JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate -
Tuesday, 23 Nov 2004

Mobile Telephony Charges and Billing Practices: Presentations.

Chairman

I welcome Mr. Paul Donovan and Mr. Gerry Fahy, Vodafone Ireland, to this review of call charges and billing practices in the mobile telephone industry. Mr. Donovan will recall that we met last on 14 October 2003. Before we begin, I draw attention to the fact that members of this committee have absolute privilege, but the same privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

We will hear a short presentation from Mr. Donovan from where we left off last year on the average revenue per user. I hope Mr. Donovan will bring us up-to-date on changes made in roaming charges in the past 12 months.

Mr. Paul Donovan

I thank the Chairman for his words of introduction. It has been 13 months since we were last before the committee. Today is a good opportunity for us to address it on the significant developments that have taken place on issues in the mobile telephony marketplace. Mr. Fahy and I will give an overview of the Irish mobile telephony market, the dynamics that shape it and the changes that have taken place since October 2003. We will show the committee the results of a pan-European independent analysis of usage patterns and the average cost of calls which highlight Ireland as one of the world's most mobile societies. We will illustrate several pricing initiatives introduced by Vodafone Ireland in the last year, delivering greater value to both pre-paid, bill-pay and roaming customers. We will also outline our new pricing for 3G services which are set to deliver even further value to customers and were launched in Ireland today. We will speak on the work we have done to make our tariff and billing processes more robust and the approach we adopt to customers when we do make mistakes. While mobile telephony delivers many positive features to society, it also generates new risks and challenges. I understand the committee is interested in this area. We will provide a synopsis Vodafone's work in addressing its social responsibilities.

Mobile telephony continues to play a vital role in the Irish economy. This is due to the low penetration of fixed lines, less than 40% of population, and the relatively youthful population compared to the EU average. These factors combined create an environment more disposed to mobile telephony as a form of preferred communications. This in turn benefits the economy as a whole. A recent Merrill Lynch report concluded that in Ireland, mobile communications accounts for 2.2% of GDP, similar to the EU average. The Irish consumer also demonstrates considerable purchasing power; consumer spending is 14% higher than the EU average, with spending on electrical goods approximately 18% higher. The committee will recall how last year we demonstrated that Irish consumers are highly disposed towards new electrical goods. We have the second highest penetration of digital television services in Europe and Sony Playstations in the world outside Japan. We purchase twice as many video and DVD rentals as UK consumers. Such inclination towards electrical and digital goods creates a good environment for the mobile industry to flourish. People are more pre-disposed to new technology in Ireland than they are in other EU countries.

The Irish mobile telephony market is also very fluid and is undergoing considerable change. There are four licensed mobile operators, all of which have network infrastructure. It is expected that Hutchinson 3G will start to provide services during the first half of 2005. Last year, we indicated that the competitive landscape would alter significantly, which has already happened. In September, O2 and Meteor signed a national roaming agreement. Vodafone anticipates concluding a deal with Hutchinson 3G to allow freeze customers full access to Vodafone Ireland's GSM network when they roam out of Hutchinson's own 3G coverage. We are in the final stages of these negotiations, awaiting signature from Hutchinson's shareholders.

The potential exists for six operators in Ireland within the next two years. Why? An additional 3G licence is available and a mobile virtual network operator on the "3" network is an obligation of the third generation licence that it is purchased. Several of the fixed line telephony incumbents have stated that it is their strategy to enter the mobile telephony marketplace. Ireland already demonstrates competition at the high end of Europe. The European average is one mobile telephony operator to every 8.5 million people. In Ireland, with its low population density and extensive terrain required to be covered by a network, the ratio stands at one operator to every one million people, eight times higher than the European average. In a competitive market there always will be winners and losers fighting for market share. One of the slides demonstrates how competitive the Irish marketplace has become. It shows customer movement across the three operating networks over the past five quarters. With full mobile number portability, customers can now more than ever easily move between networks while keeping their original mobile numbers.

A clear patter of intense competitive activity is emerging, particularly as mobile penetration is now nearing saturation in Ireland. In the last quarter, following its coverage deal with O2, Meteor has done better than in any previous quarter, including Christmas 2003, adding 29,000 new customers. Those customers are making decisions based on the offers available at any point in time. Operators are continually trying to meet and beat those offers in order to entice customers to their network. Competitive intensity, already high, is set to increase with the addition of Hutchinson, whose track record on entries to other markets in Europe is one of heavy marketing spend, aggressive handset pricing and heavy minute and text discounting. Things are therefore heating up and will continue to do so.

With penetration rates now hitting the 90% mark, Ireland is now one of Europe's most mobile societies. This is driven in particular by the high percentage of customers who choose a pre-paid option. Indeed, 74% of all Irish mobile customers are pre-paid, which is the third highest percentage in Europe. As well established, Irish pre-paid rates are among the lowest in Europe, which means that our customers in Ireland are getting some of the best deals available.

Given the different requirements of our customers, we have approached price reductions and value offerings on a customer segment basis, with different offers aimed at bill pay, pre-paid and roaming customers. Since October 2003 we have introduced more than 16 new value propositions for our customers. We have been keeping the committee appraised of these propositions and changes and Mr. Gerry Fahy will illustrate some of them.

Mr. Gerry Fahy

Our pre-paid customers have enjoyed a 10% price cut across the board with the introduction of our €22 for €20 offer. This gives 10% extra free to all pre-paid customers who top up with amounts of €20 or more. The extra 10% may be used on any services. Our "Friends for Less" option provides discounts on voice and texts to three designated Vodafone numbers nominated by a customer. Naturally these are the most frequently called numbers. If one considers one's own calling pattern it can be seen that a relatively small number of people is involved. "Friends for Less" delivers savings up to 30% on voice calls and unlimited numbers of text messages to these friends at a cost of 10 cent per message. Finally, our "More to Say" pre-paid tariff allows customers to make three-minute calls at peak times for only 30 cent. Previously, such calls would have cost €1.50.

Our consumer and business customers on bill pay plans have also enjoyed a range of price reductions such as our new "Talk 1000 Weekend" for €8. This rewards high-usage patterns of Irish customers at weekends with rates as low as eight cent for ten minutes, less than one cent per minute. We have spent significantly on advertising to tell our customers about this great deal and an example of that advertising can be seen on the slide provided. We have also introduced a new value text bundle giving 100 texts at a rate of eight cent per text.

At a time when rising costs are a key consideration for businesses we have also introduced a number of tailor-made tariffs with significant savings, to meet the needs of our business customers. Our innovative "wireless office" proposition allows businesses to integrate more closely their fixed and mobile telephony needs. A flat monthly fee includes free mobile national calls between all participating employees of the business. In addition our popular "business contact for free" proposition is now available to self-employed and small business customers. This is free to activate and includes 60 minutes of peak time calls per month to a designated Vodafone number, typically the head office of a business. This represents an average monthly saving to the customer of approximately €11.45.

Last year, the issue of roaming prices was raised by this committee as one it would like to see addressed. At the time, we indicated that Vodafone was working on the issue and was determined to deliver roaming benefits to its customers through leveraging of its global footprint. This year we have delivered on that promise by making tariffs easier to understand and by reducing roaming rates. We have simplified roaming charges, replacing thousands of rates for different call categories with rates for five simple zones. We have been the market leader in this area and have set a trend being followed worldwide. The message is simple. No matter where one is in the world, one can always know what rate one is being charged. These tariffs offer customers saving between 10% and 40% in key holiday destinations on calls made while roaming on Vodafone or party networks, covering some 33 countries in all.

Chairman

Last year, the Vodafone representatives heard the then Minister, Deputy Dermot Ahern, speaking as a Deputy representing Border counties at this committee, express concern about the roaming charges between Northern Ireland and the Republic. Has Vodafone dealt with that issue?

Mr. Fahy

I am coming to that. Just to finish my point, the majority of roaming calls made in Europe were charged at 99 cent per minute and are now charged at 89 cent, a reduction of over 10%. On foot of customer demand and calls from third parties, we introduced an Ireland-wide tariff in January for customers who live close to the Border or who travel frequently across it. For a fixed subscription of €5 per month, all calls made to the Republic while on the Northern Ireland Vodafone network are charged at national Republic rates. Receiving calls by roaming was costing customers 50 cent per minute; these calls are now free. Looking at customer bills in the Ireland-wide tariff, we are delivering savings which we estimate at an average of €39 per month per customer.

In terms of general pricing benefits to all customers, as well as reducing prices as outlined, we have reduced by 33% the weekend rate at which we charge calls for terminating on the Vodafone network. This benefits customers calling from mobiles and fixed lines. Vodafone's programme of price reduction in mobile terminating rates has delivered up to €109 million in reductions since June 2002. This was achieved through commercial negotiation and agreement rather than regulation. In that time, the cost for a fixed line user of calling a mobile has reduced by 21% at peak times. In addition to providing free voicemail to all customers we have slashed the price of picture messaging by 50% to 25 cent to make this service affordable to all.

What has been the net effect of all these pricing initiatives? The graph supplied, based on information published last summer, shows the average cost per minute of a call in markets across Europe as estimated by Merrill Lynch Global Wireless Matrix. It clearly shows that the cost per minute in Ireland is lower than the European average.

Chairman

Was that Merrill Lynch report done for Vodafone or for the industry?

Mr. Fahy

It is a public document.

Chairman

Was it commissioned by Vodafone?

Mr. Fahy

No. It is a public analysts' document analysing the European market for their customers. It demonstrates that the cost per minute in Ireland is lower than the European average — lower than in Sweden, Italy, Greece, Spain, Austria, Germany and the Netherlands, and on parity with the UK. Ireland therefore has fair prices below the European average. Low relative penetration of fixed lines and favourable demographics are resulting in high consumption of services. Ireland has the highest levels of outgoing voice usage per customer in the whole of the Vodafone group's control of mobile businesses. This continued strong voice performance has been stimulated by pricing and using initiatives. We are committed to rewarding customers' usage and stimulating more mobile minutes on our networks. 3G and the broadband capability it delivers will enable us to price voice services even more competitively. Yesterday we launched our new 3G services for consumers and our 3G customers are set to benefit from big savings on voice. Customers can look forward to savings between 10% and 30% depending on their usage patterns. We have introduced two easy-to-understand pricing models which will ensure customers can talk without watching the clock. "Supertime 300" and "Supertime 500" will allow customers to talk longer for less.

Our commitment to 3G is represented through our €250 million investment to date and to Vodafone playing an active part in keeping Ireland at the leading edge in mobile broadband technology.

Mr. Donovan

The Chairman asked us to talk about billing issues. It is unfortunate that billing issues in general dominated the news in Ireland during the summer, and even more so that there were some high profile telecommunications issues in that mix. I would like to address the committee on the specific issues that Vodafone encountered and the approach we adopted in addressing them. In the first of our billing errors, in May 2004, VAT was incorrectly applied to 22,000 roaming customer accounts. The issue was identified in a matter of days, and within 48 hours of doing so, we had rectified it and credited all customers. It was well before most customers had even paid the bills issued to them. In total, €147,000 was refunded to customers with a full explanation. We naturally contacted ComReg and issued it with a report on the matter. A compensatory payment was made to all customers affected.

Chairman

Was it internal auditing or controls in the company that discovered it, or did ComReg make Vodafone aware?

Mr. Donovan

It was a customer querying a bill that alerted us in this instance to the issue and prompted us to examine it much more closely, uncovering the topic.

Deputy Broughan

How far back did the company look?

Mr. Donovan

That prompted us to carry out a thorough internal review of all tariffs and billing during the summer of 2004. In so doing, we identified our second billing issue, which concerned WAP or Internet-based services accessed over the mobile phone. The issue arose from human error in coding on our systems that had occurred over 19 months earlier. That gives members an idea of the timeframe. We evaluated over 500 million individual call records to get to the bottom of what had been going on. That showed that 550,000 customers had been billed incorrectly at an average of 25 cents per customer per month. We discovered that issue ourselves as a result of the internal review.

No customer complaints alerted it to us, and in the light of the discovery we engaged external consultants to verify the calculations and assist us in identifying process improvements to minimise the risks of such errors recurring. As a result, we have made permanent changes to our tariffing procedures. In total, €2.65 million was proactively refunded to the affected customers. As well as contacting those customers, we advised ComReg and provided it with a full report. In addition, a compensatory payment was made to our customers to apologise for any inconvenience caused by the human error in our operations.

