JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES díospóireacht -
Tuesday, 10 Oct 2006

Telecommunications Services: Presentation.

Chairman

I welcome Ms Isolde Goggin, chairperson of ComReg, with Mr. Mike Byrne and Mr. John Doherty who are both commissioners. Before I ask Ms Goggin to begin, I advise those present that we will receive a short statement from ComReg on this matter, which is what we requested at very short notice. It will advise the public of what happened regarding the issues which arose last week.

I draw attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to those appearing before the committee which cannot guarantee any level of privilege. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against any person outside the Houses or an official by name or in such a way as to make him or her identifiable.

Members have decided that we will finish at 4.15 p.m. I hope Ms Goggin, in the statement she has distributed, will have regard to Smart Telecom's financial dispute with Eircom. I understand there was a contract debt issue and that the dispute has been ongoing since 2005. Eircom terminated its interconnected contract with Smart Telecom on 2 October and ComReg will be aware from its work on the matter that 50,000 customers have been affected. Members of the committee and all other Members of the Oireachtas have received numerous items of correspondence from users and customers of Smart Telecom in the last two weeks. I also understand the Department of Communications, Marine and Natural Resources received no notice of Eircom's intention. I would like Ms Goggin to clarify this if possible.

I am most conscious of the fact that neither the Minister nor ComReg has any statutory function regarding contract debt issues such as those between the two operators, but it is important that the committee learn how long in advance ComReg knew of the telephone switch-off. Perhaps it might tell us of the interim arrangement that it brokered to ensure continuity of service to customers and the fact that the Minister asked it to reflect on how such a situation could be prevented from happening in future and come back to him with proposals.

Ms Isolde Goggin

On behalf of ComReg, I thank the joint committee for the invitation to brief it on matters relating to Smart Telecom. I will go through a factual opening statement which deals with what happened and what we did about it. It also describes the current situation. I make this statement on my own behalf and that of my fellow ComReg commissioners, Mr. John Doherty and Mr. Mike Byrne. We will then be pleased to answer questions from members of the committee.

We acknowledge and empathise with the very serious problems and difficulties caused to consumers by the events of the past week. Our position is that the withdrawal of services by a wholesale service provider, for whatever reason, without prior notification to consumers is inappropriate and unacceptable in a modern economy such as Ireland's.

Smart Telecom has been in dispute with Eircom since early 2005 in relation to several alleged breaches of the terms of one of their wholesale contracts. On 8 September this year it emerged publicly that Smart Telecom had serious financial issues and the company announced that it had initiated a strategic review of its operations. We briefed the Department of Communications, Marine and Natural Resources about the matter and have, on an ongoing basis, kept it informed about the financial difficulties at Smart Telecom.

ComReg does not have a statutory function in relation to contract debt issues where one operator or one company accrues a debt with another. Nevertheless, in September when we became aware of this issue, we initiated an emergency planning process with Eircom, in the event of the commercial failure of a company or the withdrawal of wholesale services by a service provider. It was not clear at that stage which of those two scenarios was most likely, or if either of them would happen. On a contingency basis, we wanted to go through what would happen if either did. If such emergency planning had not occurred, Smart Telecom customers would have been left with no service.

As part of the emergency plan we had requested Eircom to provide a reasonable period of notice following the formal decision to discontinue service. However, on Monday 2 October it declined our request and announced that one of Smart Telecom's wholesale contracts was being terminated at 5 p.m. that evening. On receiving this formal notification, the emergency plan was activated resulting in the continuation of incoming calls and access to emergency services for customers. Over that Monday evening and Tuesday morning ComReg called all sides to our offices to discuss the issues involved and what steps might still be taken. At that meeting Eircom sought specific financial assurances from Smart Telecom which it could not meet at that juncture. Directly following the meeting and in the light of developments, ComReg met the CEO and directors of Eircom to try to put in place an enhanced set of services for customers for a defined period while allowing consumers to select from more than 30 operators the provider of their choice. These discussions and the detailed work by both teams of experts resulted in all voice consumers getting the return of outgoing calls, as well as the continuation of the existing services, that is, access to emergency services and incoming calls, within 48 hours.

From Monday 2 October we put in place a comprehensive range of consumer information on the current status of events such as switching options with other operators via our website and national press advertisements. We handled more than 3,300 contacts to our consumer line; we received more than 400 e-mail inquiries and assisted via our website more than 300 consumers to access their account numbers which they needed in order to switch providers. In addition, we worked closely with the industry to facilitate a high degree of competition in the marketplace.

It is important to note that Smart Telecom's obligations to its consumers still pertained throughout this incident. They were still customers of a company still operating and with which they had a contract for service. Smart Telecom did not fulfil its obligations to its customers.

On 2 October we specifically requested of Eircom 24 hour prior notification of any proposed service discontinuation. Eircom refused this request. The consequences of this decision to withdraw wholesale services without notice are unacceptable and indicate a requirement to put in place a system to facilitate prior notice in the event of withdrawal of services by a wholesale service provider. We are now working with the Department of Communications, Marine and Natural Resources to devise mechanisms which can be put in place to prevent a similar situation occurring.

