Residential and business customers can expect an improved telephone service at lower prices this year as British Telecom, one of the leading international players, enters competition with Eircom for business.
BT said yesterday that it would pay almost £2 billion for Esat Telecom and that it was planning an assault on Eircom's leading position in the fixed-line, mobile and Internet markets.
The BT bid, which looks set to succeed, valued each Esat share at $100 (£77) and will make many of the company's executives and staff wealthy. The company's founder, chairman and chief executive, Mr Denis O'Brien, stands to gain more than £230 million. Mr O'Brien said yesterday that he had not decided what to do with the money, but he would definitely be "having a bit of craic".
If the bid succeeds, BT is likely to try to merge Esat with Ocean, its joint venture with the ESB. Coupled with moves by the telecommunications regulator, Ms Etain Doyle, to allow all companies access to Eircom's local exchanges, this would put BT in a strong position to increase its market share.
BT claims it now controls 51 per cent of Esat Digifone, the Republic's second mobile phone provider. It said yesterday that it would keep the Digifone name, but may partially integrate the service into its domestic mobile company, Cellnet. This could signal an end to the punitive "roaming charges" which have to be met by Irish subscribers who use their mobile phones in Britain or Northern Ireland.
Technological advances will this year see television cable companies offering phone services to their subscribers as well as enabling phone companies to provide rapid Internet access to any home. This will further heighten competition and should lower prices.
Among the other benefits to BT of the Esat deal are savings it can make from the high level of traffic between Britain and Ireland and from restructuring Esat's debt.
Eircom, which until yesterday was considered a potential take-over target of BT, said it was happy with the deal. "Clearly, BT's decision reflects a strong belief in the value of the Irish marketplace, in which Eircom is the market leader," a spokesman said. "We will continue to compete aggressively and maintain our leadership position."
BT's decision to buy financier Mr Dermot Desmond's 1 per cent stake in Esat Digifone may yet prove a stumbling block to its plans and there is some speculation that the rival bidder, Telenor, may try to block this sale in the courts.
Currently, Esat and Telenor have equal 49.5 per cent stakes in Esat Digifone, with Mr Desmond holding the 1 per cent balance. Telenor has claimed that Mr Desmond is required to offer his stake in equal parts to the other shareholders, while Mr Desmond and BT have clearly taken the view that there is nothing in the Digifone shareholders' agreement to prevent him selling to BT.
Market sources described the $100 a share now being offered for Esat as very much at the top of the range and said it was no surprise that Telenor was withdrawing from the bidding.
BT's chairman, Sir Iain Vallance, indicated yesterday that BT had never been a potential bidder for Eircom, whose take-over-free period expires next Friday. He said BT's strategy was to invest in the number two telecom companies and Esat fell into this category.
Analysts said that while the arrival on the scene of BT as the owner of Esat would undoubtedly intensify competition for Eircom, the price BT was offering also underpinned the value of Eircom shares and might push them up. Eircom shares were 10 cents higher at €4.10 yesterday.