Subsequent research revealed that the level of customer satisfaction with our handling of those issues exceeded 90%. However, we draw scant consolation from that finding, since it was a serious issue that should not have happened. We believe that responding speedily to issues and ensuring open and direct communication with customers was key to that level of satisfaction. We have learnt several things from those incidents. First, since we have introduced more innovative products and services, complex billing mechanisms are involved. That provides a greater challenge to the business to ensure that tariffs are both accurate and clear, something to which we are committed. Second, while systems failures and human errors can never be entirely eliminated, good policies and procedures can minimise the potential for their occurrence. Following the recent internal review of our billing processes, we have implemented process improvements that have been audited by external advisers.

Third, where errors have occurred, we always ensure that customers are refunded. We believe that we have demonstrated that through our actions. We are acting in the best interests of customers. As our customer research has shown, after the billing issues arise, there is strong satisfaction with how we handle them, which is helpful to know, though it does not overcome their impact. In the context of being a socially responsible business, we believe that behaving with integrity is central to success. Without the trust of our customers, we have no business.

As I mentioned, while delivering many benefits to society, mobile phones also generate many new risks and challenges, and addressing those with integrity is key to behaving in a socially responsible manner. Our Vodafone Ireland corporate responsibility programme is extensive and built around three main elements: understanding the expectations of stakeholders in society; leading on the issues that affect the reputation of the mobile sector as a whole; and doing it in a way that differentiates Vodafone in its marketplace.

As chair of the Irish Cellular Industry Association, we have led several initiatives, such as the launch of an industry code of practice, which includes ensuring that parents can have dual access to the telephone accounts of their children, and a parents' guide advising parents on mobile services and the pitfalls as well as benefits of owning a mobile. Shortly, the industry will embark upon the world's first content filtering trial as we seek to protect minors from offensive and dangerous content. Our own responsible marketing programme will introduce age verification and access control processes to ensure that only over-18 year olds can have access to over-18 content. We are also committed to educational issues such as mobile phones and driving and addressing customers' health concerns with factual and relevant information.

As a business, we are also concerned with our impact on the environment and have a large number of programmes in place in the areas of energy efficiency, waste management and handset recycling. From a social investment perspective, last year we established the Vodafone Ireland Foundation. To date, we have donated over €1 million to support over 40 projects, including communities across the country. Last year we sent every member of the committee a copy of our corporate social responsibility report, including the targets that we were setting for the year ahead. We are committed to doing the same with our 2004 report.

In summary, we believe that we have shown that mobile prices are decreasing and that there has been a large number of price reductions since we last spoke to the committee in October 2003. We have shown that the average cost per minute in Ireland is below the European average. That is against the background of the company operating with increasing costs. Energy costs between July 2000 and July 2004 increased by 22%. Electricity costs alone have increased by 40% in the last three years. Insurance premia are now 120% higher than in 1998. The cost of postage for all those bills has increased by 17% this year alone. However, in that high-cost environment, the mobile industry continues to deliver cost savings and price reductions to customers.

I believe that we have demonstrated our commitment to customers to behave with integrity when we make mistakes. Where we unfortunately do so, we are committed to addressing matters and refunding customers to maintain their trust. We are committed to such behaviour in all aspects of our business practices, including our extensive corporate social responsibility programme.

In Ireland, there is a virtuous circle of operation in mobile telecommunications that is driving both investment and innovation. Prices at or below the European average coupled with high consumption of services mean that we are investing at a higher rate in infrastructure and innovative services than elsewhere. On 3G alone, we have committed €250 million on the licence and the initial network roll-out, covering over 60% of the population. That investment will ensure that we play our part in delivering the Government's targets for broadband connectivity. The market is competitive, and if a path of light-handed regulation continues to be followed, competition, innovation and investment will continue to flourish.

Chairman

I understand that Mr. Donovan is leaving this country shortly and heading for Europe.

Mr. Donovan

I regret to say that I am.

Chairman

He is getting a bigger job in Europe.

Mr. Donovan

From 1 January, I will be responsible for ten Vodafone operating companies across Europe and the Middle East.

Chairman

We wish Mr. Donovan well in his new employment.

Mr. Donovan

Thank you.

Senator MacSharry

I thank Mr. Donovan for his presentation and wish him the best of luck in his future career. My first question is on pricing. I will refer to an article in The Irish Times of this morning, where it is highlighted that 3G handsets and possibly some services that are planned will be more expensive in Ireland than the UK for essentially the same products. Perhaps Mr. Donovan could tackle that in his new role. Why is this so and why is there one rule for Ireland and a different one for the UK for what is essentially the same service? I do not believe economies of scale account for it. Will he go into more detail on that? They give the idea of the “premiership goals” and also handsets are to be given out free for people to change over or sign up for a service. Meanwhile they will cost hundreds of euro to purchase here.

Mr. Donovan said he was chairman of the Irish Cellular Industry Association, ICIA. In the context of that, what has Vodafone done to try to lead the way as regards the so-called ten commitments that led from the Stewart report in UK which refers to the whole area of the environment? He said his company was fully committed to the environment and had given so many million euro to a number of causes. In the most direct form of helping the environment that it could be involved in as mobile operators, what steps does Vodafone, or the industry, plan in the context of having all the players come together to adopt a ten commitments-type proposal? Could he also deal with the idea of mast sharing, which would be a real innovation in terms of improving the environment?

What is the Vodafone position on competition and the mobile virtual network operators, MVNOs? We know that in 1999 ComReg indicated it was going to take this route. There was a statement concerning a number of companies with significant market power, SMP, and this was to open the door to allow MVNOs to proceed — the likes of Eircom, Access TeleCom and others. What are his views in that context? Does he feel it would increase competition and ultimately bring prices down even further, and perhaps give Vodafone and others the opportunity to outdo their previous best efforts, as regards reducing costs?

Is it Vodafone's intention to challenge in respect of telesonar modems? The EU has ruled that the Finnish telecoms regulator was not to dictate the fact that it was, in fact, an SMP, and as a result this would not allow MVNOs to go ahead.

Chairman

I will hear from Deputy Broughan and we can bank the questions. That will give Mr. Donovan time to reflect on this last important question from Senator MacSharry.

Deputy Broughan

I will insert a few addendums to what Senator MacSharry said about virtual networks. In other countries there appears to be a great deal of competition in the area, as for example, Vodafone's relationship with BT in the UK. Given that this is the case, has Vodafone been approached by any start-up or other telecoms companies inquiring about a virtual network and, if so, what was the response? Mr. Donovan indicated that in the 3G licence area, one virtual operator has to be allowed. Is it Vodafone's intention to facilitate competition to allow a number of operators on to the network, and to do that voluntarily without encouragement from ComReg?

Members of the committee were somewhat stunned last summer to find that, despite the best assurances given to it, Vodafone had not just overcharged one group of customers in June for incorrect VAT on 22,000 roaming accounts, but that it later had a second serious incident. As Mr. Donovan rightly says, it is simply not good enough. People have to depend on the company to get its billing right, on company executives and so on. I know ComReg asked Vodafone at the time if it was prepared to adhere strictly to the code of practice on billing. I wonder where that is at currently, four or five months later. It is serious that tens of thousands of customers unwittingly have been overcharged. Can prepaid customers, who represent the vast bulk of Vodafone business, be absolutely certain that the service for which they have paid in the shop is what they get? Mr. Donovan indicated a customer had spotted the overcharging last June following the incorrect VAT reference. What chance has the prepaid customer in that regard?

I believe Mr. Donovan attended the interesting e-consumer conference in the Royal Hospital Kilmainham and I add my congratulations to those of the Chairman on his elevation within this massive multinational company. We saw a good presentation at that conference about a tariff transparency website which ComReg is working on. It is obviously complex. The number of different tariff element types is striking when one looks at Mr. Donovan's presentation, which even a bill consumer such as myself will find difficult to follow. Does he foresee a situation whereby one can log on to ComReg's tariff website and, on the lines of the Danish model, compare the four operators and see what each has on offer, precisely to the minute, and decide accordingly as a consumer?

There is an ongoing review as regards pricing in the mobile market, the Mako analysis. What does Mr. Donovan think the conclusions of the review will be? We acknowledge the important contribution being made to Ireland's GDP, but note that the two largest companies in particular are extremely profitable. Should some of this profit not be passed back and should prices not be falling much more dramatically than they are, across the tariff range?

There is still a significant issue regarding costs for this service. As Vodafone used to say, "We do like to talk". That is so and obviously the future of the industry, with the development of 3G, etc. is extremely bright, but why should the 3.5 million consumers not get a far better return than they do at present? Will the Mako review of mobile pricing not show that we have been seriously overpriced by Vodafone and others in recent years?

Mr. Donovan

I shall work backwards through the questions, if that is all right. We will cover the full ground. On the question of mobile pricing, one of the issues we had when we came before the Oireachtas committee last October was the presentation of Vodafone internal data and the fact that the committee asked whether there was not an independent study on which it could rely. That is why we have placed the Merrill Lynch study, issued in the first quarter of this year, before the committee today. It demonstrates unequivocally that pricing per minute in Irish mobile telephony is at a rate which is towards the lower end of the continuum for European markets. We hold consistently with this in terms of our overall approach. In my new position, I have the rather privileged ability to consider a range of European markets and internal data entirely corroborate the content of the Merrill Lynch study. Although consumers believe the pricing here is high for mobile use, this is a myth. All the data, including the OECD-Telegen basket data for prepay customers, suggests that prices are among the lowest in Europe in the context of 74% of the market being prepay.

However, as usage is high, the question arises of what effect this has on profit. It is interesting that much recent discussion has centred on the issues raised by the censor in regard to mobile virtual network operators, MVNOs. The chairman of a large Irish company, Eircom, was quoted as stating that it was not prepared to take up the remaining 3G licence or to become an infrastructure-based player in Ireland because the risk was too high for the reward. The simple fact is that investment in new technologies that can create a step change in the availability of broadband in Ireland is risky. Vodafone Ireland spent €250 million over the past two years building out a network that today covers 60% of the population with 3G but it has yet to earn a single cent of return on that. The question of risk and reward is therefore extremely germane.

I alluded to the fact that this virtuous circle of value for money pricing that creates mobile telephony usage at the expense of fixed usage, which then allows further investment, is societally very strong. We are investing more than €3 million per week in capital expenditure in Ireland and the annualised operating expenditure which is injected into the economy is some €500 million per year. The returns we earn against the risk may seem quite high in comparison with more stable industries. However, if one were to compare the profitability of Vodafone Ireland with the market leader in mobile telephony in the majority of European countries, one would find it is at a par.

Deputy Eamon Ryan

With regard to Vodafone Ireland, which is a sensitive company, Mr. Donovan pointed to the example of ten other companies in other small sized markets, whatever about the average of approximately 8 million customers per mobile telephony competitor. Will Mr. Donovan explain why the profits of Vodafone Ireland show a phenomenal return with margins of 36% before tax when the profit levels of its parent company are significantly lower? To what does he attribute his company's success? Is it because its services are cheap and customers therefore use them more often?

Mr. Donovan

The usage of the network per customer in the context of voice is some 45% higher than the average across the Vodafone companies in Europe. Moreover, there is low penetration of fixed line telephones. In Germany, almost 70% of the population has a fixed line telephone whereas that figure here is less than 40%. The young are using fixed telephones but are using mobile telephones as their preferred form of communication.

Deputy Eamon Ryan

Vodafone Ireland's main competitor is likewise well above its international sister companies in terms of profit levels. Would it be strange for a company in this industry to decide to lower prices further to win a larger market share and become even more profitable on that basis?

Mr. Donovan

We have lowered our prices. Mobile telephone prices have fallen by more than 40% in real terms in the past four years and will continue to fall. Prices continue to come down, mobile growth continues to accelerate in terms of usage of new products and services and investment goes into the infrastructure in Ireland at a level per customer which is unprecedented in other European countries.

Deputy Eamon Ryan

If there is any unprecedented point in this regard, it is the level of profit. I do not know of any other industry which earns 36% profit.