It is difficult to envisage circumstances of prior notification in the event of the commercial failure of an operator, the other possibility envisaged. However, in the event of withdrawal of wholesale services by a service provider, circumstances may allow for a reasonable period of notice to be given to a predetermined entity following the formal decision to continue service.

Chairman

Ms Goggin says there are 30 other operators. Could a case be made for putting a fund in place, financed by those operators, to fund the provision of the services of a failed operator in an interim period while customers are moving to another operator? This might solve the problem of paying the incumbent for the use of its services. Ms Goggin might answer this observation while dealing with other questions.

Deputy Durkan

I thank the delegation for coming before the committee. Its members are in a very difficult situation and my remarks are not directed personally at any of them. Nevertheless, the scenario which unfolded in the past ten days was appalling. This development has done irreparable damage to the concept of regulation and the degree to which the public relies on the regulatory system to protect it.

In another area we have seen regulation drive prices up and give a lesser service or make life more difficult for the consumer. In this situation the consumer was left with no service whatsoever, no direction from the Minister and no recompense, except to complain to public representatives and the various persons to whom they could gain access. I am aware of the numerous requests to the regulator in this regard.

The system will not tolerate another event of this nature and magnitude. It would cause public confidence in the regulatory and business systems to disappear completely. Public confidence is important. The objective has been to introduce more competition in the marketplace, to ensure the customer receives a better service, to achieve an overall distribution of services from a wider group of providers and to do this effectively. What has happened has dealt a severe blow to that objective. I do not care whether Eircom and Smart Telecom were in discussions for the past two or three years. The plug was pulled and the consumer was left without a service. We have all received e-mails in the past few days relating to this situation. Even today we are hearing from people who do not have a service and will not have one.

Who is in control? The regulator is caught in the middle. She should use the powers she already has or seek the necessary powers from the Minister. Alternatively, the Minister himself should take action to ensure nonsense of this nature will not be tolerated. A breathing period of at least one month is required within which negotiations can take place with a view to ensuring the consumer is not left without services. There is no reason this cannot be done.

This is our first indication of the new administration in Eircom. I accept that the company has a business to run. We received indications it would separate its wholesale and retail services. Is that separation imminent? I would not like to see a rolling back of that commitment which was made a considerable time ago.

We have discussed many times the impact of linking various bodies into the system and the integral and important part local loop unbundling plays in the provision of broadband and other services nationwide. Either it will happen or it will not happen. If it is not to happen in the way it was intended, then action must be taken. We cannot afford to continue to allow consumers to be punished by a situation where commercial and domestic consumers are treated as the jam in the sandwich. The service has been available for 25 years but we see a return to the way things were in 1979 where consumers had to beg for services to which they were entitled.

Chairman

If Ms Goggin is agreeable, I will bank the questions.

Deputy Eamon Ryan

I thank ComReg for coming before the committee to discuss an issue of acute concern to those who, without notice or fault on their part, had their telephone service switched off. This caused severe difficulty for people in business, doctors and domestic users. That is unacceptable.

From my reading between the lines, ComReg effectively was down on bended knee to Eircom on Monday, 2 October, making what I could only suggest was a very reasonable request that there be 24 hour notification of any proposed discontinuation of service. Eircom refused point blank to accede to its request. I find that remarkable. It shows the reality of the telecommunications market in Ireland. Eircom is still calling the shots. Eircom has the power of a monopoly. Despite the changed ownership and supposed new regime, Eircom seems to be primarily interested in paying off the massive debts that have built up as the company has been bought and sold on many occasions in recent years. This is leading to a modus operandi in the telecommunications market which is not in the interest of customers.

What changed between Monday, 2 October when Eircom refused to give notice of cutting off the service and its agreement to provide, on an emergency basis, the facility to some consumers to take incoming calls? Why was Eircom not willing to give notice? Does ComReg lack the power to deal with such a situation?

Second, what needs to be done to devise mechanisms to prevent a recurrence of this situation? How quickly could such specific mechanisms be introduced and should this be done by way of legislative change or ministerial order? If a company such as Smart Telecom, where there had been significant investment in marketing and advertising during the past year, cannot succeed in competing against Eircom, does that not reinforce the situation where the monopoly supplier is effectively dominant not only over the other companies but over our ability to regulate?

Chairman

I ask the regulator to deal with those questions before we take questions from Deputies Broughan, Fitzpatrick and Kelly and Senator Kenneally.

Ms Goggin

In response to Deputy Durkan's question on the damage done to the industry, we must acknowledge that consumer confidence will have taken a knock, but at the same time it is important not to talk down the industry. As stated, consumers have a choice between 30 different operators. Deputy Eamon Ryan questioned whether other companies can succeed in this industry. I believe they can and there are some very successful companies. There is increasing competition in all aspects of the industry, both in voice telephony and in broadband. Prices have declined very steeply in the past eight to ten years since regulation was first introduced. It is important to remember the successes as well as the current problems and we should not talk down the industry to the point where people would be concerned. Substantial investments have been made. Smart Telecom secured very substantial investment. Some of the smaller wireless companies secured €25 million in funds to invest in the industry. BT has announced it will invest €20 million in the industry.

