THE TRIBUNAL RESUMED AS FOLLOWS ON WEDNESDAY,
11TH DECEMBER, 2002 AT 11AM.
CONTINUATION OF OPENING STATEMENT BY MR. COUGHLAN:
MR. COUGHLAN: Yesterday evening I indicated that I
would return to the question of information and
memoranda supplied to the Tribunal by Andersen
Management International and in particular, by Mr.
I should say that it is disappointing that neither
Michael Andersen nor AMI is available as of now to
give evidence to the Tribunal or to provide any
further assistance to the Tribunal concerning the role
of AMI in the evaluation process. In the ordinary
way, when a witness refuses to attend at the sittings
of the Tribunal and the Tribunal nevertheless regards
any such person's evidence as important, the Tribunal
will usually wish to inquire as to what has prompted
such a refusal, since this may have some bearing on
any finding the Tribunal may ultimately wish to make
or any reliance the Tribunal will ultimately wish to
put on information made available by any such person.
In the case of Mr. Andersen, two reasons have been put
forward for his non-attendance to date:
1. Firstly, that he is bound by what he calls
lock-ups, which the Tribunal interprets as
2. Secondly, or alternatively, that his attendance at
the Tribunal or the provision of further assistance to
the Tribunal would expose him to material penalties at
the hands of AMI/Ementor.
In due course, the Tribunal will have to form an
opinion as to how compelling or valid these reasons
for non-attendance are. As things stand, a suggestion
by Mr. Andersen that he may be available to give
evidence in the future is not very helpful, since
clearly the Tribunal cannot be expected to dispose of
its business solely in order to accommodate the
resolution of a dispute, if any, between Ementor and
Ementor's determination not to attend appears to be
final. As neither Ementor nor Mr. Andersen are within
the jurisdiction, they cannot be compelled to attend.
Lastly, apart altogether from any view the Tribunal
may form in relation to the non-attendance of either
of these witnesses, it may be that in due course it
will be necessary to express a view on conduct of
competitions in the State where such competitions
involve the carrying out of evaluations or assessments
by independent or other advisers who are not amenable
to the processes of the State such as the process of
The memorandum of January 2002 provided by AMI is of
considerable assistance to an overall understanding of
the evaluation process. It also records some of Mr.
Andersen's misgivings regarding the execution of the
process, and I propose opening that memorandum and
referring briefly to certain portions of it.
The first portion I wish to refer to is paragraph 1.2.
"Purpose and scope of the memorandum:
"This memorandum has been prepared at the request of
the Tribunal by AMI. This memorandum is made to
supplement the prior general overview provided by AMI
in the memorandum of July 2001 entitled "Confidential
Memorandum on Andersen Management International
involvement in and some Cornerstones of the GSM II
Tender in Ireland."
"Irrespective of the fact that AMI's fees for the
preparation of this memorandum are to be paid by the
Department of Public Enterprise in Ireland, this
memorandum is intended only for the Tribunal."
Those fees of £20,000 were paid by the Department.
"The objective of this memorandum is to contribute to
the Tribunal's overview and understanding of the
events that took place in connection with the public
tender of the second GSM licence in Ireland in 1995
(hereinafter the GSM II tender) as well as the
procedures and methodology applied to the GSM II
tender. Since the particular focus of the Tribunal
with regard to the GSM II tender process is that of
the circumstances concerning the evaluation of the
winning applicant, i.e. Esat Digifone, this memorandum
deals with specific aspects about Esat Digifone and
their licence application where such information was
available to AMI and has been considered relevant.
"The basis for AMI's representation of the memorandum
is AMI's engagement in 1995 by the then Department of
Transport, Energy and Communications (hereinafter 'the
Department') as their lead adviser in connection with
the execution of the GSM II tender. It is important
to note that the GSM II tender had already been
designed by the Department in conjunction with other
external advisers prior to AMI's appointment."
The next portion I wish to refer to is paragraph 2.
"AMI's consultancy contract with the Department.
"AMI has assisted telecom regulators in numerous
jurisdictions in the award of in excess of 120 mobile
communication licences, the second GSM licence in
Ireland being one of them. Prior to the contract with
the Department, AMI had just assisted a number of
similar EU countries with GSM tender qualifications in
particular including, but not limited to, Denmark,
Norway and the Netherlands. The AMI team finalised
its assignment in the Netherlands during March 1995,
and the same core team commenced the assignment on
behalf of the Department from April 1995.
"However, the Department retained approximately 25%
fewer services/resources from AMI than the Regulator
in the Netherlands. For example, the Dutch Regulator
retained AMI to perform far more preparatory work to
develop a higher level of confidentiality during the
course of the tender, to perform more supplementary
analyses, and to assist with the conclusion of the
"After the GSM II tender in Ireland, AMI assisted the
ODTR with, for example, the following Spectrum
tenders, the third mobile licensing process, the two
FWPMA tenders, the so-called Orange case in the High
Court and the Supreme Court, the Broadnet FWPMA
litigation in the High Court and the subsequent review
of the FWPMA evaluation, the DCS 1800 Spectrum tender
with Esat Digifone and Eircell, two FWA tenders, and a
tender on TETRA.
"An AMI team is currently assisting the ODTR with the
two 3G (UMTS) tenders, both of which are to be
finished during the first half of 2002. However, it
is not the same team as that which assisted the
Department some seven years ago during the GSM II
tender addressed in this memorandum."
Now, the next portion of the report is paragraph 2.4.
"The Department had overall responsibility for the
conduct of the competition, but the ultimate
responsibility was naturally with the Minister. A
steering group or project team (hereinafter PT GSM)
was established to conduct the tender process. The PT
GSM comprised members from the then 3
telecommunications divisions of the Department (the
technology division, the policy division, and a third
division) and representatives from the Department of
Finance. AMI consultants participated in some of the
meetings from time to time, although AMI had no
permanent members of this group. Martin Brennan, the
Department, was the Chairman of the PT GSM and Fintan
Towey acted as secretary. It is AMI's impression that
written minutes of meetings were taken for each PT GSM
meeting by the Department, but AMI has only one of
"Besides the PT GSM, specialised sub-evaluation
working groups were also established temporarily to
carry out the evaluation of the applications, c.f.
below in section 8.2 about these sub evaluation
"The civil servants of the Department had control of
the entire competition process including contact with
the (potential) applicants and the Minister. AMI did
not meet the Minister at any stage before, during or
after the process."
Now, the next paragraph I wish to open is paragraph
6.1: "Development of the evaluation model.
"About the evaluation model in general.
"It was necessary to develop a model to be used in the
evaluation of the applications for the GSM II licence
in order to ensure that all applicants were evaluated
on equal terms and according to the same parameters.
The purpose of the evaluation model is to enable the
evaluators to apply in practical detail the evaluation
criteria set out in relatively broad terms in the RFP.
Accordingly, in designing an evaluation model the
practice is to set out in detail dimensions and
indicators into which the evaluation criteria provided
in the RFP will be divided and how these dimensions
and indicators are to be evaluated/measured and
compared among the applicants. Dimensions and
indicators are, in effect, sub-elements of the broad
evaluation criteria, designed to assist the evaluators
to analyse and evaluate the applications in a
methodical and uniform manner. The evaluation model
in effect sets out how the evaluation process is
intended to be carried out.
"The evaluation model was entirely confidential to all
but the relevant persons in the Department, i.e. the
Minister, the PT GSM members, and the members of the
sub-evaluation groups, c.f. in section 8.2 -- and the
AMI personnel involved in the project. The only
information concerning the evaluation model available
to the applicants was the evaluation criteria listed
in descending order of priority in paragraph 19 of the
RFP. In this regard reference is also made to the
Department's information memorandum of the 28th April,
1995 where the Department States that "... A model to
be used to assist in the evaluation of tenders for the
second GSM licence is being developed by the
Department in conjunction with its consultants.
Criteria will be evaluated in the order of priority
detailed in paragraph 19 of the tender document [RFP].
The Department does not intend to publish further
details of this model."
"The final evaluation model was as described in
appendix 3 to the evaluation report of 25 October 1995
with this evaluation model having been settled and
finalised in advance of the closing date of the 4
"Without setting out the evaluation model in all its
detail, the processing of the applications in the GSM
II tender may generally be described as follows, with
the advancement to Step 2 in the process being
conditional upon the application's fulfilment of the
requirements listed in Step 1:
"Step 1: The applications were to be reviewed in
order to determine if they fulfilled the
measurable/quantifiable minimum requirements defined
in the RFP.
"Step 2: Clarification of the application content via
applicant-specific written questions as well as an
individual presentation and questioning meeting (both
general and applicant-specific questions) with each of
the six applicants.
"Step 3: The quantitative and qualitative evaluation
procedure as set out in the evaluation model.
"Strictly speaking only Steps 2 and 3 make up the
evaluation, as the quantitative and qualitative
evaluation model is applied to the applications
fulfilling certain measurable minimum requirements.
"6.2. The development of the evaluation model:
"Since no evaluation model had been prepared by the
Department and their consultants at the same time as
the development of the RFP (and this would be entirely
normal in AMI's experience), AMI started to develop a
draft evaluation model immediately in conjunction with
the development of the guidelines to the original RFP.
It is important from the outset of the design of a
tender and the development of an RFP to be careful to
fix the evaluation criteria listed in the RFP in a way
so as to ensure that the evaluation criteria are
measurable and operable, and that all applicants will
be evaluated equitably having regard to the chosen
"Accordingly, the work with the evaluation model was
initiated in April 1995 and the definition of the
model was settled prior to the original closing date
of the 23 June 1995. It was subsequently slightly
amended prior to the postponed closing date of the 4
August 1995 due to the requirement of the European
Commission concerning the payment of licence fees.
"The evaluation model applied the so-called best
application method (i.e. a beauty contest) where the
"best" application should be nominated as the winner.
"Best" was to be measured against the evaluation
criteria outlined in paragraph 19 of the RFP.
"More specifically, the 8 evaluation criteria listed
in paragraph 19 of the RFP were broken down into 4
so-called aspects (i.e. marketing aspects, technical
aspects, management aspects, and financial aspects).
Each aspect was then broken down into dimensions, and
each dimension was subsequently broken down into
indicators (c.f. the overview provided in the table
shown in Section 3.3 of the appendix 3 to the
"The evaluation model consisted of both quantitative
evaluation procedures and qualitative evaluation
procedures, and AMI was contacted by the Department
prior to the drafting of the guidelines for the
evaluation model with instructions that the Department
of Finance required the model to include a
"The 8 evaluation criteria/the 4 aspects form a common
denominator in both the quantitative part of the
evaluation and the qualitative part of the evaluation.
In addition to the 8 evaluation criteria
prescribed/the 4 aspects defined, the qualitative
evaluation should also include an evaluation of the
aspect of risks concerning the financial and technical
capability of each applicant, i.e. the sensitivities
of the business cases in relation to the evaluation
criteria outlined in paragraph 19 of the RFP.
"For the evaluation procedures, a weighting factor was
assigned to the evaluation criteria/the dimensions
according to the descending order of importance
assigned to the criterion (with a total of 100 for the
total weighting of all criteria/dimensions). However,
when the tender process was reopened after the
temporary suspension due to the dispute with the
European Commission, two of the weightings were
changed. The changes reflected the fact that the
licence fee bid had been capped and therefore deserved
a lower weighting and that tariffs were increased.
These changes in weightings were not notified to the
interested parties, as they did not alter the
descending order of priority of the announced
evaluation criteria in paragraph 19 of the RFP.
"Finally, for the qualitative evaluation, a scoring
formula was devised for all the selected indicators
with the actual score for each indicator being
converted into a value between 5 and 1 (both
included), 5 being the best score.
"The qualitative procedure was of course the
fundamental part of the evaluation. It would not be
possible or desirable to decide applications according
to a quantitative evaluation alone. The qualitative
evaluation covers many practical and technical matters
but also the more "intangible" information, (e.g. as
to marketing) and commitments in the application (e.g.
performance guarantees). So the qualitative
evaluation ensures a holistic evaluation, and in AMI's
wide experience of these matters, this is in
accordance with the best international practice.
