Triple Play Blog TMC

The potential implications of an Eircom split up

November 6, 2006

While I was waiting for a flight departure today, I picked up the Wall Street Journal Europe and read with interest an article about the proposed split of Eircom’s network operations from its service activities.

The article struck me because it relates very well to my recent discussions with telcos and service providers. Traditional telcos are in a soul-searching mode; they are facing new competitors like Google, Ebay/Skype, Yahoo, who have built strong businesses by investing in branding and customer intimacy instead of network infrastructure; as a result, these web-based service providers are enjoying high margins and growing revenues. It is easy to understand why many telcos would want to emulate this approach. As an example, Orange CEO Sanjiv Ahuja was recently quoted saying that “Orange is transitioning from a communication business to a communications, information and entertainment business.”

Now to the killer question: - what if there was another way for Orange and the others?

A recent post by Jim Enck claims that telcos are making most of their money selling minutes and bites: BT Openreach and Wholesale accounted for 70% of positive operating free cash flow (EBITDA minus capex). Wholesale was 77% of the equivalent figure for KPN's fixed business in 2005. Yet, they are all trying desperately to compete on services and content.

Here is where Eircom comes into the picture. Or rather Eircom owner Babcock and Brown Capital, who is planning to split the Irish telephone company into 2 distinct parts: a company running the network and another company offering services over that network. Babcock figures that the valuation of the network operating company would soar as a result.

But beyond pure valuation, a split may also be a smart strategic move for other European telcos. When you think about it, running a network requires vastly different skills than providing personalized services for communication and entertainment.

Typical traits of an infrastructure business
• Favor communication over content
• Care about IMS, central control
• Guaranteed Quality Of Service
• Risk-averse
• Leverage economies of scale
• Traditional corporate culture
• Focus on cost effectiveness
• Physical assets

Typical traits of a service business
• Content-driven, Web 2.0, mash-ups
• Mix communication with content
• Don’t care about IMS (P2P is OK)
• Monetize context & bundles
• Best-effort communication
• Risk-prone, innovative corporate culture
• Community approach
• Virtual / branding assets

If the Eircom split is successful and other telcos follow a similar strategy, we will end up with 2 types of operators in the future.
1. Branded service providers who sell to end-users
2. Integrated fixed-mobile infrastructure operators, who behave like utilities and who sell network capacity to service providers

The market is still in an early stage; however, BT is already operating a separate unit for wholesale, and the EU’s telecoms regulator is known for favoring a split between networks and services.

-Erik




Related Tags: , , , , ,

Email Author Feedback

See this page in TechnoratiTechnoratibook mark The potential implications of an Eircom split up in del.icio.usDel.icio.usThe potential implications of an Eircom split up to Slashdot.comSlashdotSubmit The potential implications of an Eircom split up to Digg.comDiggSubmit The potential implications of an Eircom split up to BoingBoing.netBookmark The potential implications of an Eircom split up in FurlFurlBookmark The potential implications of an Eircom split up in SpurlSpurl

Listed below are links to sites that reference The potential implications of an Eircom split up:

Trackback Pings

TrackBack URL for The potential implications of an Eircom split up:
http://blog.tmcnet.com/mt3/t.fcgi/30184

Comments to The potential implications of an Eircom split up

  1. RE: The potential implications of an Eircom split up
    Kishore Karnam :
    November 28, 2006 1:01 PM

    You are right.

    Lot of major telcos already have distinct lines of business (LOBs) based on the customer segment - Wholesale, Enterprise and Retail. And a general Network Operations organization that supports all the LOBs. Now, on the top of this another picture is getting overlayed - Service vs network/pipe/infrastructure, which will be relevant for all the LOBs (less so for Wholesale). Major telcos may work on their org structures to facilitate this new market place/trend but not sure if/when they would cut the cords and spin off based on these entities.

    -Kishore Karnam.