ESB and BT settle dispute over Ocean

After four days of legal wrangling, ESB and British Telecom last night reached agreement in principle over the future of their joint venture, Ocean. While the ESB dropped its High Court challenge to BT's $2.5 billion (€2.5 billion) takeover of Esat Telecom, lawyers and executives continued to negotiate the details of their accord.

Neither company would discuss the negotiations. BT has already indicated that it wishes to buy out the ESB's stake in Ocean. But, aside from placing a valuation on the telephone company, the ESB has sought compensation for what it sees as a breach of the Ocean shareholders' agreement.

Under this document, the ESB believes, BT is prevented from participating in any other telecommunications business in the Republic as this would represent competition to Ocean.

Neither company would speculate on how much the ESB would be compensated for waiving clauses the shareholder agreement, but industry analysts have said the joint venture is worth between £250 million and £400 million. Analysts said that if BT wished to continue running Ocean as a going concern - whether as Ocean or as part of Esat - the agreement would have to deal with Ocean's network, which uses the ESB's own infrastructure. The ESB continues to use this network for supplying and managing electricity and for internal communications, and cannot sell it to BT.

BT will also be aware that if it does not choose to negotiate the right to use this infrastructure, the ESB is likely to attempt to find another telecommunications partner that will. This would represent further competition for BT.

BT controls all of its 50 per cent of the partnership; the ESB owns three-fifths of its 50 per cent, with the US insurance giant AIG holding the rest.

Any agreement on future use of the ESB's infrastructure could have implications for AIG, which may wish to assure its shareholders that such a contract did not represent part of ESB's compensation for the breach of contract.

The ESB's court action was postponed several times on Monday, and again yesterday before being put back until today.

Ocean, formed in June 1998, has around 300 employees. The ESB has invested an estimated £13.5 million in the company. Ocean was the first company in the Republic to offer "no fee" Internet access and has almost 100,000 users of the Oceanfree service. But analysts say it has not made major inroads into the lucrative corporate telecommunications market.