Oireachtas committee to probe Eircom price rise

19 Jan 2004

UPDATE – Eircom and the Commission for Communications Regulation (ComReg) will be called in front of the Oireachtas Committee on Communications, Marine and Natural Resources later this month to explain why the telco has increased its line rental charge three times in the past year. The Committee’s chairman Noel O’Flynn TD added that he believes Eircom hiked its prices in advance of a trade sale and will seek clarification on this issue.

Speaking to siliconrepublic.com, O’Flynn confirmed that the meeting on 28 January would also feature a presentation from the Consumers’ Association of Ireland on the impact of the price hikes on the consumer.

Eircom’s decision to increase the cost of its line rental earlier this week by €1.68 was the third consecutive price rise by the company in the past year. The new price of €24.18 is €10 higher than the EU average and will make line rental in the Republic of Ireland €9 more expensive than France and the UK.

O’Flynn said: “I’m not going to pre-empt the outcome of the meeting on the 28 January, but the Committee considers it on behalf of the Irish consumer to be a little too much in terms of three increases in a calendar year.

“I think the company [Eircom] is preparing itself for a trade sale and rumours abound in the marketplace that the company is going to sell up. I want clarification from Eircom on this. I believe that they are giving themselves the opportunity to sell off chunks of the company to institutions.”

According to reports at the weekend, Eircom’s shareholders are understood to be planning a March flotation that would value the firm at between €3.2bn and €3.9bn. Goldman Sachs has been appointed the lead adviser on the proposed flotation, which falls significantly short of the €8.6bn valuation given to the company when it was floated on the Dublin, London and New York exchanges in 1999. Although Eircom is not expected to announce a precise date for the flotation until next month, the Oireacthas committee meeting seeking clarification on the company’s motives behind the line rental price increase may force the telco’s hand.

O’Flynn continued: “We are going to bring in the Consumers’ Association of Ireland, then Eircom and then ComReg to explain why and how they agreed to Eircom’s line rental increase.”

It is understood that ComReg agreed to the line rental price rise because Eircom’s charges comply with a price cap formula that the regulator set to protect consumers. This has been achieved through a so-called “rebalancing approach” which has seen Eircom steadily reduce its call charges, only to push up rental fees.

“ComReg are saying that the totality of Eircom’s prices have not increased more than the rate of inflation and that this makes it okay. The problem we see is that this ‘rebalancing’ has the potential to increase FRIACO charges for internet and broadband,” O’Flynn warned.

By John Kennedy