If you can't overtake, take over. The Internet industry is buzzing with the news that Telecom Eireann proposed to buy out Indigo, the second largest Internet service provider (ISP) for domestic users. If the deal goes ahead, Telecom will become Ireland OnLine's biggest competitor. And since Ireland On-Line is owned by An Post's subsidiary PostGEM, the deal would mean nine tenths of the Internet dialup market in Ireland would be controlled by two State-owned ISPs. IOL, the largest Irish ISP, has a mixed reaction to the deal. Managing director Colm Grealy acknowledges a Telecom takeover of Indigo would reduce customer choice, but says it will stabilise the industry. "The market will grow with strong players . . . It's hard to build based on £10 a month [subscriptions]," he says.
Another senior industry source says the deal makes sense for two reasons. Firstly, it is believed that Telecom's TInet has attracted less subscribers than expected, and an Indigo buyout will more than double its customer base. Secondly, Indigo already uses Telecom's network nodes for customers outside Dublin. A Telecom Eireann buyout of Indigo offers "the best technical integration", he says.
Aside from TInet, Telecom is already making money from the ISP business. IOL says it receives more than 30,000 modem calls a day, mostly made during Telecom's peak rates. IOL's users stay online for an average of 12 minutes on weekdays, and 45 minutes at weekends. IOL also pays Telecom for modem lines and backbone access, and makes and receives more than 800 sales and customer support calls every day.
Being both the infrastructure provider and an ISP, Telecom seems to be having its cake and eating it, while being fed by its competitors too.
However, the Competition Authority says it has "no problem" with Telecom acquiring a dominant position in the industry. The authority says it would only act if there was a complaint, or evidence of abuse of a dominant position. This means Telecom has to treat all ISPs equally - including TInet. Such things are hard to police, but by being a competitor of its customers, Telecom risks losing the business of other ISPs when they have a choice. Time will tell, as Telecom faces increasing competition for its core business.
And for Telecom, this is the rub. Competition is coming from all angles - including mobile telephony, international trunks, and now the Internet, with its online voice and video services. Like telcos all around the world, Telecom is investing heavily in new technologies to stay ahead. Eircell and the new "information age town" Ennis are already benefiting, and it looks like TInet and Indigo may be next.
Indigo found to its cost that the Internet isn't a big money earner - yet. It's heading that way, but it will take large investments now to be a big player when that day comes.
Telecom and An Post are better placed than most to make these investments, and after all, the Internet is an extension of their traditional services - email and other online communications are the digital equivalents of letters and phone calls.
However, the reported buyout, said to be close to completion, raises questions about what one ISP head calls "the phenomenal level of State involvement" in the industry. IOL, the largest ISP, is part of the PostGEM group, a wholly-owned subsidiary of An Post. It has about 30,000 dial-up customers, while Indigo has up to 9,000 and TInet has about 6,000. The market is said to be increasing at a rate of over 1,000 a month.
Thus, if the deal goes ahead, 90 per cent of the dial-up market's 50,000 subscribers will be using two State-owned ISPs. (The other major Irish ISP, EUNET Ireland, does not cater for private users.) Telecom and An Post may be well-suited to the ISP business, but does it make sense for two State-owned companies to compete against each other? This is arguably a waste of public money.
This view was put to the Department of Public Enterprise, who confirmed that the Minister, Mary O'Rourke, has been informed by Telecom of its intention to acquire Indigo. She is expected to respond in the coming days, but says she expects An Post and Telecom Eireann "to perform in the market on a commercial and profitable basis, in accordance with national competition rules".