Eircom Plc Business Information, Profile, and History

Company Perspectives:

eircom's strategic objective is to strengthen its position as the principal provider of telecommunications services to Ireland and to become the recognized provider of selected services in the extended home market of Great Britain and Northern Ireland, as well as in other locations where eircom has existing customers or traffic.

History of Eircom Plc

Formerly known as Telecom Eireann, Irish telecommunications company eircom plc took its current name when it made its first public stock offering in 1999. The company faces a host of challenges as it negotiates the newly-deregulated Irish communications market; once a protected state-owned phone monopoly, eircom now confronts private competitors for the first time. However, the company seems to be flourishing in its new environment. In addition to operating 1.5 million phone lines, eircom's Eircell division provides mobile phone service to over 645,000 customers. eircom also offers Internet access and a variety of advanced voice, data, and multimedia services. The company's origins are thoroughly rooted in the development of British telecommunications, owing to British domination of Ireland throughout the 19th and early 20th centuries. Ireland has come forth from Britain's shadow to become an industrial force in Europe. As a crucial component in Ireland's industrial infrastructure, telecommunications has grown immeasurably in value. Telecom Eireann--and now eircom plc--has been at the forefront of that growth.

Telephone Systems Emerge in Ireland

The establishment of telephonic communications in Ireland in the late 1800s closely followed the demise of what had been the dominant electronic medium of the day, telegraphy. Ireland's first commercial telegraph was established by the English & Irish Magnetic Telegraph Company in 1851, linking Galway and Dublin along railway lines. The following year a submarine link was built, connecting Dublin to the English network at Holyhead, Wales.

Private ownership of telegraph systems, however, left vast areas of Ireland unserved because they were not profitable. In 1870 the British Post Office took control of the national telegraph system in an effort to spread the technology throughout Ireland, and operated at a substantial loss. Ireland, however, was the last "stepping stone" for transatlantic cables linking Europe with the United States. Important stations were established at Valentia, Ballingskelligs, and Waterville, providing direct connections between England and Germany and Nova Scotia.

Soon after Alexander Graham Bell invented the telephone in 1876, he demonstrated the device in England. The Post Office subsequently won permission to operate a telephone network under license from Bell, whose English company merged with Thomas Edison's in 1880 to form United Telephone.

Britain's Post Office understood immediately what effect the telephone would have on its telegraph monopoly and petitioned the government to allow it to take control of United Telephone. The Treasury Department, however, shocked by the projected costs of expanding the network, did not believe it was the government's place to run a telephone service. Eventually, the Post Office's involvement was limited merely to collecting licensing fees from United.

While this battle was being fought, United constructed its first exchange in Ireland, switching five lines in Dublin. So few calls were handled by this office that the switchboard operator, a young boy, frequently went off to play marbles out of boredom. The following year, the office was expanded to 20 lines and an operator was hired.

Shareholders grew impatient with United Telephone when their investments failed to show immediate returns. In 1882, acting upon shareholder discomfort, the newly formed Telephone Company of Ireland negotiated a takeover of United Telephone's Irish operations. Subsequent growth continued to be slow. By 1888 the Dublin office and three sub-exchanges handled only 500 customers. In addition, all lines were single-wire systems that used the earth as part of its circuit. This allowed virtually anyone with even the most rudimentary equipment to eavesdrop on conversations. Thus, the practice of "rubbernecking" became a serious impediment to sales.

National Telephone: 1893-1914

In 1893 the company's backers lost faith in the company and agreed to sell the operation to National Telephone, an English concern that had previously taken over United Telephone. National attacked the privacy problem decisively by ordering a massive reconstruction program to install wires in pairs.

While the Post Office negotiated free passage rights along railway lines in Ireland, development of an intercity trunk system continued to proceed slowly because expenditures were opposed at every turn by the Treasury Department. Still, by 1900 the company managed to construct 56 exchanges in the country, principally in Dublin and southern and western Ireland. Railway companies became avid users of telephone service because it was cheaper and faster than the telegraph.

By virtue of its unusual arrangement with the government, National Telephone lived in continual fear of being taken over by the Post Office, whose intentions were clear. Only the Treasury Department kept the Post Office from acting on its ambitions. But as the profitability of telephony became ever more apparent, Treasury opposition subsided.

Finally, in 1905, the Post Office won an order to assume control of National Telephone when that company's charter expired in 1911. But when the takeover was completed in 1912, the network, which included 150 exchanges in Ireland, was saddled with widespread equipment shortages and six years of disrepair.

The War Years

When World War I began in 1914, virtually all work on the telephone network ground to a halt. Only military telephony received any funding and materials. In addition, because they were strategic targets, many of the submarine cables came under attack and were disabled.

