Regulator's decision set to explode telecom sector

Jamie Smyth, Technology Reporter, examines a ComReg decision which is likely to led to upheaval in the sector.

The State's law firms will be licking their lips at the prospect of Eircom mounting a court challenge to a decision taken by the Commission for Communication Regulation (ComReg) this week.

Since Eircom's new chief executive, Mr Phil Nolan, took the helm at the former State firm there have been few pickings for the corporate lawyers, who grew rich during the telecoms boom.

One of his first actions on taking charge in spring 2002 was to drop a series of lawsuits challenging regulatory decisions and signalling a truce with the telecoms regulator, Ms Etain Doyle.

But this entente cordiale was dramatically shattered on Wednesday following a long delayed decision by ComReg to cut the cost which Eircom charges other operators to use its local access network.

Eircom's competitors will now be able to access the crucial last mile of Eircom's telecoms network, which runs into almost every Irish home, for a fee set at about half of what Eircom had agreed to offer.

In an interview with The Irish Times Ms Doyle, chairwoman of ComReg, said the new rates held the potential to increase dramatically the uptake of high-speed internet services.

"We have done a very thorough and exhaustive examination of the appropriate access costs for the Irish market," she said.

"We hope the decision will boost competition and lead to lower prices for consumers."

Ms Doyle can point to the tortuously slow rollout of broadband as good reason for mandating the new rate.

A recent World Economic Forum survey ranked Ireland 51st for the uptake of high-speed internet access, behind many developing countries including Tunisia, El Salvador, Namibia, Peru, Nicaragua.

And despite a European directive mandating incumbent telecoms firms to open their networks to competition from January 1st, 2001, just 1,000 Eircom lines have been unbundled by its rival Esat BT to date.

In its decision ComReg laid the blame squarely with Eircom, citing significant delays and failure by it to provide reasonable, consistent and timely information for the process.

Ms Doyle echoed these sentiments yesterday, describing Eircom's proposed fees as "way off the graph".

ComReg's decision was based on a 13-month review of Eircom's local network and a benchmarking exercise which measured charges across Europe.

It was conducted by an independent chairman, telecoms consultant Prof William Melody, and eventually led to the new access rate set at a fee of €14.67 per month.

Eircom had proposed a fee of €27 in its submission to ComReg, and Eircom's chief executive, Mr Nolan, said yesterday the new access fee would force it to offer network access below cost.

"It is fair to say we are totally frustrated," said Mr Nolan yesterday. "The first time we saw this rate was in a press release.

"The discussions were not concluded and we clearly have an issue with the price.

"It is unreasonable and inappropriate, and we believe it has been rushed through before an appeals mechanism is in place," says Mr Nolan.

"We don't see any option but to appeal this decision."

Eircom will now either seek a judicial review of ComReg's decision within the next 21 days or mount a High Court challenge within seven days.

The firm may also appeal to the Minister for Communications, Mr Ahern, to refer the decision to an appeals panel, which is scheduled to be set up in the autumn.

"The collaborative approach Eircom has adopted over the past 18 months has enabled a lot of progress to made in telecoms, such as low cost DSL," said Mr Nolan. "But we feel this decision demonstrates conclusively the need for an appeals process." Regardless of a court challenge the consequences for Eircom following the landmark regulatory decision are likely to be considerable. Under a law initiated by the former Minister for Public Enterprise, Ms O'Rourke, the regulator's decision stands until a judgment is delivered.

Eircom said yesterday it would now have to review its €1 billion investment programme planned for the next five years. And if the regulator's decision is sanctioned in a future court case, Eircom could be forced to shed staff.Under the regulators calculations Eircom would need to cut its operating expenditure in its networks in half to meet the new rate, according to Mr Nolan.

Any decision by Eircom to reduce capital expenditure in its network would have serious consequences for the rollout of its broadband services.

This could seriously weaken the national telecoms infrastructure, lowering service levels for consumers and undermining competitiveness.

However, Ms Doyle believes the dangers posed by allowing Eircom to pass on its own inefficiencies are even more important for future competitiveness.

"We were surprised by the €27 rate submitted by Eircom for access. Clearly there are extra costs included in the headcount and the process," said Ms Doyle.

Referring to Eircom's costs and staffing levels, Ms Doyle, recounted the analogy of how having 12 people to replace a light bulb often means that it doesn't get done. Whereas, if one designated person is appointed to the task, it will be replaced.

Mr Nolan rejects the assertion that Eircom is an inefficient operator and points to its success in reducing staff numbers from 13,000 to 8,500 in three years.

But he acknowledges Eircom couldn't force workers to take up compulsory redundancy because the firm has 6,000 staff working on civil service contracts, which offer employees jobs for life.

This leaves little room for Eircom's owners, the Valentia consortium, to lower its cost base and deliver greater efficiencies.

But with ComReg or Eircom looking set to compromise on the issue, it looks like a summer of discontent for all but the lawyers.