Also, the inclusion of issues such as risk and
credibility of an application in the qualitative
evaluation should serve as a crosscheck of the realism
of the figures and results from the quantitative
"The qualitative evaluation process was to take place
by discussion based on each evaluator's review of the
application in question and where necessary, in-depth
supplementary analysis. First, marks would be given
to each dimension with the addition -- if needed -- of
further indicators, then marks would be granted aspect
by aspect, and finally, a total mark would be awarded
for each application as a whole. In the qualitative
evaluation, the marks were to be given according to a
5-point scale (A through E, with A being the best
mark). An average should be made upon consensus among
the evaluators. During the qualitative evaluation,
the evaluators should," as far as possible, use the
same indicators as used during the quantitative
evaluation" as were used to define other indicators in
order to make fair comparisons between the
"In accordance with the evaluation model, the
quantitative evaluation was to be conducted in order
to score the applications and that scoring, together
with the result of the "number crunching" performed
should form the basis for the eligible applicant
application presentation meeting, c.f. section 8.5
below, and the qualitative evaluation. Conversely,
when the bulk of the qualitative evaluation had been
carried out, this evaluation result was to form the
basis for a recalculation of the scoring applied
initially under the quantitative evaluation if
mistakes, wrong information or the like could be
documented (c.f. e.g. that the presentation meetings
and the clarifications provided there by applicants
were not considered and included in the quantitative
"In fact, as described below in section 8, no separate
evaluation or ranking was made by the evaluators/PT
GSM until the qualitative evaluation was complete,
since it turned out during the course of the actual
evaluation that only a few of the intended
quantitative indicators and dimensions were
quantifiably measurable or operable.
The next paragraph I wish to open is paragraph number
"Fulfilment of the measurable minimum requirements.
"All the GSM II applications received were admitted to
the evaluation as none of the applications had such
substantial deviations from the
measurable/quantifiable minimum requirements of the
RFP such that they should be rejected.
"The measurable/quantifiable minimum requirements of
the RFP were identified to be.
- A maximum of 350 pages, excluding appendices for
the entire applications.
- A maximum of 25 pages for the executive summary of
- A statement concerning the licence fee payment
(c.f. the minimum licence fee of £5,000,000 stated
in paragraph 4 of the RFP).
- A minimum coverage of 90% of the population within
four years of the issue of the licence"
- and again, this is a reference to the Paragraph 7
of the RFP -
" - Validity statement concerning the application"
(i.e. that the information contained in the
application was valid for 180 days.)
"Esat Digifone complied with all the minimum
requirements identified, whereas Eurofone did not.
However, Eurofone was admitted to the evaluation, as
the deviation from the minimum requirements were
deemed to be non-substantial and thus not reason for
rejection of the application.
"7.4. Written clarification:
"With a view to making comparative evaluations, it
appeared to the PT GSM at an early stage in the
evaluation that some of the applications contained
insufficient information. In accordance with
paragraph 16 in the RFP, it was thus decided to pose a
number of tailor-made written questions to the
applicants, and these questions were forwarded to the
applicants on the 24 August, 1995.
"The answers received on the 4 September 1995 resulted
in valuable improvements regarding the ability to
compare the applications on an equal basis."
I should say that there had been an alteration in
time, so the two dates are not inconsistent.
"7.5. The presentation meetings.
"An invitation was issued on the 5 September 1995 to
each of the six applicants to attend a presentation
meeting with the PT GSM. The invitation included an
agenda for the presentation and a number of questions
for response. Each applicant was dealt with on the
same basis. One hour was reserved for a presentation
of the business case behind the application, and
another hour was reserved for the applicant to answer
general questions posed to all applicants by the PT
GSM in the same way, and yet a third hour was reserved
for the PT GSM to pose applicant specific questions to
the individual applicants. The presentation meetings
were held as 6 separate meetings from the 11 to 14
"The applicants were not allowed to improve their
application during the presentation meetings. The
purpose of the meetings was rather for the evaluators
to gain further impressions with regard to the
strengths and weaknesses of the applicants and to seek
clarification of certain issues.
"A large part of the quantifiable side of the
applications was compiled prior to the posing of the
written questions and the presentation meetings. It
was put into graphics by each evaluation sub-group in
relation to the dimension(s) and aspects for which the
sub-group was responsible. The material thus produced
served as part of the basis for the applicant-specific
written questions, the presentation meeting with each
applicant and the further evaluation. This material
was subsequently adjusted if the clarifications
provided by the applicants in their written answers
and oral presentations so required.
"Specifically concerning Esat Digifone's application,
there were some calculation problems, albeit of an
insubstantial nature, which required the evaluators
of the financial aspects were required to perform some
minor adjustment to the way the financial years had
been presented by the applicant (i.e. Esat Digifone
used 1995-2009 as the planning period, whereas the
other applicants used 1996-2010). However, other
applicants also had insubstantial "technical"
deviations in their applications, such as e.g. the
lack of inclusion in their business plan of
reinvesting after ten years.
"The PT GSM decided that all the results of the
evaluation should be presented in one comprehensive
report such that the results of the evaluation (both
the quantitative as well as the qualitative evaluation
techniques) were presented in an integrated fashion.
In conjunction herewith, it was furthermore decided
prior to the closing date that the qualitative
evaluation should be the decisive and prioritised part
of the evaluation. Furthermore, it became clear
during the initial phase of the evaluation that 14 of
the indicators identified in the evaluation model
memorandum were either impossible or difficult to
score as part the quantitative evaluation process laid
out in the evaluation model. Due to this finding, the
PT GSM decided "... that the foundation for a separate
quantitative evaluation had withered away..." In order
to illustrate the background to this, it was
impossible to score quantitatively because of lack of
information (concerning e.g. agreements on
international roaming), meaningless scoring when the
renormalisation factor was processed (e.g. licence fee
payment), or because of fundamentally incomparable
quantitative information (c.f. blocking and drop out
rates and tariffs).
"The PT GSM was in dialogue with the applicants by
means of written communication in order to be able to
process the remaining quantitative indicators further,
but it was impossible to obtain information, to allow
a fair comparison of the applications. On the one
hand, some of the information appeared to be
unrealistic or overly optimistic information in some
cases (e.g. blocking and drop-out rates). On the
other hand, applicants could not be allowed to improve
"In order to speed up the work, AMI had set up a
separate number-crunching team who, without forming
part of the core evaluation team, processed all
quantifications. This meant that this sub-group
worked without having read the applications and
without having familiarised themselves with, for
example, the reservations, non-binding nature or
preconditions behind the quantitative figures
forwarded by each applicant. Notwithstanding the fact
that a considerable amount of their work was useful,
some quantifications, which later appeared to comprise
lack of fair comparability, were not used in the final
"Consequently, it was decided by the PT GSM to perform
the evaluation as an "integrated, holistic
evaluation... One is that quantification appears as
tables, graphics, figures, etc. Another is that all
the early quantifiable indicators have been taken into
consideration and have been scored...," and
accordingly, "...all the indicators defined for
quantification (in the evaluation model memorandum)
have been taken into consideration, and, in compliance
with the evaluation memorandum, all the eligible
indicators have been taken into consideration in the
This is a reference to a portion of the evaluation
"Thus, the quantitative evaluation was limited to
"hard" quantitative commitments in relation to
critical indicators associated with the selection
criteria prescribed in the tender document" - this
again is a reference to a portion of the evaluation
report - "i.e. paragraph 19 of the RFP and
non-quantifiable considerations such as market
research, planning, management preparedness, etc. did
not form part of the actual quantitative evaluation.
In conjunction with the necessary limitation of the
indicators under the quantitative evaluation, the
qualitative evaluation was expanded in comparison with
the 14 indicators identified according to the
evaluation model memorandum, so that the total number
of indicators in the evaluation ended being 56
indicators, taking account of critical but
non-quantifiable aspects of the applications such as
e.g. performance guarantees, cell planning, market
research, understanding of roaming, customer care,
"As provided for in the evaluation model, the
evaluation report states with regard to this
procedure: "As the memorandum on the evaluation had
not been changed, it was checked (page 1, indents 4
and 5, and pages 10-11, indents 5, 6, 7, and 8 (in the
evaluation model memorandum) that this (the
modifications to the evaluation model) was also
consistent with the memorandum" c.f. e.g. with regard
to indent 5 according to which the 14 indicators
defined to be used during the qualitative evaluation
could be supplemented with further indicators if the
already defined indicators were not sufficiently
representative for the dimensions to be evaluated.
"Concerning the techniques applied in order to reach a
decision on the evaluation of the indicators under the
holistic evaluation approach adopted, these could be
summarised as "Assessments by consensus among the
evaluations, elaborate evaluation analyses by means of
qualitative and quantitative methods, award of marks
(rather the scoring by points assuming an internal
scaling), and averaging of marks by consensus."
This again is a reference to a portion of the
I should state at this stage, Sir, that to read,
understand, and digest the evaluation report is not
necessarily the easiest thing in the world.
MR. COUGHLAN: "During the evaluation, 'some degree of
implicit weighting of the indicators' took place, and
the 'result in each case was arrived at through a
process of discussions and consensus within each
sub-group'. Furthermore, the issues of credibility,
risks and sensitivities of each application were taken
into account, even though these issues were not
directly awarded marks, because prior
evaluation - based solely on the identifiable
indicators receiving marks - led to the same result
and ranking as was the result of the evaluation of the
applications with regard to the issues of risks and
sensitivities: "... It has not been necessary to
score the so-called 'other aspect' contained as an
option in the agreed evaluation model... Since it has
been concluded that the general credibility of the
applications is equal to the ranking of the
applicants. As such, it has been assumed that the
risks identified can be handled satisfactorily during
the licence negotiations."
"7.7, the evaluation report and the final evaluation
"The purpose of the evaluation report was to convey
the findings and recommendations of the evaluation by
the PT GSM and the evaluators.
"An initial draft report was discussed by the PT GSM
on 9 October 1995. The incorporation of comments on
the initial and a subsequent final draft by members of
the team in relation to the presentation of the
results of the evaluation process culminated in a
final evaluation report. This was finished on
schedule and some five weeks before the Minister had
stated that he would announce the winner, c.f that the
instruction from the Department to AMI with regard to
the deadline had been that "the final evaluation
report, taking into account the views of the GSM
Project Group, shall be submitted to the Department by
AMI by 25 October."
"The overall evaluation and final marking of the
applications led to the conclusion that three
candidates could be nominated for the award of the
licence in descending order of priority, with certain
reservations with regard to each of the applicants.
The three applicants were, in order of priority: Esat
Digifone, Persona, and Irish Mobicall.
"The reservations with regard to the highest ranked
applicant, i.e. Esat Digifone (referred to as A/A5)
related to financial issues."
Then the following comments, which appear in the
evaluation report, are set out:
"- The financial plans however indicate some weakness
against the background of market leader ambitions,
in particular with a degree of solvency below
zero % during some of the decisive initial years.
- A5's maybe weakest point is not related to the
application as such but to the applicant behind the
application or more specifically to one of the
consortium members, namely Communicorp, which has a
negative equity. Should the consortium meet with
temporary or permanent opposition, this could in
a worse case situation turn out to be critical in
particular concerning matters related to
- If the Consortium behind A5 (i.e. Esat Digifone
shareholders) cannot satisfactorily cover the risks
identified (but not scored)", it is recommended to
consider entering into licence negotiations with A3
"The three quotations stated all concern the issue of
Esat Digifone's financial capability.
"Despite the apprehension as to some of the financial
conditions of Esat Digifone as the applicant, the
evaluators chose to keep the ranking of Esat
Digifone's application as the best application
according to the evaluation criteria in descending
order of priority because, as was stated in the
evaluation report, Section 5:
"The evaluators have concluded, having regard to the
level of interest in the Irish competition for the GSM
licence and the high profitability of mobile
communications generally throughout Europe, that the
project is fundamentally robust, and after a licence
has been awarded, an attractive opportunity for
corporate debt financiers. The evaluators have
therefore formed the view that, subject to at least
one of the principals having sufficient financial
strength at this stage to ensure completion of the
project, a potential financial weakness of one
consortium member should not have a negative impact on
the ranking of applications. It is important
nevertheless to draw attention to the need to deal
with this factor where relevant in the context of
"The evaluation report's finalisation on the 25
October 1995 led to the announcement of the winner by
the Minister the same evening. The decision of the
winner of the GSM II licence was made ahead of
schedule. However, the Minister chose to make the
decision public immediately upon making the decision.
AMI does not know the reason for the swift
announcement prior to the estimated time of 'end of
November'" - that is a reference to the estimated
time for the bringing of the matter to the Cabinet
with a recommendation for the Minister for the
Cabinet's consideration and the announcement of the
completion of the competition.
"Based upon AMI's experience, it is however in general
best to quickly announce the decision of who the
winner is once the Minister has made the decision in
order to avoid unintended leakage and speculation,
c.f. that the decision is often crucial to the
involved applicants of which many are publicly listed
"It should be noted that up until the issuance of the
final evaluation report, there was some disagreement
among the members of the PT GSM as to whether the
evaluation could be viewed as final and a final
evaluation report issued. In the opinion of AMI, the
evaluation ought to and would under "normal"
circumstances have included some further analyses and
elaboration of the key documents presented, but due to
the budget constraints, the Department did not want a
more detailed and thorough evaluation."
Now, I want to refer to paragraph 8.1.
"Licence negotiations with the winning applicant.
