A week is a long time in Irish telecoms. As Eir’s new billionaire French owner commenced his reign with the announcement that a quarter of the company’s staff are to go, another billionaire – from Hong Kong – saw his Irish phone company go the other way.
Three signed a 10-year, €55m sponsorship extension with Dublin’s Point Depot. Company executives say that this, together with its stated €125m-a-year plan to keep investing in its network, is a sign that the current owner intends to stay in Ireland for the long haul.
Permanence wasn’t always a given. The operator, which is a close second to Vodafone in mobile market share here, came close to reconsidering its €1bn Irish investment five years ago, after a decade of struggling growth and losses. Its €780m acquisition of O2 Ireland in 2014 was a final leap of faith, a last gasp attempt to buy its way into the profitable Irish mobile industry.
It worked. Today, Three is making money and is drawing up plans for future services, according to long-serving chief executive Robert Finnegan.
“Our ebidta percentage is over 30pc, the highest in this market,” says the Waterford-born former footballer. “By comparison, our competitors are down in the early 20s and, in some cases, the teens. So we’re quite profitable in that respect – and we need to be.”
The company’s accounts tell a more nuanced story, with declining revenue and a net loss of €2.5m in 2016, even though operating profit more than doubled to €76m in the same period.
“Net profit after tax is just a function of how we structure our losses,” says Finnegan. “But our shareholder is very pleased with our performance.”
Three has a lot on its plate at the moment. It recently dealt with a customer flight problem over the pricing of its products (a situation that Finnegan says has now been reversed).
It has an aggressive new rival in Eir’s rebooted organisation, under the tough tutelage of French tycoon Xavier Niel, who has indicated that mobile is one of the areas in which he plans to compete harder.
And it has to start figuring out what to do with its 5G mobile licence. Uniquely among the big telecom operators here, Three has a mobile business with no significant fixed-line infrastructure, meaning that the pressure to make profitable use of next-generation 5G technology may be a little greater than on rivals with considerable fixed-line assets.
But if there’s one thing that Finnegan has, it’s experience, both in Irish telecoms and with Three’s parent company, Hutchison Whampoa.
By far the longest-serving chief executive of a major Irish telecoms company, Finnegan has now worked for the Hong Kong-based Hutchison for 25 years. After training as an accountant in Waterford, he worked for Procter & Gamble and then Allied Domecq before moving over to Hong Kong in 1992 to work for the giant conglomerate, ruled by the region’s richest man, Li Kashing. After a few years in finance there, Finnegan ran a water business for Hutchison in Europe, building part of it up into a $545m (€442m) sale to Nestle in the early noughties.
So his relationship with Hutchison Whampoa is based on very firm foundations. This is just as well, given the difficulty that Three had in getting to 10pc of users in the Irish market in its first six or seven years. Having sunk €1bn into the operation and with no profit to show for it, the company backed Finnegan again in 2013, first in a failed €2bn bid for Eircom and then in a successful €780m bid for O2 Ireland.
A by-product of that O2 deal, Three’s obligation to accommodate two new ‘virtual’ mobile operators on its own network, has turned a little sour, with one of the operators, iD Mobile, now in liquidation.
Would Three consider going back into acquisition mode to nab iD Mobile? “No, we couldn’t,” says Finnegan. “I mean, we could go in and look to buy it but it would be subject to competition approval which… No. I’ve been there once.”
He believes that the demise of iD Mobile, owned by Dixons Carphone, says a lot about competition in the Irish market. “If Carphone Warehouse, who have a retail footprint across the country and who have knowledge on how to sell mobiles and about all the networks, can’t make a success of it, what does that say? I think it says that the market is very competitive.”
What about Eir? Will Xavier Niel, known for being aggressive and ruthless in the markets he operates in, make the former Meteor a more formidable competitor in the Irish market?
“Eir has been through, what, five changes in recent years? And it keeps changing its CEO. To my mind, what’s important in business is stability. You have to have a strategy that you can measure, execute and deliver on. We’ll see what happens there, but we take all our competitors seriously. We’re pretty competitive in this market ourselves.”
Buying O2 has finally given Three a relatively stable foothold as one of the big two mobile operators in the Irish market. The most recent industry figures put Finnegan’s network a few percentage points behind Vodafone, with 34pc of the market here. There’s a larger gap between the two when it comes to the amount of revenue earned here, probably because Vodafone still has a much larger proportion of bill-pay and business customers than Three does.
