The chief executive of Eircom yesterday outlined his strategy for the group following the sale of Eircell next month. The company aims to cut costs and enhance earnings in the core fixed-line business, said Mr Alfie Kane. Debt will be kept at the current low level and 50-60 per cent of after tax earning will be paid out to shareholders in dividends.

The strategy should allow the company weather the turmoil in the telecommunications sector with a strong balance sheet while remaining well placed to take advantage of any opportunities that should arise, said Mr Kane. Eircom is disengaging almost entirely from the multimedia sector and rationalising its operation in Britain in order to re-focus around the Irish business. Eircom will no longer look for new business in Britain and will concentrate on servicing the requirements of large Irish customers there. The group's multimedia interests are being slimmed down to one Internet service provider instead of two and several small e-commerce businesses. More than 320 jobs will go between the closure of the other multimedia operations and the restructuring in Britain, he said. The #125 million valuation put on the remaining multimedia assets will be significantly written down in the company books.

In Ireland management will be slimmed down and non-payroll costs will be cut by 10 per cent. Capital expenditure will also be curtailed and payroll costs maintained at current levels this year.

Capital spending will be targeted at projects which enhance the profitability of the core business.

Earnings from the fixed-line business before interest, tax, depreciation and amortisation (EBITDA) fell from #617 million in 1999 to #445 million in the year to March. When Eircell is included, EBITDA fell from #746 million to #640 million while turnover grew from #1.955 billion to #2.1 billion.

A number of factors combined to drive up costs in the fixed-line business, said Mr Kane. They included an increase in the proportion of calls being made from fixed lines to mobiles, which are less profitable than calls that begin and end on the fixed-line network. There was also pressure on payroll costs, with underlying pay inflation of 8.5 per cent, he said.

Initiatives are planned to reduce costs including seeking better rates from other operators using Eircom's network. Pay costs will be held at 2000 levels and non-pay costs cut by #30 million. Non-core activities will be curtailed or disposed of and capital expenditure will be curtailed. Among the investment projects being delayed is the roll-out of a DSL-based TV service. This would have allowed the transmission of TV signals down phone lines. Mr Kane maintained that other factors had played a role in the decision to postpone the roll out. He said the telecommunications regulator, Ms Etain Doyle, had not yet granted the company a licence, or told it what it could charge other telecoms firms to use the network.

"The primary reason for reviewing DSL is regulatory. We have no licence and no clarity on the interconnect rates," he said. Eircom will campaign for a fairer regulatory regime, which does not penalise the incumbent operator, he said. Eircom plans to shed a net 700 jobs, bringing the number of employees down to 11,000 this year. Mr Kane said the plan would position Eircom to ride out the current uncertainty in the market.

Mr Peter Lynch, the Eircom finance director, stressed the company was not actively on the acquisition trail and would first have to put in place a team that could manage acquisitions successfully.