"8.1: AMI's participation in the licensing
"The work after the evaluation i.e. the licence
negotiations in particular, did not follow the
projected time schedule. During the last part of the
project, the provision of AMI's services exceeded the
maximum fixed fee arrangement that AMI reluctantly had
accepted upon the Department's request, c.f. section
2.1 above, and accordingly, AMI limited its work in
agreement with the Department.
"AMI's involvement in the licensing negotiations were
thus limited to the following:
- Preparation of "Note on the incorporation of
information from the A5 application into the final
- Participation by Michael Moesgaard Andersen and
Tage M. Iverson in the first licence negotiation
meeting with Esat Digifone on the 9 November 1995.
"Had AMI participated in the further licence
negotiation meetings, AMI would have put emphasis
towards ensuring that Esat Digifone was tied through
licence conditions to the favourable offerings made in
their application. In addition, AMI believed it to be
important that the financial question with regard to
Esat Digifone emphasised in the evaluation report were
Then he refers to primarily sections 5 and 7.2 of the
"However, the participation of AMI at this stage was
not requested by the Department.
"Concerning the issue of licence negotiations, AMI is
also in possession of a copy of a letter of the 13
November, 1995, from Martin Brennan, the Department,
to Denis O'Brien, Esat Digifone. In the letter Martin
Brennan, among other things, refers to his expressions
at a licence negotiation meeting held the day prior,
on the 12th of November 1995, and points out that "The
GSM licence documentation will necessarily contain
specific conditions with regard to your financing
arrangements for this project and in relation to
effective control of the future licencee, with
particular reference to possible decision-making
structures, voting rights etc."
And then I wish to refer to paragraph 11 of this
"AMI's overall assessment of the GSM II tender.
"First of all it should be noted that AMI's work in
relation to the project was carried out in accordance
with the tasks listed by AMI in the original proposal
to the Department, which proposal was incorporated as
contractual terms in the consultancy contract between
the Department and the AMI.
"In general and based upon the information that then
was and today is available to AMI, it is the opinion
of AMI that for the part of the tender process that
AMI was involved in, the process was - in the
main - carried out in a professional and correct
manner. This is of course subject to the reservations
as to security expressed in Section 11 of this
document. It is also the opinion of AMI that Esat
Digifone - objectively and after taking into
consideration the issues of criticism mentioned
below - handed in the best application as against the
other applicants according to the evaluation criteria
and their descending order of priority. In AMI's
opinion the evaluation result nominating Esat Digifone
as the winner thus was and is the right result.
"There are however some issues in relation to the
process prior to AMI's involvement as well as issues
on the part of the Department that based upon AMI's
experience as consultant in other jurisdictions could
give rise to some concern or grounds for criticism.
Among these issues are the following:
"I. The evaluation criteria listed in paragraph 19 of
the RFP are not all suited to form the basis for an
equitable comparison as they are too broad and vague
and thus, to some extent, non-operable.
"II. Part of the reason for some of the evaluation
criteria being ill suited to form the basis for a
comparative evaluation could be, that the Department
and the consultants that developed the RFP did not
simultaneously to the RFP develop an evaluation model
document. Had an evaluation model document been
prepared in conjunction with the development of the
RFP, it is possible that some of the criteria listed
in paragraph 19 of the RFP would have been modified or
excluded prior to the release of the final RFP, as the
criteria would have shown to be difficult to measure
and compare on an equal basis, and thus be ill suited
to be part of the basis of a comparative evaluation."
Now, I should in fairness refer to the footnote 88. I
should say, this refers to the first portion of
paragraph 11. It's a footnote in relation to the
handing in of the best application by Esat Digifone.
"The quality and consistency of Esat Digifone's
application with regard to the extent and content of
the information provided is among the absolute best
that AMI have seen during the many evaluations that
AMI at that time and since then has participated in."
"III. AMI understands that the Department informed
orally certain applicants that they could deviate in
their application from some of the tender
specifications given. This which meant that the
applications proved very difficult or impossible to
compare on a qualitative basis with regard to the
parts of the evaluation that were to be based upon the
information provided in those parts of the
"IV. The RFP did not prescribe what the procedures
and consequences should be in case one of the minimum
requirements in the RFP is not fulfilled, i.e. the RFP
does not specify which minimum requirements may be
fulfilled via a subsequent correction by the applicant
within a certain deadline, and which minimum
requirements will automatically lead to exclusion of
the application in case such a requirement was not met
in the original application as filed and without an
option to correct the application. Also, in case of
exclusion of an applicant on the ground of
non-fulfilment of the minimum requirements, the RFP
does not provide any guidance as to what the
procedures for such exclusion will be.
"V: The exclusion of AMI as part of the licensing
negotiations with Esat Digifone was unusual and may
have led to a lack of continuity. In practical terms,
had AMI been fully involved in these negotiations, AMI
would have endeavoured to ensure that all elements of
risk concerning Esat Digifone mentioned in the
evaluation report were eliminated via the inclusion of
terms and conditions in the licence agreement with
Esat Digifone to sufficiently minimise or eliminate
"VI. "The budget constraints with regard to AMI's
work, c.f. the description hereof in section 2.1 of
this memorandum, meant that some supplementary
analyses that usually would have been part of a "best
practice" evaluation were not carried out. Also, due
to lack of budget, the Department did not - save on a
cursory basis - consult and include AMI in the
licence negotiations with Esat Digifone or in the
handling of the disappointed applicants.
"VII. The means of security during the process was on
the part of the Department surprisingly lax, e.g.,
that the facilities in which the Department carried
out work related to the GSM II tender process was
readily accessible to the public as these facilities
were not in any way separated from the rest of the
Department's facilities, e.g. via a special lock-up
system through which only certain named persons
involved in the process could gain access."
Now, I have opened those portions of this particular
memorandum provided by Mr. Michael Andersen on behalf
of Andersen Management International for the
assistance of those participating in the Tribunal.
There may be other portions that participants may wish
to refer to at a later stage, but I will leave it at
that for the moment.
Now, when you rose yesterday afternoon, Sir, I had
been dealing with a period post the announcement of
the evaluation competition up to about the end of
December of 1995, and I had dealt with what appeared
to be concerns on the Communicorp and Telenor side of
the consortium with reference to what the Department
knew about IIU's involvement and what attitude the
Department might be taking towards that.
I now want to deal with something which occurred at
the same time which may be of some assistance also in
Subsequent to the announcement of the result of the
evaluation, it appears that there was some publicity
concerning the involvement of IIU in the financing of
Esat Digifone. Mr. Kyran McLaughlin of J & E Davy has
informed the Tribunal that following the announcement
of the result of the evaluation process, he, by letter
dated 22nd November, 1995, wrote to Mr. Denis O'Brien
in relation to three matters which he felt would be of
concern to the institutional investors, namely, Allied
Irish Bank, Investment Bank of Ireland and Standard
and Chartered Bank who had agreed to step aside.
Mr. McLaughlin's letter reads:
"Further to our telephone conversation last Friday and
the subsequent announcement in Saturday's newspapers
concerning the involvement of Dermot Desmond's company
International Investment Underwriters (IIU) in the
financing of Esat Digifone, I thought I would write to
you setting out my understanding of some of the issues
which have been raised.
"When John Callaghan and yourself asked me last April
if Davys could get some institutional investment
interest to support your application, I said it would
be difficult as the eventual financial terms of the
licence were unknown and it would be difficult to put
a precise financial proposal to potential investors.
"However, Tom Byrne and Paul Connolly prepared an
information memorandum and an investment proposal, and
we secured 3 institutional investors prepared to
commit £8.5 million in support of your licence
application in early June. The commitment was
conditional on your consortium acquiring the licence
on financial terms acceptable to the institutions, but
this condition was not seen by yourselves at the time
as one which could make your application financially
unacceptable. As you are aware, a large number of
financial issues were not finalised when the
institutions made their commitment, in particular the
size of the bid by your consortium and the consequent
debt/equity ratio of the consortium. Therefore it was
difficult to get a firm, unqualified commitment in
early June from the investing group.
"When John came to see me on Friday 29th September, he
told me that you had been advised that the financial
element of your package was not sufficiently strong to
allow Esat Digifone to be awarded the licence and that
you were negotiating with a financial party who could
provide the stronger financial backing necessary to be
awarded the contract. He did not tell me who had
provided this advice nor the identity of the stronger
financial party. He asked me if I would ask the three
institutions who had made the previous commitment if
they would step aside so that the 20% to which they
had been entitled would be available to the investor
who was prepared to provide firmer financial support.
"Even though we both recognised that this was
embarrassing, I did notify each of the three parties
that you were asking them to step aside to make way
for a financial party which was prepared to put
forward a stronger financial commitment. It has now
emerged that this investor was IIU, which appears also
to have been appointed to handle the sale of the 20%
"A number of questions are likely to arise from the
institutions who had made a commitment to Esat
Digifone in June:
"(A) Why were the original investing group not asked
to make a stronger financial commitment along the
lines of that offered by IIU if that was necessary,
given that by 29th September a maximum price of £15
million had been established for the licence and
discussions on the application had clearly taken place
with the Department and possibly the assessors.
"(B) Was information available to IIU that was not
available to the original investing group at the time
they were asked to step aside?
(C) at what stage were the Department of
Communications and the assessors told of changes in
the institutions providing finance to the consortium?
"In addition, the news media have asked us why Davy is
not involved in raising funds as it is common
knowledge that Davy were involved in the original
application. I do not discuss our clients with the
media, but you will appreciate that the current media
presentation may be damaging to our reputation.
"I believe it is important to reassure the financial
institutions that made the original commitment that
they were treated fairly. They will be particularly
concerned if the 20% stake is resold to other
investors at a significant profit over a short period
"It would be helpful to me if you could let me know
your response to the issues raised above so I can
provide them with reassurance.
Now, Mr. McLaughlin has informed the Tribunal that he
received no reply to this letter. He has informed the
Tribunal that he met Mr. O'Brien casually before
Christmas 1995, and Mr. O'Brien indicated that he and
Mr. John Callaghan would contact Mr. McLaughlin in
January in relation to the matters raised in his
letter. Mr. McLaughlin has informed the Tribunal that
Mr. O'Brien did not make contact with him nor did any
other person on behalf of Esat Digifone Limited. Mr.
McLaughlin has informed the Tribunal that on the 4th
July, 1996, having heard nothing further from Mr.
O'Brien, he wrote to Mr. O'Brien again and indicated
that it would be very helpful to J & E Davy in dealing
with the institutions in question to know Esat
Digifone's response to the three matters raised in his
letter of the 22nd November, 1995.
The letter of the 4th July is addressed to Mr.
O'Brien, Chairman of Esat Telecom.
Every time Esat gets extensive coverage in the
newspapers, we get further queries from the
institutional investors who were prepared to commit
£8.5 million in support of your GSM licence
application in June 1995.
I wrote to you in November 1995 on some of the issues
that have been raised with us, and when I met you in
December you said that John and yourself would come
into the office in January to discuss these and other
The more publicity which focuses on the value of the
IIU stake in the GSM licence, the more likely the
institutions will want to readdress this subject, and
it would be very helpful to me to know what is your
Mr. McLaughlin has informed the Tribunal that on the
8th August, 1996, Mr. O'Brien and Mr. Callaghan
attended a meeting at Mr. McLaughlin's office in J & E
Davy. Mr. McLaughlin made a note of the meeting and
committed it to transcript form.
Mr. McLaughlin indicated that in the light of the fact
that the institutions were asked to step aside in
favour of another party as they were told that their
commitments would not be sufficient to win the award
of the licence, they had concerns concerning the
"1. Institutions had been concerned that they had
been asked to step aside in favour of another party as
they were told their commitments would not be
sufficient to win the award of the licence: -
(A) they had been replaced by IIU who financially
weren't as strong as they were;
(B) they had been replaced after a limit of £15
million fee had been agreed by Government;
(C) IIU may have had inside knowledge of Esat's
probability of success when they made the investment;
(D) IIU was likely to sell its involvement back to
institutions at a premium."
Then it's noted at 2 "Esat Digifone's explanation was
(a) they had been told that they needed a firm
financial commitment guaranteed by a bank both for 20%
institutional placing and for their own 40%, and they
knew no normal institution would give them that, but
(b) IIU had no inside information as nobody
had - although civil servants did say to them
afterwards that their written submission was the best
(c) IIU is likely to sell its investment back to
existing shareholders and not to the market.
"3. Esat plan a private funding in January 1997
probably through CSFB and an IPO later in the year.
If there was any Irish interest, they would be pleased
to use Davy." The date is the 12th August, 1996.
On the 22nd November, 1995, Michael Lowry answered
parliamentary questions put down by a number of
deputies, and draft responses were also prepared for
him in the Department.
