O'Brien reveals how he prepared dark-horse bid

According to Denis O'Brien, his Esat Digifone consortium won the State's second mobile phone licence because it put more work into its bid than its competitors, and risked more money. Colm Keena reports

In a 46-page statement to the Moriarty tribunal this week which the 45-year-old entrepreneur said he had written himself, a step-by-step account of how the bid was put together was given by the man who was the main force behind the consortium. The document was read into the tribunal's record and thereby became sworn evidence from Mr O'Brien.

He chose to start the story in 1991 when, he said, he formed Esat Telecom and immediately sought a telecommunications licence from the then Minister for Communications, Mr Seamus Brennan. Mr O'Brien said the company's first chief executive, Mr Doug Goldschmidt, mentioned to him soon after his arrival that the Republic would have to, in time, issue a second mobile phone licence.

During the early 1990s Mr O'Brien said he battled with Telecom Éireann over access for his company to the telephone system. He noted at the time how other emerging telecom companies were faring and decided that to be a forceful competitor to the State telecoms company, Esat would have to offer both fixed-line and mobile services.

In his battle with Telecom Éireann over the fixed-line sector. Mr O'Brien was involved in disagreements with the Department of Communications, which then acted as a regulator to the sector. The Department ran the competition for the second mobile licence.

Meanwhile, in late 1993, a five-member project team was put together to begin work on the Esat bid for the mobile phone licence competition Mr O'Brien felt had to come. The members of this early team were: Mr Edward Kelly; Mr Seamus Lynch; Mr Derry Flood; Mr Peter White; and Mr Gay McCarron. Mr McCarron was the former head of planning at Dublin Corporation.

During 1994 Mr O'Brien became involved with Southwestern Bell and Deutsche Telecom concerning a planned joint bid for the upcoming licence.

In the second half of 1994, a dedicated site-acquisition team started work on preparing potential mast sites for the mobile phone company's network. Landowners were approached for site-option agreements and planning applications were submitted to local authorities around the State.

According to Mr O'Brien, his US and German partners baulked at putting money into signing up site options and making planning applications, but Esat persisted. In time Mr O'Brien lost confidence in the two partners. He felt the US company had no difficulty in spending money buying first-class plane tickets for its executives and "staying in the best hotels" but would not spend money on strategic bid initiatives. "I was beginning to feel that we were in with the wrong team and made my board aware of my views."

In early 1995 matters came to a head between the partners and it was agreed they would part. The two foreign companies went on to become involved in another bidder for the Irish licence, Irish Mobicall. Mr O'Brien went looking for a new partner. A number of potential partners were met and considered but Mr O'Brien eventually settled for the hugely successful Norwegian state company, Telenor.

This happened in April 1994, with Telenor moving quickly to get involved with Esat after the initial introduction by way of a consultant, Mr Nick French, who had been engaged by Esat. Mr O'Brien travelled to Norway to discuss matters. A joint venture deal was signed on June 3rd, 1995.

Meanwhile on March 2nd, 1995 the Department of Communications announced the competition for the mobile phone licence, with a closing date of June 23rd, 1995. The announcement included the criteria under which the bids would be assessed, with one criterion - though not the main one - being the price the bidders would offer for the licence. The race was on.

There were problems within the Digifone camp from the outset. Telenor would only accept responsibility for costs incurred post-April 1995. These amounted to £400,000 but £1 million had already been spent by Communicorp, the holding company for O'Brien's radio and telecommunications interests, according to Mr O'Brien.

He said that he realised at the time that "because Esat would be regarded as rank outsiders, its bid would have to be exceptional in all aspects".

The bid would have to contain even more information than had been asked for in the call for bids. It would also have to have the optimum roll-out plan available, including as many planning approvals for mast sites as possible.

"We believe that other bidders did not take steps anywhere near as comprehensive as Esat, nor did they spend as much money, in preparing their bids."

