Analysis: Only lower costs and other efficiences helped keep earnings up, writes Arthur Beesley, Senior Business Correspondent

As more and more people choose not to have a fixed-line phone in their home, Eircom's first batch of full-year results since its return to the stock market underscores what is a pressing need to re-enter the mobile market.

With falling voice and data traffic a crucial factor in a 2 per cent dip in Eircom's revenues, only lower operating costs and other efficiencies helped push earnings and profitability in the right direction.

But such efficiencies can go only so far in the face of a cultural shift that sees almost a quarter of people living a mobile-only life. According to a ComReg survey, the move away from fixed lines is most pronounced among younger, single people and those on low pay.

With that in mind, Eircom is making no secret of its efforts to re-establish a foothold in a market it left four years ago when it sold the former Eircell to Vodafone. But progress has been slow - a full year has passed since a non-compete clause lapsed.

Eircom is now in the race for Meteor, in play since its owner Western Wireless decided to sell its European mobile units, and may yet have to pay €400 million for it. If the company prevails, it is likely to fund the bulk of the transaction by way of a rights issue with the remainder coming from its €400 million cash pile.

That a €400 million valuation on Meteor is at the higher end of expectations reflects Eircom's weak negotiating position - it cannot grow without mobile - and the fact that alternative bids are likely. Businessman Denis O'Brien and US private equity giant Blackstore are just two of those mentioned as rival suitors.

Eircom chief executive Dr Phil Nolan said the company could seek to lease block time from the established operators to become a mobile virtual network operator (MVNO). But progress in the opening of this market is slow and a number of tricky factors stand in Eircom's way.

Business will always find a way around such difficulties, although Merrion Stockbrokers analyst Bríd White said in a note yesterday that the MVNO structure presents only a "marginal growth opportunity, particularly if competition were to increase significantly".

So Meteor is Eircom's best bet for now. "This would give Eircom its own network and allow the company to take advantage of the resulting leverage," Ms White said. While she said Meteor's customers were mostly in the less profitable lower end of the market, these are the very people who are choosing not to use fixed-line phones.

The other part of Eircom's growth strategy centres on broadband, although the company made it clear yesterday that the service was still losing money. Eircom lost €23 million on the core service and depreciation costs were €22 million. In addition to steep promotional and marketing costs, Dr Nolan said more customers than anticipated were cancelling contracts.

Between mobile and broadband, the path to growth is a long one.