Purchase of Perlico shows mobile giant knows it must expand, writes Ciarán Hancock

Vodafone's €80 million takeover of Perlico raised more than a few eyebrows in the telecoms sector yesterday.

It's a hefty sum to pay for a loss-making business that offers a bargain-basement broadband product for just €6.99 a month.

Just five years old, Perlico says it will turn in a net loss of €7 million for 2007. It has just 62,500 customers, of which only 25,000 are broadband subscribers - considered to be the sexy end of telecoms at present.

Perlico founder Iain MacDonald was keen to stress yesterday that it had established itself as the most "credible contender" to Eircom in the fixed-line space but this is arguable.

BT Ireland and UPC, the owner of the NTL and Chorus cable television operators, both have just shy of 75,000 broadband subscribers.

Vodafone argues that it is not buying the business for its current customer database but for the potential that Perlico offers into the future and the synergies that offering a full suite of telecoms products can bring.

O2 was also said to be sniffing around the company, which might have helped make up Vodafone's mind.

Vodafone is paying €512 per Perlico customer based on the initial €32 million cash payment.

To be fair to Perlico, turning a buck in the fixed-line market in Ireland has been practically impossible in the face of intransigence by Eircom, the incumbent. Smart Telecom and Tele2 are just two players that failed to stay the pace on fixed line.

That might be about to change. The Government recently boosted ComReg's powers and Babcock & Brown seems likely to split Eircom in two, separating the retail side from the network. The European Commission is also talking tough on regulation.

Vodafone is taking a bet that customers will, in the future, increasingly want to buy their mobile, fixed-line and broadband services from the one provider.

It's a similar strategy to that being pursued by UPC, which is offering bundled television, broadband and fixed-line services here. Sky is doing something similar in Britain.

Vodafone Ireland boss Charles Butterworth stressed the company's new-found desire to offer a "total communications package".

It is easy to understand why. Vodafone has a 45 per cent share of the mobile market here and has virtually reached saturation point.

It needs a new trick, which is why it has bought Perlico.

It just remains to be seen if it has backed the right horse and, more importantly, done so at the right price.