Minister takes steps to end telecoms line rental row

Dermot Ahern's second policy direction to ComReg in 18 months may leave the regulator feeling a little bit aggrieved, writes Jamie Smyth, Technology Reporter.

The decision of the Minister for Communications, Mr Ahern, to intervene in the telecoms market to enforce competition in telephone line rental is welcome.

The moral pressure associated with his latest policy direction to the communications regulator, the Commission for Communications Regulation (ComReg), on "single billing" will certainly provide urgency to negotiations.

Whether it can overcome a bitter 18-month impasse between Eircom on one side and the rest of the industry on the other remains to be seen.

Consumers have been waiting in vain for more than a year for the ability to choose an alternative telephone firm to provide line rental other than Eircom.

Initially, a wholesale line rental product was supposed to be in place by January 2003 under a timetable devised by the regulator of the day, Ms Etain Doyle.

But disputes between Eircom and rival operators over the price the other operators will have to pay Eircom to supply the product and transfer customers have led to interminable delays. Not surprisingly, Eircom has used the past year to ratchet up the price of line rental in the absence of competition. After three consecutive hikes, Irish line rental is now €10 more than the EU average.

From February 4th, line rental in the Republic will cost €24.18, imposing a heavy burden on those consumers who use their phones least - typically people in lower socioeconomic brackets.

Unsurprisingly, consumer outrage against Eircom's latest price hike has galvanised a politically sensitive Minister into action.

But will Mr Ahern's second big policy direction to ComReg in 18 months cut any mustard with Eircom and its rivals and, more significantly, reduce line rental prices for Irish consumers?

Mr Ahern's track record on policy directions is impressive. A previous direction by the Minister prompted Eircom, after months of delay, to enable its rivals to offer flat-rate internet.

Yet his new policy direction could strike at the heart of Eircom's strategy to boost revenues at a particularly sensitive time leading up to a flotation.

Eircom should generate more than €480 million from its line rental customers in 2004-2005 and will not allow rivals to get into this market cheaply.

Many of the problems associated with introducing wholesale line rental have been technical, such as automating the customer transfer process. Most of these issues are easily resolved and should not prevent rivals from getting into the market.

But more controversial issues around the pricing of a wholesale product and the margins that alternative telecoms operators should get will be controversial.

Operators such as Esat BT and Smart have refused to enter the wholesale line rental market at the proposed margin of 8.5 per cent. Eircom is strongly resisting any increase in this margin,arguing that it cannot sell its access network - the lines that run into every home - below cost.

At an Oireachtas Committee this week, ComReg laid out the difficulties with forcing telecoms firms to sell their networks below cost. Telefónica, the incumbent Spanish telecoms firm, recently won a case at the European Court of Justice against the Spanish Government on the basis that it illegally capped the firm's line rental fee.

This decision calls into question the viability of Mr Ahern's threat to impose a cap on Eircom's line rental. If Eircom were able to prove that its access network is still running at a deficit, it could overturn the direction.

However, the timing of Mr Ahern's intervention could prove crucial in persuading Eircom to provide operators with better terms for accessing its network.

The last thing that the firm wants is a threat of regulatory action from Government at a time when it is persuading financial institutions to buy its shares.

It is likely that Eircom will seek to prevent a full-scale escalation of the dispute and consumers should be able to chose line rental from rival firms on April 1st. But in the Irish telecoms industry, which is littered with lengthy legal battles, nothing can be taken for granted.

The impact of another policy direction to ComReg by Mr Ahern does raise questions about the effectiveness of the office, which is undergoing a transition period under new chairman Mr John Doherty.

In some respects, ComReg can feel a little bit aggrieved at the Minister's interjection as it had already imposed March 31st as the new deadline. It can also point to the fact that the Minister has not yet passed new legislation to give the regulator strong powers to enforce its decisions.

But clearly it will have to try to reassert its authority on the industry over the future months.