Old agreement leaves wireless internet market hamstrung

No broadband licencee is offering a wireless service and, thanks to a three-year-old deal, that is not about to change anytime soon, writes Karlin Lillington

Attempts to kick-start the moribund wireless internet market are being hamstrung by the terms of a three-year-old agreement to carve up the market for fixed wireless access (FWA) between four players.

Documents released under the Freedom of Information Act show that the deal brokered in mid-1999 with the help of the Office of the Department of Telecommunications Regulation (ODTR) is now in grave danger of backfiring.

The agreement makes it difficult for Ms Etain Doyle, the telecom's regulator, to reallocate or change the terms of licences even though one of the licence-holders has folded and the other three claim they are struggling to meet the terms of their commitments.

The internal ODTR document claims that the deal will "add another complication to this process in that it can be interpreted to mean that we cannot amend the terms and conditions of the existing broadband licencees prior to 2003". It also raised doubts about the regulator's ability to withdraw the licence of non-compliant companies.

The ODTR agreed to the moratorium on changes to the terms of the licences as part of a settlement to a legal action that threatened to derail the whole licensing process. One of the unsuccessful licence applicants, Broadnet operated by Galway entrepreneur Mr Declan Ganley, challenged the process in the courts. Subsequently, one of the successful applicants, Formus, a US wireless operator that established an office in Dublin by buying out a telecommunications company founded by brothers Mr Rory and Mr Charlie Ardagh, joined Broadnet in the suit, which challenged the awarding of a licence to dominant market operator Eircom.

At the time the moratorium was seen as being in the licence-holder's favour as it cemented their position in what was expected to be a dynamic and competitive market. In return they dropped their legal challenges. The agreement did not anticipate the collapse in the telecoms sector in 2000 and the subsequent global economic slowdown forced the licence winners to re-evaluate their plans and trim their investment plans.

The internal document, drawn up last February, is a summary of the current static state of the FWA market noting that it appears that all licencees "are struggling to make a business case for FWA and to meet the requirements of their licences".

None of the four companies that received a licence - Formus, Esat, Chorus and Eircom - currently offers a wireless internet service and Formus has closed.

The paper recommends that the department seeks "urgent legal advice in relation to proposals relating to the future of FWA licensing". It also notes that a working group is directed to investigate whether the licencees "are complying with their licence obligations".

It is understood that key Government officials were unaware that the now-controversial agreement existed. A spokesperson for the ODTR said the office did not believe the agreement adversely affected the market.

The agreement, which has been seen by the Irish Times, clearly places a moratorium on making any changes to the licensing terms until after 2003.

The agreement also promised that licences that had been awarded could not be revoked. It states: "It remains the case that the first review of the terms of existing licences including any possible amendment or revocation will not be before 2003."

The ODTR found itself under pressure to settle the action brought by Broadcom and Formus when it was revealed that several members of the ODTR's office held Eircom shares. But Mr Ganley's position was also weakened after a judge said he could be liable for paying costs for loss of business to all the other licencees for the period of the lawsuit if the case continued.

In the settlement it was agreed that Eircom's bid for a licence would be re-evaluated by an independent panel. According to senior sources involved in the process, the Regulator also then proposed that a Heads of Agreement be drawn up between all the parties to the case.This agreement is signed by lawyers on behalf of all the parties.

A senior industry source said the agreement was intended to address concerns of the licencees raised by the court case, and to help speed the implementation of the licences. According to the internal ODTR document: "The outcome of the broadband competition was subject to a legal challenge The matter was resolved via an out-of-court agreement, the 'Heads of Agreement' which placed certain conditions on future review and licensing of broadband FWA."

After a second evaluation of all the licence applications, Ms Doyle reconfirmed that the fourth licence would go to Eircom. However, FWA roll-out by the other licencees was delayed a year by the court case.

FWA is considered to be an important element of competition for reducing the cost of high-speed internet access because it offers a cheaper and higher bandwidth alternative to DSL (digital subscriber line) high-speed internet access and cable modem access.

DSL is available only from Eircom at a price three times greater than offerings in the British market. Esat (since purchased by BT) is to offer some DSL access in Limerick, Galway and Cork. Wireless access is available commercially at a third of Irish DSL costs in countries such as Germany and the US.

Driving the adoption of high-speed (broadband) internet access within the country is known to be high on the Government's agenda, after the Republic was shown to rank almost at the bottom of 29 countries evaluated for domestic broadband access by the OECD.

Analysts pointed to the lack of competition in the Irish market and lack of alternative internet access technologies. The Republic lags all of Europe except Greece in DSL development and has almost no cable internet. DSL only became commercially available in May.

None of the licencees is yet offering a wireless service. Formus had a commercial service in operation briefly, but the US company decided to pull the plug on its Irish operation last year.

The licensing restrictions implemented under the Heads of Agreement are believed to have prevented Formus from selling its assets to Norwegian operator Telenor, because Telenor was not allowed to acquire Formus's FWA licence. They also now prevent the ODTR from changing the terms of the agreement to ease costs for the operators.

Just three operators - Eircom, Esat/BT and Chorus - now hold all the FWA licences. The former Department of Public Enterprise's Advisory Committee on Information Communications recommended in its report to Government last spring that the ODTR should revoke licences from operators that fail to make use of them so they could be re-allocated. But the Heads of Agreement signed by the ODTR would appear to prevent this.