Broadband is key for Eircom’s future

EIRCOM’S future remains uncertain following its return to the stock market.

Key issues going forward for the group include the future outlook for its land-line business, under pressure from mobile operators, and its ability to exploit the broadband sector.

Getting involved in the as-yet under-developed broadband sector could provide a major boost to the group in the coming years.

Interestingly, a major report recently predicted that the firm's share price is likely to stay within the €1.53 to €1.37 band for now.

It fell two cent yesterday in early trading to €1.42 and has failed since its re flotation to go above its €1.55 launch price.

So do nothing about buying stock in the former state-owned telecoms giant. So far, it has made money only for its employees, the financial services sector and the golden circle.

Investors who already have stock should hold on to what they bought, but those tempted to buy in are recommended to wait until the group publishes results in the next month.

In its report into Eircom, Citigroup Smith Barney says the future of land-line services and the firm's commitment to broadband will be key to how the stock performs down the line.

Forthcoming results should show Earnings Before Interest and Tax of between €600m and €630m on sales of €1.6bn.

However, exceptional and extraordinary charges will take the shine off the above-the-line figures. Looking further out, while the fixed-line business for the group which has an 80% market share will suffer from the impact of competition and declining usage, other aspects of the business still offer potentially good opportunities.

The broadband sector still offers one of the best opportunities in Europe. One of the reasons for that is, of course, the failure of Eircom under its venture capitalist bosses to invest in it in any significant way. Mobile telephony also offers potential to the group, who sold Eircell to Vodafone.

The brokers believe the possibility of becoming a virtual mobile network is there and point out that Hutchinson has a 3G license in Ireland, but so far has not entered the market and has left a gap to be exploited.

Another concern is that the group is sitting on €2bn of debt while its market value is just €1bn.

Broadband investment would involve significant capital costs and it remains to be seen whether the management is prepared to go down that road.

In their review, the brokers point out existing management were well rewarded for cutting costs on behalf of their venture capitalist bosses.

But if they are to take up the opportunities offered by broadband and the mobile sector then it will have to think more about strategy and future growth in those sectors or risk becoming a stock that investors will continue to shy away from.

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