Now, I intend opening all of this in a moment, but I
should perhaps highlight in the first instance
particular questions, and one was a question which was
question number 42 which was put down by Mr. O'Dea,
and asked the Minister for Transport, Energy and
Communications the number of applicants for Ireland's
second GSM mobile phone licence, the dates on which
submissions were received, the number of times he met
principals, directors, consultants or representatives
on behalf of any of the applicant companies, the dates
on which he met with them, the locations where he met
with them, and if he will make a statement on the
I should perhaps just at this stage make reference to
a draft which would have been prepared for the
Minister to respond to questions in the Dail in
response to this particular question. It's a draft
under a heading "Meeting with Consortia". The draft
which was prepared for the Minister reads:
"The question regarding meetings I held with
principals of applicants is virtually impossible to
answer precisely. The applicant consortia encompassed
at least four State companies, two of whom are within
my aegis, five companies with significant Irish
content, as well as an additional number of
individuals in their personal capacity, at least 11
foreign companies, and indeed there is some degree of
overlap with parties interested in the strategic
alliance with Telecom Eireann.
"I would however wish to make it clear that from the
launch date in March, I was acutely aware of my duty
not to interfere with the selection process. I had
brief meetings with representatives of several
consortia, but they were strictly in the nature of
courtesy calls and opportunities to reinforce the
message that this was an objective process designed to
find the best applicant. I did not discuss the
content of applications which I had not seen or the
evaluation process with any representative of
applicants. I am quite sure I came in contact
socially with promoters or business interests
connected with the applications or indeed prospective
applications on a number of occasions."
Now, when I open what Michael Lowry said in the Dail,
it appears that although this draft response had been
prepared in the Department, that he does not appear to
have answered the question put down by Mr. O'Dea,
although he grouped it in a more general response
which he gave.
Now, two other questions which were put down which may
be of significance were questions number 84 and 85,
which were both put down by Mr. Molloy.
Question Number 84: "Mr. Molloy asked the Minister
for Transport, Energy and Communications if he took
account of the overriding conditions on technical and
financial capability outlined in paragraph 9 of the
bid document for the second GSM mobile phone licence
in addition to the criteria evaluated by the
consultants at paragraph 19 of the document."
And Question Number 85: "Mr. Molloy asked the
Minister for Transport, Energy and Communications if
Article 3 of his Department's GSM competition licence
documents were complied with in the awarding of the
That was a paragraph dealing with details of ownership
to be disclosed. And the question continues: "And
the identity and ultimate beneficial ownership of the
institutional investors who will own 20% of the
successful bidding company."
I should perhaps go back to Question Number 46, which
was one put down by Mr. N. Treacy which asked the
Minister for Transport, Energy and Communications the
number of companies who applied for the right to
provide Ireland's second GSM mobile licence and if all
these companies had the technological and financial
ability to deliver the service, the reason he awarded
the licence to Esat Telecom, and if he will make a
statement on the matter."
Now, I don't propose opening any other questions asked
of the Minister at the moment, but I will deal with
how Mr. Lowry responded.
"I propose to take Questions Numbers 5, 10, 13, 25,
29, 30, 35, 39, 42" - which was Mr. O'Dea's
question - "43, 44, 46" - which was Mr. Treacy's
question - "84, 85" - which were Mr. Molloy's
questions - "86, 87 and 88 together."
"I am pleased that deputies have put down questions on
the GSM competition because it gives me an opportunity
to detail what I believe was a landmark competition in
26 and the speed with which it was carried out.
"When I announced the competition for this second GSM
licence last March, I was determined to put in place a
selection process that, like the process for Telecom's
strategic partner, would be fair, impartial and
objective. This was done. Clear selection criteria
were set, published to the interested parties, and
rigidly adhered to. International consultants with
specialist experience were engaged to advise. An
evaluation team led by my Department was set up and
included the consultants and officials from my
Department and the Department of Finance.
"The terms of the competition were specifically
approved by the EU Commission. The selection criteria
included demonstrated financial and technical
capability; the credibility of the proposers' business
plan and their approach to market development; their
pricing policy, which had to be competitive; their
timetable for achieving rollout.
"The contenders were each required to supply an
immense amount of detailed information in regard to
financial, technical and business development matters.
All this material was examined exhaustively by the
evaluation team, which worked intensively over a
period of more than two months after the closing date.
The consultants, and subsequently the full project
team, came unanimously to a single result. I am very
pleased with the way the process worked, and I am
completely satisfied with its integrity.
"No political or other consideration whatever entered
into the selection, which was made totally on the
basis of the objective criteria laid down in advance
and made known to all. The exhaustive and patently
fair process can now serve as a model for future
decisions of a similar kind in other areas. It is an
example of the standard of decision making that I wish
to see become the norm across the spectrum of Irish
"The import of Deputy Kenneally's question is that I
should have awarded the licence by reference to
factors other than the selection criteria which was
announced in advance and known to the applicants. I
reject the import of that question. It was not open
to me to follow such a course, and I would have
exposed myself and the Government to legal redress if
I had done so. Esat Digifone won because the project
team determined, after meticulous comparative
evaluation, that they had submitted the best
"The decision to grant the licence and to whom is
statutorily that of the Minister with the consent of
the Minister for Finance. In view of the importance
of this decision, I, and the Minister for Finance,
discussed the result of the competition with the
leaders of the parties and Government on the 25th
October. The matter was put before the full Cabinet
for noting on the following morning. In a case as
sensitive as this, there is a great advantage in
announcing the result as soon as possible, thereby
putting an end to speculation and media hype which
grows around such matters, as was the case on this
occasion. The formal decision makes it clear that the
licence will be awarded to Esat Digifone subject to
satisfactory conclusion of discussions leading to a
licence which incorporates as binding commitments the
relevant contents of the application which led to its
"The Government agreed the detailed selection criteria
and their order of priority in advance of the opening
of the competition and agreed to the appointment of
consultants to carry out the evaluation. It was clear
to me, and to the Minister for Finance, who was
represented in the project team throughout the
competition, that the thoroughness of the approach
taken left no room for doubt as to the clear-cut
result contained in the consultants' report. Bearing
in mind the foregoing, the Government had no
difficulty in agreeing to my recommendation in
relation to the result.
"There was no undue haste. In fact, a flow chart
diagram prepared by the consultants on the 14th July
in the context of the relaunch of the competition
following consultations with the European Commission
shows clearly that the final report was to be
submitted in the week beginning the 22nd October. The
consultants are to be congratulated on achieving this
target. My commitment was to announce the result not
later than the end of November. If I had not allowed
some interval in case of slippage, I would have been
open to criticism for not meeting my deadline.
"At an early stage in the competition, four out of the
six applicants requested and all were given assurances
that the information in their bids would be kept
confidential on a permanent basis. It would be
impossible to have detailed disclosure of the
comparative analysis without breaching this
confidentiality. This dilemma is one of the reasons
reputable independent consultants are engaged in
competitions of this type. The consultants act as
guarantors of objectivity.
"The question of detailed feedback to applicants as to
the reasons one applicant was successful and the
others were not therefore presents me with a
difficulty. Furthermore, disclosure by me at this
time of significant elements of the winning
application which would arise in any comparative
feedback on public discussions of the outcome would be
of considerable competitive advantage to the existing
operators, Eircell. I would like to be as helpful as
possible to understandably disappointed applicants,
but the constraints on me are severe. The involvement
of reputable consultants was intended to be a
guarantee of fair play at the outset, and a clear-cut
result from them was the one which I announced.
"Deputy Gallagher refers in his question to the
seriousness of the situation in reference to the
non-EU ownership of Telenor. Five of the six
applications had significant participants which were
not of EU origin, but the origin of any of the
participants had no place in the selection criteria.
It was a competition open to all."
Now, I will read it all out for the sake of
completeness, although I don't intend dwelling on
portions of it, Sir.
"MR. MOLLOY: The Minister is aware that the
Progressive Democrats welcomed the success of Esat.
We wish them well. However, the Minister is also
aware that since he announced the award of the second
mobile telephone licence, concern has been expressed
about certain aspects of the selection procedure and
the awarding of the contract. My question asked if
the Minister had an obligation to disclose the reasons
one tender was successful over and above the other.
This could have been done in a way that would not have
required the disclosure of confidential information.
Does the Minister accept that a Government -
CEANN COMHAIRLE: Where is the question please, Deputy.
The question is long and cumbersome.
"MR. MOLLOY: I have tabled seven or eight questions
on this matter. Does the Minister accept that the
Government's policy of openness and accountability is
seen not to be fulfilled in this case? The Minister
must see the contradiction between his reply and the
Government's stated objective. Does the Minister
accept that in common law, he has an obligation where
a decision he makes is open to judicial review to" -
CEANN COMHAIRLE: This is becoming a long
interrogation rather than a question time.
"MR. MOLLOY: These are the questions I tabled to the
Minister, and he has an obligation to give the reasons
for the decision.
The Ceann Comhairle: That is adequate for the time
"MR. LOWRY: I have an obligation, responsibility and
duty to adhere to the criteria which were established
at the start of the competition and published and
furnished to all interested applicants. At the
preliminary stage of the competition four prospective
applicants - it is important that this is
understood - sought assurances about confidentiality.
No doubt they saw this as being essential should they
win the licence. The priority at that stage was to
maximise participation in the contest, and it would
have been foolhardy not to respond to such widespread
feeling. The people now seeking disclosure were among
those seeking confidentiality guarantees six months
ago. There has been concern about this matter, and
deputies have been in contact with me about it. I
contacted the consultants who advised my Department
and the Government on this issue, and the following
was their response:
'In pursuance of your inquiry regarding the extent to
which other European Ministries have published the
evaluation reports, we can give you the following
'We have followed the GSM evaluation process in
Denmark, Holland, Germany, Norway, Spain, Italy,
Sweden and France.'
"MR. MOLLOY: Not Belgium.
"MR. LOWRY: The letter continues:
'We only know of one country, France, which has
published part of the evaluation documents. In the
case of France, two aspects should be mentioned:
Firstly, the ministerial evaluation report was
modified for the public audience before it was
released. Secondly, prior consent was given by the
bidders. To our knowledge, the evaluation reports
used in the above-mentioned countries, except for
France, were kept secret in order to protect the
bidders who had provided the Government with
information under the belief that it would be treated
'The information included in the applications for the
Irish GSM II licence is also marked confidential, and
it can not be disclosed in any form to the public
without breaching the expressed non-disclosure
agreement. This would probably lead to a court case
initiated by one of the losing applicants.
'We therefore strongly recommend you to reconsider the
question and the eventual consequences of an immediate
CEANN COMHAIRLE: I will call Deputy Molloy later. I
now call Deputy Treacy, who has ten questions tabled
on the subject.
"MR. N. TREACY: The Minister was asked specific
questions which he has not addressed. I refer in
particular to Question Number 42, which he included in
his response but did not answer." I should say
Question 42 was Mr. O'Dea's question about contact
with representatives of the applicants - "Will the
Minister indicate the role played by his Department
and the Government in agreeing with the European Union
that a vital national aspect such as this licence
would be capped at £15 million when applicants
competing for the licence believed it would be worth
up to £100 million? Will he outline why agreement was
reached on the cap?
"MR. LOWRY: If the Deputy read the official report,
he would note that Deputy Brennan chided me about the
matter on a regular basis. He said I should have not
allowed it to go to public auction and that it should
be capped in the interests of bringing competition
into the sector. There is a change of heart on the
part of Deputies opposite.
"MR. N. TREACY: I asked the Minister a specific
"MR. BRENNAN: The Minister does not listen to
anything I say.
"MR. LOWRY: Regarding the licence fee, when the
competition was launched it included an auction
element as the fourth selection criteria in descending
order of priority, ranking below the tariff deal for
customers and other important criteria. It is public
knowledge that the European Union Commission raised
legal arguments against this aspect, and after taking
the advice of the Attorney General's office, my
Department entered discussions with the Commission
which led to modification of the rules of the
competition. A cap of £15 million was put on the
licence fee in the context that Eircell would also pay
£10 million. That led to the approval in advance of
the selection process by the Commission. It is
speculative at this stage whether the Commission would
have accepted a higher figure than £15 million, but it
is clear that there would have been a commensurate
increase in the demand from Eircell. In the long run
consumers should not be asked to pay a higher fee. I
am satisfied we have struck the correct balance and
that we will get what we are looking for, a
high-quality reliable and efficient service to compete 20
with Eircell, that will bring competition into the
sector, which will in turn benefit the consumer by way
of lower charges for handset equipment and lower
"MR. MOLLOY: Question Number 85 in my name requests
information regarding compliance with Article 3 of the
bid document, which states that the applicants must
give full ownership details for proposed licencee. I
asked if that had been complied with in the awarding
of the licence and if the Minister would indicate the
identity and ultimate beneficial ownership of the
institution investors who will own 20 percent of the
successful bidding company. Were they known to the
Minister when he made the decision, bearing in mind
that recent newspaper articles refer to the fact that
a finance company in Dublin has been appointed to
place 20% of the consortium's shares with institutions
and other investors? If the investors were not
identified, was Article 3 complied with?
