With Eircom more dominant than ever in the wake of the Smart Telecom debacle, the main backer of Magnet Entertainment is counting on real customers to force a change in the market, rather than hoping for relief from government or regulators.

"I was in the airport in Chicago recently travelling back to my home [in Washington state], when I met an older fellow travelling to Denver. We fell into conversation. He was a grandfather.

He said it had changed their life when they got broadband to their children's house, so they could say goodnight to the grandkids using a video conference. And you can't do that by uploading video that's shared 20 ways."

Peterson is talking about "contention ratios", the dark secret of what passes for broadband in Ireland. When your broadband connection has a high contention ratio, it means it's being potentially shared with up to 47 other users at the same time . . . as if everybody in an older apartment building were to use the shower at exactly the same time. All that comes out is a trickle.

Peterson says that what Irish people think is broadband is actually something far inferior. "The word 'broadband' has been co-opted here. People don't know what they're missing."

People like the grandfather on the way to Denver, having experienced proper broadband and having the experience of seeing their grandchildren hundreds of miles away, or someone who experiences YouTube at work and can't get the same experience at home.

Peterson hopes they will become impatient with offers from Eircom and give Magnet a try.

Peterson is not the first American to find Celtic Tiger Ireland deceptively similar to home when looking at the broader business culture, only to be tripped up by what turn out to be not so minor differences. But it's no less startling an admission to hear the lawyer turned self-made multimillionaire contrarian investor say quite candidly that, since he set out to build the natural challenger to Eircom, things haven't gone as well as hoped.

"Things have gone worse than expected because I was naive in thinking that Ireland had adopted a competitive model, " he says in the conference room at the Clonshaugh Industrial Estate office which still bears the livery of Hibernian Atlantic, the transatlantic cable company that Peterson bought for a song in 2003 when most investors thought telecommunications was finished after the dotcom bubble.

"I think that there were issues of how quickly we could unbundle the local loop that can only be laid at the feet of Eircom."

His red-and-blue striped tie is more border state lawyer than flamboyant tech executive . . . something that gives him a decided air of gravitas. But his frustration with Ireland's failure to realise a properly competitive market for internet providers is palpable.

"Incumbents all over the world have used similar strategies. But there are laws on the books here. I thought Ireland had gone beyond that."

Instead he says that Magnet has found delay upon delay from Eircom, with little prospect of the regulator providing much assistance.

"Unfortunately, that legal environment now is lax, therefore they can do things with a great deal of impunity, do things that impair and inhibit competition, and have been for years. Like number portability. It's astonishing to me that the EU can mandate that when the consumer wants an alternate carrier they should be able to get it, and until very very recently . . . and very meagrely at the moment . . . you couldn't do it. When we went to business in the LLU about a year ago, they would just say no. There was no fine, they would just refuse."

As a lawyer, Peterson knows that waiting for government or courts to help is no option, as the business can't wait. A lesson that Smart Telecom learned the hard way.

Magnet, which since buying Hibernian has been laying out fibre-optic cable directly to houses in new estates after striking deals with developers such as Menolly Homes, has also grown by acquisition. It bought Leap broadband from Charlie and Rory Ardagh about a year ago, and purchased Netsource a few months later. Peterson reckons that, between all those channels, Magnet now has around 10,000 customers, with more becoming addressable as houses in new estates are occupied.

The majority of customers at the moment are served through a supercharged DSL service that, depending on their distance from the local telephone exchange, can deliver two megabits per second (mbps) of internet and phone service and 20 TV channels down a normal phone line to your house, as long as the exchange you are in is "unbundled".

The holy grail of telecoms competition, "unbundling the local loop" has been Irish and EU government policy for years, but is still a rare enough thing.

But having its equipment in more than 40 exchanges, Magnet can claim to be the biggest "facilities-based" alternative to Eircom. In other words, it doesn't rely primarily on just reselling Eircom services.

The problem has been getting customers in the door, something that the Smart Telecom debacle has made more difficult. But did it provide an opportunity? Rumour had it that Peterson tried to buy Smart before backer Brendan Murtagh made a rescue offer to buy the company.

Peterson isn't giving anything away.

So is he going to make a last minute offer for Smart?

"No."

No interest at all?

"Well, my history as you can see in the United States is that I believe in consolidation, in the necessity to create a real and viable alternative to the incumbent. I think the market is served well by more consolidation."

So who will you buy to get a critical mass to challenge Eircom?

"At this point, it's more likely that it's going to be organic growth. Because I think that the players in Smart have come up with a scheme of how they're going to go forward."

But his travails with Eircom show no signs of abating. Ultimately, he says, something similar to what happened in the UK to force open competition may have to happen here.

"What I am interpreting as when this occurs is when there is a real opening of the market to facilities-based competitors. If you don't have it, you'll only have what the incumbent has. Here Eircom has 90% of the market, because most are resellers. You're only going to have whatever that product is. Competition can only come in to change it when facilities-based competition can occur. Not just reseller, retail competition.

"In the UK we've seen this very recently. The government was, apparently, very close to breaking up BT. We were going to have BT wholesale and BT retail and have completely different companies. Instead, BT agreed it would do the functional equivalent while remaining one company.

"Since then you've had Bulldog, Easynet, real facilities-based competition come into the market. Following that you have higher speeds, less contention, all of that. People have to say, we're not going to take this any more."

People like the grandfather on the way to Denver.

CV

KENNETH D PETERSON JR
Position: Executive chairman Age: 53 Education: JD, Williamette University law school, 1980; College of William & Mary, Phi Beta Kappa Job history: 1987 - Bought and reopened aluminium smelter; founded Columbia Ventures Corporation private equity firm.

Director: American Capital Strategies, Cogent Communications, Washington Policy Centre

MAGNET ENTERTAINMENT
Employees: 150 2003: Peterson buys Hibernia Atlantic, which is primarily the only fibre-optic cable connecting Ireland directly to the US, from bankrupt Canadian firm 360 Networks, for $17m, around 3% of its actual value Dec 2004: Magnet Networks founded May 2005: Magnet acquires Leap Broadband and 1,000 business customers;

Charlie and Rory Ardagh remain with merged business 2006: Magnet acquires Irish ISP Netsource, with 4,000 business customers