Mr. Donovan

If one undertakes an analysis of a basket of the leading mobile operators in the majority of markets across Europe, one will find the profit levels are commensurate with those achieved here.

Senator MacSharry

What Mr. Donovan has just stated highlights that the risk versus reward factor is not that significant. The level of usage here is such that we can be reasonably sure the public will engage in 3G or new products or services, as Mr. Donovan stated. I have no issue with the level of profits and hope Vodafone Ireland doubles its profits, provided it gives value for money and that consumer prices are reduced. It is reasonable that the level of usage earns Vodafone Ireland more money. However, the risk versus reward is not that great, as Mr. Donovan stated in the context of MVNO. If Eircom has an issue in regard to building infrastructure, that is its problem and a matter with which the committee is not interested. The risk versus reward factor has paid significant dividends for Vodafone Ireland and is not an issue.

Mr. Donovan

The profits achieved to date and referred to by committee members relate to the 2G business which is now giving way to the 3G business. Since the inception of the business, Vodafone Ireland invested over €1 billion in terms of network infrastructure. We must now repeat this in the context of a new array of broadband services for which there is unproven demand and unproven return.

I am minded of a conversation with the former Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern, when Vodafone was going through its month-long deliberations on whether to take up the 3G licence, having been awarded it. I told the Minister we were very concerned with the balance of risk and reward with regard to 3G but that, as the leading mobile operator in the Republic, we felt it our duty to the infrastructure of the State to go forward with the investment. Although Ireland was one of the last markets in Europe to issue the 3G licence, it was one of the first markets in Europe and Vodafone Ireland was the first company in Ireland to launch 3G.

Deputy Broughan

We were also one of the few markets to get peanuts for 3G licences due to Government incompetence.

Mr. Donovan

On the boardroom wall at the Vodafone offices, there is a photocopy of the cheque for the 3G licence. Any sum in excess of €100 million can hardly be described as peanuts, but it is only part of the equation. The question is not whether one bought the licence but whether one is building the infrastructure which supports it. We have been far more aggressive than any of the other companies which were awarded the licence and are in the market offering 3G services, which is highly positive. The feedback from our business customers who have used 3G data cards in their laptops since the middle of the year is that this is a business transforming technology in that it frees people to do new things.

Chairman

To clarify matters, ComReg stated in a press release of 5 November that it had launched an initiative to ensure greater transparency for consumers and requires the full support of the industry to complete this task as a matter of urgency. Is Vodafone Ireland co-operating with ComReg in this regard?

Mr. Fahy

Yes, we are working with ComReg on that issue.

Deputy Broughan

When will the website be ready?

Mr. Fahy

That is an issue for ComReg. We are currently in receipt of a request for discussion on the issue and have responded to that, outlining our views on how the website should be constructed. Clearly, other operators may have other views. It is a complex issue because there are prepay and post-pay customers, business customers and other consumers. How to make this simple for customers is a challenge and at this time we are all offering our initial views to ComReg in the form of an internal industry consultation.

Chairman

Representatives of ComReg have not been asked to appear before the committee today. We are waiting until January or February to give them time to consider and respond to the presentations made today by the three mobile operators. They are also completing some analysis of other matters, which they wish to present to the committee.

Senator MacSharry's questions were not answered but we will get to those presently. While Mr. Fahy is addressing those, Mr. Donovan might consider the points made by Deputy Eamon Ryan. How can Vodafone be attaining an average revenue per user, ARPU, of €305 in Germany, €360 in Italy, €400 in Spain and €454 in the United Kingdom, while the corresponding figure for Ireland is €596? Vodafone beats O2 in this regard as, according to press reports, the figure for the latter is €560. The committee will require clarification of this figure as one cannot believe everything that is written in the press. It is important that Mr. Donovan should address this issue after Mr. Fahy has responded.

Mr. Fahy

I have a number of questions from Senator MacSharry. I understand he referred to the article in this morning's edition of The Irish Times?

Senator MacSharry

Yes.

Mr. Fahy

Unfortunately, that article does not compare like with like. It reports a proposition which is the same handset but is only available if one applies on the Internet. If one goes into a Vodafone shop on the high street one will pay something between £50 and £100 sterling for that product.

Senator MacSharry

Will I get the other handset free?

Mr. Fahy

No, a customer will get this product free if he or she applies on the Internet, is an older holder of a bank account, conforms to a number of restrictive requirements and is prepared to pay for customer care services. It is quite a limited proposition.

Senator MacSharry

If it costs £100 sterling in the shops, that is significantly higher than the £71 sterling cost in the UK.

Mr. Fahy

There is a price difference. Differing market dynamics are an issue. The newspaper also reported that we charge €9.99 for Football Association Premier League, FAPL, monthly downloads of Premiership goals. The price for this service in the UK is approximately €7.50. We have to install the same equipment in Ireland to provide that service. We serve 1.8 million customers while Vodafone UK serves some 15 million customers. The latter enjoys much greater economies of scale, therefore, in regard to this service.

The newspaper article failed to report that for the same service package in Ireland, text messaging rates are 13 cents while they are 17 cents in the UK. Our service is 32% cheaper, therefore. Likewise, we charge 25 cents for picture messaging in comparison to——

Senator MacSharry

However, we are not comparing like with like, as Mr. Fahy observed.

Mr. Fahy

That is precisely the case. I am merely pointing out that if these figures were also reported today, we could show that Ireland is 106% cheaper for picture messaging.

Chairman

Who wrote the newspaper article? I have not yet read it.

Mr. Donovan

It was written by Mr. Jamie Smyth.

Mr. Fahy

The article does not compare like with like. There were a number of differences between the tariffs.

Senator MacSharry

We can look forward to another meeting with the delegation within the next 13 months. By that time, will it cost no more than €7 to access the FAPL service?

Mr. Fahy

Given that we do not enjoy the same economies of scale as the UK market, I cannot offer such a commitment.

Senator MacSharry

Does Vodafone UK enjoy the same profit margins as its counterpart in Ireland?

Mr. Fahy

They are different markets. As Mr. Donovan observed, the dynamic in the Irish market is changing and will continue to do so. Currently, there is no charge for the first three months when customers sign up for third generation, 3G, services.

Senator MacSharry

Is it a case of "We can, therefore we will"?

Mr. Fahy

No, it is not. It relates to the cost of providing those services. I have dealt with Senator MacSharry's question on this issue.

The Senator also raised the matter of the Irish Cellular Industry Association, ICIA, and how Vodafone Ireland is leading the way in terms of our commitment to protecting minors and others from inappropriate content. We are working closely with other operators to evaluate technologies for screening of unacceptable images.

Senator MacSharry

That is not the question I asked. Is Mr. Fahy familiar with the ten commitments in the UK?

Mr. Fahy

I am familiar with them only in regard to energy.

Mr. Donovan

Senator MacSharry is referring to the Stewart report, which relates to health issues.

Senator MacSharry

It relates to health, the environment, mast sharing, planning and other issues. What has Vodafone Ireland done, given its leadership role in the ICIA, in terms of adopting that report here? Given that it will take some time to get pricing on a par with that in the UK, it seems likely also to take some time to get leadership in terms of the environment through securing a ten commitments-type scenario between the mobile operators. I asked specifically about mast sharing. I did not ask about imaging.

Mr. Fahy

I apologise for misunderstanding the Senator's question. On mast sharing, we have signed up to a commitment regarding our 3G licence to provide access to our masts to 3G entrants into the market. That is a signed commitment with ComReg and we are honouring it.

Senator MacSharry

Will the ICIA be used to bring all the mobile operators together, given Vodafone's chairmanship of the body, in an attempt to secure a ten commitments-type scenario in terms of mast sharing and many other issues? Such a strategy should include an engagement with this committee to facilitate the transfer of information regarding correct sites format, the minimum number of masts for maximum coverage and so on.

Chairman

The Senator's question may not be appropriate to address to Mr. Fahy.

Senator MacSharry

I pose this question on the basis that it may be 13 months before the delegation again comes before the committee. It is worth touching on this issue.

Chairman

Perhaps we should engage directly with the ICIA in pursuing such issues, rather then questioning individuals who are members of the body.

Deputy Broughan

Senator MacSharry asked about mobile virtual network operators, MVNOs. This question has not been answered. We are familiar with the famous initiative of Sir Anthony O'Reilly.

Mr. Donovan

We will get to that topic as we move through the issues one by one. When the 3G licences were offered in Ireland, there was an A licence which carried an obligation to offer MVNOs to third-party networks. The B licence carried an obligation to offer national roaming on the licensee's network to a new company entering the market. We unsuccessfully bid for an A licence, which was priced at a significant discount to the B licence. The A licence was achieved by Hutchinson Whampoa, which therefore carries a regulatory obligation to open its networks to MVNOs.

Our obligation is to offer our 2G network for roaming to enable a new entrant with only a partially built 3G infrastructure to access the market. We have aggressively pursued this obligation and are very close to signing contracts with Hutchinson Whampoa to allow it to do so.

Although we have no regulatory obligation to offer MVNOs, we have been in discussion with a number of parties which demonstrated interest in this area. However, none of them has yet come forward with a business——

Chairman

Rather than teasing this issue out for too long, perhaps we should——

Deputy Broughan

Competition is an important issue.

Chairman

I know it is.

Deputy Broughan

I should like Mr. Donovan to be allowed finish his point.

Chairman

Mr. Donovan should cut to the chase.

Deputy Broughan

He is doing so.

Chairman

As Deputy Broughan asked, is Vodafone for or against sharing its network with MVNOs?

Mr. Donovan

We have no objection to opening up our network on appropriate commercially negotiated terms with a third party. Such an arrangement should make sense for our business. This has always been our position on the issue.

Chairman

Does Deputy Broughan require any further clarification of this matter?

Deputy Broughan

No, that is fine.

Senator MacSharry

Will Vodafone Ireland challenge in a manner similar to that which evolved in the Finnish scenario?

Mr. Donovan

I understand Senator MacSharry is referring to the market study and recommendations around access and origination which may result in a requirement to open up one's network. It is difficult for us to say whether we would challenge something until we have seen the issues that we might be challenging. This matter is somewhat in the abstract, therefore. In principle, having signed up for a licence with a particular set of conditions, we should be allowed to present such challenges on a commercial basis and not have the terms of access to our network determined by a third party, when there is another network which has already been mandated to open its network to further competition.

Deputy Eamon Ryan

We do not wish to discuss particular companies but, unfortunately, it is a small market. As a humble customer who pays monthly mobile and wireless broadband charges, it seems that the integration of at least two of those services, wireless and fixed line, would represent a significant step forward.

Vodafone has an obligation to open up the market. Surely this is a natural opportunity for any company looking to get into the market. Is Vodafone concerned that this presents a significant advantage in that a competitor could integrate mobile and fixed line bills? I could have a phone for use at home on a fixed line and outside as a mobile. The market will be skewed because there are different licences. The 3G companies have a joint roaming agreement. Vodafone cannot restrict access to its network given that it has such an agreement with other 3G suppliers.

Mr. Donovan

The Deputy made a good point regarding the future potential for fixed and mobile convergence. This has been a subject of much debate and development over the past ten years. There has been talk of a Holy Grail of fixed and mobile convergence for as long I have worked in both businesses. There is no convincing demonstration of a convergence which delivers incremental value to customers. It does not pose a threat to the mobile phone business in Ireland in the short term. If somebody believes there is a significant opportunity to converge fixed and mobile lines, they can buy a licence and build the required infrastructure. They would accrue significant economies from so doing. On the other hand they could strike a commercial deal with one of the mobile phone operators. Both the principal operators in Ireland stated that piggybacking someone else's network is a much less risky strategy than building one from scratch. Vodafone has taken the view that building one from scratch is the way forward for our business and industry.

Senator Finucane

Mr. Donovan said competition will encourage further sales. Vodafone and O2 have approximately 94% of the market, and Meteor has approximately 6%. Eircom sold Vodafone in 2001. Recently, newspapers have reported Sir Tony O'Reilly after shareholders' meetings as saying it is anxious to get into the mobile phone market. Vodafone and O2 operate independently. It was recently reported that both O2 and Vodafone wanted to charge 70% of their retail rate charges to Eircom if the company wished to avail of their wholesale tariffs and piggyback on either network to get into the marketplace. I was surprised by the uniformity of70%. Can Mr. Donovan comment on the validity of the matter?

