Richard Moat: I’ve turned around three businesses
new CEO has done more than that
Nearly a year after Eircom became one of the few incumbent
operators in a developed economy to need rescuing from
bankruptcy, the chief financial officer in the new management
team says they are exceeding the shareholders’
five-year recovery plan.
In March 2012 Eircom, the biggest operator in Ireland, went
into examinership, the Irish version of the US Chapter 11
bankruptcy protection. When it emerged 100 days later it was
owned by its lenders. ST Telemedia, the Singapore
state-controlled investor that had been the biggest
shareholder, lost its investment.
The new owners, the biggest of which is an offshoot of
Blackstone, the US-based asset management and financial
services company, put in a new management team, led by CEO Herb
Hribar, former CEO of carrier ethernet exchange CENX.
Richard Moat joined on the same day as Hribar as CFO. He is the
former CEO of T-Mobile UK and then was CFO of Everything
Everywhere after Deutsche Telekom and France Telecom-Orange
formed their UK joint venture.
Now he has a key role in the rebuilding of Eircom as a viable
operator. "The CFO’s role has changed
substantially in the past few years." Once, the finance role
"was looking at historical numbers — reporting what
the business had done in the quarter, the half or the full
year", he says.
That’s changed: "These days the role in preparing
the management accounts are just the entry ticket to the
playing field." CEOs expect their CFO to make "a wholehearted
contribution to corporate strategy".
However, the CFO "can’t be a cheerleader for what
the CEO expects", he warns. "You need to play a full role in
the evolution of strategy. Finance is a true partner."
And many CFOs already have wider responsibilities than finance.
At Everything Everywhere Moat was responsible for areas
including network IT, customer services and the supply chain,
with 12,000 people reporting to him. Now, at Eircom, Moat has a
number of divisional CFOs reporting to him — and he
also runs the company’s mobile business,
The CFO’s role is "to make a major contribution to
the development of the business and to make sure the company
takes the right commercial decisions and its going in the right
So how has Eircom progressed since he and Hribar joined the
company? "When the company emerged from examinership the debt
was cut by about 40%, from €4.1 billion to €2.345
billion — that’s a number
that’s easy to remember — and we have
been looking to significantly improve the performance of the
debt," says Moat.
The new owners are partly locked in to the company until at
least June 2014, because "the equity is stapled to the debt",
says Moat. If they want to trade the debt, they have to trade
the equity too.
The figures show that when Hribar, who was COO of Eircom some
years ago, and Moat, who’d also run Orange
businesses in Thailand, Romania and Denmark, took over the
Irish operator was still facing tough problems.
At the end of September 2012 the company had only 979,000
fixed-line customers, having lost 98,000 since September 2011
— a 9% annual loss. On the mobile side the
company’s profit margin was just 2%.
"I’ve never come across any other mobile operator
with such a low margin," says Moat.
Results for the company’s financial year that
ended on 30 June 2012 showed a 10% reduction in revenue and a
14% fall in ebitda. "It was largely the loss of fixed lines"
that caused those numbers, says Moat. "We had to stem that
The company has made progress already, he says. "We were losing
9,000 lines a month. We’ve got that down to 5,000
How? "We’ve put a lot of focus on saving
customers. We have a dedicated team of people who handle calls
from customers who are thinking of leaving."
The loss extended to broadband customers, as competitors
— including mobile operators — increased
their offers. "We had 454,000 broadband customers at the end of
September, and that’s a 42% market share."
Eircom’s total is now starting to grow, he says.
"Most were moving to the competition. It’s a
highly competitive market."
Now, Eircom believes it has the crucial service that will give
it market advantage: next-generation access fibre. The
investment for this started in the depth of
Eircom’s troubles in 2012, and the company plans a
commercial launch by the end of June 2013, by which time the
service should be available to half a million householders.
"Our network already passes 200,000 homes," he says, and the
company plans to pass 700,000 by the end of 2013. The
programme, due to be complete by the end of 2014, calls for a
million homes to be accessible by fibre.
Once the new network is launched Eircom plans to start trying
out its own IPTV service, with a commercial launch in the third
quarter of 2013. Moat believes this will be an attractive
product in a country that has traditionally been a strong
market for cable: the biggest cable operator, owned by UPC, is
believed to provide services to 920,000 homes, out of 1.3
million that get digital cable or satellite TV.
"We will have better capacity because of fibre and that will
give us the ability to deliver TV, which will make us the only
player in the market with a full quad-play capacity."
The mobile side of Eircom’s business is the second
task that Moat and his partners have to tackle. The business is
unusual not only for the low 2% profit margin, but also because
Meteor — started in 2005 — is
Eircom’s second attempt at mobile.
