Engaged in getting Eircom back on track

Herb Hribar is the latest in a long line of CEOs at Eircom, writes Kyran Fitzgerald. And as the company emerges from examinership and financial restructuring, he is seeking to get the former semi-State company back on its feet

THE Government may be getting top scores in economic management from Frau Merkel, but down at the coal face it all smells somewhat different.

The domestic economy is continuing to subside, with demand on the floor ahead of another austerity budget.

We may have stability of sorts, but this week’s announcement from Eircom serves as a reminder of the destabilising forces beneath.

A combination of depressed consumer spending and breakneck technological change has pushed the company on the ropes.

Eircom has just emerged from examinership and a financial restructuring, having shed 40% of its huge unsustainable debt mountain, but there is no happy ending. The company is battling hard to stay afloat, its lender owners focused solely on the task of securing the remainder of the funds they have invested in the business.

The cost remains too high, with the ratio of employees to customers high by international standards.

A fortnight ago, Eircom announced its annual results. Revenues were down by €174m to €1.51bn. The company continues to trade profitably, but it lost 100,000 fixed-line customers during the year. At the same time, it must find €1.5bn for its capital investment programme.

Against this background, the announcement that Eircom is seeking a further 2,000 job cuts should hardly cause much surprise.

Employment numbers have been tumbling steadily since 1999 when the company was floated on the stock exchange. At that point, more than 11,000 were employed by the firm. The figure has dropped to 5,700 following two rounds of cost reduction.

The plan hatched by the newly appointed CEO, Herb Hribar, is to bring the staff compliment down to 3,700 by Jun 2014.

Hribar is the latest in a long line of CEOs at Eircom and has arrived in this battlefield posting with a strong pedigree. He served in the US navy and has amassed a series of university degrees. He knows his way round Eircom having worked for the company during the period of ownership of the Tony O’Reilly-led Valentia consortium, after the Plc was taken private.

As MD, wholesale and& networks, he was the executive in charge of the physical network. Among his previous assignments, he has served as MD of Kabel Deutschland, one of Europe’s largest cable operators and also served as CEO at Swiss firm, Cablecom.

In the last year, he has run US wireless operator, CENX. Before that, he was president of Ameritech Wireless, a market leader in the US wireless business.

Now aged 60, the American is an industry veteran with almost 30 years’ experience. He will be working closely with the newly-appointed finance director, Richard Moat, who up to now served as chief financial officer and deputy CEO at ‘Everything Everywhere’, the product of the merger between Orange and T-mobile.

Eircom is targeting savings of €100m from the new redundancy programme and further changes in work practices.

THE head of the Communication Workers’ Union (CWU), Steve Fitzpatrick, de facto leader of the group of unions at Eircom, has described the proposed losses as in effect, an opening position in what will be a lengthy bargaining process.

The union can point to a series of cost cutting agreements, starting in early 2009 when the deterioration in the company’s commercial position became apparent. During the boom, the number of fixed-line customers expanded rapidly, a process that has been reversed following the economic collapse, with more and more customers opting to rely solely on mobile devices. Cable company, UPC, meanwhile, has been targeting the company’s customer base in urban areas.

The company’s position is straightforward: It needs to stem the loss of fixed-line customers by investing in the provision of competitively priced new products. The mobile, fixed-line, television, and broadband businesses are all converging as customers seek bundled offers.

Such convergence implies a corresponding elimination in duplication at provider level.

The shift away from the old copper line network means that old skills are effectively redundant. Eircom’s workforce is ageing and high paid by the standards of a rapidly evolving business. The union’s response is staff can be retrained to operate in this new world. Management doubts this.

To date, the CWU has played its hand quite skilfully, bringing its membership along, while preserving decent levels of employment and work conditions despite cutbacks.

But the elimination of the 35% stake held by the Employee Stock Ownership trust changes the balance of power within the company.

True, the interests of the trust and the group of unions were not aligned, in that the trustees had to look to the best interests of the beneficiaries, most of whom no longer work at the company.

However, management may be reluctant to drive its changes like a coach and four through all opposition, given the presence of Labour’s Pat Rabbitte at the helm in the Department of Communications.

Eircom has been winning a better hearing from the regulator, Comreg and would no doubt hope to be able to tap support available under the State’s broadband investment plan. The company and the CWU are at one in hoping that the proceeds of the 4G mobile spectrum auction will be ring fenced for the broadband sector.

But the clock is running. The loss of fixed-line customers is accelerating. The task of building a fibre network will be a formidable one. The company aims to be the first to combine broadband, voice, TV, and mobile in a new bundled service.

Meanwhile, management must sit down and negotiate a redundancy scheme that is acceptable to the employees while still affordable. It is questionable whether Eircom can afford the six weeks’ per year of service previously on offer under what have been traditionally generous schemes.

About 3,000 staff remain, having joined prior to 1984, with civil service status. These employees hold strong cards.

Shaking out further costs following three to four years of employee sacrifice could turn out to be a daunting task, yet the urgent competitive position of the company allows for little alternative.

Herb Hribar will need to utilise all his talents if he is to dig the company out of the hole. Watch this space.

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