On the issue of the regulatory powers, ComReg makes the point of a possible statutory power to go over the heads of the retail operators and give notice to customers that there is a possibility of disconnection. One would need to be careful because the notice of disconnection arises when somebody breaches the payment terms. People can breach their payment terms but then suddenly pay up. Is it a question that there should always be a notice to customers because that would pose the risk of destabilising the industry and scaring customers away from some of the smaller operators who are starting out and growing their business, because growing a business needs funds and people can run into difficulties sometimes. Achieving a balance requires careful consideration.

As members will be aware, the Department has been working on the drafting of a communications (miscellaneous provisions) Bill, which would improve ComReg's enforcement powers and which we hope to see in effect in the first half of next year. We have discussed issues with the Department and we see the possibility of including certain provisions and hope members will support our efforts.

I will ask my colleague, Mr. John Doherty, to address the question of local loop unbundling because substantial progress has been made on it.

It is important not to confuse the difficulties of one company with the difficulties of the overall market and it is important not to talk down the progress that has been made.

Mr. John Doherty

I reinforce the point made by Ms Goggin that one cannot characterise the failure of one company as the failure of competition. One of the things we were able to do as part of the remedial action was to publish the list of 39 separate providers who could provide services akin to what Smart Telecom was producing at that point in time. That demonstrates the choice in the marketplace.

On the last occasion we came before the committee, we had a target for local loop unbundling of having number portability launched on 8 August. It was duly launched on 8 August. Enhancements of that product will be launched in January 2007. We would like the process to be faster, but it must be akin to the pace the industry can accommodate. We have more than 20,000 lines unbundled. One would like to see more progress being made. There are issues to be resolved but we must act within the law and the parameters of the powers we have when moving the process forward.

The other element that must be recognised is the challenges faced by companies such as Smart Telecom in that it must compete against successful companies in the market providing good quality services. Prices in this market are cheaper than they were 15 years ago, and consumers have a much broader range of choice. One of the reasons we have been pushing local loop unbundling is that it will give consumers a greater degree of choice. That is not to be blasé. We are conscious of the impact of this knock on market sentiment but nevertheless progress is being made on local loop unbundling. We would like to see more progress and have an aggressive programme in place in terms of making that happen.

Ms Goggin

To return to Deputy Eamon Ryan's point about Eircom's refusal of a request for notice, we feel there is a case for improving the powers. The reason Eircom refused the request is that Smart Telecom was clocking up debt on an ongoing basis. In other words, the longer the situation went on, the longer it was not paid, the more it was owed. When it was clear that the matter would not be resolved in the short term, ComReg had to focus on providing a service for consumers. I reiterate that the emergency plan we had in place ensured that people could make 999 calls and receive incoming calls. That was crucial in the context of the preparation we had in place before things blew up. However, that is not a solution going forward, which is why we engaged in intensive discussions over the following days with Eircom and the other operators to restore full service on an interim basis and on a basis which allowed customers to choose their operator. Nobody has been returned against his or her will to Eircom on a long-term basis, but people must choose which operators they wish to work with.

Chairman

Can Ms Goggin clarify for the committee how long she was aware as regulator of the difficulties Smart had with Eircom? How long was ComReg aware of Smart's inability to pay its accounts and its dispute with Eircom?

Deputy Broughan

That is also my first question. The regulator received 19 separate termination notices from Smart, which suggests the story of the boy who cried wolf. If the regulator heard on 19 occasions that there was a very significant problem, why was it not processing an emergency plan? When the Franco-Australian regime took over in the incumbent, Eircom, did the regulator speak to its representatives about the problem? Did the regulator explain that there was a serious problem in the market with a significant supplier, Smart Telecom, and that there was a real concern that 45,000 customers would be left without a service? Did the regulator have meetings with the new regime and how many of the notices were served under the Australians' tenure? Did the Australians simply say they would not tolerate a debt from a customer of €4 million and assert that such a state of affairs would not be allowed to continue? Was that not the way it was and, as such, was the regulator not remiss? Is this not a further example of regulatory failure? It is not the first time this has happened in our market. I recall that NTL left the bulk of Tallaght, which is a very important region of our city, without any landline service whatsoever. As this has happened before, is it not something of which the regulator should have been more aware?

Does the regulator have any interest in or concern about the various business models of companies operating in the deregulated market? While the slogan was "Free line rental for life; it's not magic, it's just Smart", it was certainly not magic for 45,000 people. They were left without a service at a critical point and the regulators and commissioners should note that they are hopping mad.

