Telecom Eireann's results show the company is in good shape to face the sharp increase in competition it will encounter when US cable giant, NTL, enters the fray. The State operator - up to 35 per cent of which will be floated in July - has effectively cleaned up the books, taking exceptional one-off hits which have resulted in pre-tax profits falling from £222 million (€282 million) in 1997 to £94 million (€119 million) in the year to April.
Turnover has increased - by £20 million, or 6 per cent to £1.44 billion (€1.82 billion). The company has also continued to increase investment in infrastructure, without recourse to borrowings and, in fact, has managed to reduce debt by £23 million to £148 million. It is a long way from five years ago when debt was almost £1 billion.
NTL's entry to the marketplace, following its purchase of the cable company, Cablelink, is both a plus and a minus for Telecom. Undoubtedly, the US giant will take market share and provide formidable competition on a scale not seen here before.
As one industry source said: "NTL's approach to the Irish market can be seen by how much they paid for Cablelink [£535 million]. It is obvious they are very serious about it."
NTL will drive down telephony and Internet charges as it strives to build market share. It will also have access to almost 400,000 customers to whom it can offer a range of services.
NTL will unquestionably be the number two telecommunications operator in Ireland but it will also be a far bigger number two competitor.
However, Telecom stands to gain from the Cablelink sell-off. As a 75 per cent shareholder in Cablelink it will net around £394 million from the sale. This revenue is not included in yesterday's results. It gives Telecom a very good "war chest" for future investments. It is understood this money will be used specifically for such purposes.
Telecom is currently targeting niche markets in Britain and is spending £50 million in Northern Ireland to build market share. It interconnects with operators such as British Telecom and sees the North as a logical extension of its own market.
The results also show a strong performance by Eircell, the mobile phone subsidiary, the customer base of which rose 55 per cent to 644,000.
Mr Ciaran O'Neill, analyst with NCB Stockbrokers, points out that the Telecom experience is not much different from that of other EU state operators. Much of the growth is coming from the mobile and data side of the business, he says, rather than the fixed line side.
Mr O'Neill cited recent results from Deutsche Telekom where there was a 25 per cent increase in mobile growth, but a similar reduction in the fixed line business.
It is not just NTL, Esat, or Ocean - the ESB/British Telecom joint venture - which will be biting at Telecom's heels. In a fully liberalised market, niche players, which can target specific market segments and undercut the incumbent, are also forces to be reckoned with. Telecom's transformation plan, which will see several thousand redundancies, changes in work patterns, productivity and the advent of employees contributing to their pensions is in place and is a key component of future performance.