He also said revenue per minute in Ireland is below the European average. Mr. Donovan was before this committee on a previous occasion, together with other network representatives. The committee asked for the average per minute price in other countries, but the companies regarded the information as confidential. We are asked to accept the merit of Mr. Donovan's assertion that revenue per minute in Ireland is below the European average. However, we have not seen any tangible proof because he has always been secretive with regard to that type of detail.

Vodafone bought a licence in 2001, and good luck to them. However, Ireland has been bountiful to the company. Perhaps we talk a lot more than our European counterparts. The average return for Vodafone is much greater in Ireland compared to Germany, Britain or any other European country.

Chairman

There is a vote in the Dáil. Is it agreed that Senator Finucane should take the Chair?

Deputy Eamon Ryan

Can we pair off?

Chairman

We cannot unless we are told. We will finish our discussion with Vodafone, and then ask the representatives from Meteor to come in.

Senator Finucane took the Chair.

Senator Kenneally

I congratulate Mr. Donovan on his new position. Most of the questions I wished to ask have already been raised. The Minister mentioned roaming in connection with Northern Ireland and Mr. Donovan responded that for a €5 per month charge one can make calls in Northern Ireland. There are ten Vodafone companies throughout Europe. Border cross-overs must occur between other countries also, perhaps between France and Germany, or France and Spain. Does a similar situation operate there with regard to roaming? Somebody on one side of the border must have been caught for roaming charges on the other side. Has Vodafone come to an arrangement in these countries, and if so, what costs are involved?

Deputy Eamon Ryan

I must go to the Dáil for the vote. I will see Mr. Donovan's answers to my questions in text form later. How many full-time employees does Vodafone have? What is the company's actual capital investment in the network each year? Mr. Donovan said 3G data cards have received much initial support. Will the first major market for such products be in the data area? Will 3G have replaced 2G in five years' time as the everyday mechanism for voice mobile?

Mr. Fahy

With regard to media reports about offers made to a fixed line operator, I am not aware of the source so I cannot attest to their veracity. The A licence was the cheapest of the 3G licences. We made an aggressive bid in terms of a retail minus figure. We offered more than a 50% reduction on our retail rates as part of our commitment to win that licence. We failed to win the cheaper licence and had to pay for the most expensive one without that obligation. Where opportunities exist, we are prepared to go to 50% plus in order to secure a deal. Figures quoted in the paper are probably speculative.

We have provided the committee with an objective measure of price per minute. Operators face a difficulty in terms of the commercial issues involved in revealing price per minute. It is an advantage to know one's competitor's price per minute. That is why we sourced an independent report from Merrill Lynch, the most reputable company in its industry. We provided an objective report and analysis of price per minute in the Irish market compared to European markets.

Mr. Donovan

With regard to the issue of roaming, the situation in Northern Ireland is unique in Europe. It is part of another country and surrounded on three sides by sea. The Border area is easy to manage and the commercial issues relatively easy to contain. There are a number of other markets where the question of cross-border mobile network interference causes issues. I was in Albania yesterday discussing the cross-over between Greek and Albanian networks.

Senator Keneally

I am talking about a situation where Vodafone is involved in both regions.

Mr. Donovan

The Vodafone world tariff, outlined by Mr. Fahy earlier in the presentation, provides lower costs to customers as they roam from one country to another. Between Vodafone subsidiaries and partner networks, there are 33 operating companies worldwide. If one hops from one to another as one travels one will enjoy lower tariffs. However, the reciprocal arrangement that exists with Northern Ireland, where there is no mobile terminating charge for receiving calls when travelling, is unique and beneficial to Ireland.

Senator Kenneally

Does Vodafone operate in France?

Mr. Donovan

Vodafone enjoys a minority stakeholding in a company called SFR in France.

Senator Kenneally

I presume Vodafone is operating in Germany.

Mr. Donovan

Vodafone is in Germany.

Senator Kenneally

Along the border area there, does the same situation not arise for the company?

Mr. Donovan

I cannot really comment on that because I do not know the specifics of any cross-border issue that exists between France and Germany. The only thing I can say is that there were particular commercial and operational issues that were relevant to Ireland and we responded wholeheartedly to them, as the Senator has seen.

Senator Kenneally

Is it the case in that border area that the company has no tariff in place, namely, that the €5 charge in respect of roaming does not apply, unlike here where such a roaming charge applies? I accept that Mr. Donovan may not be in a position to answer that question.

Mr. Donovan

The situation which pertains in Ireland is beneficial to a degree that does not exist elsewhere.

Vice Chairman (Senator Finucane)

In respect of roaming charges, Mr. Donovan expanded on that and said there have been positive developments in the North of Ireland and in other situations. Have mobile phone operators done enough to communicate to their customers the cost of making calls and sending text messages in other countries? There is also the cost of inputting calls from home which, depending on the country where one is, will not transfer to one's phone. It is frustrating when one returns home to hear that there are no messages on one's phone when one knows that one has received calls from a number of people. Do you think there is a need to communicate information on this area to the customer?

I am a Vodafone subscriber and recently my phone bill sky-rocketed as a result of being abroad, yet I thought I used my phone very little except to send a few text messages and to make the occasional call. I am still confused when I try to ring the operator for assistance. Would the availability of more information on this area be useful? We know the holiday destinations that are popular and the telecommunications companies with which there are associations. The customer and the consumer should know the associated costs involved.

Mr. Donovan

This subject was raised at our meeting a year ago and it is one we took seriously. The roaming charges which exist from one country to another are set by what are called interoperator tariffs. They are effectively a wholesale deal which is done from one company to another. A company like ours would have 170 or 180 co-respondent relationships. With the introduction of our world tariff, we sought to introduce a concept of five zones around the world. We spent a significant amount of money advertising this facility to customers so that there would be simplicity and transparency about what it costs to make calls when a customer travels to one of those zones. That has gone some way towards continuing to educate our customers.

Equally, members will be aware that Vodafone and other operators have physically placed people in airports at busy times of the year to hand out leaflets which explain how roaming works and what people need to understand about that facility. This is a continual process. Educating customers on all aspects of the complex area of mobility is extremely important and we continue to do this. The landscape is significantly more transparent and much simpler than it was a year ago.

Vice Chairman

You have given a comprehensive presentation to the committee. You said you have been relying on advertisements to communicate this information to the public. Many people who use mobile phones probably do not read those advertisements in the newspapers. Surely it is possible to produce a little booklet that the company could issue with a monthly bill explaining about roaming charges and associated costs in different countries. That would represent far more effective communication because people would retain such a booklet.

Mr. Donovan

Those materials have been made available, are available on our website and are constantly updated. We will continue to work on this.

Vice Chairman

I am talking about a little booklet.

Mr. Donovan

Point taken. I hear the Chairman.

Vice Chairman

There is an assumption that everyone gets on to the website and reads advertisements in newspapers, but a simple little booklet would work. It would be worth producing given the scale of the market the company has here.

If there are no further questions, I thank Mr. Donovan and Mr. Fahy for their contributions. Did Mr. Donovan answer Deputy Eamon Ryan's questions?

Mr. Donovan

Deputy Ryan's asked the number of full-time equivalents in the business. There are approximately 1,400. He asked about our capital investment each year. This is not a number we are permitted to disclose by the Vodafone disclosure committee. However, I can say with confidence that it is significantly in excess of €3 million a week. That gives the committee a ballpark figure.

On the question of whether 3G will drive up the sales of data products, the answer is that it will. The launch of the mobile data card for business customers has been seized upon by people who were previously struggling with low band width connections to manage their business processes. On the question of whether in five years' time 3G will replace 2G, the answer is largely. By that time 3G will largely have superseded 2G in the marketplace.

Vice Chairman

I thank Mr. Donovan for that.I now welcome the representatives of Meteor, namely, Andrew Kelly, Cliodhne Whelan, Tony Stewart-Lord and Robert Mourik. I draw attention to the fact that members of this committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I advise members that the format will be a presentation followed by a question and answer session. Would Mr. Kelly like to commence?

Deputy O'Flynn took the chair.

Mr. Andrew Kelly

On Meteor's behalf we are happy to be here today. We view this as an excellent opportunity to bring the committee up to date on our increasingly successful efforts to introduce more competition into the Irish market. I will introduce the team. My name is Andrew Kelly and I am the director of regulatory and corporate affairs at Meteor. I am also the director of public policy at Western Wireless International, which is the owner and 100% shareholder of Meteor. I am accompanied by Cliodhne Whelan, our chief financial officer, Tony Stewart-Lord, director of information technology, and Robert Mourik, our regulatory and public policy manager. This team is designed to anticipate and to be capable of answering in the best manner possible any questions members may have.

I understand from the invitation that the committee's specific interest today is in billing practices and call charges. I am sure members will agree that both are central to the debate as to whether the Irish consumer is paying too much for mobile calls and whether there is sufficient competition in the marketplace. Recent media coverage of episodes of incorrect charging and billing errors may be uppermost in the minds of members.

I would like to outline our approach to billing and in particular to billing accuracy. It is important to state clearly that we strive to achieve complete billing accuracy at all times and we support this idea by putting in place and maintaining all the necessary human and technical resources. Committee members will have noticed that we are not one of the companies that have featured in the media reports in recent months with regard to billing mistakes. Nonetheless, we are not complacent about this. We know that mistakes can and will happen and we must be realistic in pointing out that human error can occur and technology can go wrong. In simple terms, mistakes are made.

However, that is not the issue. The issue is how we check to ensure we catch errors, how we react to them and correct them and what safeguards are in place to ensure there are no deliberate errors or deliberate overcharging. On this point, I can assure members there has not been, there is not now and there never will be any deliberate overcharging by Meteor at any stage. This is a company with the highest ethical standards and we follow rules that are in place to ensure the highest standards of honesty and corporate governance.

There are a number of procedures and processes in place to ensure the veracity and reliability of our billing systems. In line with a request from the chairperson of ComReg, we recently reviewed both our billing systems and our procedures. The results of these reviews have been positive and we are confident that the procedures and processes we have in place are sound and robust. We are equally confident that the potential for any incorrect charging has been reduced to the absolute minimum. We constantly review our billing and monitor our systems in line with internal procedures.

To expand on some of those procedures, one of the most recent was the introduction of the Sarbanes-Oxley legislation in the United States. As part of the Western Wireless group, Meteor is obliged to comply with the stringent requirements of this legislation. Nine areas deal with billing accuracy, which ensures that we comply with legislation that demands that the possibility of financial mis-statement of our assets and liabilities is eliminated through independent auditing and control of all internal business processes and systems. Tests are conducted internally and independently by Western Wireless and by our auditors on areas including billing accuracy and rate plan compliance.

Chairman

Is ComReg aware of this legislation?

Mr. Kelly

ComReg is aware of it and is aware of everything we are telling the committee today. We wrote to the chairman and outlined what we will say.

Chairman

Is there a model to follow?

Mr. Kelly

Yes. When a new system or a major upgrade is made to a current system, a definitive project plan is put in place for the change. This includes tariff testing. This testing includes checking the actual published rates versus the billing rates on the system after the change is made.

An internal policy, including sign-off procedures, exists whereby only authorised personnel have access to change the tariff rate tables. When we introduce new tariffs or call rates, our commercial department produces a document with the proposed tariff changes and a senior management team approves it. It is this document alone that is used as a single source for all tariff changes on systems and for the production of all marketing material and our website. Once the tariff change has been implemented our finance department carries out tests to ensure we are charging correctly.

Test calls are carried out whenever a new tariff is introduced, where there is a tariff plan change or an upgrade is made to the relevant systems. These call tests contain a comprehensive listing of all call parameters and risk areas are prioritised so that call tests are performed more frequently to address higher risk areas. Post-paid test calls are checked to ensure they are billed correctly in the billing system. Prepaid test calls are checked to ensure that credit is decremented correctly as the test calls are completed. Both post-paid and prepaid calls are also compared with all marketing collateral, including brochures, the website and advertising.