We have been inundated with e-mails from people upset that their service was disrupted in this manner. They feel it is an example of market and regulatory failure and that the regulator requires a completely new remit and greatly strengthened powers, which is also my view. We have waited patiently for ten years for a Bill from the outgoing Government to provide the serious powers the regulator needs. Does the regulator have the slightest interest in the business models of Smart and other companies which continue to motor along in the market, but which I shall not name, which it might be felt are not sustainable in the long term?

Does the regulator pay much attention to this committee? At one of our last significant sessions on telecommunications, Mr. Oisin Fanning attended. He is a remarkable entrepreneur. He sat in front of us and complained bitterly about portability and the length of time it was taking him to get numbers changed. He told us he had 45,000 to 55,000 customers who were waiting to move over but who could not move. Did the regulator take note of the fundamental problems which were pointed out or listen to Mr. Fanning and acknowledge that the information was from the horse's mouth. Mr. Fanning is an entrepreneur at the cutting edge of a very competitive market but he cannot do his business because the incumbent is not responding. Did the regulator take any fundamental action to facilitate the unbundling process?

The first widely distributed interview with Rex Comb of Eircom was published in the business section of one of last weekend's newspapers. He indicated quite clearly that he did not intend to upgrade the rural exchanges on the grounds that it was neither worth it nor feasible. Did any alarm bells ring in ComReg when its officials read those comments given the Government's objective to provide broadband to the whole country? I acknowledge that we are approaching the enabling of 10% of lines in that context.

Chairman

At what stage did ComReg realise Smart Telecom was in serious trouble and unable to pay its debts? I wish also to be fair to Eircom today as the company was providing a service for which it should have been paid a wholesale rate. Every one of Smart's 40,000 customers must have been paying their bills or they would have been cut off. I do not suggest for a minute that Eircom did not have a business to run and that it should not be paid for the services it provided. What is important to the committee is to discover the stage at which ComReg became aware of the problem and got involved, and to learn what action it took.

In the context of Deputy Broughan's remarks, I note that when Oisin Fanning was here, he spoke about the number of broadband connections he was trying to achieve and said he had orders for 6,000 with Eircom. Eircom disputed those figures when its representatives came before us following Mr. Fanning's attendance. Eircom mentioned a figure of half that, with which Mr. Doherty agreed. We should separate the two as there are broadband and fixed-line businesses. I acknowledge they have taken out the broadband. The 40,000 customers in question paid their bills to Smart every month but Smart did not pay its bill to Eircom. We should keep this in perspective and have some small consideration for the supplier of the service too. We are talking about a contract debt after all.

Ms Goggin

It has been clear since early 2005 that Smart has been in dispute with Eircom on aspects of their interconnection agreement and moneys which were allegedly owed. On 8 September 2006, Smart's serious financial issues came into the public domain when the company itself announced that it had initiated a strategic review of its operations. At that stage, there were a number of ways that things could have gone. The sum owed to Eircom could have been paid or made the subject of a settlement, or Smart could have gone to court to arrange examinership or receivership. Smart could have sold the book of customers to another operator, dealt through another wholesale intermediary or, as happened, failed to reach any agreement with Eircom. It was not clear to us which of the eventualities would occur, but we had to ensure in our emergency planning that whatever happened, a minimum level of service to allow emergency and incoming calls would be available to all consumers.

I ask Mr. Doherty to deal with the question of termination notices.

Mr. Doherty

To reinforce Ms Goggin's point, until very late on Monday afternoon, Smart Telecom was of the view that the issues would be resolved without a termination.

Deputy Broughan

However, ComReg knew that 19 termination notices had been sent out over the previous few months.

Mr. Doherty

I do not know how the terminology of "termination notices" has crept in. What occurred were 19 previous breaches in the years Smart had been in operation in the context of the interconnect arrangement. That is not the same thing as 19 termination notices. It became clear in September that Smart Telecom, which had publicly declared it was running out of cash, could not support its high business volume and needed to reduce it. ComReg was aware that Eircom was working with Smart to agree a package and to put in place a new bank bond.

Members may be aware that while Smart Telecom could not agree a deal on Monday or Tuesday with Eircom, a deal was reached on Friday evening thus ensuring continuity of service for Smart's broadband customers. ComReg was in a difficult position on the Monday evening at which time Smart Telecom was claiming it would continue to trade and had not gone into liquidation. It owned customers in the sense that it had contracts with them for service and despite repeated requests by us Smart did not publish the details of its difficulties to its customers and up until Friday night still had not done so. To put things in context, the company continued to trade based on the belief it could resolve its difficulties and had appointed experts and consultants to put together an acceptable package in that regard. However, services were later terminated.

Post-termination of service much was done. Eircom pulled out all the stops to ensure Smart Telecom customers were provided with service in regard to incoming and outgoing emergency calls but not to mobiles and it is funding that in the interregnum.

Chairman

Eircom has been paying those costs for the past two weeks.

Mr. Doherty

Yes.

Chairman

In respect of local and national calls.

