Telecom Eireann

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Telecom Eireann

St. Stephen’s Green
Dublin 2
Ireland
(01) 714444
Fax: (01) 716916

State-Owned Company
Incorporated: 1984
Employees: 13,100
Sales: IR£788 million
SICs: 4813 Telephone Communications, Except Radio

State-controlled Telecom Eireann is the dominant telecommunications network operator in Ireland. Now a thoroughly modern operation, the company suffered several years of neglect during the 1970s as an agency of the government postal service. While it has yet to undergo privatization, Telecom Eireann has passed several difficult stages in its transformation into a modern business enterprise.

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 and is today an emerging European industrial force. As a crucial component in Ireland’s industrial infrastructure, telecommunications has grown immeasurably in value. Telecom Eireann has been at the forefront of that growth.

The establishment of telephonic communications in Ireland in the late 1800s closely followed the demise of 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 to merely 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 subexchanges 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.

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.

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. As the domestic telephone network came under attack, 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 in the First World War, 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 without harm. The telephone network P&T built for the military, which included miles of new trunks, was subsequently converted to civilian use.

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 sub-scribership 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.

But 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.

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 formally take control of Ireland’s telecommunications system.

The new company benefited 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. In 1991 Telecom Eireann collected its one millionth customer.

In order to keep pace with other communications systems in the world, Telecom Eireann has devoted tremendous resources to the development of new technologies, including satellite transmission and national fiber optic networks. The company is working to bring ISDN capabilities to the network and, through its associate Broadcom Eireann Research, is involved in the Research for Advanced Communications for Europe (RACE) program. The RACE goal is to establish an integrated broadband communications network in Europe by 1995.

Telecom Eireann also has developed a national cellular phone network, called Eircell, that covers more than 90 percent of Ireland. In addition, in 1988 the company established Eirpage, a large paging operation produced in conjunction with Motorola. Other companies with whom Telecom Eireann has established partnership agreements include Nynex and France Telecom.

While Telecom Eireann is operated on many of the same principles as independent enterprises, its board is appointed by its one and only shareholder, the Irish government. As a result, much of the current board leadership is composed of inside directors, and many of the board’s strategic policies and planning are products of the government, rather than the board.

Historically, the logical next step for companies that have undergone such transformation as state-owned companies, including British Telecom, NTT, and Telmex, is that they are offered for sale to public shareholders. No discussion has yet been forwarded on the matter of government sales of shares in Telecom Eireann to the public.

Two factors are working to prevent privatization of the company. First, it is likely that the Irish government has not yet seen implemented all the changes it has demanded in the telecommunications system. Secondly, the company is likely to command a much higher price in the future. The more that can be made from the sale of Telecom Eireann, the better for Irish taxpayers, whose substantial investments in the company have made it the success it is.

Principal Subsidiaries

Irish Telecommunications Investments, PC; Telecom Eireann Information Systems, Ltd.; Eircable Ltd./Cablelink, Ltd.; Telecom Ireland (US), Ltd.; Eir-trade, Ltd.; Golden Pages, Ltd.; Broadcom Eireann Research, Ltd.; Eirpage, Ltd.; Telecom Phonewatch, Ltd.; Minitel Communications, Ltd.; INET, Ltd.