For international roaming, each operator must produce an international GSM association pricing document. When a new roaming partner is signed up, a number of industry approved tests are carried out. When these tests are complete, tariff introduction takes place. For Meteor subscribers abroad, we compare the pricing in the roaming partner's document with the actual charge records received from the foreign operator. If there is ever a roaming tariff change, the operators are obliged to send out an international operator tariff notification. This document is used to inform all our roaming partners of our updated changes. We use a roaming clearing house here and our records are checked again against the original document and any incorrect files are rejected. We have had no rejections for this reason to date.

Meteor has invested heavily in both its network roll out and its systems and technology over the last year to ensure the best quality network service to customers. This investment includes a major upgrade to our billing system that we expect to complete in the first quarter of 2005. A major review of the charging and billing processes will be completed as part of this project.

Mistakes can and do happen. However, we do not believe there is any deliberate overcharging. There is certainly none on the part of our company and we do not believe there is evidence to suggest there is deliberate overcharging in the industry in this country. Mistakes can happen. To deal with our customers on these issues, we offer free customer care, 18 hours per day for the 365 days of the year. All queries are treated immediately and they are investigated thoroughly. Where there is a doubt about whether a system error may cause overcharging, we either give the calls away free or we deliberately undercharge for them to ensure the customer is not charged too much.

Looking to the future of call charges, I will bring the committee up to date on developments since we were here last year.

Chairman

There will be more votes in the House later so the committee is under pressure. Can you give us the ARPU for your company? I do not see it in your submission.

Mr. Kelly

The ARPU is not released by Western Wireless International. The figure is not released because it is subject to the Securities and Exchange Commission rules in the United States. I can tell the committee, however, that it is significantly lower than the ARPU of both Vodaphone and O2.

Chairman

Did you give us those figures last time?

Mr. Kelly

The figure we gave the committee last year was one we had been given the permission of the shareholder to provide. We can seek that permission again, if you wish.

Chairman

You can seek that permission from your company?

Mr. Kelly

Yes, from the shareholder, Western Wireless.

Chairman

Can you not help us today? I am trying to complete the graph. We have Vodaphone at 596 and O2 at 560. I am missing the figure for Meteor. It is like a jigsaw puzzle. If we had that piece, we would know what are the differences and who is making the money. Your company is losing money, according to a newspaper I read recently. I hope the company will be in profit soon.

Mr. Kelly

It is true we are losing money but we are investing heavily in the company. We are not as yet at the stage where we have lost money for too long. We are still progressing according to our five year and ten year business plans. With regard to the ARPU figure the committee has, until this week we have only been operating in the prepaid market and not in the post-paid market.

Chairman

It is the prepaid one we are seeking.

Mr. Kelly

Our prepaid ARPU would not equate with the ARPU numbers you have from Vodaphone and O2, which would be blended. They would be figures for both post-paid and prepaid.

Chairman

So you cannot help us today, Mr. Kelly?

Mr. Kelly

At this point today, I cannot give the committee that figure.

Chairman

All right. We will continue.

Mr. Kelly

I will bring the committee up to date on developments since we were last before it and look at the potential for competition in the year ahead. The Chairman is, correctly, interested in ARPUs. We are interested in tariffs. We are particularly interested in the fact that post-pay account users, business users and personal users in this country still pay too high a bill on a monthly basis for their mobile telephone calls. The complaint is that there is insufficient competition in the marketplace. That was a relevant complaint a year ago. We believe we are delivering that competition. We have started to deliver it and we not just saying we will or we could.

In the past year we have made a major investment in our network, our systems and in marketing. That investment will continue in 2005. We have had an aggressive roll out since March. A total of 250 new base stations have increased our geographic coverage, improved the depth of coverage and improved the quality and reliability of our service. We expect to have our own full coverage in 2005 and 2006. We had a national roaming deal with O2 in the meantime, which brought us to that stage in our development a great deal faster and allowed us to compete on an equal basis with the big two operators.

Chairman

I have been looking through the transcript while you were speaking. The figure you gave us last year was 330 APRU, compared to the other two companies, at 552 and 542. Will I write in 330 here so that we will have some idea when we are talking to O2 later on?

Mr. Kelly

That figure was accurate at that time.

Chairman

All right.

Mr. Kelly

Our prices have reduced since then.

Chairman

I have some figure and I have filled in the box.

Mr. Kelly

Our investment continues throughout the country. We have a major investment in retail outlets. Tomorrow we will announce that we are moving into Grafton Street. We are the first non-multinational to do so in some time. We will also be opening new stores in Cork and Limerick city centres. We aim to meet and beat the quality standards necessary for the post-pay business market.

Number portability was one of the most successful moves within the Irish market in lowering the barriers for customers to switch. The committee may be interested to know that Meteor gains four customers for each one that it loses to the other two networks. That is, quite frankly, a decision of consumers to vote with their feet and move to a network that is providing them with the competition they require.

Mr. Donovan said earlier that prices have fallen and he is correct, but prices have fallen because we have caused that to happen. We have had a strong performance in the third quarter this year due to the introduction of national roaming. National roaming is already having a significant impact on our performance in the fourth quarter this year.

A Senator mentioned earlier that our market share might be about 6%. At the end of the third quarter it was over 7% and it will be between 9% and 10%, on target, by the end of this year. We also have strong projected growth in 2005.

There were some questions earlier about transparency, pricing, how consumers compare, and also about the ComReg website. We produced a number of initiatives. One is what we called a wheel of truth, which we can offer to members now. It will show each of the members of the committee how they can easily compare their prices and save 69% — that is a considerable amount of money — on their mobile phone bills. This is a pre-paid initiative.

Members referred to the website. This type of tariff transparency is already available on the Meteor website. Indeed, we co-operated with ComReg and members of staff there in demonstrating how that model of website was developed.

We have introduced significant competition in the pre-paid market, so what was the next step? Our biggest impediment for growth was the fact that we had no national coverage. At the same time, the only barrier to effective competition was the very same thing — the fact that Meteor, as the third operator, had no national coverage. We came to this committee a year ago and said that the answer was national roaming. We know the committee took that seriously and we did get national roaming.

We have a commercial agreement with O2, which has taken away the negative perception that existed with regard to our ability to compete. From the start of September when we introduced national roaming and national coverage through a high profile marketing campaign, we have had a significant positive impact, both on competition and on our market share. National roaming started to work straight away. It did exactly what we said it would do.

In the graph, members can see what occurred after the introduction of national roaming and national coverage in September. Any sales and marketing manager would be delighted to see a line like that, rising rapidly. That is the switch to Meteor by customers in a highly penetrated market now that national roaming has been introduced. Typically, sales for December would be 1.5 times or more stronger than in October or November and we expect that trend to continue.

Looking at the growth of Meteor's share of new additions, let us look at the publicly quoted figures for all three of the operating networks for the third quarter of this year. They are rounded off slightly but Vodafone had 9,000, O2 had 30,000 and Meteor also had 30,000. That is, 30,000 out of a total of 69,000 new customer additions came to the Meteor network. Committee members can probably do the maths themselves — it is a pretty high percentage or market share of new customer additions for Meteor.

Fourth quarter figures to date are showing even stronger sales growth.

Chairman

Could we move on to the end?

Mr. Kelly

Yes.

Chairman

I have read through everything here and I know the members have a number of commitments in the Chamber. The Opposition is hostile today, whatever is wrong with them, so the Government Deputies are on red alert. Could you move along to the second-last slide, please? Maybe you could summarise the market access and the second-last slide which deals with the MVNOs.

Mr. Kelly

Market access was raised by a number of committee members. It is obviously something that is uppermost in people's minds with regard to the introduction of competition, particularly in the post-pay market because there has not been sufficient competition in that market. We did say that national roaming would bring about competition in the post-pay market. We started that this week. We did not wait until next year or half way through the year; we started it this week with a new offer in the post-pay market that reduces prices by 37%. In anybody's language, a 37% reduction is strong.

It is worthwhile comparing. I will not go through the detail but members of the committee can see on one of the slides — because it is of interest to them — how well our post-pay rates compare with other countries. We are not only bringing down prices, we are also bringing them down to levels that are at or below what is being charged in other European Union countries.

Chairman

Is that figure per month? I cannot read it properly. Is that "Ireland, €60" and you have Vodafone below at €96.80. Is that it?

Mr. Kelly

It is €96.80 in Ireland, yes.

Chairman

And yours is €60?

Mr. Kelly

Including VAT.

Chairman

Including VAT, and €96.80 for Vodafone, including VAT. Is that the post-paid offer?

Mr. Kelly

That is the first post-paid offer of many. I know you are interested in competition and the MVNO issue, a Chathaoirligh. Basically, what we need to look at here is whether or not market access is a problem. Do we need more competitors or do we need more competition? "3" is about to enter the market in 2005 with a national roaming deal. The fourth licence, as has already been stated, is available. There is sufficient 2G and 3G spectrum available. There is nothing prohibiting Meteor from offering or concluding an MVNO deal with another operator in this country, apart from the fact that currently we cannot negotiate a commercial deal. We have met a number of companies and have not been able to negotiate a deal that would be commercially viable and acceptable both for Meteor and for the other company. In part, that is because there is the potential threat of an MVNO mandate on the Vodafone and O2 networks from the regulator, ComReg. I am afraid that perhaps some companies are holding that in their hands and suggesting they will get the deal they want from the regulator if they cannot get it from the networks.

Chairman

If ComReg mandates the operators to implement the MVNOs, are you saying that your company would have no difficulty with that?

Mr. Kelly

No. I am saying we have no difficulty with MVNOs in the marketplace. We think they are probably, as in other countries, best placed on the networks of the smaller operators, such as Meteor and "3". The latter company will have an MVNO on its network. The plans by ComReg to mandate an MVNO on the Vodafone or O2 network will not increase competition. It will not bring down post-pay prices or the cost of mobile calls for business users and monthly bill users. That will not happen. What will happen is that at some future stage there may be another operator on the Vodafone or O2 network that will compete in the small area of the pre-paid market that is currently occupied by Meteor.

Chairman

Will Meteor work with such a direction if ComReg mandates it?

Mr. Kelly

It would be a mandate for O2 and for Vodafone, not for us. We will strive to bring competition into the marketplace. I know the Chairman said he would not ask ComReg to come back until January or February when it had completed its market analysis, but there are perhaps some questions he could ask it now such as what the end result of its market analysis will be. If the end result is to bring competition into the prepaid market where competition already exists but not to bring it into the post-paid market — a MVNO mandate will not do that — what is the point?

ComReg had a remedy which was national roaming. It is in place and it is working. On the back of that, we are now bringing the competition to the marketplace which it requires. I am not saying that because I want to be protectionist. We are not trying to bolt the stable door. We are just being realistic and realism means that competition must be across the entire market.

Deputy Durkan

I apologise for being absent but the Order of Business clashed with the meeting. One of the main issues from the consumer's point of view is to see the results of competition. The result of extra competition, if it is genuine, should be a reduction in the prices paid up to a certain point because providers must be viable. What does Meteor see as the degree to which competition is benefiting the consumer in both markets? In one of those markets, we have the second most expensive service in Europe, which raises questions. When people from outside this jurisdiction look in, they say it is a very lucrative area, that the return on investment in mobile telephony is very high and that profits are very high and are recorded as such on a fairly consistent basis. How does one answer those queries? Having regard to what Mr. Kelly said about the prepaid and post-paid, I know there is a difference but the fact remains that those outside this jurisdiction looking in will say there is a very lucrative mobile telephony.

Mr. Kelly

From our point of view, the prepaid and the post-paid market are different. One of the main differences between the prepaid and the post-paid markets is that we have really only operated in the prepaid market. We have not been in the post-paid market. ComReg came to this committee and said that prepaid charges in this country were the third lowest in Europe. The reason it gave was the fact that Meteor was active in that market. At that time, we had actively forced prices down in the marketplace. Members will see from the information we have given them today and from the very simple illustration of the reductions in tariffs that we have continued to do that. We have forced prices down in the prepaid market.