Mr. Doherty

Yes. In terms of the parlance this matter was previously the subject of a court case. It is in the public domain. It was fairly clear in September that Smart Telecom could not trade at the level it was then at. We put the emergency plan in place because it was not clear which one of two things would happen, namely, Smart Telecom would fail or wholesale services would be removed. That plan was triggered on the Monday and it worked in that there was only a diminishing of services as distinct from a total loss of services and full services were resumed within the following 48 hours. I agree the situation is not acceptable. However, it is difficult for a regulator to pre-empt or precipitate the collapse of a particular company at a particular time when that company continues to operate, does not go into liquidation or receivership and seeks no recourse to the courts in terms of examinership.

Chairman

Deputy Broughan is correct that customer confidence in our independent network operators has been seriously damaged. It was shameful that so many businesses and retail customers were left without service and that the problem was not solved earlier. I do not lay blame with anybody, I am just saying the situation was shameful. It did nothing for competition in the marketplace in terms of the availability of different operators in Ireland. This may result in many customers returning to the safety of the incumbent. It is a serious step backwards.

Deputy Fitzpatrick

Will ComReg provide the committee with a report detailing the series of events leading up to the pulling of the plug on Smart Telecom? Will such report point to the mechanisms required by ComReg to prevent this type of arbitrary withdrawal of service by Eircom via independent operators, as happened with Smart Telecom? Is further legislation needed to prevent this happening again? I regard ComReg and other regulatory bodies as in many ways being referees holding the ring while problems are resolved. It is obvious that mechanism failed in the Smart Telecom debacle.

Ms Goggin mentioned earlier that many companies are successfully operating profitable telecommunications services? What is the difference between Smart Telecom and these other companies? Was there any one difference or a series of differences? This information should be put into the public domain for the benefit of the 40,000 customers involved.

Ms Goggin

Deputy Broughan asked a number of questions that have not yet been answered.

Mr. Mike Byrne

Two specific issues were raised, namely, NTL and business plans. I will deal first with the NTL issue. It is a matter of public record that NTL had reported a substantial and significant fault with the power unit supplying service to home telephones which, it is alleged — I understand this is a matter of dispute between the supplier and NTL — could have resulted in fires at these residences. The company, when it became aware of this, made the correct decision to withdraw the actual units from people's houses. We have no issue with this. What we took issue with was NTL's decision to withdraw at that time from the provision of telephone services through its cable network. As soon as we became aware of this, we outlined to NTL where we stood on the matter. We also moved quickly to provide information to the consumers affected. I think there were between 2,500 and 3,500 consumers involved, all of whom resided within the Dublin 24 area and many of whom had within a short space of time moved to other service providers. I agree with Deputy Broughan that while on the one hand NTL may have acted prudently, it should not have used the situation as an excuse to exit the market.

On the business plan scenario, under European law which has been transposed into national law, the process used to remove barriers to entry is authorisations. They are not licences, they are authorisations which authorise companies to offer services within the State. There is no remit for the regulator to pick winners in that scenario. In other words, we do not become judge or jury in regard to one business plan over another. Once an entity satisfies itself with regard to the authorisation guidelines it is entitled to offer services. From that perspective, market entry for service providers has been good.

As my colleagues stated, we have up to 40 different service providers ranging from BT Ireland to UTV Internet, many of which are now household names, offering services to consumers thus helping to lower prices. The authorisation process has removed any requirement on the regulator to decide on one business case over another.

Deputy Broughan

Is Mr. Byrne saying that ComReg can only take action when problems have been identified, as emerged with Smart Telecom which had been experiencing problems paying its wholesale revenue and so on? In other words, regardless of how magical an offer might be, must ComReg allow the market to play out?

Mr. Byrne

We are very conscious of our role with regard to informing and protecting consumers. In recent years we have taken steps to ensure consumers are provided with information on all the available products, as is the case in any other services sector. The consumer, once provided with the information, can then make up his or her own mind. In any competitive environment, there will be winners and losers. It is not the regulator's role to manage the affairs of any service provider. This is fundamentally a commercial debt issue between two parties. Our remit in that scenario is to deal with the consumers who are affected by this. We have indicated that we were frustrated by what had happened but we moved quickly to ensure both our actions and the actions taken bilaterally with the wholesale service provider removed the inconvenience to consumers as quickly as possible.

Chairman

Did Ms Goggin answer Deputy Fitzpatrick's question?

Ms Goggin

We have been reporting to the Minister as we go along. We regard our presence here and the information we provided as part of the function of reporting to the committee. If there are further details on which it would like information, we would be very happy to provide them through the secretariat.

On mechanisms to prevent arbitrary withdrawal, we mentioned that it would be good to have a statutory provision for a notice period to customers. That would deal with a situation where a wholesale provider decides to withdraw services from a provider of retail services such as Smart Telecom plc but it would not necessarily cover every possible outcome in terms of the range of possibilities in companies failing.

