Banks concerned at replacement

Three banks originally associated with the Esat Digifone bid for the State's second mobile phone licence expressed concern about their being replaced by Mr Dermot Desmond, the tribunal heard.

Mr Kyran McLaughlin, the then joint chief executive of Davy Stockbrokers, told Ms Jacqueline O'Brien, for the tribunal, of how he got the three banks to commit to investing £8.5 million in the consortium, conditional on a number of factors. The banks were Bank of Ireland, AIB and Standard Life.

While the 1995 competition for the licence was still under way, he was asked by Mr John Callahan, a director of Esat Telecom, if the banks would stand aside to make room for a new investor who was going to give stronger financial backing. He said he was told by Mr Callahan that the consortium had been advised that it needed stronger financial backing if it was to win the licence. Mr McLaughlin said he was not told the source of this advice or who the new backer would be.

The request from Mr Callahan occurred on September 29th, 1995, the day Mr Desmond's International Investment and Underwriting Ltd (IIU) became involved in the consortium.

When it subsequently emerged that IIU Ltd had replaced the three banks, they expressed concern and Mr McLaughlin tried to make inquiries of Mr Denis O'Brien, founder of Esat Digifone, as to how this had come about. He made a number of requests for information without success.

Eventually a meeting occurred on August 8th, 1996. Present were Mr McLaughlin, Mr O'Brien and Mr Callaghan. Mr McLaughlin explained that the banks were concerned that they had been replaced by IIU, which wasn't as financially strong as they were.

They were also concerned that they had been replaced after a cap of £15 million had been placed on the licence fee. Originally the licence fee was to be decided by way of auction.

A memo of the meeting recorded Mr McLaughlin as also saying: "IIU may have inside knowledge of Esat's probability of success when they made the investment." He was told by the Esat directors that the consortium needed a firm financial commitment for the 20 per cent of Esat Digifone that was to be held by institutions, and as well as for the 40 per cent that was to be held by Mr O'Brien's Communicorp. He was told Esat knew no normal institution would give this, but IIU did.

The memo recorded that he was also told: "IIU had no inside information as nobody had - although civil servants did say to them afterwards that their written submission was the best received." There was also mention of the use of Davy's if there was Irish interest in a private funding being planned by Esat in 1997 through Credit Suisse First Boston, in the US.

Mr Alan Dukes, who replaced Mr Michael Lowry following Mr Lowry's resignation as minister for transport, energy and communications in late 1996, said he was happy with the integrity of the licence competition.

He told Mr John O'Donnell SC, for the Department, that he knew a number of the civil servants who were involved in assessing the bids for the licence, including Mr Martin Brennan, the civil servant who headed the team. He regarded them as honest and reliable civil servants. He felt it would not have been possible for someone to "worm their way in and destabilise" the competition process.