Fergus Cassidy

Talk is cheap

I SAW vultures last week. Circling above the body of this country's telephone company, an animal that was set free to roam the free market jungle almost five years ago, undecided whether it was a bull, a bear or a cash cow.

In that time it has managed to bite off the hands of the small individual investors who fed it. Tempted by the promise of easy money and tricked into believing that a public company was the same thing as a publicly-owned one.

Eircom has lived by the laws of the jungle in the only way it knows. Protecting its territory for as long as it can, with all its strength. For it is a dying species. Like all its other brother and sister telephone companies around the world.

The future of telecommunications lies with the internet, which has not yet played its hand, yet the telcos have turned their backs on it. While the brave and the foolish have waxed lyrically in the past on the new world that the net heralds, the reality is more mundane.

The internet and its related technologies are providing, and will increasingly provide, a much cheaper way of communicating. Also doing it more efficiently, with a far higher potential penetration rate. That's why business has embraced the net. Forget all the ballyhoo about online presence and Powerpoint presentations. The bottom line remains the same in the so-called New Economy as it did in the Old. Cost.

The cost of communications has been on a downward spiral since the telephone was invented. It might not seem like that when you look at your bill, but the amount of information that can now be sent has increased by a far greater amount than the cost. Work out how much it would have cost to send an average size photograph (say 5Mb of information) 20 years ago. Or 10 years ago.

Computing has given the world the ability to collect and store unquantifiable amounts of information, and that data can be transferred anywhere around the world across the internet. Faster and cheaper that anything that has come before. It will continue to get even faster and cheaper for the foreseeable future.

Business has always relied on information and does so even more these days, so meaninglessly titled as The Information Age. Being able to gather, collate and transfer information is vital, but the cost is just as critical. When a means of lowering that cost is presented, a gallop becomes a stampede.

In terms of cost, we're only seeing the very early days of the net effect. Information processing is still virtually reliant on humans for control and interpretation. Computers enacting with each other without the need for human intervention will fire the starting gun on the real Information Age.

Oceans of data will circulate around the world. Some of it on telephone company lines. If the copper wires are dearer, there will be many other systems and technologies to choose from. Of course whether any of the telephone companies are around at that point is open to question.

Why? Because telephone companies as they exist right now, can never become more than a niche player in the future I've described. Already the wireless phone alternative has overtaken its copper parent. Fixed line installation in Ireland now lags behind mobile penetration. It is already possible to come across people who don't have a fixed line telephone, using a mobile and wireless connections for the net.

In the not too distant future, television will abandon analogue transmission and whole wodges of spectrum will become available for other communications uses. There's even a fissure opening between those who say that transmission spectrum is a finite resource and those who say it is not, believing that advancements in software will prove them correct.

That's the truly disruptive aspect to the internet. Not only has it fostered new communications' technologies but it also facilitates research and development into the next generation of disruption.

This is the real reason why investors have shunned the telephone companies. The money is there. It's just that it's going everywhere except the telcos. A mind-blowing contradiction, in this the era of communications. By their actions shall you know them and the global investment community is shunning the traditional telcos.

In the meantime, there is money to be made from the kill and the vultures I saw last week are testament to that. A massive Euro512m was payed out to Eircom's owners, the Valentia consortium, which was about half the figure of the group's original investment in the company when they bought it in November 2001. The E2.4bn refinancing plan is based on current interest rates and debt restructuring. It has nothing whatsoever to do with positioning the company to deal with the new world order posed by the internet.

But it will also put the company into hock even further. Eircom's aggregate debt will jump from E1.79bn to E2.4bn. And from the mouths of my City friends Mr Standards and Mr Poor comes the acknowledgement that high debt is the main risk factor for the company. Michael O'Brien, a credit analyst at Standard & Poor's, also added: "The ratings on Valentia are supported by the continuing strong market position and consequent strong profitability of Eircom's fixed-line business". Oh dear.

The strong market position is because of its monopoly, and the fixed-line business is headed downward. The alternatives to copper wires are coming. Faster than we think.

What really brings down the red mist over my eyes, however, is that Eircom is not just another company being brought down by the laws of the jungle, it is still this country's communications system. In whatever shape or brand it comes in - or who owns it - the national telephone system is at the heart of the country's economic and social well-being.

What happened to ordinary individual investors, who saw most of their money go down the toilet, was bad enough. But the fact that this country's internet infrastructure is fundamentally no further advanced than five years ago is the real scandal.

T K Whittaker, the father of Irish economic planning, said in 1958: "Sooner or later, protectionism will have to go, and the challenge of free trade accepted, if Ireland wishes to keep pace [my emphasis] with the rest of Europe".

At this point, "keeping pace with the rest of Europe" has expanded to keeping pace with the rest of the world. In the internet era that means communications is of critical importance. If what Whittaker advocated is now historically judged as being vital to this country's development, then it is even more so now.

Chasing away the vultures would be a good place to start.