"MR. LOWRY: All aspects of the established criteria
were scrupulously adhered to and monitored closely by
my Department, the consultants and the project team.
None of the six who submitted applications to the
Department was rejected because of the absence of
technical and financial ability to deliver the
service. Examination of these aspects was an integral
part of the evaluation process. Paragraph 3 of the
bid document to which the Deputy referred relates to
full disclosure of ownership. This was adequately
dealt with in the evaluation of all applications,
including the successful one. The majority of the
applications contained indications of probable changes
in ownership of minority interests by way of
flotation, institutional investment, after licence
award, and the level of such proposed changes
considered acceptable. The intentions of the willing
applicant in this regard was fully disclosed.
"MR. MOLLOY: Were the names of the investors
"MR. LOWRY: The names of the investors were not
disclosed in respect of a number of applications, but
they did not contravene the criteria set down.
"MR. MOLLOY: The article states that full ownership
details must be given.
"AN CEANN COMHAIRLE: Let us hear the Minister out.
"MR. LOWRY: A number of investors stated that
minority shareholdings would be available through
various mechanisms such as by way of flotation or
institutional investment. The winning applicant
clearly stated that Esat would have a 40% ownership,
Telenor a 40% ownership, and the other 20% would be
available to institutional investors or other interest
groups. That was clearly stated publicly as well as
"MR. MOLLOY: The Minister did not know who they would
"MR. LOWRY: It would be impossible for any of the
applicants to determine who would buy the minority
stakeholding until applications were processed and an
applicant had received a commitment from the
Department that its application was successful in
securing the licence and therefore it had a minority
interest to sell.
"MR. N. TREACY: The Minister accepts that he has full
responsibility for a large number of semi-State
companies. The report of the task force on semi-State
companies states that such companies must maximise
their potential to make an economic contribution to
this country. Given that a number of semi-State
companies had pledged fixed assets as part of the
equity in respect of the applications ultimately
rejected by the Minister, that represents a vote of no
confidence by him in the semi-State companies for
which he has political responsibility and which have a
fundamental obligation to make economic contribution
to our country.
"MR. LOWRY: I presume the Deputy is saying they would
have had an auction for the licence. I outlined the
reason why it was capped at 15 million. I said the
licence was the subject of discussions and
negotiations with the European Commission under
competition law. We adhere rigidly to that and have
successfully brought this process to conclusion. I
look forward to a competitor to Eircell being up and
running before the end of next year.
"MR. N. TREACY: I'm surprised the Minister does not
understand the question I asked.
"MR. MOLLOY: I have no reason to believe this
decision was not properly made, but the Minister must
accept that because of the nondisclosure of the
reasons upon which the decision was made, there was
serious doubts initially among unsuccessful tenderers.
One could say this was a case of sour grapes, but it
goes beyond that. A large number of major
international companies were involved. They went to
the expense of submitting tenders. One applicant
spent 5 million on its application, which I understand
included £1 million from the ESB. Where such an
amount of money was invested by tenderers, surely the
least to which they are entitled in common law and
justice and in the interest of fair play and openness
and accountability is that they would be told the
reason their tenders were unsuccessful. The reasons
they were unsuccessful should be made public. I have
a document -
Ceann Comhairle: That should be adequate. Let us
hear the response.
"MR. MOLLOY: It is very difficult to make one's point
in such a short time. The matter should be referred
to an Oireachtas committee for full examination.
"MR. LOWRY: The criteria and ground rules were
clearly established at an early date. All
participants in the competition were aware of the
process into which they were entering.
"MR. MOLLOY: I want to know the reasons for the
"MR. LOWRY: The process included a confidentiality
clause inserted at the request of the applicants.
Some who requested the clause are now seeking open
disclosure regarding the outcome. That would be
totally unfair to the winning applicant. The process
was carried out in a scrupulous way. We have
rigorously adhered to the criteria established with
which applications were satisfied at the outset. I am
aware that some people would like to have results
published, and I have gone out of my way to establish
if that is feasible. I have read today the response I
received from Andersen Management International
Consultants which are experts in this area and
specialise in it. They advised me not to publish the
results because to do so would leave me open to legal
challenge from other applicants and groups who
participated in the process. That is the position. I
would like to be in a position to publish the
consultants report, but it is not practical or legally
"MR. MOLLOY: The Minister asks us to accept that
everything was done above board, and I accept this,
but I ask him to recall that similar assurances given
by members of the Government were upended by the
Supreme Court less than a week ago. Will the Minister
accept that his decision is open to judicial review?
If that is so, will he accept that under the law he is
obliged to give the reasons for a decision to enable
parties who may be interested in seeking a judicial
review to decide whether they should seek such a
review? Will the Minister approach all the tenderers
and ask them to withdraw the confidentiality clause
which they sought at the time the application was
lodged to facilitate a statement being made with
regard to how the decision was arrived at?
"MR. LOWRY: I have nothing to add to what I have
already stated. The relevant section in the letter
which I have received from Andersen Management
International emphatically states that the information
included in the application for the second GSM licence
is marked confidential. It can not be disclosed in
any form to the public without breaching the expressed
nondisclosure agreement. This would probably lead to
a court case initiated by one of the losing applicants
in that context. I cannot accede to the question.
All the applicants entered this competition in the
full knowledge that the criteria were established,
that it would be imposed in a strict manner, and that
there would be no deviation from it. I am satisfied
with the integrity of the process. The manner in
which the competition was held will stand up to any
scrutiny, including legal scrutiny.
"AN LEAS-CEANN COMHAIRLE: I understand this matter
has received quite an airing, and I want to get on to
other Deputies' questions."
Then he calls Deputy Batt O'Keefe.
"MR. B. O'KEEFE: This issue of confidentiality is a
double-edged sword. On the one hand the Government is
calling for openness. It is clear that many people
are concerned about the manner in which the licence
was granted. If a suggestion is being made that the
successful applicants were the only people not to
offer any benefit to this country other than the
agreed EU cap of £15 million, then, as members, we are
not in a position to check whether there is substance
to such a claim. The issue must be of concern to the
Minister. In line with what Deputy Molloy said will
the Minister ask the tenderers to withdraw their
Confidentiality Clause so that we can have openness
and transparency relative to all matters put before
"AN LEAS CEANN COMHAIRLE: The question is overlong.
"MR. O' KEEFE: In respect of the decision to grant
the licence, is the Minister aware that the Tanaiste,
the day before the licence was issued, met one of the
competitors, informed him that the tender was above
board and that it would receive his support? He also
informed the group that a decision would not be made
for a further month. Yet the following day the
decision was made.
"MR. LOWRY: I am being asked the same question over
and over, and I cannot change the answer to suit the
Deputy. The reality is that I received advice in
respect of what I can publish. I have even examined
whether it is possible to publish some details of the
report, but I have been advised it is not, because of
the express wish of the applicants at the outset who
wished to have a Confidentiality Clause imposed.
Publication of the report would consist of detailed
comparative analysis of the applicants. Obviously,
the applicants do not want to know now or in the
future. Publication of part of the report which does
not contain confidential information is not possible.
"MR. MOLLOY: That is exactly what they want.
"MR. LOWRY: In a process such as this you cannot
change the ground rules as you go along. The rules
are clearly established. All the applicants knew
exactly in a finite way what the process involved, and
all were happy with it. As in any competition, there
is a winner and losers and people react differently to
"MR. MOLLOY: Clause 3 was not complied with.
"AN LEAS CEANN COMHAIRLE: Let us hear the reply
without interruption from any side of the house.
"MR. LOWRY: I will not comment on remarks that may or
may not be accurate in respect of what the Tanaiste
said yesterday inside or outside the house. I have
nothing to indicate that the Tanaiste made any
reference to this matter, and the Deputy should raise
the matter with him. In respect of the decision in
regard to the GSM licence, the consultants made a
clear recommendation. The project team made a
unanimous recommendation. I accepted that
recommendation, and the Government accepted it
unanimously. This was a clean hands-off process.
This is the manner in which any process of this matter
should be handled by any Government.
"AN LEAS CEANN COMHAIRLE: I intend to proceed to
Questions Number 6 and 7.
"A DEPUTY: Sixteen questions were taken out.
"MR. TREACY: I have a question down.
"MR. CREED: Will the Minister agree that this debate
is fuelled largely by the unsuccessful applicants for
the licence and that these same applicants agreed in
advance the criteria on which they made the tender and
are now seeking retrospectively to change the ground
rules? Will the Minister further agree that to
unilaterally make sensitive information available
which the tenderers insisted on keeping confidential
would possibly expose the taxpayer to liability in
subsequent court proceedings?
"MR. LOWRY: Yes, I confirm that what the Deputy
outlined is our approach to this matter. The
Government, as stated, agreed the detailed rules of
the competition and the selection criteria before it
was launched. As long as these rules were respected
and the result was a single clear-cut recommendation,
there was no room for any flexibility. I assure the
house that neither I, the officials of my Department
nor any member of the Government had any desire to
massage the outcome or to change the result. We
appointed consultants. We accepted the recommendation
of professional experts in this area and implemented
their recommendation by giving the second mobile
licence to Esat Telenor.
"MR. S. BRENNAN: First, Fianna Fail supports Deputy
Molloy's request that a full explanation be given to
those who did not succeed. Second, we wish the winner
well. Is it open to the Minister to tell the house
who owns the 20% to which Deputy Molloy refers?
"MR. LOWRY: Discussions are ongoing in respect of
finalising the award of the licence to the successful
applicant, and I have no doubt that is part of the
discussions. I have not been involved at any stage in
the discussions regarding this process. No doubt the
matter will be made public in due course, but I am not
aware of the precise details at present.
MR. MOLLOY: Has the Minister not confirmed in reply
to supplementary questions that the successful
tenderer did not comply with Article 3, which required
him to give disclosure of full ownership details of
the proposed licencee? The Minister said that they
are not available, and I accept that - I have no
reason to suspect that anything wrong or improper was
done - but I am asking for full disclosure, openness
and accountability. Is the Minister familiar with the
granting of the second licence in another EU member
state, Belgium, which gave full disclosure of the
method of selection? It was possible to do that
without giving any confidential information."
"Each of the applicants was assessed under three main
headings. Tariff, quality, and franchise. Various
scoring points were awarded accordingly, and the
applicant with the highest number of points was
awarded the tender. That is what we are seeking, and
surely the Minister knows that under our system of
administration of justice, there is the right to
judicial review, and that in those circumstances, such
judicial review would take precedence over
confidentiality. If this matter were to go to court,
the confidentiality cloak similar to the sub judice
cloak which is often hidden behind here would not
protect the Minister from seeking to refuse disclosure
as to how the decision was arrived at. Will the
Minister agree it would be more proper and correct to
inform parliament as to how he made this decision, the
reason he made it and the various details?
"AN LEAS CEANN COMHAIRLE: That will be adequate,
"MR. MOLLOY: Rather than leaving this matter to be
reviewed by the courts? Has the Minister heard the
latest news -
"AN LEAS CEANN COMHAIRLE: The Deputy's question is
"MR. MOLLOY: - in regard to T.V. 5? Richard Branson
has succeeded in getting a judicial review in the
United Kingdom in the way the United Kingdom allocated
its T.V. 5 licence. It seems to me the Minister wants
to force this issue into the courts.
"AN LEAS-CEANN COMHAIRLE: The Deputy's question is
overlong, and he knows that.
"MR. MOLLOY: This is where the matter must be dealt
"MR. LOWRY: I confirmed that the successful applicant
complied fully with all the clearly established
criteria, including Article 3. I have nothing further
to add to the questions to make this information
public. I have clearly stated the reasons this is not
possible. I indicated that this procedure was
established initially when the process was put in
place and all the applicants were aware of it. If
they decided to publish information in Belgium, it was
done with the express consent, received at initial
phase of competition, of those who participated.
"MR. MOLLOY: There is no confidential information in
"MR. LOWRY: The rules cannot be changed after the
game is completed. I have no intention of doing that.
"MR. N. TREACY: The Minister has not specifically
answered Question Number 46. In the interest of
openness, total transparency and absolute
accountability, will the Minister lodge a copy of the
consultants' report in the Oireachtas library?
"MR. LOWRY: I have answered the question. I may not
have answered it to the Deputy's liking, but I have
given a clear and precise response -
"MR. N. TREACY: The Minister has not answered the
"MR. LOWRY: - to the question. I have no intention
of answering it three or four times to satisfy the
Deputy. I have given him the facts; I can only rely
on the facts to put forward my case.
"MR. N. TREACY: The Minister is fudging the issue."