As to the difference between Smart Telecom and other companies, I would have to fall back on what my colleague, Mr. Byrne, said in that our role is to get them into the market and let things play out. We do not make judgments as to whether one company has a better business case than another. In general, financial and capital markets do a good job. They are expert at scrutinising business cases and deciding whether they should be funded. There is a range of broadband providers which use many models. Providers of wireless broadband use their own networks and do not depend on Eircom. Some companies use local loop unbundling which uses the fixed network but to a lesser degree than those which merely resell Eircom's service. We regard our function as getting the interconnection links in place to allow people to do this. They then have a choice as to which business model to use and they must win customers the same as anybody else.

Deputy Fitzpatrick

A report would show the cascade of events that led to the withdrawal of service and the lessons which could be learned from it. We are not going into the financial markets only. I know it was a financial disaster. However, things happened. Warning lights flashed right along the line that were or were not noticed. If a report is published showing this, it need not apportion blame, but it would enable us and other entrants to the market to see what went wrong and avoid making the same mistakes.

Senator Kenneally

Most of what I wanted to ask has already been asked but I have questions on one or two minor issues. There is reference in the presentation to the activation of the emergency plan. This was also referred to this afternoon. Why was it possible to activate the emergency plan in regard to incoming calls but it was not possible to activate it to postpone withdrawal of service for 24 or 48 hours? Does this mean there was no plan, that ComReg had to rely on Eircom? Was ComReg able to force it to act? If Eircom could be forced to do one thing, why could it not be forced to do the other?

The Chairman asked a question but did not pursue it. I also made a note of it. Having paid for a service, Smart Telecom's customers have gone elsewhere. They are, therefore, out of pocket because they would have been paying Smart Telecom a month or two in advance. Is there an insurance bond or something similar in place to compensate customers when something like this happens? Should there not be a fund provided by the industry to deal with such situations?

I agree with Deputy Eamon Ryan that, reading between the lines, Eircom still has a monopoly. Is there any case for referring this matter to the Competition Commission or the Director of Consumer Affairs because Eircom still seems to have a stranglehold on the industry?

Mr. Doherty has said there are 39 other companies towards which Smart Telecom's customers could be directed to obtain alternative services. How many of those companies provide fixed line services?

Chairman

We will take a few questions from Deputy Kelly. I am conscious that the Order of Business is starting soon.

Deputy Kelly

Given that there is an open market, I do not blame ComReg, but do we need it? Free line rental was offered but that was not a very smart move. We should forget about "freebies". The word "free" should be dropped from all advertising because nothing is free. I have never yet got anything for free. I do not know whether anybody else has. It is misleading to imply something is free. One would think people would have more sense than to believe anything was free, but everybody gets caught sometime.

What is Smart Telecom? What is Eircom? Does anybody know? Are Smart Telecom and Eircom one company? In regard to Eircom, I meet only local people who work mainly in Longford and work in maintenance, installing new lines and repairing existing lines. They provide a good service. Anybody who lives in Longford knows most of the staff by sight, as they all live in County Longford. They are all decent, respectable, hardworking, intelligent guys. The smart guys work for Eircom.

The people of County Longford could do with broadband in every part of the county. People make representations to us as politicians and expect us to be successful in getting what they ask for. I asked whether we needed ComReg. Can ComReg do anything for the people of County Longford in providing broadband services in every part of the county? If ComReg can do this, perhaps I will agree it is a great outfit.

Chairman

Ms Goggin may share the questions asked because they were diverse.

Mr. Doherty

As I am conscious of the time, I will deal quickly with a number of the points. The emergency plan was put in place, although it was not clear which of a number of circumstances might arise. It was agreed with Eircom and triggered immediately. It needs to be recognised that in the absence of such a plan there would have been no services for customers. The plan worked and provided those services by agreement with Eircom at our joint request as a way of providing a solution in case a company left the industry.

Senator Kenneally

ComReg could not force Eircom to do anything. It was by agreement.

Mr. Doherty

It was by agreement that the emergency plan was put in place. Eircom has now put in place an interim solution which is providing the additional services at cost to itself. It is put in place in agreement with our office.

The Chairman touched on Smart Telecom's responsibilities. Smart Telecom has responsibilities in its trading relationship here. It had a significant debt and needed to be able to offset that debt because it was competing with other companies which were operating under the normal terms and trading conditions of the marketplace. There must be a recognition that Smart plc — and both of them are public companies in that sense — has responsibilities in operating in a manner which allows it to settle its debts, and look after and inform its customers. Eircom was facilitating additional credit to Smart during this period and had been doing so for some time.

Chairman

Is Mr. Doherty suggesting that Smart was trading recklessly?

Mr. Doherty

No, not in the slightest. I am merely making the point that Smart Telecom had obligations as a company to keep its debts up to date. That was the simple point which I think was echoing to some extent the point made by the Chairman.

Ms Goggin

I will pick up on some of the other points regarding whether people could be compensated, etc. This is an issue which the Chairman has raised. We have to think very carefully in terms of constructing any mechanism so the good companies are not penalised at the expense of the bad. Companies that pay their debts and pay their way should not have to have money taken from them as a fall-back measure for companies that do not pay their debts.

