Court told ComReg feared Eircom

State communications regulator, ComReg, feared that Eircom was attempting to interfere in the granting of a mobile licence to Smart Telecom, the High Court heard yesterday.

Smart's chief operations officer, Ciarán Casey, told the court that during talks with ComReg, which took place before the agency's decision to withdraw the offer of the licence to the company, it was clear that the regulator was concerned that Eircom was attempting to get involved in the process.

"It was very clear that ComReg were concerned that the losing bidders [ Eircom] were involving themselves in the process and ComReg were concerned that they had to have a pristine process," he said.

Mr Casey said that one member of ComReg staff referred to Eircom as the "dark angel" looking over the agency's shoulder. The regulator's senior counsel, Paul Sreenan, said there was no evidence of this, but Mr Casey said that the "words were used".

Eircom controls 80 per cent of the Republic's fixed-line business. Last year, the group and its mobile subsidiary, Meteor, were the losing bidders for the third generation (3G) licence offered to Smart.

ComReg withdrew the offer in February as a result of a dispute over performance guarantee bonds that Smart and its suppliers had to provide as a condition of the company getting the licence.

The regulator says that Smart failed to put these bonds in place by an agreed deadline of January 30th. Smart is seeking an order declaring that ComReg is obliged to offer it the licence.

Under cross-examination by Mr Sreenan, Mr Casey conceded that Smart had no contract with one of its suppliers, Chinese multinational Huawei, obliging it to provide a bond.

He also agreed that a clause in the supply agreement with Huawei stating that Smart itself had put in place a bond with ComReg for €100 million was not true.

Mr Justice Peter Kelly asked Mr Casey if he was actually saying that the statement was not true. "That would appear to be the case," Mr Casey replied.

The bonds were guarantees that Smart would pay financial penalties of up to €100 million if it failed to meet agreed milestones in building and rolling out its network.

Smart gave ComReg three draft bonds, which were not finally approved by the banks involved. One was from Smart, and was to be underwritten by Ulster Bank. The others were from BT and Huawei, who were to build the network and supply the technology.

Royal Bank of Scotland was to underwrite BT's bond and Independent Commerce Bank of China (ICBC) was to underwrite Huawei's guarantee.

The draft bonds contained clauses declaring that the penalties would not be paid if Smart became insolvent, if the licence were revoked, or if there were a dispute between Smart and its partners.

ComReg did not agree that these terms were acceptable, as Smart's original bid proposed bonds that did not contain any of these conditions. Smart maintains that it would have been possible to remove these terms had it been given more time.

Mr Casey stressed that the condition relating to disputes between Smart and its suppliers could have been eliminated. He explained that this would have happened if the company and ComReg had agreed a measuring system to ensure Smart met its performance targets.

He said that ComReg's objections to the other terms would not have prevented BT and Huawei from supplying and building the network.