Analysts say the addition of 13,000 new broadband users is disappointing, writes Barry O'Halloran

Telecoms company Eircom posted €77 million in pre-tax profits in the three months to the end of June, but figures show that its efforts to attract broadband subscribers are hitting its margins.

The company yesterday did not comment on US-based search engine Google's launch of a free internet-based call service. However, senior figures within Eircom said they did not see the move having any impact on the business for the time being.

Google will initially limit the new service to the US, but does eventually intend to roll it out across the globe. One Eircom source pointed out that the service would ultimately increase internet use. "That would be good for our business," the source said.

Eircom's revenues for the three-month period, the first quarter of its fiscal year, dipped €2 million to €399 million on the same quarter in 2004.

Turnover for voice traffic - conventional phone calls - dropped 8 per cent to €128 million, but sales from interconnection services rose 25 per cent to €46 million.

Operating profits were €112 million, compared with €25 million during the same period in 2004.

A one-off €46 million gain from the sale of property lifted pre-tax profits to €77 million. During its first quarter last year, Eircom lost €6 million before tax.

Most of the headline results were a restatement under new international financial reporting standards (IFRS) of figures the company issued last month, and were broadly expected by the markets.

However, analysts were critical of the rate at which the company is signing up new customers to its broadband services.

The figures show that the company signed up 13,000 new broadband subscribers in the three-month period, a performance analysts described as disappointing.

The introduction of cheaper prices and new talk time options sped up the monthly take-up since the end of the quarter. The company took on 6,000 new customers between July 25th and August 18th, bringing total broadband subscriber numbers to 156,000.

That was the equivalent of 7,700 per month, compared with just over 4,000 a month between the end of March and the end of June.

However, analyst Tricia McEvoy of NCB Stockbrokers pointed out yesterday that this meant that the company's efforts to attract new subscribers were continuing to cut into its margins.

Ireland Off-line, a lobby group for business and consumer internet users, said yesterday that at its current take-up rate, Eircom would not reach its target of 500,000 subscribers by December 2007 until at least two years later.

Eircom's share price dropped five cent or 2.8 per cent to close at €1.75 in Dublin yesterday. Dealers said that the poor broadband performance and the fact that the market was aware of most of the figures were the main reasons for the lack of investor interest.

The company is about to embark on a rights issue to pay for its proposed €420 million takeover of mobile operator Meteor. It is set to publish the prospectus later today or early next week.

The figures also indicated that Eircom's competitors have been making some inroads into its fixed-line customer base.

Bríd White of Merrion Stockbrokers pointed out yesterday that during the first quarter, the company had rented out 8.7 per cent of its lines to other operators.

Ms White said that this figure was ahead of the firm's expectations and indicated that alternative operators had made significant progress in the market since single billing was introduced just over a year ago.