Cost of Eircom services set to rise 5%

Businesses and consumers will pay about 5 per cent more for telecoms services during 2003, following yesterday's long-awaited decision by the Commission for Communication Regulation (ComReg).

The decision will lead to price hikes by Eircom and put further pressure on Irish inflation, following recent double-digit increases in the cost of electricity, cable TV and transport prices.

ComReg's new price cap on Eircom will enable the firm to raise its prices for the first time in several years, although any increases must be pegged at the rate of inflation.

Under the old price-cap regime, Eircom was forced to reduce the price of certain services by a formula set at the consumer price index minus 8 per cent. This cap, together with the introduction of competition in the telecoms sector, resulted in cheaper prices for consumers over recent years.

Eircom is expected to increase line rental charges but keep call prices relatively static under the new price-cap regime, which starts today. Consumers currently pay line rental of €19.60 per month but Eircom has consistently argued that this does not cover the cost of maintaining its access network.

By increasing line rental charges while keeping call costs down, Eircom, which holds more than 80 per cent market share, will be able to maintain competitiveness and boost its revenues.

But an Eircom spokesman said yesterday the firm was studying the price-cap decision and would not comment on when the firm would formally increase its prices.

Eircom criticised the ComReg decision because it felt the cap should have been abolished. It also described a decision by ComReg to peg the rate of return that Eircom can generate in the Irish marketplace at just 11.5 per cent as "incomprehensible".

"Given the difficulties affecting the telecoms sector, it is incomprehensible that the rate of return has been reduced from 12 per cent to 11.5 per cent," said a spokesman.

ComReg took the decision because it feels Eircom needs to make more effort to become an efficient telecoms operator. This suggests the commission believes further cost-cutting at Eircom is necessary.

In a statement, ComReg said it was not possible to maintain strong downward pressure on [prices in\] the industry. It said the price cap, coupled with new cost-oriented wholesale prices, and expected efficiency gains at Eircom, would ensure that the cost base for Irish communications would be comparable with those in other European countries.

ComReg also decided to place within the price cap the cost of calls from a fixed line to a mobile phone. This decision could put pressure on mobile firms to lower the termination charges they levy on fixed-line telecom firms, but initially will only apply to Eircom.

Mobile firms have recently faced criticism for the high prices they charge Irish customers, and the large profits they make here.

A Vodafone spokeswoman said Ireland had among the lowest termination rates in Europe.