What we must do now is bring prices down in the post-paid market. I understand that is required urgently. Our difficulty is that it takes time to build out a network. A Senator referred earlier to mast sharing. If we had the mast sharing we required over the past three years — if we had the access O2 had to every Garda station in the country, for example — we would have had that competition much sooner. The one thing we came here to look for a year ago was national roaming. We got national roaming which has been launched only since September. We have already started to make a significant impact on the market and we will continue to do so. The fact that prices are high now gives us an opportunity on which we intend to capitalise because we can force prices down. The first plan we launched had a 37% decrease in prices — a 37% saving for the consumer. That is a good saving but it is only the start as far as we are concerned.

Senator Kenneally

I welcome the representatives from Meteor. What percentage of Meteor's customers are prepaid? Vodafone, in its presentation, made great play of the fact that 74% of its customers were prepaid. Meteor seems to concentrate on post-paid. Does it believe the prepaid market is saturated and that the post-paid market is the way to go or is it concentrating on prepaid as well?

Will Mr. Kelly elaborate on the relationship will O2, if there is one? How will it operate in reality? Will Meteor use its network or share its masts? What safeguards are in place to ensure that the plug will not be pulled on Meteor at some stage in the future which would throw everything out of kilter for Meteor? Mr. Kelly went into great detail about Meteor's billing procedures. It seems to have a very extensive network to ensure everything operates properly. To Mr. Kelly's knowledge, are any of Meteor's competitors checking their billing systems as rigorously as Meteor? Has Meteor found anything substantially wrong to date? Are there any signs of overcharging?

What are Meteor's plans in regard to 3G? We were told earlier that perhaps in four or five years' time the 3G network will be the fountain everybody will use. What plans does Meteor have along those lines? I do not think it referred to it today. Obviously, it is something about which it must be concerned and must consider for the future.

Mr. Kelly

I will try to take the questions in order. As I said, we have been operating mainly in the prepaid market and not the post-paid one. The majority of our customers, approximately 96% to 97%, are prepaid customers. The reason we are concentrating on post-paid now is not that we think prepaid is saturated or that we do not want prepaid customers. I am taking it as read that we will continue to compete very vigorously and very aggressively in the prepaid market. That is actually coming through in the full mobile number portability statistics which show us gaining customers 4:1. That is mainly prepaid customers because we have launched our first post-paid plan only this week. The reason I am concentrating on post-paid at this time is that this is where the competition is needed most in this market. When the Chairman and others talk about high ARPUs, high tariffs, high costs and monthly bills, it has mainly to do with the amount of money being charged on a monthly bill paid after the fact. That is where the competition is needed and where we are going to bring competition.

Unfortunately, we see a barrier. The barrier to that competition is, unfortunately, being planned by the regulator. The regulator is planning to bring a mobile virtual network operator into the marketplace to operate on the Vodafone or the O2 network. However, Vodafone and O2 will not allow a MVNO on to their network which will cannibalise their post-paid users, their business users and their high end personal users. They will allow somebody on to their network, if they are forced, who will compete against Meteor in the prepaid space. That is fine; we can deal with that competition. What we will have, therefore, is even more competition in the prepaid space and still no competition in the post-paid space.

Let the remedy, which was put in place to correct market failure, work. Let Meteor now compete aggressively in the post-paid market. As I said a year ago, if we had national roaming we would compete aggressively. We have come through on that. We will compete, and we have already started to do so.

The relationship with O2 is a technical one as such. It took about six months to get the networks integrated so that there would be a seamless service for customers who, if they drove out of coverage in a rural area covered by national roaming, would switch over automatically to the O2 network. It works the same way as one's mobile phone works when one roams abroad. It is that type of relationship. We use their service, they send us a bill and we pay it. As regards switching it off, we have a contract and we believe that they, like ourselves, will honour it. However, it is a short-term contract because our intention is to continue to roll-out and build our own network. Over the 30 months of the contract, there is a provision that certain areas of the country will be taken out of the national roaming provisions as we build our networks in those areas. That will start to happen in the first quarter of next year. Our reliance will, to a much greater extent, be on our own network as time passes.

I outlined in detail that we check our billing systems. I am sure O2 and Vodaphone do the same. As stated in our presentation, we do not believe there has been any deliberate overcharging in the market. We know, because we had the same type of systems, that mistakes can happen. Human error can occur and technology can go wrong. We have had problems but we have caught them and contacted customers before they even became aware of any difficulties.

Our shareholder took a deliberate decision not to apply for a 3G licence in 2001. It was felt that it would be a much better use of the funds we had available at the time to invest in our 2G and 2.5G networks. We believe that was the right thing to do and it has brought us to the stage where we can compete aggressively in this country. We do not rule out 3G in general. Our sister company in Austria has a 3G licence and is rolling out services. It is possible for us to provide 3G because the provisions attached to 3G licences here allow for NVNO access and there is still a 3G licence sitting on the shelf. We are not ruling it out but it is not tomorrow's technology.

Chairman

I will take a final question from Deputy Eamon Ryan before I ask the representatives from O2 to join us.

Deputy Eamon Ryan

Mr. Kelly seemed to state that the reason for the exceptionally high average annual revenues accrued by Irish companies, when compared to their European counterparts, relates to post-paid. Would someone from the outside not be able to state that Irish companies are happy to protect the bulk of the market here, namely, the 80% plus and not allow other entrants into it? Would Mr. Kelly accept that post-paid is not where the real difference between Ireland and other countries lies because, as a percentage of Irish business, it is actually quite small? If I understood Mr. Kelly correctly, he stated that the reason Irish customers are paying so much more is that there is no competition in the area of post-paid bills. In light of the fact that post-paid accounts for only 20% of Irish business, is it not in the prepaid area where there are serious differences in international comparison? If I understand what he said, he indicated that we do not need another entrant in that area and that ComReg should not be pushing for the opening of networks there.

From the outside, it might be seen that there is a will to protect the three players in the market rather than opening it up. Given that 80% of the business relates to that sector, it is the lion's share of the market. Real problems still exist in this area, even if Meteor is undercutting the existing operations.

Chairman

The figures I read out related to prepaid. For Vodaphone it is €596 and O2 is €560. Those are the figures provided. Are they correct?

Mr. Kelly

We are not trying to be protectionist in any manner, shape for form. From our point of view, we are quite happy to compete in the prepaid market. Whether there is a requirement for another operator in that market is something for others to debate. From our perspective, we do not think that would improve the consumer service and it will not improve pricing in the prepaid market. We have reduced prices by up to 69% and we will continue to compete heavily in that market. Prepaid users represent approximately 75% of the market here. The amount of money post-paid users who pay a monthly bill — I refer here to those business and personal users with high monthly ARPUs — spend on their mobile calls is disproportionate compared to the other 75% of the market. That is the case for two reasons, namely, the fact that those in the prepaid market use their mobile phones more frequently and as a result of the higher bills they pay.

Competition is not required in the prepaid market, it is required in the post-paid market. That is where people and businesses are receiving high bills and that is where we are now bringing the competition. We were not able to do that latter before because we did not have national roaming. It has been introduced and we are now competing. The committee should be under no illusions. We are not turning our back on the prepaid market. We will be as aggressive as possible and will drive down prices further in that market. However, we are already doing so. We are not doing it in the post-paid market and that is the emphasis here today.

Chairman

Am I correct in stating that €366 is the average prepaid ARPU?

Mr. Kelly

For?

Chairman

For prepaid. That is the average revenue generated for Vodaphone. The figures of €596 and €560 to which I referred earlier may refer to the total revenue per user.

Mr. Kelly

If one takes it that €366 is the prepaid ARPU and €596 as the post-paid ARPU for Vodaphone, one can see that it is disproportionate because 25% of the customers are paying the same amount.

Deputy Eamon Ryan

Is Mr. Kelly in a position to provide the figures for Meteor's prepaid ARPU?

Chairman

I asked that earlier and Mr. Kelly replied that he is not in a position to do so in respect of this year's figure because of constraints imposed by the shareholder. Last year, however, the figure was €330.

Mr. Kelly

We are governed by the SEC regulations in the United States. I have undertaken to return to the shareholder to see if we can release the figures because we would like to do so.

Deputy Broughan

I apologise for missing the presentation, which seems interesting and excellent. I welcome Mr. Kelly. It seems that Meteor's market share is rising significantly and that the company is introducing some much needed competition into the market.

Chairman

I thank Mr. Kelly, Mr. Stewart-Lord, Ms Whelan and Mr. Mourik for coming before us. If we need any additional information, other than the figure Mr. Kelly gave a commitment to try to have released, we will communicate with them. We will be asking ComReg to review the transcript of today's meeting so that when its representatives appear before us in January or February, they will be able to respond to all of the queries raised by the three companies.

I welcome Ms Gray, Mr. Whelan and Ms Johnson from O2. Members of this committee have absolute privilege, but the same privilege does not apply to witnesses who appear before the committee. The committee cannot guarantee any level of privilege to witnesses who appear before it. Under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. Ms Gray will make a short presentation followed by a question and answer session.

Ms Danuta Gray

I thank the Chairman and members of the committee for inviting us to appear before the committee. I heard a number of the earlier presentations and questions.

I refer to the market context because there is much coverage in the press about mobile bill size and, while that is related to the price per minute paid, I would like to give some market context to put that in perspective. I am conscious that when we appeared before the committee, we said the one thing that would happen to prices in the Irish market is they would go down. Mr. Whelan will address tariff reductions and increased value for money for customers since September-October of last year and I will address the billing issue we had over the summer, why it occurred and what we have done since and tariff transparency.

Chairman

The committee would also like the delegation's views on the MVNO issue.

Ms Gray

That is not a problem. We will do that towards the end.

Mobile bill size is related to the rate per minute but it is also affected by a number of factors specific to the Irish market. Ireland has a young population, with 37% of people under the age 25. We can see through the high call rates and, particularly, high texting rates the level of usage and we will provide figures, which compare them to our companies in the UK and Germany to underpin this. The Merrill Lynch report was referred to in a previous presentation but one of the absolute factors, which is a direct correlation, is the relationship between GDP per capita and the usage of mobile services. That also drives usage levels and, therefore, bill size in Ireland.

People prefer using mobile to fixed line in this country. Fixed line penetration is estimated to be 55% of households while mobile stands at 89% penetration. Ireland has a mobile population, not only in the use of cellular, but a large number of our customers do not have or do not intend to have a fixed line service, including students and young people who work in Dublin and travel home at weekends. They do not use fixed line services and that, therefore, drives the balance of usage between mobile and fixed line services in contrast to other countries. There is currently three mainstream operators and there will be four in 2005. However, it is estimated there is 27 wireless broadband operators, which compete with fixed line operators, but as our 3G and faster services are rolled out, we will be in competition with them as much as with traditional operators.

Mr. Whelan will talk through tariff reductions and increased value for money.

Mr. Paul Whelan

Last year when we appeared before the committee we made a commitment to continue reducing the overall cost to both our pre-pay and post-pay customers. As the slide highlights, in the past 12 months, the average price of a voice minute fell by 8.9% from 19.87 cent to 18.1 cent The blended cost to all our customers is close to 8.9%. As our customers talk more, they experience better value for money and a reduction in the average cost per minute. Over the period in regard to pre-pay, which represents more than 70% of our customer base, we have reduced the average price per minute by almost 14%. These are real tariff reductions from which our customers have benefited.

We have almost 400,000 contract customers. Costs to them have fallen by a further 5% since our last presentation. In addition, our termination costs to other operators have been reduced by 5% since September 2004. If we take a longer term view, we have delivered even better value to our customers. Since January 2000 we have reduced our pre-pay cost per minute by 40% and our post-pay by 25%. In addition, there has been a reduction of almost 58% in texts since 1997.

With regard to delivering value for money, the next slide compares the voice and text usage of an O2 Ireland customer with similar customers of our sister companies in Germany and the UK. It was based on data from our half year results and it is in the public domain. Our recently published minutes of usage numbers demonstrate that our Irish customers are spending more time on their phones. For example, a typical Irish customer spends 72 more minutes per month on his or her mobile phone than his or her counterparts in the UK and almost 83 more minutes per month than his or her German counterparts.

There is a similar pattern to text usage. The average Irish user sends almost 48 texts more per month than his or her German equivalent. However, even though we talk and text more than our European colleagues, the final graph demonstrates we are getting better value for money. As Ms Gray pointed out, a number of factors influence the high minutes of usage and high text rates.

Chairman

Is independent verification of the figures used by Mr. Whelan available?