Now, a draft was prepared by the Minister to enable
him to respond to all of the questions which were put
down on this particular day. In response to the
questions which the Minister grouped together as
Questions 5, 10, 13, 25, 29, 30, 35, 39, 41, 42, 43,
44, 46, 84, 85, 86, 87 and 88, it appears that this
draft which was prepared in the Department was used by
the Minister. It also appears that this draft, the
draft prepared and used by the Minister in the House
in response to the questions, did not respond to the
question concerning the ownership of the consortium
which had submitted a bid, or applied.
Now, it appears that when replies to parliamentary
questions are prepared in draft form for use by a
Minister, that it is not unusual to prepare drafts of
possible supplementary questions and to prepare draft
responses in respect of such supplementary questions.
I just want to draw attention to one possible
supplementary which was identified or anticipated,
probably in the event of the answer given on ownership
by the Minister in the House being found to be
incomplete by the members of the House, and the draft
supplementary which was prepared relates to the
question were all the financial and ownership aspects
properly dealt with? Was this the case for Esat?
And the answer which was prepared was:
"There are separate specific questions on this later.
I must respect the lottery system for questions.
It appears one way or another that on the 22nd
November, 1995, Mr. Michael Lowry did not answer the
question asked by Mr. O'Dea, although he had been
furnished with a draft reply prepared by his
officials. The draft prepared for Michael Lowry and
used by him in response to questions asked by Mr.
Molloy on financial, technical and ownership aspects
does not appear to answer the questions asked. And it
appears that the draft reply to an anticipated
supplemental question, which was "Were all the
financial and ownership aspects properly dealt with?
Was this the case for Esat?" appears to have been
included to avoid answering the question. It should
be stated that this draft was not used by Michael
Lowry in the Dail because no such supplemental
question was raised.
CHAIRMAN: It's appropriate to rise now.
2.15. Thank you.
THE TRIBUNAL THEN ADJOURNED FOR LUNCH.
THE TRIBUNAL RESUMED AS FOLLOWS AFTER LUNCH:
MR. COUGHLAN: Before lunch I dealt with questions
which had been answered by Michael Lowry in the Dail
on the 22nd November, 1995, in a course of considering
what was known in the Department or by Michael Lowry
about IIU's involvement with the consortium in the
period up to December of 1995.
Now, in terms of the civil servants' knowledge at this
time of the involvement of IIU, Mr. Martin Brennan has
informed the Tribunal that he was not aware of the
contents of the letter of the 29th September, 1995,
from Professor Michael Walsh addressed to him until
well after the event. He has informed the Tribunal
that at the presentation meeting with applicants,
considerable emphasis was put by the Project Group on
the weakest side of applications. The fact that the
finances of the Esat Digifone consortium were probed
obviously prompted a response by way of this letter.
He knows from discussions with Fintan Towey that it is
quite clear that he, Mr. Towey, was the one who
received the letter and recommended that it should be
returned and not brought to the attention of the
Project Group. Mr. Brennan's recollection is that Mr.
Towey told him of the existence of the letter but not
of its contents. Mr. Brennan has informed the
Tribunal that he was not made aware, rightly, that an
indication of the involvement of IIU had been
communicated to the Department in September 1995. Mr.
Brennan has informed the Tribunal that he believes
that IIU Limited, as a member of the consortium,
surfaced relatively close to the final award of the
licence. He has informed the Tribunal that he can
recall this as it was the subject of some discussion
within the Department to which he was a party. He has
informed the Tribunal that he believes that Mr.
Loughrey took a hands-on position in considering how
the Department might react to the emergence of IIU
Mr. Fintan Towey has informed the Tribunal that the
decision made to return the letter of the 29th
September 1995 to Mr. Denis O'Brien on the 2nd October
1995 without retaining a copy of the letter on the
Department files was, to his recollection, the course
of action agreed between himself and Martin Brennan.
He has informed the Tribunal that he has discovered,
based on media revelations and information provided by
the Tribunal, that a letter sent to the Department
after the oral presentations given by applicants for
the licence indicated that IIU could potentially be
involved in financing Esat Digifone. However, this
letter was returned to Esat Digifone, and a copy was
not retained by the Department. He has informed the
Tribunal that he was advised by Esat Digifone at some
time after the announcement of the result, which may
have been by way of a telephone call from Mr. Denis
O'Brien, but he can not be sure, that Dermot Desmond
would be the investor in 20% of the consortium.
He has informed the Tribunal that he understood this
to mean that Dermot Desmond would be the institutional
investor in the Digifone consortium.
Mr. Sean McMahon has informed the Tribunal that he
cannot recall when he first heard of the involvement
of IIU Limited or Mr. Dermot Desmond in the Esat
Digifone consortium. He has informed the Tribunal
that he became aware from meetings on other topics and
from his staff of what the latest proposals were from
time to time. However, he has informed the Tribunal
that a Ms. Regina Finn, who was assisting him on the
licensing aspect, was aware by the 16th April 1996
that IIU was involved and in fact held 25% of the
equity in Esat Digifone.
Mr. Sean Fitzgerald has informed the Tribunal that he
had no knowledge of the letter from Professor Michael
Walsh to Mr. Martin Brennan dated 29 September 1995.
He has informed the Tribunal that he had no knowledge
of Mr. Desmond's or IIU's involvement in Esat Digifone
as of the 25th October 1995 or of any internal
dealings at any time within the company. He has
informed the Tribunal that any knowledge of these
matters would have been given to him by Mr. Brennan or
Mr. Loughrey and occurred sometime after the award
Mr. John Loughrey has informed the Tribunal that he is
not sure when he first became aware of some
involvement by IIU Limited or Dermot Desmond in the
Esat Digifone consortium. He had no such knowledge at
the time of the 24th or 25th October 1995 when the
decision was taken to award the Esat Digifone
consortium the initial sole negotiating rights leading
to the award of the licence. He has informed the
Tribunal that his first recollection of IIU's
involvement was gleaned, he believes, from newspaper
reports to the effect that IIU were, apparently, to
take over the arrangements of the placement of the
minority shares reserved for investors. He has
informed the Tribunal that as of yet, he has not had
time to revisit the files of the Irish newspapers, but
given his personal friendship with Michael Walsh of
IIU, he would have, no doubt, raised this emerging
role for IIU with him. Whether this was done by way
of a phone call or a social occasion, Mr. Loughrey
cannot recall, but to the best of his recollection,
IIU's role grew gradually from one of arranger to one
of primary investor on behalf of Mr. Dermot Desmond.
As far as Mr. Loughrey is aware, there was no definite
agreed confirmation of IIU becoming the minority
shareholder until approximately mid-April, when
Regina Finn of the Telecommunications Regulation
Division had confirmation of the IIU intentions from
William Fry Solicitors on behalf of the consortium.
To the best of Mr. Loughrey's recollection he had no
knowledge whatsoever of a letter dated 29th September
1995 from Mr. Michael Walsh, IIU, to Martin Brennan.
He believes that he would have remembered such a
letter, given that he knew Michael Walsh personally.
It appears that in the closing months of 1995 there
was additional concern on the Communicorp side as to
whether the funding for Esat Holdings Limited to
enable it to fund its equity participation in the
licence company would be consistent with the bid. Mr.
Paul Connolly wrote to Mr. Denis O'Brien on the 5th
December, 1995, and outlined three options which all
appeared in his view to be inconsistent with the bid.
Mr. Connolly wrote to Mr. O'Brien on the 5th December,
1995, and it's a note re: "merger options".
Further to our meeting this morning I have done a 4th
option - that is merging everything together and then
doing a fundraising for Esat Holdings Limited, the
100% owner of Esat Telecom and Esat Digifone.
My preferred option is Number 3, the part buyout of
the IIU stake.
I have a call in to Michael Walsh but it hasn't been
returned yet - will try again later.
And then he has set out various financing options and
has made certain assumptions.
The first up is "1. ESAT Telecom pre money value is
"2. Esat Digifone value is based at $25 per head of
population, giving a net value after licence fee of
"3. Esat Telecom shareholders are as follows:
Advent International 30.80%
"4. Esat Digifone shareholders are as follows:
"1. Merge IIU Esat Digifone interest into Esat Telecom
and then seek funding on a joint basis.
"Esat Telecom post merger including Digifone value."
And then he has various values:
"DOB values amounting to 42.74%.
"2. Raise funding through CS First Boston for the
"Funds required as follows:
And then he has "Amount in millions.
"Esat Telecom 10 million
"Esat Digifone 20 million
"IIU Digifone 13 million
"Total 43 million.
"3. Assume that the funds are raised based on the
same terms as the current proposals. The following
shareholdings will result
"Denis O'Brien 26.50%
Advent International 14.27%
New investors 38.00%
"1. Inconsistent with bid in that Digifone ownership
would be Esat: 62.5% and Telenor: 37.5%..
"2. Esat would not be an Irish controlled company and
nor would Digifone.
"3. Esat would be able to consolidate Digifone."
Then in relation to option 2.
"1. Buyout of IIU Digifone interest now..
"2. Raise funding through CS First Boston for the
buyout and equity funding.
"Funds required as follows:
"Esat Telecom £10 million
"Esat Digifone, £33 million
"IIU £10.313 million.
"Total: £53.313 million.
"3. Assume that the funds are raised based on the
same terms as the current proposal. The following
shareholdings will result in Esat Holdings.
"Denis O'Brien 30.32%
Advent International 16.32%
New Investors 47.00%.
"1. Inconsistent with bid in that Digifone ownership
would be Esat: 62.5% and Telenor: 37.5%..
"2. Esat would not be an Irish controlled company and
nor would Digifone.
"3. Esat would be able to consolidate Digifone.
"4. Telenor would probably object."
Then there was a third option.
"Option 3. .
"1. Buyout of 51% of IIU Digifone interest now.
"2. Raise funding through CS First Boston for the
buy-out and equity funding.
"Funds required as follows:
"Esat 10 million.
"Esat Digifone 26.63 million.
"IIU 5.260 million.
"Total 41.89 million.
"2. Esat Telecom post acquisition of IIU 51% Digifone
stake (pre CSFB).
"Denis O'Brien: 57.2%
"Advent International 30.8%
"3. Assume that the funds are raised based on the
same terms as the current proposal.
"Convert loans £20 million .
"Mezzanine loans £21.89 million.
"The following shareholding will result in Esat
"Denis O'Brien 32.6%
"New Investors 43.00%.
"Consideration: In relation to Option 3.
"1. Inconsistent with bid. Digifone ownership would
be Esat 50.25%, IIU 12.25%, and Telenor 37.5%..
"2. Esat would not be an Irish controlled company and
nor would Digifone.
"3. Esat will be able to consolidate Digifone.
"4. Telenor would probably object."
The fourth option was, Option 4:
"1. Merge Esat Telecom, including its interest in
Digifone, with IIU's and Telenor's interests in
"2. Raise funding through CS First Boston for the
buy-out and equity funding.
"Esat Telecom post merger including Digifone value,
"Denis O'Brien 30.98%
"2. Raise funding through CS First Boston for the
"Funds required as follows:
"Esat Telecom 10 million
"Esat Digifone 20 million
"IIU and Telenor equity 32 million
"3. Assume that the funds are raised based on the
same terms as the current proposal. The following
shareholdings will result.
"Denis O'Brien 19.22%.
"Advent International 10.34%.
"New Investors 38.00%
"Considerations in relation to Option 4:
"1. Inconsistent with bid in that Digifone ownership
would be Esat Holdings: 100%, albeit that Telenor
would be an indirect shareholder in Digifone.
"2. Esat Holdings would not be an Irish controlled
"3. Esat would be able to fully consolidate Digifone.
"4. Denis O'Brien's interest would be 19.2% of 100%
in Esat and of 100% in Digifone.
"5. Telenor could well believe that it is better
value for them to put up their own equity rather than
raise it through CSFB. It would increase their
ownership in the enlarged group."
Now, in this period, there were license discussions
between officials of the Department and members of the
Communicorp side of the consortium and the Telenor
side of the consortium, but it is not apparent that
there were any negotiations with the IIU side of the
It appears that between the announcement of the
evaluation process and the end of December 1995, that
the following was the situation.
Firstly, Mr. Arthur Moran, Telenor's solicitor, noted
that the Department knew about IIU's involvement by
reference to the letter of the 29th September, 1995,
and he also noted that the Department returned the
letter and indicated that it would not be taken into
Secondly, Mr. Gerry Halpenny, the Communicorp
solicitor, noted that IIU's involvement was not a
problem for Martin Brennan in the Department and that
his main concern was that Denis O'Brien and Telenor
would be mainly involved in the operational side.
Third, Telenor were unhappy with a company called
Bottin to which IIU's rights and obligations under the
agreement of the 29th September, 1995, had been
assigned on that day.
