounts, as we’ve done quite well in SME and government.”

Most telecoms commentators agree that Eir’s importance as a national utility cannot be overstated. Outside Dublin and a handful of other urban centres, it is literally the network upon which large chunks of Ireland depend on from day to day.

This is because Eir owns the basic telecoms network that other telecoms firms then sell on to customers. Those who think they’re customers of Vodafone or Sky or Magnet or Digiweb are actually often using Eir’s network, which is simply resold to them by whoever is billing them.

This makes Eir Ireland’s only major ‘wholesale’ network. As such, it regularly clashes with Ireland’s telecoms regulator, ComReg, on how it treats other operators using that network, from pricing to fixing faulty lines.

There have been umpteen High Court cases between Eir and ComReg over the years, with some still ongoing.

These have occurred against the backdrop of howling complaints from rival operators who have often called for Eir to be broken apart into separate entities so that the retail and wholesale arms of the company can’t conspire to give an unfair advantage over rival retail telecoms firms.

One current flashpoint is the price at which Eir is allowed to charge other operators to resell its growing rural fibre broadband network, which will reach 330,000 rural premises by June of next year.

Eir’s price is €270 to connect a rural home so that the rival operator can start selling their service. Companies like Vodafone and Sky say that this is way over the odds and that it has prevented them from offering competition to Eir’s fibre broadband in rural areas. (Sky has begun trials on the network but only in the expectation that the price will come down.)

ComReg agrees in principle with these operators and is about to order Eir to lower the prices.

“We don’t like that charge and we don’t think it’s justified,” a ComReg spokesman told me. “We will certainly be proposing quite substantial changes to Eir’s ability to choose what the connection charge should be.”

But just because she’s new in the role, Lennon has no intention of giving up some of the company’s inherited core pricing principles.

“We think it’s way too early for this,” she said. “If we need to challenge it, we will. If you look at the UK’s rural connection charges, you’re talking about over £500 sterling to connect a home, while in some European rural areas, it can be a couple of thousand of euros. So we do not believe that ours is an expensive price to get a fibre connection in rural Ireland. And certainly it’s much less than the actual cost of it. But more broadly, it’s only four years since we started rolling out fibre and already we’re talking about driving the prices down. In other markets, this only happens in the seventh or eighth year. This is a market that doesn’t get that much investment or infrastructure. It takes a long time to roll out and get a return. The regulator has a job to make the environment right for capital investment. For that, you need a level of predictability to get a return.”

Despite this, Lennon says that there’s a warming of relations between Eir and ComReg going on. This, she says, should be important to both bodies for a smoother market in future.

“There’s always going to be some tension,” she says. “For example, we feel that ComReg isn’t pro-investment enough. But over the summer, I’ve been trying to look at that and get a better balance. We’re aligned on about a third of things. On another third, we disagree but we work together. Then there’s a third where we fundamentally disagree, such as investment climate or the speed of cost-orientation [for wholesale fibre pricing to other operators] or the burden we have with USO [universal service obligation, requiring Eir to maintain and fund rural telephone lines]. And so on. In recent times, we’ve probably been in more conflict with them than we’d want. But I think it’s improving. We’ve spent a fair bit of time over the summer working through some things. There’s now a better understanding of where we agree and where we don’t agree. I’m not saying it’s at the level that I’d want yet, but it’s getting better.”

There have been other changes afoot at the company.

Eir has taken a decision to streamline its business activities, cutting down the number of product lines it sells and bringing previously outsourced activity in-house.

Falling into the latter category is advertising and marketing, which has led to seismic contract losses in the Irish ad industry, which has become accustomed to big retainers from Eir.

“We have a plan to take media back in-house,” says Lennon. “That includes the buying of our outdoor media and TV. We want to do as much as we can ourselves.”

Will this extend as far as a Ryanair-style approach of making their own ads?

“You mean me being in them? No,” she says. “We’ll continue to work with small agencies on a campaign-by-campaign basis. If you look at the ads we have out there right now, they’re really high quality. We don’t want to compromise on quality but I think we will do as much as we can ourselves. That has proven to be very motivating for people. To roll up their sleeves and get involved.”

Lennon isn’t the first female boss in a major Irish telecoms firm. Danuta Gray was a longtime steward of O2, while Anne O’Leary has been at the helm of Vodafone Ireland for nearly six years.

However, Lennon is the first female CEO of Eir, a company that doesn’t quite have the same group structure as other Irish telecoms firms.

A CEO’s gender shouldn’t have much to do with a company’s performance, but the issue is a prominent one today.

Has it been any more challenging rising to the top of Eir as a female executive?

“Does it matter that I’m a woman? I don’t think so,” says Lennon. “But I’m obviously still proud to be the first one in this job. The biggest break in my career was getting into the wholesale side. Once I was there I understood the heart and soul of the business. I’ve worked right across the company and know it from all sides. For me, that was more important than being female. That said, we now have a 50-50 male-female split in terms of senior management in Eir. I do think that’s important, because senior management should reflect your customer base.”

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