Clock ticking on Eircom’s mobile move

EIRCOM’S re-entry to the mobile phone market is only a matter of time and the company should buy Meteor when it comes on the market, according to Davy Stockbrokers.

The broker said Eircom, which releases full-year results on Friday, should use the occasion to update the markets on its mobile strategy but said a deal to buy the third-biggest mobile operator would be welcome.

Meteor is expected to be sold in the coming months after its American parent, the Washington-based Western Wireless, recently changed hands.

Its new owner has hired investment banking advisers to handle a sale of its overseas mobile operations and several potential buyers have expressed interest in Meteor.

Eircom has said it wants to re-enter the mobile market but has played its cards close to its chest on its future strategy.

Other potential routes to the Irish market, which is considered one of the most lucrative in Europe, include a deal with an existing operator such as Vodafone or O2 to become a Mobile Virtual Network Operator (MVNO) and provide an Eircom-branded service using the underlying infrastructure of another operator.

Eircom exited the mobile market in 2001 after it sold Eircell, its mobile subsidiary, to Vodafone for €4 billion.

Davy said it originally placed a price tag of between €200 million and €300m on Meteor, which has doubled its market share over the past 12 months to hit around 10%.

But it said it expected the final sale price could be higher if a bidding war broke out and warned Eircom’s current financial position meant it could not afford to pay over the odds.

“Strategically Meteor would be the better option for Eircom, as it would provide it with owned mobile infrastructure once again,” said Davy.

“But this will only occur if the price is right. We think our original €200-300m price tag might be on the low side if there is true interest from several suitors.”

Eircom owed more than €2.3bn in debt at the end of December, with just €400m in cash on its balance sheet.

It faces hefty bills in the coming years to fund investment in its fixed-line network and roll out broadband high-speed internet access across the country.

Davy said whoever bought Meteor would also face capital expenditure payments of up to €70m to make sure its network covered the entire country.

Eircom’s balance sheet could cope with the funding requirements of a Meteor deal but the company would be more likely to issue fresh equity or restructure its debts to make the deal easier to swallow.

Taking over Meteor would give Eircom the ability to offer combined fixed and mobile packages and have greater control over pricing than if it went the cheaper MVNO route, Davy said.