Eircell sale may be step in right direction

With the rumours of the sale of Eircell everyone has an opinion on Eircom and how it should be run. Those opinions vary widely.

They come from people who - with all due respect - rarely follow the telecommunications or technology industries, either nationally or internationally. Thus the kind of logic that might hold for bricks and mortar businesses - Eircom will find only short-term gains in selling what is its most valuable segment, Eircell - just does not apply.

For the moment, let's set aside the fact that the multiplicity of opinions reflects the difficulty in seeing a clear way forward for the company. The divergent points of view also demonstrate a poor understanding of telecommunications issues - something for which many of those commentators have berated Eircom's board.

I would argue that the board reflects a reasonable diversity of opinion and sector knowledge - in general, a good thing. Like all corporate boards, Eircom's should include people who have expertise in finance and law and other areas adjacent to but not directly related to the company's core competencies.

The problem with the board is not the background of its members nor its diversity but the lack of decisiveness in choosing a strategy for the company.

This is not an easy task because, while the company is a dominant player in the Irish market, it is a tiny player in the European and global markets.

Unlike other national telecommunications companies, it has only one significant urban market to service and the burden of a low-margin rural network. It cannot make inroads into neighbouring states' markets, as easily as its continental counterparts. It doesn't have the kind of economies of scale for introducing services like ADSL, a high-speed Internet connection technology, that, say, BT has in Britain.

These complications do not excuse Eircom from moving decisively forward with a 21st century gameplan. But they do underline the fact that it is simplistic to insist that Eircom is just the same as other European incumbents.

The company has to be particularly creative in a demanding market, either to succeed in its own right or, as it inevitably must in a converging sector, to make itself an attractive acquisition.

Think of the ways in which the State has had to create inventive ways to position us well in the international technology market. It has succeeded largely due to a few key people with clear vision.

Eircom has at times hovered on the verge of taking real initiative - introducing flat-rate Net access before the rest of Europe, or pushing ahead with ADSL - but then lost heart and backed off.

It retreated behind bland statements about problems with regulatory or technology issues but the reality is that such programmes could have been introduced if there was the will.

However, the board's apparent decision to sell Eircell signals the beginning of new intent.

Far from being a short-term tactic, it may be one of the smartest moves the company could make. It would calm disgruntled shareholders by giving them a stake in Vodafone and clear the decks for Eircom to pursue a more aggressive policy. Such a policy could see the company take a lead in new data services rather than slowly inching forward only when put under pressure by rivals.

If Eircom sheds Eircell it gets rid of a legacy network - a huge weight of last-generation mobile systems and low-value subscribers. In particular, it rids itself of pay-as-you-go customers who are cost-conscious and unlikely to use the next generation of mobile broadband services coming down the line.

Eircom would be likely to successfully bid for one of the new G3 licences. If so, it could then build a network targeting the real money market - Internet and data services delivered via mobile.

It would be an agile entrant, unlike Digifone, which would still have to service its existing customer base. Mobile mast issues will have to be resolved in general and are unlikely to prove a serious problem. Eircom could then focus on data services using its landline network - the "rump" of the company left after Eircell goes its merry way.

Many within the telecoms industry believe estimates of the value of the rump have been grossly underestimated. It is not surprising that Esat founder Denis O'Brien and his consortium have made an offer for this sector of the business. Having fought against Eircom for many years when in charge of Esat, he knows the former semi-state's strengths and weaknesses. Eircom remains the biggest player in the market and is the greatest potential beneficiary of all the carriers here as the Republic repositions itself as an e-business centre.

The company should be a formidable competitor if it targets this market with high-end services and applications and makes the investments necessary to produce a cutting edge network.

This is why all Eircom's complaining over unbundling the local loop - giving competitors direct access to the copper wires that enter homes and businesses - means little.

Eircom is never going to draw significant revenue from local loop services although they are valuable as part of a package. Unbundling should benefit homes and smaller businesses. But Eircom cannot seriously believe its viability as a carrier is challenged by this one element of deregulation.

This is not to say that unbundling, in the haphazard way it is being introduced by the EU, is not fraught with concerns. For example, why not introduce unbundling as part of a programme of incentives rather than as a sort of punishment to incumbents?

But unbundling is just the final segment of a deregulatory process that has been happening globally for years.

Eircom needs to hone a strategy that places it in the centre of international developments. It needs to articulate how a small carrier, but one with a dominant position in its home market, can remain fresh, competitive, and visionary. It needs to become a telecommunications company that does not simply keep pace with its own state's ambitions in the technology sector but anticipates and outpaces them. A daunting task, but essential if the company doesn't want to end up as an also-ran.

klillington@irish-times.ie