Eircom re-enter mobile market

EIRCOM is set to spark a price war in the mobile phone market after announcing its €420 million takeover of Meteor yesterday.

Eircom said it will be looking to double Meteor's customer base to more than 800,000, 20% of the overall market, in the next three to four years.

The company has set its sights on the lucrative bill pay customers of its rivals Vodafone and O2. Just 2% of Meteor's customers pay monthly bills compared to 27% at Vodafone.

Chairman Tony O'Reilly said Meteor's lower prices would be the key feature of its assault on the mobile market. Meteor customers pay €31 per month, some €17 less than those at its rivals.

It also plans to target the business sector and eventually offer customers bundled services of mobile, fixed-line and internet access to residential and corporate users.

Eircom secured Meteor, the country's smallest operator, after two rival bidders Smart Telecom and Denis O'Brien pulled out of the race in recent weeks.

Meteor was put up for sale following the takeover of its American parent company, Western Wireless, earlier this year.

Dr O'Reilly told the Irish Examiner yesterday that the takeover price was fair despite criticism from some analysts that Eircom was splashing out too much for a loss-making company with just a 10% market share.

He said getting back into the mobile market was vital for Eircom as mobile operators were taking market share from fixed-line companies.

Eircom was paying just over €1,000 per Meteor customer, less than half of what Vodafone paid when it bought Eircell from Eircom in 2001, Dr O'Reilly added.

But brokers remained sceptical of the price tag and Eircom's share price suffered after the deal was announced, closing 7% lower on the day. Davy Stockbrokers analyst Jack Gorman said it was a "deal that had to be done, but at a price that will need to be justified quickly in financial and strategic terms," he added.

Though the price was high, it is acquiring a relatively new mobile network requiring less maintenance and should be able to squeeze some savings from the takeover, another analyst said.

Eircom said that Meteor, which lost €34.6m in 2004 on revenues of €93.9m, will be added to earnings this year. Dr O'Reilly said Meteor's "low cost" brand and cost structure would be maintained.

The takeover of Meteor will be funded through a two-for-one rights issue at a minimum price of €1.10 a share a 40% discount to Eircom's closing price last Friday.

The Eircom employee share ownership trust, which owns 21% of the company, plans to take up its rights in full, which will cost the ESOT more than €50m.

Eircom said the cost of paying out more dividends every year on the new shares would be offset by the earnings from Meteor in the coming years.

The takeover is not expected to be completed until the end of this year and will require approval of shareholders, the Competition Authority and the telecoms regulator, ComReg.

The Consumers Association of Ireland welcomed the deal yesterday, while business lobby group IBEC said it could lead to greater choice and lower costs.

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