The announcement by the Minister for Transport, Energy and Communications, Deputy Lowry, of a competition to select a single competitor for Telecom Éireann's mobile phone service is a correct decision in principle, but completely wrong in the proposed method of selecting a winner from the various bidders. Ireland is one of only two EU countries not to have a second cellular operator and EU competition policy now dictates that Ireland makes speedy progress on the issue.
Ireland has some 80,000 mobile phones which are becoming less and less the preserve of the "yuppy" and increasingly more important for business and personal life. For doctors, drivers, salespeople, tradespeople and professionals across the spectrum the mobile phone is a very valuable business tool. I understand the number of users could grow to 250,000 in the next five years.
It is in Ireland's interest, therefore, to increase its access. At present only 2.3 per cent of Irish people have such phones compared to 11 per cent of Norwegians, 5 per cent of Britons and 3 per cent of Germans and Italians. This is not, therefore, a decision about some latest technological fad but rather a very critical one about improving Ireland's competitive edge in trade and commerce.
It follows then that what is required is a second licence in Ireland which will provide fair but real competition to the present Telecom Éireann system. In the absence of this real competition the market will not fully develop and tariffs will remain among the highest in the world.
The Minister stated that his invitation to tender is not based on an auction but his documentation clearly states that applicants must decide, "the amount the applicant is prepared to pay for the right to the licence". That is the wording of the Minister's invitation. The only reference to tariffs or prices charged to the consumer is that the applicant must indicate his or her "Approach to Tariffing". This is just a crude auction to the highest bidder and is engaging in a law of the jungle type destructive selling off of a valuable state asset without thinking through the consequences. This auction approach places a heavy burden on the new operator who is forced to recoup his or her very high cash bid from the unsuspecting telephone user, thus keeping charges to the consumer artificially high.
The report of the European Union Commission, DG13, suggests that auctions are not the best way and European experience, generally, bears this out. The apparent attraction of a large initial cash fee — some say up to £30 million — dissipates as the new operator passes on this fee to the unsuspecting consumer. High prices will of course reduce market growth and lead to reduced usage and penetration.
The Government must realise that it will be very difficult for any Irish consortium to afford such a huge up-front cash sum while, perhaps, overseas bidders with access to cheap capital determined to make a good financial purchase will be attracted to the deal.
A decision on an auction basis will focus bidders on the resale value of the licence rather than on the opportunities to develop the system. The Minister must now change his approach in the interests of competition and in the interest of ensuring a fair bidding system. He should be fair to multinationals but also to Irish bidders.
An alternative course of action is to have a low up-front fee of a few million pounds combined with a yearly royalty to the State from the winning consortium. Part of that alternative is to make the bidders compete on what they will charge to the public, in other words, on their tariff cards. Whichever group can offer the best deal to Irish business and consumers should be awarded the licence and not just the consortium that can produce the fattest up-front cash payment.
I notice also that while the Minister proposes to seek a huge up-front fee from the new operator, he does not propose to seek a similar fee from Telecom Eircell. If it is his intention to ensure a level playing field and to have Eircell established as an arms length company, how does he account for that decision?
It is important also, that full transparency be observed in this important decision. For that reason the Minister should establish an independent assessment system and publish the weightings to be given to the various criteria so that the relative importance of the lump sum vis-á-vis other criteria can be publicly established.
The role of the independent regulator needs clear and urgent legislation and I look forward to the Minister's proposals in this area soon.
The Government indicated the interconnect charges that will be charged by Telecom Éireann to its new competitor for use of Telecom's interconnection facilities. To ensure fairness, it is important that these charges are independently verified and enforced by the new regulator. For this reason also legislation to establish the regulator is urgent and should be brought before the Dáil in advance of any licence being awarded.