On the issue of a monopoly, we would make the point that there are many different markets in telecommunications. Some of them are very competitive, some to the point where we have been able to review them and state there is no need for any more regulation. For example, this is the case with very high bandwidth leased lines, the type of product that would go to the corporate end of the market, big business international lines, etc. We have been able to take such products out of the regulatory net because there are enough companies and competition to provide good value for money.

On the local loop and the very end bit that goes to the consumer, we would not be in a very unusual position in comparison with other countries in terms of people still being quite dependent on the incumbent. Eircom would have between 75% and 80% of revenues here, but in the UK, which deregulated 22 years ago in 1984, BT has about 70% of revenues. Eroding the monopoly is a slow process, but we must recognise the gains we have made.

With regard to the 39 companies which Mr. Doherty referred to, as far as I remember they were all fixed-line companies. There are fixed-line companies, and there also mobile companies and firms which provide other kinds of wireless broadband and so on. With regard to Smart and Eircom, as far as we know there are no links between them. There are no ties.

We have been working on the availability of broadband with the relevant Department for some time. The Minister announced at a conference some weeks ago that he would be working with the Department to bring forward a process to roll out broadband in remaining parts of the country that cannot at present receive it.

There was a reference to what Rex Comb was saying about Eircom, but I think that is recognising the reality of a commercial company. There are areas where it is simply not economically viable for the incumbent to provide broadband. In that case we have to look at some other mechanisms, and some of the existing ones such as the demands on the group broadband schemes. We are trying to do that.

We are also very keen on promoting the idea of wireless broadband. I know there are a couple of wireless broadband providers in some parts of Longford. I am sure they do not cover the entire county, but we can certainly check what is available and get back to the committee on the sort of availability and choice which exists. Eircom is continuing to roll out the exchange enablement programme to many towns and cities, but it will always make the point that there are areas in which the density is such that it is not economically viable to do so.

Mr. Doherty

We recognise the Chairman's point and we would like to see competition continue to improve and develop in the market. We have identified to the Minister and his officials some additional powers that we believe are necessary to push and accelerate the process. Progress has genuinely been made, costs are lower and there are multiple providers.

If we want to face into the future of a new converged world of new technologies, we must accelerate the pace of this progress. We have clearly identified some issues where we would like those additional powers. If I may, I suggest to the joint committee that its support in these areas when the matter comes before the Houses would be greatly appreciated.

Chairman

We would certainly like to see the requests Mr. Doherty sent to the Minister in order for us to actively campaign with him for them. Perhaps he might send them to the clerk?

Mr. Doherty

We will put together a copy of the powers being requested.

Chairman

It is the view of members that the relevant authorities should inquire into the trading practices of Smart Telecom plc, which has now exited the fixed-line business.

Mr. Doherty

It is continuing to seek and provide some services in business elements of the voice business. It is not doing so for the residential part.

Chairman

I see. We will make an inquiry as it is the view of the members that it should happen. Is there any compensation available for customers who have been without their services from Smart, even for that short number of days? One person close to me was inconvenienced significantly by the loss of service.

Are the 40,000 customers who have been advised through public notices migrating to Eircom or other operators? Is this the first market failure in this country or have there been others? I am just trying to remember, so could the witnesses advise the committee on this issue?

What happens in other countries when a large operator in terms of customers fails in this way? We already spoke about consumer confidence in operators. Others have mentioned notice of services being withdrawn, and that this might have to be built into regulations if possible. I am not sure what is possible and what is not. There must be a mechanism for alerting customers to the fact that the incumbent is withdrawing services from a wholesale operator.

Does ComReg get annual accounts, or is there a provision in law for annual accounts from service providers to see how they are doing or if they are profitable if they are non-plc companies? Is there such a provision in law in other countries? Should there be such a provision?

There is also the question of number portability. I understand from one customer that a number from Smart Telecom was provided which may not be transferred if the customer returns to Eircom. This is causing problems for a number of people who have contacted me. People would have advertised businesses in the Golden Pages, customers would know the number and it would also appear on headed notepaper and other correspondence. I understand that because of a certain sequence of numbers, Smart customers may not be able to bring the number with them to Eircom. Is that true?

I am not sure if provision in law can be made for telephone operators to pay into a compensation fund to be used in the event of an operator failing. This relates to the first question I asked after the submission by the delegation. The fund would enable an operator to continue services over an interim period until people had an opportunity to move to another operator or the incumbent. I am only speaking of the cost of carrying the telephone expense for the short interim period.

In this case it does not matter because Eircom has provided two weeks of local and national calls because of the negotiation through ComReg. Perhaps there is a case to be made for having such a fund for an operator that would go out of business. It is a suggestion.

Perhaps the witnesses can answer these questions. The committee will understand if some of them cannot be answered. The delegation can include some of those answers with the document it will send to the committee.

