Thursday, 6 August 2009

STT bid for Eircom

Donal Palcic: The fifth change of ownership of Eircom now appears imminent with Singapore Technologies Telemedia (STT) very likely to make a deal to acquire the company in the coming days. While STT's latest offer price is not known, it is unlikely to be significantly higher than its original bid of just under €110 million given the scale of Eircom's debt that it would assume.

The STT bid was backed by Eircom's ESOT who favoured an industry player over other private equity investor bids. The hope is that an industry player will make a long-term commitment to the company and invest in Eircom's ageing network.

Since STT's bid for Eircom now appears inevitable, and a Government deal to acquire Eircom's network infrastructure which I argued for in a previous post is now wishful thinking, what will now happen to one of our country's most strategic assets is very much up in the air.

While the hope is that STT will make the required investment in Eircom's network infrastructure, STT is a commercial operation that will demand a return on its investment. It is also taking on an enormous amount of debt. It is therefore hard to see STT investing on the scale (and at the speed) required.

The Government still has an important role to play in the development of our national telecoms network assets. It needs to maximise the use of its current fragmented portfolio of assets by amalgamating their ownership/management and providing 'one-stop-shop' access to these assets on an open wholesale basis. Creating a State-owned telecoms network utility to manage these assets would seem like the best option to achieve this. The ownership of any newly built infrastructure (ducting laid down as part of road construction and other civil engineering projects) should also be transferred to this new network utility company. In addition, the company could itself invest in infrastructure in areas where it deemed it necessary, removing the need for the Government to foot the bill for projects such as the MANs.

Sadly, I fear that the Government will keep following its 'do minimum' and 'let's wait and see what happens' approach, Eircom's new owners are unlikely to invest heavily in its network, and Ireland's telecoms infrastructure and broadband services will continue to fall further behind her European peers.


Anonymous said...


Paul Hunt here, hiding under Anonymous. I can understand your disappointment, but I would be more sanguine about STT. I would be surprised if they aren't in for the long haul. I've had some exposure to the philosophy and approach of successful companies in that part of the world and I suspect they see long term value in this investment. In fact, I would like to see companies like this owning and operating the energy networks.

We need to strip out the implicit 10% tax that the current ownership and operation is imposing and the proceeds would be very useful.

Donal Palcic said...

Paul, I suspect you're right that they are in for the long haul (there's not much left to make a quick buck from after Valentia and Babcock). Hopefully they will invest heavily in the network, particularly the last mile segment.

STT's subsidiary company StarHub is a big player in Singapore's broadband market. Their residential broadband packages appear very similar to those on offer at Eircom (basic package of 2Mbps, premium packages of 8-12Mbps) although they have recently rolled out a high speed 100Mbps package.

More importantly, StarHub was recently picked by Singapore’s Infocomm Development Authority to design, build and operate the active infrastructure for a next generation national broadband network for Singapore. The Singaporean Government is providing a US$166 million grant to construct the fibre optic infrastucture and it is due to be completed by 2015. The Singaporean Government is also providing almost US$500 million for the construction of the passive infrastructure for a next generation national broadband network (which will then be operated by StarHub).

All we need now is for the Irish government to make a similar deal with STT... surely we have a few hundred million euro to spare somehwere!