The first, Eircell, became part of Vodafone in 2001. The Eircom
group received no money; instead Eircom shareholders received
shares in Vodafone in exchange for the business. Four years
later, Eircom paid €420 million to buy its way back into
mobile by acquiring another operator.
Why are Meteor’s margins so low? "The regulator
has reduced the mobile termination rate, general competition
and the growth of smartphones," says Moat, before pointing out
that "all mobile businesses face those issues and they
don’t have such reduced margins".
Again, he believes technological investment is part of the
answer. The Eircom group did well from Ireland’s
spectrum auction in October 2012, "and we now have to ability
to offer 4G on both 800 and 1,800 megahertz bands", he says.
That means that company hopes to launch wireless broadband
using LTE as well as fixed broadband using fibre in 2013.
Eircom has a network-sharing deal with
Telefónica’s Irish O2 operation, and that
will keep 4G costs down, he says.
"We already have about 230 sites consolidated between the two
businesses, and we are reaching the point where we award the
contract for all the 4G network equipment to one of the
infrastructure vendors." It will be a joint contract with O2,
Sorting out the fixed and the mobile sides of the business are
two of the three tasks that the new management team has set
itself. "Our other initiative is a reduction in operational
costs and capex, so that we can be more rigorous about the
internal rate of return."
This is receiving "a huge focus", says Moat, backed by a
benchmark study by the Oliver Wyman management consulting group
which compared Eircom against its fixed and mobile peers.
"Based on that report, we have to take out €100 million
between now and the end of the 2013-14 financial year
— that’s 17 months away."
The company has announced that it wants to reduce staff levels
by 2,000 "and we are negotiating with the unions on this
— it is a very sensitive issue. Talks are in
These negotiations won’t be as difficult as they
may have been when the Irish economy was at its lowest, but the
country’s business federation has increased its
estimate of economic growth from 1.2% to 1.8% a year. "And
I’ve seen deals by private equity groups that show
their view of the economy is that it is at the point of
turning," says Moat. "The trough was lower than it was in the
Shape and structure
The Oliver Wyman-inspired programme is intended "to change the
shape and structure of the organisation so we do things much
more efficiently than before".
But turning organisations around is just what the new CFO and
CEO do. "I’ve turned around three businesses and
Herb has done more than that," says Moat.
When Moat became CEO of Orange Denmark in 2002 "it had a
negative enterprise valuation of €750 million and we sold
it for €600 million to TeliaSonera two years later", he
says. As CEO of Orange Romania a few years later he achieved
"significant improvements" in the performance, "taking it from
number two to number one, beating Vodafone".
He left the Orange group in 2009, to become managing director
of Deutsche Telekom’s T-Mobile UK, only a couple
of months before France Telecom-Orange and Deutsche Telekom
announced their plans to merge their UK operations. "When I
joined T-Mobile the ebitda margin was 13% and when we went into
the joint venture it was 22% that quarter. There was a
significant improvement in a year."
"There are lots of similarities" between Eircom and some of
these operations, says Moat, "but there are also differences.
One of the great strengths of Eircom is that it has assets in
virtually every sector."
When the company emerged from the examinership in mid-2012 the
new owners gave it a five-year recovery plan. "We think
it’s pretty robust," says Moat, "and we are
tracking that plan, and ahead of it."
Of course "there are always events you can’t
predict that will knock you off course", but Moat, Hribar and
their colleagues are building in contingencies. "Our opex
reduction will give us the headroom and improved liquidity, so
that we can deal with the unexpected," says Moat.
But he’s confident that Eircom is making progress.
"I would say that by the end of our financial year 2013-14 this
is going to look like a totally different company. The
perception will have changed."
And where then for Eircom? "In terms of what might happen,
Ireland has 4.5 million people and it’s a very
competitive market." UPC has a strong position, but BSkyB
— which sells digital satellite TV in Ireland
— is likely to get into broadband, as it has in the
UK, he feels.
Despite the increasing competition, Hribar and
Moat’s strategy will allow Eircom to continue as
an independent entity, he says.
But Eircom’s prospects and challenges are
reflected by the industry as a whole. "The scale of investment
required in telecoms is significant, and we’ve got
both elements — fibre and 4G. Regulators seem not to
have recognised that. If you’re putting that
amount of capital at risk, you need a decent return."
And he thinks that operators with both fixed and mobile
businesses are being recognised as having an advantage over
those with just one or the other. "Companies such as TDC in
Denmark will be seen as more attractive over the next couple of
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