Friday 24 May 2019

Richard Curran: 'Eir settlement shows why ComReg needs greater powers'

In the big seat: Carolan Lennon, Chief Executive Officer of Eir. Photo: Steve Humphreys
In the big seat: Carolan Lennon, Chief Executive Officer of Eir. Photo: Steve Humphreys
Richard Curran

Richard Curran

There has rarely been a case which better highlights the need for greater powers for the telecoms regulator, than the settlement agreement reached between Eir and ComReg and announced this week.

ComReg is operating with one hand tied behind its back as it lacks the legislative powers to really ensure fair play in the market.

It is extraordinary to think that a regulator in a sector as strategically important, and with such potential for ripping off consumers, could be so restricted by the legislation that governs it.

Every time ComReg makes a finding that a company - in this case Eir - has breached statutory rules and should be fined, it has to run the gauntlet of heading to the courts in order to ensure there is some redress.

It does not have the legal powers to levy civil fines on its own. This week's settlement between Eir and ComReg is a good result, but it is not the best outcome.

The settlement agreement was reached between Eir and ComReg regarding outstanding legal actions. Close to two years ago, ComReg sought to impose penalties of up to €10m after it asserted that Eir had failed to comply with its obligations on access to its network for rival provider. This is a very serious issue because it could disadvantage rivals, costing them money, and discourage customers from using rival telecommunications providers, which would restrict competition thereby resulting in higher prices for everybody.

ComReg, as the independent regulator for the sector, concluded this had been going on since 2011.

But rather than being in a position to just fine Eir, it had to go to court seeking a declaration of non-compliance. It also sought an order for payment of a financial penalty of nearly €10m.

Eir must provide reasonable access to its network for other providers. When ComReg sought to have the case heard in the Commercial Court, which is speedier, Eir resisted that.

The firm's lawyers argued in court that it shouldn't be fast-tracked through the Commercial Court because it didn't fit the criteria. It wasn't a private sector commercial dispute, but a dispute between a state authority and a private company.

It also accused ComReg of taking too long to initiate the case. The firm's lawyers also pointed out that it had initiated its own countersuit against the government, claiming that EU regulations had been incorrectly applied and arguing that ComReg had overstepped its remit in trying to impose civil sanctions on it.

Irrespective of the legitimacy of Eir's legal argument or not, it is a wholly unsatisfactory situation that a regulator had to go to court to get a ruling in its favour in relation to what it concluded, as regulator, were serious breaches.

Surely, it should have the power to impose fines and if those fines were to be appealed through the courts on legal, procedural or whatever grounds afterwards, then so be it.

Having had the case bogged down in mutual litigation for two years, there was a settlement agreement this week. The big question is whether Eir did breach the law. One would have to conclude that its behaviour was less than satisfactory given that it has agreed to pay €3m as a fine, as part of the settlement.

It has also agreed to a number of very substantial structural changes to how the relationship between its wholesale and retail arms work. The introduction and application of these changes is to be overseen by an oversight board.

This board will have five members, three appointed by the regulator, including the chair. There will be new rules on how the Chinese walls between its wholesale and retail businesses will interact and work, which will see changes in its IT systems among other things.

This is a dramatic change and it is a welcome one.

The company has also agreed to put a further €9m in an escrow account if deadlines for these changes are not met, or any breaches are found. ComReg will also be able to confiscate that money as further penalties.

Clearly, Eir was not operating in a satisfactory way. The biggest priority for consumers, competitors, governance and the law in this country, is that the issue is fixed. The advisory board element should go a long way towards ensuring that.

However, there is another issue. Financially, how much was it worth to Eir to engage in these practices for several years?

Assuming it all gets fixed now, the cost to Eir will have been a tiny €3m fine. Eir had revenues of €1.2bn last year.

If it fails to make all of the requisite changes into the future or if there are breaches found, it could end up costing another €9m. But on purely financial grounds, the commercial benefit of whatever way things were being done over several years, was probably greater than €3m.

If Eir still believes it did nothing wrong, then why it is agreeing to pay €3m, a possible further €9m, and make such substantial changes? If it did breach the rules, €3m is a small price to pay.

There is a pragmatism at the heart of this change at Eir.

The company has a relatively new CEO, Carolan Lennon, and a new owner in French billionaire Xavier Niel.

Ms Lennon's statement on the issue hinted towards the bigger issue for the company, when she said the settlement "will allow us to concentrate on our key strategic plans, most importantly our ongoing investment of €1bn in our networks". Under its new owner, Eir has been slashing costs and wants to invest in its network in high-yielding urban areas while competing aggressively on the retail front.

The last thing the chief executive needs is to be fighting two legal actions with the regulator, one as defendant and one as plaintiff. Eir's legal action was against the government with ComReg adjoined to it, which looks even worse. These legal actions are complex and time-consuming. Presumably, once up and running, ComReg's legal case would have involved some potentially very embarrassing details for the company as it would probably have run for some time.

The company has already shipped a lot of negative publicity in political circles for mopping up the 300,000 rural homes for fibre that will not now be included in the National Broadband Plan (NBP). Plus, Eir and its infrastructure are likely to feature very strongly in the roll-out of whatever NBP emerges.

And there is another stick with which the company could have been beaten. In early 2016, the UK communications regulator, Ofcom, identified serious failings with BT's ownership of Openreach, a subsidiary that runs Britain's entire broadband infrastructure. It said Openreach had an incentive to make decisions that benefited its telco parent rather than BT's rivals.

This corporate structure hindered competition and posed challenges to the rollout of full fibre across Britain, Ofcom said. It stopped short of seeking a full separation but did recommend Openreach separate legally with its own independent board comprised of non-exec directors that should not be affiliated with the BT Group. A similar structure might have been sought here.

The advisory board and €3m looks like a much smaller price to pay. But ComReg needs to be given stronger powers by politicians.

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