Mr. Whelan

Those numbers are in the public domain. They were part of our——

Chairman

Mr. Whelan's source is mmO2, which is his company. Can it be independently verified that Irish people speak for longer on mobile phones than British or German people?

Mr. Whelan

The figures are based on our results, which were submitted to the London Stock Exchange. They will be audited in time by external auditors.

Chairman

Has there been independent verification of this document?

Mr. Whelan

No, but the numbers are in the public domain.

Chairman

Has there been independent verification of this document?

Ms Gray

The independent verification would come from the fact that these have to be audited. Our external auditors will check these figures before we are allowed to put them in the public domain at year end. However, if the Chairman is asking about independently sourced comparators, the Merrill Lynch report also examines similar facts and figures but they would not be the same. These are very much up to date. We only published these on 17 November, while the Merrill Lynch report was published in 2003. The answer, bluntly, is "no". However, they are robust figures.

Mr. Whelan

On the next page we ask, "How does O2 deliver value for money?" In addition to the different tariff reductions already discussed, O2 continually focuses on delivering value for money to our business and personal customers. I have outlined a number of areas where we have done so. We reduced our new business and small and medium enterprises tariffs by 5% in September 2004. Our Blackberry e-mail services have been reduced by 40% to €30 per month. Calls for business users to the United Kingdom have been reduced by 55% to 13 cent per minute. We introduced per second billing. The caller pays only for the time he or she spends on the mobile telephone.

Deputy Durkan

What does that mean? I have always deluded myself into believing I only paid for the time I was on the telephone. Can Mr. Whelan tell me about the rest of it?

Mr. Whelan

Some operators charge by the half minute or minute interval. When one makes a call in Ireland, O2 will charge on a per second basis. It is the fairest and most transparent way of charging customers. Finally, our group worker service allows businesses better to control their spend through analysing business calls from personal calls.

With regard to personal customers, we have extended our off-peak hours. We now have 16 hours a day at the reduced call rate. We have no expiry date on call forward, free call value or top-ups on our pre-paid product. We also have per second billing on our pre-paid product. We have a facility called "free call me message" which allows pre-paid customers to text another person if they want that individual to call them. If one buys a text bundle from 02 , one gets the lowest text rate for any time and any network, at 7.5 cent per text. We have no minimum monthly top-up requirement for our pre-paid customers.

Ms Gray will now talk us through the billing incident.

Ms Gray

The committee will be aware of press reports of an issue which arose in the summer of this year. Because of a billing error, which had involved human error in the original design of a system up-grade, we incorrectly billed a number of our customers for calls they had received while roaming in Europe.

Some other operators have already pointed out the complexity of those billing systems. We process approximately 12 million calls and approximately 3.5 million texts every day. We also provide and charge for other services. This is not an excuse for the mistake, but our billing systems deal with a large volume of transactions and they are complicated. When we make a change it involves someone changing a table or making software changes. Human error does occur.

I reiterate what Mr. Kelly, from Meteor, has said. We have also implemented the terms of the Sarbanes-Oxley Act, which is a requirement of being listed on the New York stock exchange. A number of very stringent processes have been put in place to check any changes we make to our tariffs and to check bills before and after they have gone out. In this instance, a technically complicated error was discovered which, unfortunately, took a long time to resolve. We make mistakes and I apologised to our customers at the time. Our real mistake was that although we had started to communicate with some of our customers about the issue at the time, we put considerable effort and time into resolving the problem internally so that when we communicated with customers we could be very specific about how it had affected them. We did not communicate directly with customers early enough.

Chairman

How was the error brought to the company's attention?

Ms Gray

We have our own checking process. Almost at the same time as our internal measures found the issue a customer called in with the same query. That happened in late April or early May but it took until June to fix the problem technically.

Deputy Broughan

Did customers not notice they had been billed twice?

Ms Gray

Some did, but not all. One of the challenges we face in dealing with roaming is that we deal with approximately 300 operators whom we rely on to send us information in a timely manner. A customer may be abroad in April but may not see the charge on his or her bill until May or later, according to how the information flows through. Some people simply may not have noticed it. The time difference between Ireland and another European country may also cause confusion. The problem was not easy to fix.

The main lesson for us was with regard to the process of communicating with our customers. We do not deliberately overcharge our customers. The billing systems are complex and when we have an issue we deal with it and we communicate directly with customers. The challenge in this case was the scale and complexity of the problem and the length of time it took to fix.

Chairman

Did the company have to open its system to ComReg for inspection?

Ms Gray

We complied fully with ComReg's requests. First, we did a very thorough internal review. It is not in our interest to charge our customers incorrectly. The only consequence of that would be that our customers would lose trust in us and leave us. We would not try to sustain such a situation. Therefore, we did a thorough internal review of our processes and checked billing and billing issues. Second, we commissioned an independent study by an external agency and it provided a separate report to ComReg in September. We provided our internal report by the end of June, as we committed to do, and the independent organisation provided its report in the end of September, as we had also committed to do.

Chairman

What was the independent organisation?

Ms Gray

It was an organisation called Logan Orviss, a well regarded independent communications consultancy which provides consultancy to operators on how their systems and networks work together. They had considerable experience of billing systems and of how they interoperated.

Questions have been asked about tariff transparency. We also listened to questions raised on this issue last year. We continually look at how our bills describe billing charges for our customers. We redesigned our bills this year based on customer feedback. We are always trying to improve that understanding. Our pre-paid customers can dial a number and see how much credit they have in real time on their screen. Even though they may have topped up they can check on a regular basis to see how much they are spending. We train our staff and always put information on our own website. We have also co-operated fully with ComReg on tariff transparency to provide information which can go on to the ComReg website.

In January of next year we will also have a tariff calculator for customers on our own website. A customer will be able to input the amount of time he believes he uses on his telephone, where he uses it and how many text messages he sends and he will receive a recommendation of the best tariff to use.

We are a successful business and we will continue to succeed and grow only if we compete to keep the customers we already have. In the last year we attracted 150,000 new customers net on to the O2 network. We will not do that unless we compete, innovate with new services and provide good value for money and good service. Despite increased competition, it is our intention to compete continually in Ireland and to continue to invest.

We have invested more than €1 billion in our network alone since we launched in 1997. We are currently investing both in capital and in maintenance support in our network to the tune of approximately €4 million per week. We employ more than 1,500 people and we are here for the long term. However, we will only succeed if we compete while there is increasing competition in the market, as we believe there is.

Chairman

I know the staff of O2 has been doing work on the question of the safer use of the mobile telephone, along with the other mobile networks. How is that advancing? Some weeks ago, when we discussed the safer use of the Internet we spoke to the Irish Cellular Industry Association. How is that progressing?

Ms Gray

We have done a number of things. One of the most important has been to educate parents on the power of the technology, because it is very powerful. Also, in conjunction with our colleagues in other network operators, we are running a trial on behalf of the industry to filter contents over telephones. This relates to concerns about the use of camera telephones. If that technology is successful in the trial it will allow us to do two things. First, it will filter websites which would be considered unacceptable. It is a little like a net-nanny concept in the Internet world. Second, we will filter images. The technology will intercept images passed across the network and judge whether such images should be filtered. O2 wishes to be a responsible operator and to ensure that the necessary type of technology and as many checks as possible are in place to prevent under 18s accessing inappropriate information, but it is not a censor. Implementation of that technology and how it works in terms of regulation and censorship is something of which the industry is very much aware and to which it has a responsible attitude, but it needs to work on it with other bodies within the Irish market.

Chairman

I presume the other two networks — I did not ask this question of Meteor — are working as the ICIA indicated at its meeting.

Ms Gray

Yes. We made a decision as an industry that there should be only one trial and we are all sharing the information.

Chairman

We thank the industry for that initiative. We have received many complaints on the matter from people around the country.

Deputy Broughan

I welcome Ms Gray and Mr. Whelan to the committee and thank them for their presentation and ongoing information which we, as members of the committee, receive on this fast-changing market.

Over-charging is a serious issue. If my memory serves me correctly, the problem which arose was that people were billed a second time for the roaming service in different countries in Europe. Ms Gray stated that internal safeguards have been put in place to ensure this does not happen again. The committee has received a copy of the new bill which appears fairly straightforward. However, as with the one provided by Vodafone, it remains fairly complex to the busy consumer wishing only to pay his or her bill and get on with business. In that context — I asked this question of Vodafone — as O2 appears to be a supporter of the developments taking place with ComReg on tariff transparency, does O2 envisage the availability of a website at an early date which would allow consumers to compare the four main operators? ComReg, at its presentation in the Royal Hospital in Kilmainham, illustrated that it has been achieved in Denmark despite the great difficulties and fast changing nature of the market there. To what extent has O2 been involved with ComReg in that regard and how supportive of the idea is it?

What is the position of O2 on mobile virtual network operators? The company's presentation focused on the huge spend O2 has carried out since 1997. Does O2 welcome access to the network by mobile virtual network operators? Such operators appear to be a significant part of the UK market. We have had comment in that regard from the chairperson of Eircom. Given that two companies control 90% of the market, is increased competition the way forward?

O2's roaming arrangement with Meteor has played a major part in the latter's success in coming from way behind to taking a reasonable portion of the market. Can O2's ongoing relationship in 2G with the third operator — I have already asked about MVNOs — be in any way inhibiting to competition?

Ms Gray commented on our GDP. We have just learnt from the Economist that Ireland is No. 1 in terms of quality of life and not too far off being No. 1 in the world in terms of GDP. Is O2 using that to some extent as an excuse for our massive prices? For example, comment has been made that new members of the European Union are experiencing significant increases in inflation as a result of property investment by people from countries such as Ireland. Is Ms Gray saying, in terms of high profits — Deputy Eamon Ryan mentioned this earlier in relation to Vodafone — that O2 is taking advantage of the fact that Ireland is a wealthier country than Germany or the UK?

Ms Gray

On tariff transparency and complexity, ironically the major software upgrade that cost O2 the billing issue happened as a result of its simplifying the tariffs across Europe. We introduced a flat rate system for bill-pay and pre-paid so that people, when travelling, would know exactly what they would be paying according to the network being used. The flat rate was available to prepaid customers regardless of the network used. It is our intention to extend that simplicity of approach to operators outside the European zone. It was timing that allowed us to do that.

We recognise roaming is a complex issue and we do a great deal to educate people about it. Unfortunately, when introducing that tariff an error arose which caused problems for O2. O2 supports the tariff transparency initiative by ComReg. We have been involved in providing it with information which will be built into its website. O2 will continue to provide ComReg with such information. O2 had to ensure it was happy that all its tariffs were transparent and in that regard signed a compliance statement in October as part of that exercise.

On MVNOs, we signed a commercial roaming agreement with Meteor in terms of opening up access to our network in parts of Ireland where it had not yet rolled out its network. O2 had tried before to reach a commercially suitable agreement with Meteor but was unable to do so. This year, we managed to achieve an agreement which suited both companies commercially. O2 believes in competition. That may sound a little counter-intuitive but I genuinely believe that competition in the marketplace like this forces competitors to be more creative and to ensure we continue to innovate with new services, offer value for money and continue to improve our service for customers. We have to do that if we want to keep our customers. I am pleased that despite increasing competition from Meteor, O2 has more or less held the line in terms of market share. It is our intention to compete as hard and as fast as we can.

Chairman

Perhaps Ms Gray could be more specific.

Ms Gray

O2 will talk to any company which comes up with a deal which is commercially workable for both. As yet, nobody as approached O2 or me with a deal which works commercially, including Eircom. We had discussions earlier in the year with Eircom but what it wanted from us was, in our opinion, too rich. If Eircom really wants to get back into the market there is no barrier to its gaining entry through buying the spare 3G licence which is available from ComReg. It could then implement a network which would also give it 2G roaming and one of the existing operators in order to come back into the marketplace.

The answer to the question is that we are not closed minded when it comes to access to our network, but such access needs to be on commercial terms given we have customers to serve. We have made an investment profile and we do not intend to give that away on the terms demanded by another operator.

Chairman

If you are mandated to do so by ComReg, will you work to its direction?

