Cantillon: face-off between Minister and Eir looks certain

In the next few weeks, Eir will discover the results of an audit of its financial and technical operations carried out by the Department of Communications. The result will have a strong bearing on whether the former State-owned telco maintains its dominant position in the broadband market and may prompt legal action if it doesn't go the company's way.

The Government is planning a major State intervention to address the high level of market failure in the broadband sector, which accounts for about 30 per cent of the market, the equivalent of 757,000 homes and premises. The public- private partnership scheme will be worth hundreds of millions of euro to the winning bidder or bidders.

Minister for Communications Alex White had spent months drawing up a map of the areas deemed not to be commercially viable, based on the business plans of providers, including Eir, formerly Eircom. However, just weeks before his big launch last June, Eir announced it had revised its own business plan and could now supply broadband on a commercial basis to an additional 300,000 homes in the intervention area. The move created tension between the department and the company, so much so that White intends to make Eir sign a "commitment contract" before entering the tender process.

Rivals claim Eir’s move is designed to knock them out of the race before it starts. With a shrunken intervention area, the Government’s contract may be reduced to only the hardest-to-reach places, making it less desirable.

We won’t know the results of the department’s deliberations until the formal start of the procurement process next month. If the proposed intervention footprint remains the same, it will have deemed Eir’s plan insufficient. For a company with eyes on a future IPO, this would be damaging. The problem for the department, however, is that a rejection of Eir’s plan may see it fall foul of EU state aid rules, which strictly curtail interventions in areas where commercial operators are willing to go.

One way or another, a face off between the Minister and Eir looks certain.