Fourth, on the 22nd November, 1995, Mr. Kyran
McLaughlin wrote to Mr. Denis O'Brien about a
telephone conversation he had with him and references
in the previous weekend's newspapers concerning IIU's
involvement with Esat Digifone.
Fifth, on the 22nd November, 1995, Mr. Michael Lowry
appears not to have answered the question asked by Mr.
O'Dea, although he had been furnished with a draft
reply prepared by his officials.
Sixth, the draft prepared for Michael Lowry and used
by him in response to questions asked by Mr. Molloy on
financial, technical and ownership aspects does not
appear to answer the question asked.
Seventh, the draft reply to an accepted supplemental
question as to whether all the financial and ownership
aspects were properly dealt with - "was this the case
for Esat?" may appear on one interpretation to have
been included to avoid answering the question. This
draft was not used by Mr. Michael Lowry in the Dail.
The Tribunal will inquire as to whether the Department
and Michael Lowry had any knowledge of IIU's
involvement in Esat Digifone during this period. The
Tribunal will also inquire into all circumstances
surrounding the preparation and use of draft replies
to parliamentary questions concerning ownership of
Esat Digifone and concerning meetings which Michael
Lowry had with applicants.
It appears from the documents produced to the Tribunal
by Esat Digifone, Communicorp and Telenor that in the
early months of 1996, there were negotiations between
Communicorp, which by then had been restructured as
Esat Telecom Holdings (and into which all of the
Communicorp telecommunications interests had been
transferred) and IIU/Mr. Dermot Desmond for the
acquisition by Denis O'Brien of 50% of IIU's 25%
Had these negotiations crystallised into binding
agreements, the effect would have been to increase the
shareholding of Esat Telecom to that of a majority
shareholding of 50.1% of Esat Digifone.
From the documents available, there appear to be two
factors motivating these negotiations.
1. The desire of Esat Telecom/Mr. O'Brien to acquire
a majority interest in Esat Digifone so as to enhance
Esat Telecom's prospects of raising funds through CS
2. A suggestion that IIU/Mr. Dermot Desmond may not
have had the funding available to meet their 25%
equity holding, which would have required a capital
injection of £13 million.
By letter dated 10th January, 1996, from Mr. Denis
O'Brien to Mr. Michael Walsh, marked "Subject to
Contract," Mr. O'Brien referred to recent discussions
between the parties, and in particular a conversation
between Mr. Walsh and Mr. O'Brien of that afternoon.
The proposals made by Esat Telecom/Mr. O'Brien appear
to have been as follows:
A. That IIU would place with Esat 12.6% of the 25% of
Esat Digifone to which it was entitled.
B. That in return, Esat Holdings would pay
subscription amounts due on the 12.4% remaining with
IIU as they fell due, up to a maximum of IR£6.448
C. That Esat Telecom/Mr. O'Brien would require the
support of IIU in negotiating a satisfactory
Shareholders' Agreement to include effective control
of the Esat Digifone board for Esat Telecom;
D. As part of the arrangement, Esat Telecom would
procure the release of IIU's obligations to underwrite
60% of the equity in Esat Digifone.
The proposal was conditional upon a number of matters
that were listed in the letter.
And the letter reads:
I refer to recent discussions and in particular to
our conversation of this afternoon.
My proposal is that IIU will place with Esat Holdings
12.6% of the 25% of Esat Digifone to which it is
entitled. In return, Esat Holdings will pay
subscription amounts due on the 12.4% remaining to IIU
as they fall due, up to IR £6.448 million (12.4% of IR
£52 million). I would also require your support in
negotiating a satisfactory shareholders agreement to
include effective board control for Esat Holdings. As
part of the arrangement, Esat Holdings would have to
procure the release of IIU's underwriting obligations.
The proposal is conditional on the following:
1. A satisfactory contract for the above and a
satisfactory Shareholders Agreement being negotiated
2. Government consent or at least satisfactory
assurances that the proposal will have no adverse
impact on the GSM licence.
3. Satisfactory conclusion of the CS First Boston
financing of Esat Holdings and consequently the actual
receipt of funds thereunder.
4. Such other consents being obtained as Esat
Holdings feels are necessary (to be incorporated as
conditions in the contract at 1 above).
If all of this is acceptable in principle, please let
me know, and I will begin to make arrangements for
drafting an implementation.
The documents furnished to the Tribunal also include a
formal document headed "Key points re IIU Nominees IIU
holding in Esat Digifone. This document was produced
to the Tribunal by IIU Limited and appears to confirm
the terms under discussion between the parties as set
out in Mr. O'Brien's letter to Mr. Walsh of the 10th
January, 1996. In addition to the various conditions
listed in Mr. O'Brien's letter, this document, which
appears to have been generated by IIU, unequivocally
"IIU's agreement is totally conditional on Telenor
confirming directly to DFD that they are happy with
the revised proposal."
The document reads:
"Esat Holdings 37.5%
"Revised proposal and main conditions (IIU's agreement
is totally conditional on Telenor confirming directly
to DFD that they are happy with the revised proposal).
- IIU to place with Esat Holdings 12.6% of Digifone.
In return, Esat Holdings will pay subscription
amounts due on IIU's remaining 12.4% as they fall
due up to IR£6.448 million. (£52 million x 12.4%.)
- Esat Holdings will procure the release of IIU's
- Satisfactory contract for the revised proposal to
be put in place.
- satisfactory Shareholders' Agreement to be
- Confirmation to be received that the revised
proposal will have no adverse impact on the GSM
- Satisfactory conclusion of the CS First Boston
financing of Esat Holdings and the receipt of funds
- All necessary consents and confirmations being
- IIU to provide a loan of up to £3,000,000 to be
fully repaid by end of May 1996. The coupon on
this loan will be DIBOR plus 2%.
- The revised proposal has been based on a valuation
of the licence of IR£52 million. CS First Boston
to confirm this valuation. Should this valuation
be revised upwards, IIU will expect to receive
proportionate recompense to be paid by end
- The agreed capital subscriptions to be made by the
parties are IR£52 million. The structure as to how
this capital should be structured (equity versus
debt)should be agreed between the parties. If
less than IR£52 million permanent equity is
required by the 31 December 1996, then IIU is to
receive the balance of the monies not subscribed on
- in general terms, IIU is comfortable with the
"Operating" shareholders carrying on the day-to-day
running of Digifone. It is important, however,
that any issues which may have a material impact on
the value of IIU's shareholding are approved by all
- full protection to IIU and all shareholders against
actions or financial structures which would erode
- any transactions between Digifone and any
shareholder would be on an arm's length basis and
will have prior approval by board members other
than the representatives of the relevant
shareholders. Directors fees also to be approved
by the board.
- each shareholder is entitled to participate pro
rata in the issue of any instrument designed to
effect the capital issue of IR£52 million.
Furthermore no new shares, loans or other financing
instruments can be issued to any shareholder
without the prior agreement of all shareholders
and all shareholders to participate pro rata in any
- no amendments can be made to the memorandum and
articles of association or the Shareholders'
Agreement without the prior agreement of all
shareholders. All shareholders resolutions have to
be approved by all shareholders.
- all shareholders to be entitled to participate on a
proportionate basis in any transfer of shares made
by any shareholder under pre-emption clauses."
Now, these dealings between the parties on this matter
appear to have continued through the month of
February, and on the 8th February, 1996, there appears
to have been a meeting between Mr. Michael Walsh and
Mr. Denis O'Brien which was also attended by Mr. Owen
O'Connell of William Fry and Mr. Neville O'Byrne of
William Fry. Mr. O'Connell kept an attendance on the
meeting, and it records that Mr. Walsh had spoken to
Mr. Desmond, who did not want to sell out his entire
shareholding in Esat Digifone. Mr. O'Connell's
attendance further records as follows:
It's a file from Owen O'Connell, 8/2/1996. "Client:
"NOB - that's Neville O'Byrne - plus Michael Walsh.
DOB - Denis O'Brien, OO'C, Owen O'Connell.
"Michael Walsh talked DD, does not want to sell out
fully. Happy with convertible structure.
Uncomfortable about shareholding in multiple
companies. Some discussion of DD co-investing with
CSFB but this very tentative.
Current position - IIU will go to 12.4%, IIU resolve
5% problem by convertible
same effect as share.
See Michael Walsh memorandum - lot of difficult
Problem for IIU in coming up with capital in interim.
Owen O'Connell draft convertible preferential share.
(Conversion subject to Minister consent).
Convertible debenture," it appears to be.
It appears that on the 9th February, 1996, at a
meeting of all the members of the consortium attended
by Mr. Knut Digerud on behalf of Telenor, Mr. Michael
Walsh on behalf of IIU and Mr. Denis O'Brien on behalf
of Esat Telecom, that Denis O'Brien put his proposal
to acquire a further 12.4% of the equity in Esat
Digifone to both Telenor and IIU. This meeting was
referred to in a letter on the 27th February, 1996,
from Mr. O'Brien to Mr. Digerud which stated as
I want to thank you for getting back to me so
promptly on the suggestion which I put to Telenor
Invest through you and to IIU through Michael Walsh at
our meeting on 9th February that you might consider
selling a portion of your share in Esat Digifone to
Esat Telecom Holdings. I have noted your response
that Telenor Invest has no interest in reducing its
shareholding in Esat Digifone at this time.
As I mentioned when I talked with you and Michael
Walsh, our financial advisers, Credit Suisse First
Boston, have told me that prospective investors in
Holdings would be more attracted to our current
private placement offer if Holdings could consolidate
its investment in Esat Digifone on the basis that it
would own more than 50% of the company. This has been
confirmed to me even more strongly during my current
meetings with prospective investors in the course of
our roadshow in the United States. I believe that
such an adjustment would also be acceptable to the
Department of Communications. Accordingly, I will
pursue the matter further with Michael Walsh, and I
will keep you informed if it should emerge that IIU
might be willing to do an acceptable deal with
Holdings to this effect.
In the meantime, we shall continue to work with
Telenor Invest and IIU on the basis of the existing
Mr. O'Brien's proposal and Telenor's verbal rejection
were the subject matter of advice from Mr. Arthur
Moran of Matheson Ormsby Prentice, Telenor's Irish
solicitor, in a letter dated 1st March, 1996. It
would further appear from the contents of the letter
that Telenor was still uncertain as to the
beneficiaries or potential beneficiaries of the shares
to be taken by IIU Nominees Limited. Mr. Moran stated
as follows in the final three paragraphs of his
"In relation to the letter from Denis O'Brien dated
27th February, 1996, I believe that that letter is
putting you on notice of the fact that Holdings wishes
to increase its interest in Digifone above the
previously agreed figures. I believe that Telenor
must respond to the letter to remind Holdings of the
fundamental understanding that Holdings and Telenor
would hold equal interests and that you would require
to retain the option at all times of achieving that
objective. That would of course mean that Holdings
cannot have more than 50% without your agreement to
take rather less than 50%.
"In relation to IIU and Dermot Desmond, I expect you
are aware that Mr. Desmond is at all times a dealer,
and accordingly, if the price is right, he will be
quite happy to deal with Denis O'Brien, and indeed it
is not inconceivable that there is already an
understanding in place as to what would constitute an
"For this reason, I think it extremely important that
in the Articles of Association of Digifone we provide
that it will amount to a transfer of shares of
Digifone if the beneficial interest of any shares
registered in the names of IIU Nominees changes so
that we should require IIU Nominees to let us know the
parties on behalf of whom they hold shares and how
many shares they hold for each such party to ensure
that there is no buildup of shares in any person
(especially Holdings) which is not known to us. I
will consider whether this point should also be put in
the Shareholders' Agreement as well as in the
Following Mr. Moran's advice, Mr. Arve Johansen, then
Chairman of Telenor Invest, responded formally to Mr.
O'Brien's proposal by letter dated 7th March 1996 in
which Telenor insisted in maintaining participation in
Esat Digifone on an equal footing with Esat Telecom
and suggested that if it would facilitate Esat
Telecom's funding requirements, Telenor would be
willing to consider a proportional increase of both
Esat Telecom and Telenor's shareholding in Digifone.
Now, while these negotiations between all three
participants in the Esat Digifone consortium did not
crystallise and while their respective shareholdings
remained at 37.5%/37.5%/25% at that time, there does
appear to have been a real concern within Esat Telecom
about IIU and Mr. Dermot Desmond's ability to fund
their equity participation in Esat Digifone. This
concern is also borne out by the contents of a
memorandum from Mr. Richard O'Toole, an adviser to
Esat Telecom, which he sent to Mr. Denis O'Brien
regarding the Esat Digifone Shareholders' Agreement
and the position of IIU. The memorandum stated as
It's to Denis O'Brien, and it's from Richard O'Toole,
20th February, 1996.
"Esat Digifone Shareholders' Agreement/IIU.