Ms Gray

If we are mandated to do so, then we will have to do it. My concern about being mandated by ComReg is the terms under which that mandate would operate. Mr. Kelly asked about the introduction of competition. There are currently three operators in a market of four million people, with the third operator managing to compete more effectively than when we met this time last year. By next year, we fully expect Hutchinson to have launched in this marketplace with its 3G service. It has not even been given a chance to launch and prove whether it can increase competition further.

Chairman

Has the company MVNO agreements in other European countries?

Ms Gray

Our markets are different. We had a joint venture with a company in Germany which is an MVNO. The reason that was done was because our German operation is very much like Meteor in the Irish market. It is still the smallest operator in Germany so the profitability of that organisation is considerably different from our Irish business. They did an MVNO agreement which would allow them to get a much better and wider distribution of their service in the German market. It made absolute sense for them and the partners they did a deal with.

In the UK our sister company has a joint venture with Tesco because the UK is a much bigger market. Our brand appeals typically to younger, what we call more early adoptive people in the pre-pay market. Tesco has a brand in a family market. It was very complementary to the UK operation. Our UK operation has approximately 25% of the market share in the UK. It is a very different market context and also the operations are very different.

Senator MacSharry

Is the German scenario a mandated MVNO or is it commercial terms?

Ms Gray

Both are commercial. The GDP is just one factor. It is not an excuse. We have higher bill sizes in Ireland. If one looks at the usage figures which we stand over and are externally audited, they are significantly higher than we see from the average users in the UK and in Germany.

Deputy Durkan

I thank Ms Gray for her presentation. When the company is sharing masts with other operators, is some consideration given to providing masts in places that are not getting good coverage by either or any organisation? To what extent is wireless broadband service being pursued? Can Ms Gray give the committee some indication of the practicalities and economics of it, which should be reasonably good?

I am not so sure I believe this notion of Irish people talking for longer than anybody else. I just cannot understand it. Certain Departments and other places have an answering machine which tells you, "If you wish to contact so and so, press 1" and it goes on up to number 9 and then one is cut off. One must dial the number again. I am quite sure this has happened to the delegation. One day recently I spent a full half an hour trying to gain access to a public office that is supposed to provide service to the public. I spent the same length of time travelling quite a distance on a motorway. One would be better off driving to the location and speaking to the person on a one-to-one basis.

On the question of mobile phone costs, quite an amount of calls are still made through fixed lines. The relative costs are quite considerable. I have listened to all the arguments that more operators will make the business less lucrative. The Irish market is still the most lucrative mobile phone post-paid service in Europe, or at least we are in the top three. Why is this so?

The cost of accessing messaging services for those of us who are out of circulation for quite long periods is very considerable and is a growing consideration. My favourite subject is call breakdowns. I have come to the conclusion that a conspiracy exists or there is a gremlin in the lines that activates when one passes certain buildings or that the telephone companies have conspired to frustrate me. As I pass certain buildings——

Chairman

Including my political party.

Mr. Durkan

——on a regular basis, the telephone conversation goes dead. I then have to retrace my steps and repeat the conversation.

I was pleased to hear about the restitution of the overpayments. It is a little like winning the lottery. I have not yet been so lucky as to receive a refund for an overpayment and I am just waiting for some telephone company, some service provider to inform me I have been overpaying for the past ten years or so and they now wish to compensate me. I have roamed quite a bit.

Ms Gray

I will deal with the question of call breakdowns and locations of masts. Yes, we intend to improve our coverage. It depends on our being able to find a site to locate a mast. We also talk regularly to Vodafone and to Meteor and other organisations where we can share their structures. We share many of our sites with organisations like the ESB. We have 182 sites co-located on Garda masts, which was never an exclusive deal, by the way, and the opportunity is open for others to use that same infrastructure.

Deputy Broughan

Is that currently in play?

Ms Gray

Yes. We share masts with Meteor and with Vodafone. We try as much as possible to be sensible about locating the masts and we look for locations all the time. We are currently looking for a significant number of new sites both in our existing network carrying the 2G services and for 3G as well.

Call breakdown occurs where we do not have coverage and that is exactly the point. Even though that might be frustrating, even in city centres there are areas where there are gaps in the network which we still wish to fill. That is just a fact. Sometimes we have sites and sometimes we lose them or cannot retain them. We are continually looking at how to optimise our network to give the consumer better coverage.

I understand the Deputy's frustration about phoning these interactive voice response systems. I share the same frustration sometimes. It is not a peculiarly Irish phenomenon; it is the same in the UK, Germany and across Europe. It may be the reason the Deputy had to make a longer phone call but genuinely I do not believe that is the underlying reason we would say Irish people talk more. From what we measure in the number of texts sent in Ireland compared with the UK and Germany and the number of minutes used per month, Irish usage is significantly higher.

On wireless broadband, we introduced 20 wireless LAN locations into Ireland in the past 18 months. There is one across the road at Buswell's Hotel. They are located in public locations which means that a user can go into the hotel, buy a voucher, use the service and access the Internet as if they were on a fast network in the office or at home. We are looking at wireless broadband technology as well as implementing our 3G service. Our 3G service will be launched next year. It will not provide broadband speeds today but it is evolving over time. I will not bore the committee with another series of acronyms. As that is introduced over the period of around 18 months to two years, the speeds with which one will be able to transfer information will significantly increase from the speeds today. That is the way in which we will primarily compete in broadband space. Those other regional operators I talked about earlier would have licences and spectrum that have been given to them by the regulator and which we do not have.

On the question of messaging and accessing the services, some organisations allow one to access messaging free. In our case, bill-paying customers can choose this as an option. In terms of the profitability of the Irish mobile market, each market is different. Our operation in Germany makes an EBIT Dow margin, a form of analogy for profit in the teens. There are other operators in that marketplace who are making a margin of 47%. It varies dramatically according to the maturity of the operator.

A small operator which is growing very quickly, as we were back in 1997-99, devotes a lot of money to acquiring customers on to the network. It is like any other service industry. To get a customer to join is significantly more expensive than to get them to stay with you should you get the service aspects right. We always have that balance of acquisition and retention. I believe I have answered the points.

Chairman

If O2 reduced its charges by 8.9% last year, how does it ensure that fixed line operators' termination charges are passed on to mobile phone customers?

Ms Gray

We cannot do so because in the end that is what Eircom or the fixed line operator would charge its customers. We make it clear we have an agreed contract, in effect, with ComReg to reduce our termination rates. We agreed that two years ago. We reduced them last year and this year, and will have another reduction next year. However, the retail rate charged by the fixed-line operators is——

Chairman

We shall take that issue up with ComReg.

Senator MacSharry

I wish to comment on two issues. I am sure the witnesses are familiar with the ten commitments model, which has been adopted by all operators in the UK. I compliment the witnesses on the pack they have given us regarding the environmental impact of masts. Clearly O2 is following some of the ten commitments even though they are not mandatory. Does O2 feel such a system should be mandatory for operators here, particularly regarding site and mast sharing? From the document it is clear that O2 operates all its masts under those guidelines. Do the witnesses believe all operators are doing so? Do they feel we should adopt such principles?

O2 hopes to roll out 3G next year. Given economies of scale, will O2 be offering products, services and special offers on handsets in excess of the prices offered by O2 in the UK?

Ms Gray

On the first point, I am not sure those commitments need to be made mandatory. It is my view that the other operators in Ireland operate to the same standard that we do in terms of mast location and site sharing — we sign up for codes of practice around site sharing in terms of some of our licence obligations as well. ComReg monitors a number of sites — approximately 10% of our sites and I believe the same applies for the other operators — for adherence to those standards which are set by a body of the World Health Organisation and it consistently finds that we are thousands of times below the minimum standards set by those organisations. We take those issues very seriously in terms of the aesthetics and environmental impact of what we do, the planning rules and mast sharing. We are very conscious of all those issues. I am not sure whether introducing mandatory requirements would make any difference to our practices, although if they were mandated of course we would adhere to them.

Deputy Broughan

Is it true that some of the new 3G masts springing up around the country are massive structures with a hugely intrusive visual impact, unlike the Garda masts on which O2 was launched? While we may be digressing from the subject of billing, to a layperson this seems almost like a different type of network. We are told that the quality of coverage referred to by Deputy Durkan will vastly improve because of the new 3G network. Is this not an area in which savings can be passed on to consumers? On the north side of Dublin a number of these mini "Eiffel" towers are dotted on the landscape very close to each other, which formed the thrust of Senator MacSharry's question.

Ms Gray

The size of 3G masts is not fundamentally different. Some of the larger masts the Deputy may have seen in and around Dublin were erected simply to deal with the capacity of traffic. We need a bigger structure on which to put more equipment. We will need a number of incremental sites to roll out 3G. Wherever we possibly can we will reuse the sites we currently use for 2G. Because of the kind of network we built in the early days, we estimate between 60% and 65% of our existing sites can be reused for 3G. In addition to better quality, 3G will offer more capacity owing to the physics of the service. Over time that cost effectiveness benefit will flow through.

We have made no decisions here or in the UK on charging for 3G phones and services. In addition to the handset itself and the basic services of voice and data, people may want to buy additional content services from, for example, the Premiership or MTV. Our model will focus more on the Internet model, which is to open access to our customers to gain choice. They will pick those kinds of content services and the level of subscription will depend on the value of the content, which would be determined in conjunction with the content provider. We have not yet made decisions in terms of economies of scale and defining the charges for Irish customers.

Chairman

I want to read into the record a number of items we want completed and get the committee's agreement. I want ComReg to examine the transcript and I want the clerk to send the transcripts to ComReg for any advice it can give the committee on any matters that were raised and need clarification. It is quite clear that number portability has helped customers to decide on which network operator they want to use. While I will not say to which operator, I recently changed operator and I will be looking for savings as a result. Most of the communications received by members of the committee relate to fixed lines, mobile phones or broadband.

ComReg will note the comments made by the operators here about the MVNOs. We deliberately did not invite ComReg to attend, as it is finishing work on hosts and mobile access originating papers. It is also establishing a website detailing tariffs by all providers as mentioned by the witnesses. From our questions today it is clear that all the network operators are fully co-operating with ComReg and if that is not the case the committee would like to hear about it. However, I take the witnesses at their word in that regard.

We must deal with the myth — or is it a fact? — that Irish people speak more and use their mobile telephones more. I would like to get verification on this matter and I hope ComReg will be able to assist us in this and complete some analysis on it. It could form part of its ongoing analysis to determine whether the graph O2 presented comparing use in the UK, Germany and Ireland is correct. We hope to be able to clarify that matter for once and for all.

We note that O2's prices have reduced by 8.9% as it predicted. However, we also note that its average ARPU has increased by €9 since last year. O2 has stated that Irish people are speaking more and are therefore spending more. We need this matter clarified once and for all.

Ms Gray

We will co-operate in providing any data we have not already provided. Since we de-merged as a company, O2 has provided minutes of use figures, which are externally audited. Under stock exchange rules, we would not be allowed to publish those unless they were robust figures.

Chairman

This session is not over. We are suspending until the Commission for Communications Regulation appears before the committee to tell it why the average revenue per user is approximately €560 in Ireland. O2's average revenue per user was €551 last year. The average revenue per user is €454 in the UK, €400 in Spain, €360 in Italy and €305 in Germany. O2's average revenue per user in Germany is €529. I assume that the figures I have been given are accurate. The committee should receive answers to the questions I have asked, possibly through ComReg, so that it can tell the Irish public whether it is getting value for its mobile telephone use.

Deputy Broughan

I would like to make a brief final point, which does not relate to billing. Ms Gray spoke effectively on "Prime Time" one night about Internet security issues and the development of third generation technologies. I was informed in response to a parliamentary question a few months ago that O2's international company and Vodafone were present at an international convention in Amsterdam on so-called "adult services". Can I take it that O2 Ireland remains fully committed in respect of such issues, as Ms Gray indicated that night? Similar matters arose in respect of the registration of pre-paid customers, which was an objective of the former Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern. He thought the registration of such customers should be pursued because of the need to protect vulnerable citizens and children.

Chairman

The committee acknowledges the work of the three operators. According to the delegations' statements today, the operators have fulfilled the commitment to reducing prices they made at a meeting of this committee last year. I thank the operators for that.

The joint committee adjourned at 18.50 p.m. sine die.