As the war drew to a close in 1918, an Anglo-Irish conflict and civil war for independence from Britain erupted. The domestic telephone network was frequently targeted during the hostilities, and many exchanges were destroyed and miles of cable were knocked out. In 1922, as the conflict came to an end, a new Irish government appointed a Department of Posts & Telegraphs (P & T) to assume control of the telephone network and develop telecommunications in Ireland. Construction of the network resumed in 1924. Part of the rebuilding plan called for the establishment of an automated Strowger-type switching system in Dublin, and the assignment of five-digit telephone numbers. These switches, which eliminated the need for a switchboard operator, were installed in 1927.

The worldwide economic depression of the 1930s hit the fragile Irish economy with brutal force, causing demand for new telephones to dry up. This hardship was followed by the emerging European war some years later. As during World War I, all civilian construction in the network was suspended in favor of military communications. After the fall of France in 1940, the P & T was called upon to wire 84 lookout posts at strategic points around Ireland where German warships could be observed or, worse, where invasion might be expected.

Despite the tremendous destruction the war caused in England, France, and Germany, Ireland emerged from the war mostly unscathed. The telephone network P & T built for the military, which included miles of new trunks, was subsequently converted to civilian use.

Postwar Expansion through the 1970s

The huge demand for telephones after the war, coupled with P & T's conversion to underground cable systems, left P & T with virtually no available transmission facilities. As a result, when Dublin's tram system was eliminated after the war, P & T purchased the line's underground duct network for telephone cables. As part of a wider government-backed expansion plan, P & T also resolved to improve trunk service, increase subscribership from 31,000 to 100,000, and expand all operator services to 24-hours.

Despite several obstacles, continued demand for telephone service enabled the company to exceed all these goals. In 1957 P & T installed the first of its crossbar switches, which were easier to maintain than the Strowger step switches. The company began phasing out switchboards in remote areas in favor of automated switches.

P & T surveys during this time revealed low levels of usage in the network due to limited applications of the local call rate. Most calls, it was discovered, required expensive trunk connections. In 1958 the company invited G.J. Kamerbeek, an engineer with the Dutch Post Office, to propose a new rate structure for P & T. While this required extensive re-engineering of the network, it established wider local call zones. This change, as well as other pricing reforms, succeeded in raising Irish telephone subscriptions to levels comparable with other European countries.

The company began to experiment with new transmission mediums. Just as aerial cable had proven no match for Ireland's seasonal ice and wind, buried cable soon lost its appeal because of the high cost of boring trenches. In 1961 P & T installed its first microwave system, linking Althone and Galway.

The company also made other efforts to increase the number of subscribers, including reclassifying Ireland's thousand of farms as residences, thus enabling farmers to avoid high rental rates for business telephones. In addition, the ambitious Rural Automisation Programme provided for the construction of new crossbar switching facilities, for the first time, outside of rural post office facilities.

As late as 1974, a year after Ireland gained admission to the European Economic Community, all calls to and from the Continent continued to be switched through London. While this was mainly an engineering consequence of years of British domination over Ireland, the time had arrived for Ireland to declare its independence, at least in the area of international telephony. That year P & T installed its first international crossbar in Dublin, greatly facilitating call traffic with other European countries and North America.

However, during this time P & T stumbled in several areas. A series of industrial actions, including worker strikes, and a growing inability on the part of management to address these problems, led to a severe drop in service quality. Almost weekly, national and provincial newspapers berated the company for its poor service.

The 1980s: Dargan Report Calls for Telecom Reorganization

In 1978 the government, fearing that Ireland's telephone system was once again falling behind those of its European neighbors, commissioned a Posts and Telecommunications Review group to study the situation. The following year the group issued what became known as the Dargan Report. The study's conclusions were bleak, stating that the Irish telecommunications system was failing to keep pace with Ireland's growing economy and its customers' expectations. Urgent action was deemed necessary to avoid a crisis.

The Dargan Report recommended that P & T be separated from the civil postal system and reorganized as a state-owned company. The report specified that the new company should be operated according to modern business principles, emphasizing marketing, customer service, and high returns on equity.

In July 1979 the Irish Parliament agreed to split P & T into two entities, a postal service called An Post and a telephone company called Bord Telecom Eireann. The telephone company was given a IR£650 million development budget as part of a five-year program to construct as many as 500 new buildings, double subscriptions, drastically increase the number of trunk lines, and improve customer service. At the end of the five-year program, the Postal and Telecommunications Services Act of 1983 authorized Telecom Eireann to take formal control of Ireland's telecommunications system.

The new company benefitted tremendously from a far-sighted decision made by P & T leadership some years earlier to begin the transition to digital switches, which were faster and more efficient than the mechanical switches previously used. As a result, the new company encountered none of the difficulties experienced by other European telephone companies in converting to the new system.

