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It has just emerged that troubled telecoms firm Smart is to exit examinership after telecoms rival Digiweb agreed with the examiners to make an investment in the company.

Digiweb intends to acquire the entire customer base and assets of Smart. The investment by Digiweb, which is subject to approval by creditors and the Irish High Court, enables Smart to emerge from a period of examinership and to form part of the Digiweb Group.

Digiweb said today that the proposed combination would enable Digiweb-Smart to offer digital communications services to 100pc of the country’s business and consumer population.

What the potential merger means

The potential merger combines Smart’s fibre, high-speed DSL infrastructure and next-generation IP network with Digiweb’s date centre and hosting platform, and national wireless infrastructure.

This will give both companies a total subscriber base of 46,500 business, residential, corporate and government customers for broadband, data and telephony, along with more than 48,000 web hosting, domain and data-centre clients.

Digiweb managing director Colm Piercy said the move brings together two EBITDA positive businesses with annual revenue approaching €40 million and more than 150 employees.

“We are excited about the possibilities of combining the Smart business with our own company and national service offering,” Piercy said.

“We see very strong advantages for the combined customer base, who would see a major upgrade in the range of services that they can access from a single truly national provider. Together we can grow strongly in business, consumer and public-sector markets.

“This would make the Digiweb Group one of the largest Irish-owned telecommunications companies, and give us the network, people and managed services capability to provide real choice to the Irish telecommunications market,” Piercy added.

Digiweb Group’s Smart part

Under the proposal, Smart will form part of the Digiweb Group, will retain the Smart brand and will continue to build on its position as a leading provider of voice, data and managed communications and data-centre services in Ireland.

Smart entered the examinership process on 31 August, 2009, in order to restructure its balance sheet and to secure a strategic investment. The investment by Digiweb is expected to be finalised by the beginning of December 2009.

Smart serves about 12,000 residential and 500 corporate, government and medium-sized business customers throughout Ireland.

“The truly national scale and resources of the combined company would allow us to expand our product offering and service capabilities to our existing combined customer base,” said Brendan Hunt, CFO, Smart Telecom.

“We look forward to making a very positive contribution to the competitive communications landscape in Ireland,” Hunt added.

Background

In the early part of this decade, under the leadership of Oisin Fanning, Smart made a robust entrance to the Irish fixed-line marketplace, unbundling up to 40 local exchanges and signing up close to 50,000 fixed-line customers and 18,000 broadband customers.

Failure to pay a €4-million bill to Eircom in 2006 saw the incumbent cut off its fixed-line service and soon after it lost its status as preferred bidder for Ireland’s fourth 3G licence.

Businessman Brendan Murtagh took over the company from founder Fanning after it racked up losses of €55.6 million.

Murtagh subsequently raised €39.5 million to repay creditors. However, the company incurred further trading losses and it became unlikely to achieve profitability and positive cash flow. Earlier this year it laid off 60 of its 90-strong workforce.

Smart Telecom

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In the early part of this decade under the leadership of Oisin Fanning, Smart made a robust entrance to the Irish fixed line market place, unbundling up to 40 local exchanges and signing up close to 50,000 fixed line customers and 18,000 broadband customers.

Failure to pay a €4m bill to Eircom in 2006 saw the incumbent cut off its fixed line service and soon after it lost its status as preferred bidder for Ireland’s fourth 3G license.

The company was taken over from founder Fanning by businessman Brendan Murtagh after it racked up losses of €55.6m.

Murtagh subsequently raised €39.5m to repay creditors. However, it is understood that the company has incurred further trading losses and is unlikely to achieve profitability and positive cashflow and this year laid off 60 of its 90-strong workforce.

Up until recently two bidders – Complete Telecom and Planet 21 –  were interested in buying the assets of Smart for between €12m and €15m.

It emerged over the weekend that Smart had entered into examinership, a vital step in resolving financial issues at the company ahead of any potential acquisition.

Smart Telecom’s rival in the independent broadband and telecoms market Magnet Networks responded to the news that Smart has filed for examinership citing a difficult regulatory framework for fixed line telecoms in Ireland.

“While Smart had internal funding issues over a number of years, we believe telecoms regulator ComReg has to take some responsibility for the company’s current state,” Magnet CEO Mark Kellett said at the weekend.

“The slow pace of reform of regulation has ensured that only the best funded companies can survive and compete against the incumbent. With the financial backing of its parent CVC, Magnet has been able to build out the largest alternative LLU network in the State, but it is obvious that other operators without this investment may be at risk from a poorly regulated market. We call on the Minister to immediately examine the market in the context of today’s announcement from Smart.

“ComReg and Minister Ryan have recognised the need for Next Generation Networks (NGNs) as a means of encouraging inward investment into the economy. Without a fair and competitive telecommunications market there is little incentive or ability for alternatives to invest in this infrastructure. The basis for healthy competition lies in the application and enforcement of appropriate regulation designed to facilitate competition.

“The Government and ComReg have failed to provide for such an environment thus far through LLU and Magnet would question their competency with regard to regulating the next generation if they continue to fail with the current generation.”

Based in Dublin, Magnet Networks is a subsidiary of private equity investment company Columbia Ventures Corporation (CVC), holder of extensive telecoms interests on both sides of the Atlantic including One Communications, the largest privately owned alternative telecom operator on the US east coast.

CVC has continued to invest in telecom infrastructure projects in Ireland with Magnet Networks’ sister company, Hibernia Atlantic, recently winning the €30m Project Kelvin contract, to build and manage a transatlantic cable linking Northern Ireland with America.

Project Kelvin will also bring direct connectivity to 13 towns and cities across both the North of Ireland and the Republic.

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E-net attributed the revenue growth from €7.2m last year to €9.4m this year to increasing data traffic on its fibre rings.

The company had been responsible for the first phase of the Government’s investment in 24 key towns and in recent months secured the phase 2 contract which will bring the total number of MANs under management to 93 towns.

“E-net has continued to deliver against our financial targets with strong, consistent and on-plan growth,” explained chief executive Conal Henry.

“A turnover of €9.4 million represents significant growth and development, particularly in light of difficult trading conditions,” Henry said.

E-net currently employs 37 staff and partners with leading telecoms service providers such as BT, Vodafone, O2, Smart Telecom and UPC

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Smart Telecom (‘Smart’ or the ‘Company’) the Irish provider of voice, data and media communications services and owner of one of Ireland’s leading optic fibre networks today announced that it had achieved positive EBITDA (earnings before interest, taxes, depreciation and amortization) in the period covered from March through June 2009. This represents the first full quarter of positive EBITDA in the history of the company. 

“We are extremely pleased to have achieved this significant financial milestone,” commented Brendan Hunt, CFO of Smart Telecom. “The restructuring plan we implemented in Q1 has achieved our initial objectives and we look forward to improving our trading profile in the year ahead. While we still have a number of challenges ahead of us, we are pleased to have crossed this important hurdle.” 

Smart Telecom is a leading Irish provider of voice, data and media services to residential, government and corporate customers. Smart has a national reach and operates the only ‘Next Generation Network’ (‘NGN’) in the country making it Ireland’s fastest broadband provider. Smart currently serves over 12,000 residential and 500 corporate, government and medium sized business customers throughout Ireland.

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