Ms Goggin

We might come back to the committee on the Chairman's question regarding the provision in law for the operators to pay into a fund. It is quite a complicated question. It comes back to whether an operator actually went out of business. That was the dilemma facing us.

If an operator goes out of business, that is one thing; the customer has no rights since that relationship is over. One can see if there is a case for an interim arrangement. Where it does not go out of business, but at the same time the customer loses service, it raises the possibility that one is effectively using other operators' funds to subsidise its debts. We would like to consider the ramifications if members do not object.

Chairman

Is Ms Goggin saying that Smart Telecom has not gone out of business? It transferred its shares to someone.

Ms Goggin

It remains extant as a company.

Chairman

Does that mean that Eircom is within its rights to pursue the debt owed to it in other ways?

Ms Goggin

My understanding is that it has reached agreement with Smart Telecom regarding the debt.

We have no provision to get hold of service-providers' annual accounts to assess profitability if they are not public limited companies. It comes back to what Mr. Byrne was saying about the open entry and authorisation system. This is not specific to Irish law but a result of European directives. The set-up is that one's job as regulator is to allow market entry. There is a general authorisation system, which is a very light touch. Essentially people need only say who they are, what services they provide, and where they operate. The directives make no provision for any further scrutiny of market entrants in that way.

Regarding the 40,000 Smart Telecom customers, it is perhaps too early to say to whom they are migrating, but our feedback is that various different operators have been picking them up. Members may not know, but there have certainly been some very creative advertising campaigns aimed at those customers. The other service providers are certainly aware of their presence in the market and that a service must be provided to them in a hurry.

Chairman

Is compensation available?

Mr. Doherty

No, but Smart Telecom would argue that many of those customers have run up calls during that period and, in the normal course of events, might have been billed for those services. It will take a while for the situation to crystalise. In other words, the advance payment for the rental may be offset against call charges incurred over the same period. That is one of the matters that will take a little longer to clarify.

Chairman

Some very astute business people will be very reluctant to pay for any calls they made if they were without a service.

Mr. Doherty

I was making the general point that it is not clear-cut that a refund is due to customers in all cases; that was all.

Chairman

And on number portability?

Mr. Doherty

If the Chairman can supply us with the details, we can look at it. We are conscious of the issue regarding the numbers. Approximately 2,500 Smart Telecom local loop unbundling customers were cut off. We would like to understand the specific examples, and perhaps the Chairman might share those with us bilaterally.

Chairman

Certainly.

Ms Goggin

I was going to ask Mr. Byrne to reply to the question on what had happened in other countries and whether there had been failures.

Mr. Byrne

The largest market failure recently in the UK or Ireland was probably Ionica, a case that happened in the UK approximately four or five years ago. As my colleagues explained, it went into liquidation and removed itself from the marketplace completely. The process put in place as an interim solution is not unlike what we have in this case. It happens, although, as my colleagues said, since market liberalisation in Ireland in 1999 there has been very few such events.

I stress the importance of not talking down the strength of competition in the marketplace. Several service providers sitting in the Gallery today are playing their part in providing products and services for all consumers rather than only for the 40,000 Smart Telecom customers. I agree absolutely on our regulatory responsibility to protect and inform the consumer. We are conscious of that and provide information on our website and through advertisements regarding all service providers that exist and not only the incumbent.

Chairman

Have any smaller operators gone out of business here in recent years?

Mr. Doherty

Several companies that we would describe as carrier pre-selection, or CPS, operators have left the market for several reasons, for example, Interroute Telecom. The customer book was bought by BT at that point.

Chairman

Did any company leave the customer stranded in the same way as Smart Telecom?

Mr. Doherty

Not to the same degree. Ionica in the UK was slightly different, since its customers all went back to BT. The Department of Trade and Industry effectively paid BT to take them using central exchequer funds.

Chairman

To take the customers?

Mr. Doherty

Yes. What we have tried to do in this market is ensure that customers have a choice regarding whom they pick. There is no Exchequer exposure in putting this interim solution in place.

Chairman

Mr. Doherty mentioned 20,000 completely unbundled lines among the 1.3 million that exist.

Mr. Doherty

Completely unbundled, yes.

Chairman

Those 20,000 are other operators' and completely unbundled, not being dependent on Eircom.

Mr. Doherty

They are fully unbundled lines, some of which are from Smart Telecom, Magnet Networks and others.

Chairman

I thank the witnesses for appearing before the committee and briefing it on the difficult period that ComReg has gone through in the past two weeks and the actions that may or may not be taken. I hope we will see some legislation or a code of practice put in place to regulate relations between incumbents and operators. That would alert customers that their services could be discontinued at some stage.

I know that the witnesses must work through several issues. However, it is regrettable that any customer who has been paying his or her bill to an operator should be left without a service in such a manner. As politicians and people working in the industry, we very much regret that it should happen.

I thank Ms Goggin, Mr. Doherty and Mr. Byrne once again for appearing.

The joint committee adjourned at 5 p.m. sine die.