When Telecom Eireann took over the national system on January 1, 1984, only 309 manual exchanges remained. The last of these older switches was replaced in 1987. At last, the entire network was standardized and digital. By 1991 Telecom Eireann would service its one millionth customer.

The 1990s and Beyond

In order to keep pace with other communications systems in the world, Telecom Eireann devoted tremendous resources to the development of new technologies, including satellite transmission and national fiber optic networks. After launching Eircell, a national cellular phone network, Telecom Eireann introduced Eirpage, a large paging operation produced in conjunction with Motorola. Also in the early 1990s, Telecom Eireann worked to bring ISDN capabilities to the network and to establish an integrated broadband communications network in Europe by 1995.

While Telecom Eireann shared many characteristics with other independent enterprises, its board was appointed by its one and only shareholder, the Irish government. Moreover, Telecom Eireann faced virtually no competition. This state of affairs was soon to change. A gradual opening of the Irish communications market occurred in 1992 when the year-old Estat Telecom Group plc began lobbying the government for a license to operate, which it obtained in 1993.

The impetus towards privatization began in 1991 and gained force as the decade advanced. As Ireland's economy emerged in the era of global commerce, telecommunications became an essential factor in economic success. Critics argued that a private industry was necessary for further economic expansion&mdashø lower costs and facilitate the introduction of new cutting-edge services. The analysts contended that, while Telecom Eireann had brought Ireland to the verge of an economic boom, only a free market would ensure continued prosperity. Ireland also received pressure from the European Union which mandated that its member nations phase out phone monopolies by 2000. Although Ireland and Italy were given more time to implement these changes, the deadline still loomed. In 1998 the Irish government announced that complete deregulation of the telecommunications industry would occur in 2000.

Ireland's economy boomed without deregulation. As the fastest-growing economy in Europe, Ireland garnered scores of corporate investors, eager to establish their operations on the island. After Microsoft Corp. selected Ireland as the new headquarters for its European division, the company proceeded vigorously to lobby the Irish government to deregulate telecommunications ahead of schedule. Government regulators acquiesced to the demands of big business and declared that Telecom Eireann would go public in July 1999.

To underscore the significance of this event on its corporate identity, Telecom Eireann changed its name to eircom plc. The initial public stock offering was a rousing success. The Irish government had sold its entire 50.1 percent stake in the company because of demand for shares. To help bolster employee dedication to eircom, 14.9 percent of the company was reserved in an Employee Share Ownership Plan.

Netherlands's KPN and Sweden's Telia AB jointly held a 35 percent stake in eircom, and Telia and Norway's Telenor were poised to merge and form a massive Scandinavian carrier with $10 billion in annual revenue. Like these and others of its European counterparts, eircom set its sights on expansion. The company first sought to extend its reach across Great Britain. In October 1998 the company launched Telecom Ireland, which strove to penetrate Northern Ireland. One year later, eircom acquired a 30 percent stake in Viasec, a provider of e-mail security solutions.

Since eircom faced competition in its domestic markets, the company strove to bolster its image by touting its newest services and slashing its rates. eircom introduced a slew of services, such as a "Circle of Friends" discount and Caller Display. The strategy paid off. For the financial year that ended April 1, 1999, eircom reported a growing customer base--both for its fixed line services and Eircell's mobile communications.

Principal Subsidiaries: Eircell Ltd.; Irish Telecommunications Investments plc.; eircom Ireland Ltd.; Eirtrade Services Ltd.; eircom Ireland International Ltd.; eircom PhoneWatch Ltd.; Eirpage Ltd.; Indigo Services Group Ltd.; TNI (Telecom) Ltd.; eircom Retail Ltd.; Atlas Communications (UK) Ltd.; Lan Communications Ltd.; Local Ireland Ltd. (86%); Golden Pages Ltd. (63%); Trinity Commerce Ltd. (51%).

Principal Competitors: Estat Telecom Group plc; Cable & Wireless plc; MCI WorldCom, Inc.; British Telecommunications plc; NTL Inc.

Chronology

• Key Dates:

• 1876: Alexander Graham Bell invents the telephone.
• 1880: United Telephone is formed in England, overseeing Great Britain's telephone lines.
• 1882: Telephone Company of Ireland takes over United Telephone's Irish operations.
• 1893: Britain's new National Telephone Co. steps in to oversee and improve Irish telecommunications.
• 1911: British Post Office assumes control of National Telephone.
• 1922: New Irish government gives its Department of Posts & Telegraphs (P & T) responsibility for developing country's phone service.
• 1978: The Dargan Report reveals that Irish telephone system is in need of an overhaul.
• 1979: Telecom Eireann is formed.
• 1983: Telecom Eireann formally takes charge of Ireland's phone service.
• 1993: First private competitor to Telecom Eireann receives operating license.
• 1999: Telcom Eireann becomes a public company; changes name to eircom plc.