Eircom ‘prepared to negotiate’ with ComReg

31 Aug 2004

Eircom’s commercial director David McRedmond last night told siliconrepublic.com he welcomed ComReg’s draft decision on a €14.67 monthly charge for local loop unbundling (LLU) insofar as ComReg “pragmatically” took into account factors such as consumer price index and inflation, but called for flexibility in terms of Eircom’s freedom to adjust the price to reflect the ongoing cost of efficiently running its network.

“What’s interesting, and what seems to be workable, is that ComReg is indexing the price against consumer inflation. It’s a different approach to the price last year based on long run incremental costing (LRIC), which set a fixed price and was unrealistic in the context of the ongoing costs of running a national network,” McRedmond said.

ComReg last night returned to the issue of monthly charges for LLU and has proposed a price of €14.67 that it is proposed would kick in on 1 December.

The last time the issue was raised it resulted in a legal battle in the High Court resulting in a settlement upon which Eircom would charge competitors the current monthly rate of €16.81 for access to its network, pending a review a year later. During the action Eircom threatened to postpone up to €1bn in much needed investment because of the losses the fixed price of €14.65 proposed by ComReg at the time would incur in the long term.

Last night, ComReg chairman John Doherty issued a review of Eircom’s unbundled local metallic path monthly rental and proposed to implement a price of €14.67, based on the conduct of an efficient operator.

Doherty said: “Only efficient operator costs should be used where prices are based on the design of a modern efficient network valued at today’s prices.”

ComReg also decided that Eircom has “significant market power” in the market for local loops and has instructed Eircom to amend its offer to other licensed operators (OLOs) based on the new price of €14.67.

“Given the length of time that it has taken to reach a conclusion on this matter and in the interests of certainty, ComReg proposes that the ceiling for this price would remain fixed in real terms until 1 December, 2007,” Doherty said.

Doherty also said that Eircom cannot increase the price any more than the rate of consumer inflation by reference to the consumer price index in each year up to December 2007.

In an interview last night with siliconrepublic.com, Eircom’s commercial director McRedmond said Eircom, along with OLOs, has three weeks to respond to the draft decision and said the cost of replacing and upgrading the existing national network should also be taken into account alongside consumer price index.

“By referring to consumer price index, ComReg appears to be recognising that prices go up. It’s a welcome move and suggests pragmatism. We will be reviewing ComReg’s proposed price over the next few weeks and will see if it is workable. If we believe that it is sufficient to provide a return and is sufficient to cover operating costs going forward, we will be inclined to look favourably on it.

“However, there will have to be a mechanism to allow for the price of upgrading the network. We are committed to investing €200m a year in the national network. If, for some reason, we decided to increase our investment or upgrade the network in the interest of everybody to allow for that in the price, we would be interested in seeing some mechanism for price adjustment.”

“We would be inclined to look favourably on the fact that they’ve taken into account the cost in line with inflation. We view it as an acknowledgement that Eircom has worked hard to become an efficient operator.

“However, we have some real concerns about the price being sufficient. As an initial view on ComReg’s draft decision, we feel that they have taken a pragmatic approach and we will respond in as pragmatic a way as possible,” McRedmond told siliconrepublic.com.

By John Kennedy