Nevertheless, Three has gone through some prolonged headaches with regard to its integration of the old O2 network, which was in bad shape when Three got it. Minor outages and customer service complaints have dogged the process at times. An end to the integration process is in sight, says Finnegan.
“We’re probably 80pc of the way there,” he says. “It’s a massive integration. By early next year, we would expect to have it pretty much completed. We now have just under 2,000 3G sites across the country compared to less than 1,000 that O2 had. And we have about 1,600 4G sites, which will go up to about 2,000 or 2,200. We’re a long way down the road.”
Three has had other challenges in the last 12 months. Last year, a block of customers stormed off the network over price rises the operator imposed across the board and also concerns over its roaming policy. Finnegan admits that this was a tricky period, but says that the company is now making up the numbers again. “We had some customers leave us that time, yes,” he says. “So we wouldn’t have grown as much as we would have liked to last year. It was all caught up in the EU roaming discussions that went on at the time.”
For those who missed it, the EU’s abolition of most roaming fees last year hit Three harder than many other operators, because it has higher data offerings in Ireland than any other operator. To deal with this, Three tried to artificially set a low limit on the amount of roaming data that customers could use abroad. After being rebuked by Irish and European authorities, it recanted, settling on an EU formula that allows for a percentage of data according to how much a user’s monthly bill is.
“The EU regulation was obviously to provide roaming internationally, initially at a level of whatever you had at home,” says Finnegan. “Economically, we couldn’t have done that, it would have been financial suicide. Remember, we offer far more data than our rivals here. Anyway, then they came out with their fair-use policy around it, which we implemented fully. But everything got caught up in it and there was a lot of media about it so that perpetuated it.”
‘It’ became a minor customer revolt that saw thousands leave the network for rival services.
Given that Three was coming from a place where it had (and still has) higher data limits than domestic rivals, does Finnegan think that the tough press his company received – not least from articles written by this reporter – over the roaming issue was unfair?
“We felt it was a little surprising,” he says. “Our primary objective was to protect ‘all you can eat’ for this market. But unfair is not a word I generally use. I think you’re going to see some good growth here in the coming months.”
Right now, Finnegan has to steer Three into a new era where telecoms is trying to integrate with other kinds of businesses.
In part, this is because of 5G mobile technology, which promises speeds of up to 1,000Mbs from a cell-connected smartphone and much faster response times between devices such as self-driving cars and ‘smart city’ infrastructure.
But 5G iPhones won’t be around for at least another two years. That leaves operators like Three, which have already shelled out €15m for 5G-compatible spectrum licences from ComReg, looking for other ways to commercialise 5G.
Finnegan says that the company is already in strategic discussions with new partners about it.
“We’re talking to companies in different industries,” he says. “For example, at the moment we’re putting sim cards into cars that will read data at the request of the manufacturers. That will read data on how the car is performing and also how the car is being driven. And if the owners agree to that information being passed to insurance companies, they could get 20pc or 30pc off their insurance.”
Finnegan won’t say which companies are trialling this, but says that it’s happening in Ireland and he expects such as service to roll out “quickly”.
At a more basic level, Finnegan believes that 4G and 5G can be a valid alternative to fibre or landline broadband for a lot of ordinary households.
He says that the company’s mobile broadband sales have risen in recent months, despite the overall mobile broadband market in Ireland declining by around 15pc in the last year. But instead of ‘dongles’ that slot into laptops, it’s coming in the form of home broadband boxes with a Three sim card installed.
He says that he no longer has any fixed line coming into his own house.
“I run all my Sky, alarm systems, cameras, everything off my mobile broadband connection,” he says. “I don’t need a fixed line anymore.”
As to his personal future with Three, Finnegan says that he’s there for the long haul.
“It’s important to have stability in business,” he says. “You come in with a plan, you execute your plan and you’re responsible for it. This practice of coming in for two or three years and then moving on to something else may be common but I don’t know if it’s a good thing. If you look at the businesses that have been hugely successful, the CEOs have often been around for quite a while.”
Other opportunities with the parent group mean that Finnegan’s chances of becoming a one-company man for the bulk of his career now look strong. He has become increasingly involved with another Hutchison group company, the airline leasing firm Accipiter, which leases out over 60 Airbus and Boeing aircraft to major airlines such as Iberia, Air Canada and American Airlines. Its office is in the same building as Three’s office, in Dublin’s docklands.
“Stability is important,” he says. “And there’s a responsibility to your shareholder as well. So I see that there are many opportunities on the horizon now. I plan to be around to deliver on those.”
Sunday Indo Business