By early 1995 Esat was employing 40 people to work on the bid. A short-term lease was signed on 5,000 sq ft of office space in a basement off Lombard Street in Dublin city centre. "I had been told by Southwestern Bell that bidders in other markets had gone to extreme lengths to find out what other bidders were up to and what price they were going to bid at auction. Because of this, 24-hour security was employed and all windows were blacked out so that nobody could see in. A security firm swept the offices for listening devices every two weeks."

A larger team was set up as the closing date drew nearer and long hours were worked. Eight markets around the world were visited to see what strategies second mobile operators were operating in them.

A deliberate strategy of not saying anything to the press was adopted as "all the time we wanted the other bidders to underestimate Esat's chances. The media had Persona/Motorola as the front runner and we were happy to let them do this. I kept reminding the bid team that Dave Wottle came from the back of the field in the 1972 Munich Olympics to take the 800 metre gold medal."

Knowledge of Telenor's involvement was kept back so competitors would not know Esat had an international partner. Planning permission applications for potential mast sites were made in the names of different companies, so competitors would not know what was going on.

By mid-May 1995 members of the team were working seven days a week to meet deadlines. It had been decided to freeze the bid one week before the deadline, so it could be proof-read. The final document was 2,500 pages in length. Also a decision had to be made about the size of the fee that would be offered. "It was going to be the last piece of the jigsaw," said Mr O'Brien.

On Friday afternoon, June 16th, a fax from the Department of Communications stated that due to discussions it was having with the European Commission, the closing date for the competition was being put back to August 4th, 1995.

There was press speculation that the licence fee would be capped, which in time was what happened. "By changing the nature of the competition from an auction to a "beauty contest" Esat's chances of success dramatically increased," said O'Brien.

Meanwhile the Esat team decided to make the best use it could of the extra time it had been given.

PA Consulting in London was paid £30,000 sterling to assess the bid, identify points of weakness, and suggest how improvements could be made. Meanwhile "we went full steam ahead to use the delay to make more planning applications for mast sites".

Aside from the work on the actual bid and the Esat plan, the partners in the consortium were also spending time on financial matters.

Telenor was insisting that Communicorp produce a financial guarantee for its side of the cost of the roll-out in the event of Esat winning the licence. Telenor pushed the matter and Mr O'Brien grew to feel aggrieved. He felt Telenor was trying to use its superior financial position to gain control of Esat Digifone. "Our relationship never recovered from this period."

Esat Digifone decided that it would use the occasion of the submission of its bid as an opportunity to "demonstrate some of our marketing skills and to make our bid vibrant and a talking point with officials from the Department," Mr O'Brien said. Violinist Fionnuala Sherry, who had played with the Norwegian winners of that year's Eurovision, was commissioned to play in the musical backing to the winning song as the bid document was delivered.

A large truck with the Digifone logo formed part of a convoy that arrived at the Department with the bid at 11.50 a.m. "The large doors burst open with dry ice billowing out." Ms Sherry got up on a plinth and started to play while drums beat and 12 glass boxes containing 12 copies of the bid were carried into the Department, the Telenor staff involved dressed as Norsemen.

"Virtually all the staff of the Department were hanging out the windows watching the show. It was a carnival atmosphere. Out of the corner of my eye I could see two of the other bidders standing across watching the performance. They had arrived earlier in taxis to drop their bids in."

The final stage in the effort to win the bid was an oral presentation in the Department on September 12th, 1995.

The time between the submission of the bid and the presentation was spent in preparation. Mr O'hUiginn, a former secretary of a Government department, attended a practice run in the Mont Clare hotel and made a number of suggestions.

"He emphasised that we needed to highlight the weaknesses of the other bidders and turn their negatives into positives for our bid," said Mr O'Brien.

After the presentation, Mr O'Brien, along with other members of the team, felt they had not necessarily assured the evaluators that Communicorp did not have a financial weakness. In time, Mr Dermot Desmond's IIU Ltd came to be involved in what Mr O'Brien said was an effort to address this issue.