Smart dispute latest in long line of ComReg appeals

History of challenges raises questions about regulator's decisions, writes Barry O'Halloran

This week the communications regulator, ComReg, once again found itself in what it must regard as the familiar surroundings of the High Court.

ComReg, headed by commissioners Isolde Goggin, John Doherty and Mike Byrne, was at loggerheads with Smart Telecom, the company to which last November it offered a licence to set up a third generation (3G) mobile network in the Republic.

The dispute centres on the nature of performance guarantees that Smart has provided. The company has agreed that its network would reach certain proportions of the population by particular deadlines. For example, it has said that it will reach 22 per cent by its scheduled launch date in July.

It has put in place bonds totalling €100 million to support these commitments. If the targets are not met, it will forfeit the money. The bonds are guarantees from three banks that they will pay the money. Smart then repays the banks.

Smart gave the bonds to ComReg on January 27th, three days ahead of an agreed January 30th deadline.

However, the regulator objected to the form of the bonds and, after an attempt at talks, this week withdrew the licence offer.

The predictable happened and two court hearings resulted. The first on Tuesday, when Smart got an initial order from High Court Justice Mary Laffoy preventing ComReg from offering the licence to any other company.

It came up again yesterday, when Justice Laffoy adjourned the case for two weeks to allow ComReg time to respond. Tuesday's order stands until then at least.

Going to court is nothing new to ComReg. A year ago this week it directed Eircom to open a key part of its network to its rivals, and refused it the right to appeal the decision to the new Electronic Communications Appeals Panel (Ecap).

In August, the High Court ruled that ComReg could not deny Eircom its right of appeal. From the industry's point of view, the effect was to slow down the process of opening up the big player's networks, developing competition and expanding broadband coverage.

In 2003, a row over the cost of getting that access also ended up with Eircom and ComReg crossing swords in the High Court.

This was settled, but the charge that Eircom was imposing - €16.81 per telephone line - was allowed to stand pending a review. It has since been cut to slightly below the level of €14.27 that ComReg was seeking.

ComReg has had less luck with Ecap, which was set up last year to scrutinise decisions to which the companies that it regulates object.

In December, the three mobile operators - Vodafone, O2 and Meteor - challenged a ruling delivered earlier in 2005 that they had dominant positions in their markets. This would have allowed ComReg to fix their prices.

However, the four-day hearing ended after just one day when ComReg agreed to allow the panel to annul the ruling. The regulator was left with a €5 million legal bill as a result.

The companies complained that ComReg had breached fair procedures by not giving them a chance to answer a number of the regulator's assertions, including one that they "tacitly colluded" with each other to keep out competitors and maintain high prices for their services.

Earlier last year, new entrant Hutchison Whampoa, which owns the third generation mobile network 3, challenged a similar ruling declaring that it was dominant in part of its market.

Ecap shot this down and strongly criticised ComReg in the process. The appeals body's ruling declared that the regulator's decision lacked "the thorough analysis required of key economic characteristics which is required before determining the existence of a significant market power".

The appeals board was set up to allow companies to avoid expensive and sometimes long,drawn-out court actions. ComReg opposed its establishment, warning that it could give companies "two opportunities to challenge decisions", namely the appeals board and then the courts.

The up-and-down relationship with the courts goes back to ComReg's ancestor, the Office of the Director of Telecommunications Regulation (ODTR).

In 1999, British company Orange successfully challenged the ODTR's decision to award the third mobile licence to Meteor in the High Court.

At the end of a 50-day hearing, Justice Fidelma Macken found that the office's decision was objectively biased and unreasonable. Confusingly, the court found "no actual bias" on the part of the regulator.

The Supreme Court subsequently dismissed the ruling, and found nothing to support the contention that the decision, process or the people involved were in any way biased or unfair.

It's common for companies to challenge the fairness of ComReg's procedures. Because of the obvious need for regulators to be fair, this is one of the areas on which any body in that role is most likely to be challenged. Presumably a certain number of appeals are going to succeed against everyone in its position.

And to be fair to ComReg itself, a lot of its rulings will come under fire in any case. The telecoms industry is developing rapidly, and there are plenty of investors with lots of money staked on various outcomes, and the regulator can have a big influence on what those outcomes might be.

This week, Smart, and its powerful backers, have taken up cudgels against the regulator. Amongst other things it is saying that it has not been treated fairly and that the goalposts have been moved.

ComReg has yet to show its hand, but it is understood that it does not agree with this.

The issues are different from those raised at Ecap, and the disputes with Eircom, which were more related to competition.

The Smart case also differs from Orange, as that was a direct challenge to the award of a licence, rather than what happened afterwards.

But it does mean that once again, the way ComReg does its job will be scrutinised by the courts.