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Eircom's local loop and enormous customer base are national assets and central to Ireland's ongoing development as an aspiring "wired-up" nation.

If Eircom is acquired by Valentia, the new company will have debts of 2.2 billion euros in contrast to virtually debt-free Eircom. All the signs are that this company will be operating in an increasingly competitive, regulated marketplace and in an uncertain economic climate. How can its debt be supported while sustaining major capital expenditure without recourse to major restructuring and repricing?

Depending on interest rates and repayment schedules, debt servicing could average 300 million euros a year and ongoing capital expenditure could exceed 400 million euros a year. This estimated annual outflow of 700 million euros will have to be achieved within a business that has recently reported an annual turnover of 1.7 billion euros for its key fixed line businesses and related earnings (before interest, depreciation etc.) of 537 million euros. On a comparable basis, this turnover was just 1% higher than that the previous year and the earnings were 18% lower due to price reductions and competition.

With initial gearing of almost 3 times and low interest cover, could Valentia be overexposed? Has the Government considered the consequences if the business should fail or even stall badly? Surely, it was never the Government's expectation that Eircom would be dismantled and that its core business would be taken private in a leveraged investment deal?

Obviously, if the new business progresses satisfactorily then fears for its future will have been unfounded. However, if major difficulties should emerge, what will be done by the Government to ensure that the company's problems don't spill into the wider economy? Does it have a contingency plan, or is it just as powerless as the majority of Eircom's suffering shareholder-customers?

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