"Attached is a draft letter to IIU for your
consideration. I believe that we now need to send
such a letter to Michael Walsh in order (1), to
expedite conclusion of the Shareholder Agreement;
(2) to prepare IIU for the imminence of a capital call
by Esat Telecom.
"I am concerned at the delay in finalising the
Shareholders' Agreement with IIU. It is dangerous to
leave it until the last moment, and this is a matter
which we should be able to tidy away now. The
Department is bound to ask us shortly to deliver the
agreement to them; if we delay, you can be sure that
the Department will use this as a further excuse to
delay the licence. In addition, the project finance
banks need to see the agreement and will require
signature by the parties before they start funding.
In short, we need to get IIU to focus seriously on the
agreement and reach rapid agreement between ourselves
"The draft letter also puts Michael Walsh on notice
that IIU will have to fund its 25% share soon since
Esat Digifone now needs working capital from all of
its shareholders. The sooner IIU puts in money the
better, since Esat and Telenor are investing actively
in the business with IIU getting a free carry for no
risk whatsoever; when IIU have money in, they will
become much more focused. And if they fail to fund,
then their entitlement to equity may cease to exist
because they could be in breach of the agreement
giving them that right.
"I should also mention that I had a brief word with
Knut Digerud yesterday on the Shareholders' Agreement.
Although he did not commit himself definitively, I
believe, as a result of the discussion, that Telenor
will now agree to the deletion of the two clauses you
were worried about on the transfer of shares."
And attached to that memorandum was a draft letter
which was prepared but which I don't need to open at
this stage; I just make reference to it.
In the first three months of 1996, the Department
continued to work on the drafting and preparation of
the licence to be issued to Esat Digifone. As time
progressed, there appears to have been some pressure
from both within the Department and at a political
level to expedite the finalisation and issue of the
licence. Mr. Sean McMahon, Principal Officer on the
regulatory side, who was primarily responsible for the
drafting of the licence, recorded various instances of
such pressure in his personal notes. During this time
the Department took legal advice in relation to
various aspects of the licence from both the Office of
the Regulator Attorney General and from counsel.
Ms. Regina Finn was an Assistant Principal Officer on
the regulatory side, having replaced Mr. Ed
O'Callaghan in March 1996. She prepared a note and
placed it on the departmental file on the 21st March,
1996, in which she recorded that she had received a
telephone call from Mr. Martin Brennan that day in
which he informed her that Mr. Michael Lowry had
directed that a final licence should issue to Esat
Digifone by the following Tuesday at the latest, which
would have been Tuesday 26th March, 1996. She further
recorded that following discussions, Mr. John
Loughrey, the Secretary General of the Department,
agreed that a draft version of the licence would be
made available by the following Friday, 22nd March,
The note reads: "Mr. Martin Brennan (Development
Division) rang this office today (Thursday 21). He
was with the Minister and the Secretary at the
Telecommunications Council, and the matter of the GSM
licence was raised. The Minister directed that a
final licence issue to Esat Digifone by Tuesday next
at the latest. Following discussion, the Secretary
agreed that instead of this, a draft version of the
licence would be made available to Esat by Friday 22nd
(tomorrow). Mr. Brennan was communicating the
Secretary's instruction in this regard.
"In discussions with the Attorney General's Office,
the Office still advises against sending any copy to
Esat before it has been cleared by the AG. However,
in order to comply with the direction received, a copy
of the draft licence will be sent out with a cover
sheet containing a caveat similar to that which
accompanied previous drafts. The AG's Office have
reluctantly agreed to this course of action.
Apart from issues regarding the Shareholders'
Agreement and the respective shareholding of the
participants, Esat Digifone at this time was also
taking steps to progress the roll-out of its mobile
telecommunications network. In November of 1995, Esat
representatives met with representatives of the ESB
and requested the ESB to open negotiations on the use
of ESB sites for the placement of Esat Digifone
antennae. This meeting was followed by a letter of
the 30th January, 1996, from Mr. Seamus Lynch, project
coordinator of Esat Digifone, to Mr. John McSweeney,
group managing director of ESB International Services,
confirming that Esat Digifone would be interested in
using ESB sites as possible base station locations and
proposing that the ESB grant an option to Esat
Digifone for £250 per site with an average annual
rental payment of £4,000 per site. The granting of an
option by ESB to Esat Digifone would have entitled
Esat Digifone to apply for planning permission. The
Board were in the process of giving consideration to
the Esat Digifone proposal when on the 7th February,
1996, Mr. William McCann, the then Chairman of the
ESB, received a telephone call from Mr. Padraig
O'hUiginn, a director of Esat Telecom.
Mr. McCann's note of this telephone conversation
"To file. From W. M. McCann, Chairman. Date
7/2/1996. Re Esat Digifone.
"I returned telephone call at 9 p.m. yesterday to Mr.
Padraig O'hUiginn, who is an acquaintance of mine.
"He had been looking for me earlier in the day.
"He told me that he was a director of Esat Digifone,
and he said that he had approached the ESB a good
while ago in order to see if ESB would be willing to
let them use their properties and masts for their
telecommunications network. He said that they were
willing to pay for this.
"He said there had been a considerable delay in
responding, and then it emerged that ESB were
themselves bidding for the new digital telephone
licence as part of a consortium, and he inferred that
this explained the delay.
"He then went on to say that Esat Digifone had
subsequently won the licence and that they had been in
discussions recently with ESB (he thought the name of
the person concerned was John McSweeney or John
Sweeney, but he was not sure of this) again about
using their locations.
"He said that they did not appear to be making
progress, and he then read to me what he said was a
document about to be issued by the Minister for the
Environment to planning authorities. This document
apparently encourages planning authorities to ensure
that masts are, where possible, located together, and
apparently says that the owner would be expected to
"He said that it was Government policy that persons
with appropriate sites would cooperate. He said that
Esat Digifone believed there was an unreasonable
reluctance on the part of the ESB to cooperate and
hence his telephone call to me.
"He said he would like me to raise the matter with the
Board. I responded by saying that I was not familiar
with the issues involved and could not undertake to do
this. However, I did say that I would look into the
"He said that if the matter could not be resolved,
then he would raise the matter with the Minister for
Transport, Energy and Communications who was, he said,
"Our joint bosses".
"I again reiterated that I would look into the matter,
but I was careful not to promise to revert to him,
although it is probable that he expects me to do so.
"At the end of our conversation, he said that he would
send me a copy of the document to be issued by the
Minister for the Environment referred to earlier. I
have not received this at the time of dictation.
"W. M. McCann.
On the 7th February, Mr. O'hUiginn, a director of Esat
Telecom, wrote to Mr. McCann:
I now enclose copy of the consultation guidelines to
be issued by the Minister for the Environment as
regards telecommunications antennae and support
I have marked the passages that are relevant. It is
clearly Government policy for economic efficiency to
provide better mobile phone facilities and that there
is an obligation on bodies with existing support
structures and masts to facilitate co-location.
As I explained, our Seamus Lynch is in communication
with your John McSweeney in regard to co-location.
Obviously, there are commercial terms to be agreed
but, subject to that, we would like to know if the ESB
is, in principle or not, willing to consider
co-location as advised by the Minister for the
And enclosed with that was a consultation draft of
guidelines for planning authorities headed
"Telecommunications Antennae and Support Structures."
Now, by letter of the 12th February, 1996, Mr. McCann
replied to Mr. O'hUiginn indicating that the ESB had
received a copy of the Department of Environment
guidelines and that they would be responding to them
in due course. He further stated that the ESB would
consider fully the offer made by Esat Digifone, but
that as Mr. O'hUiginn would be aware, the ESB was then
tied into the Persona consortium and would not be free
to conclude arrangements with any other parties until
the licence had been issued by the Department.
His letter reads:
"12th February, 1996.
Mr. Padraig O'hUiginn, Director, Esat Telecom.
Dear Mr. O'hUiginn,
I refer to your letter of the 7th February and our
earlier phone conversation in which you expressed an
interest by Esat Digifone in the possible use of ESB
sites for their telecommunications network.
Interestingly, ESB had received a copy of the
Department of Environment consultation draft of
guidelines for planning authorities relating to
telecommunications antennae and will be responding in
I understand that Esat's project coordinator has also
written to Mr. John McSweeney with an offer in
relation to the sites and this will of course be fully
considered. You will be aware, however, that ESB is
presently tied into the Persona consortium and
unfortunately will not be free to conclude
arrangements with any other parties until the licence
has been issued by the Department. It is only fair to
let you know that at present ESB is also in discussion
with other parties.
ESB has significant facilities of value in the
telecoms area, and it is our intention to make the
widest possible use of and obtain maximum value from
them. In this regard it would be helpful to know if
Esat has considered offering ESB a suitable level of
equity participation in the company.
W. M. McCann
The ESB was one of the four members of the Persona
consortium, which was the second-ranked applicant in
the evaluation report and the consortium with which
the report recommended that the Minister should open
negotiations in the event of a breakdown in
negotiation with Esat Digifone Limited. This was also
of course noted in the Aide-Memoire which went to
Government on the 26th October 1995 and formed part of
the decision of Government on that day.
By a further letter, dated 21st February, 1996,
Mr. O'hUiginn again wrote to Mr. McCann, and on this
occasion again described himself as a director of Esat
In this letter, Mr. O'hUiginn recorded that Esat were
pleased to note that when the licence had been issued
the ESB would be willing to discuss arrangements for
use of their sites for facilities in accordance with
Now, I'll just read the letter.
It's Esat Digifone, Mr. McCann, Chairman of the ESB.
Thank you for your prompt reply to my letter 12th
February 1996 about co-location of GSM facilities.
We are pleased to know that when the licence has been
issued, the Board are willing to discuss arrangements
for use of your sites for our facilities in accordance
with Government policy. In addition, we understand
from our meeting with the Minister for Transport,
Energy and Communications, which was attended by one
of our directors, that the ESB have said to the
Minister that they are prepared to allow Esat Digifone
to co-locate on their structures in accordance with
As you know, we did approach your Board at a very
early stage in connection with our proposed tender for
the GSM licence, but in the event, your board opted to
join another consortium. All the equity in Esat
Digifone is now allocated, so it would not be possible
to give any equity share to the ESB.
Your Mr. McSweeney, in his letter of the 14th
February to our Mr. Lynch, mentions your interest in
matters other than sites, i.e. infrastructure, retail,
credit control. Our view is that these matters are
separate from the issue of co-location, which is
endorsed by public policy, and we are willing to pay
direct commercial terms for the facilities you can
make available in accordance with that policy.
This does not exclude the possibility of our entering
into separate arrangements in regard to the matters
you mention, according as our business arrangement
develops. We would be very glad to explore these
matters in due course.
We note that you are having discussions with other
interests. As regards public policy on co-location,
it envisages location of a number of interests on the
same site. We have no difficulty, therefore, in
discussing such arrangements with you. If you make
wider commercial arrangements with such other
interests, we have no difficulty with that. In fact,
you can maximise your return, which is a point you
We would be glad, in all circumstances, if discussions
between us could now proceed with all speed. Such
discussions could, we suggest, be provisional pending
the issue of the licence.
We have kept the Department of Transport, Energy and
Communications informed of our various discussions in
this matter, in view of Government policy on
co-location. We have therefore sent copies of our
correspondence to the Department with renewed thanks
for your prompt attention.
Now, the notepaper on which this was written is Esat
Digifone notepaper, and there is a list of directors,
and Mr. OhUigin's name is not included on that list at
the bottom of the notepaper.
On the 5th March, 1996, Mr. McCann responded to Mr.
Mr. McCann's letter reads:
"Dear Mr. O'hUiginn,
Your letter of the 21st February concerning GSM
The position regarding co-location of facilities is
that the Department of the Environment have circulated
a position paper for comment. ESB has responded to
that paper, and at this stage there is no established
Government policy. The suggestion contained in your
letter that the ESB told the Minister for Transport,
Energy and Communications that they were prepared to
allow Esat Digifone co-locate on their sites is not
The ESB approach to all GSM-related issues will be
based solely on commercial considerations. It has
come as a surprise that your company is now pressing
for a significant level of co-operation, given our
understanding that Esat Digifone had submitted a
comprehensive technical plan to the Department of
Transport, Energy and Communications which presumably
did not include use of ESB sites.
In my previous letter I indicated that pending formal
award of the licence, we were precluded by terms of
our agreement with Persona from agreeing arrangements
with other parties. When this matter is resolved, we
will be in a position to conclude agreements based on
normal commercial considerations, and I anticipate
speedy negotiations with Esat Digifone and other
parties at that point.
W. M. McCann
Some weeks later, Mr. Michael Lowry wrote to Mr.
McCann on the 27th March, 1996, in the following
It's a letter on the 27th March, 1996, to Mr. W M
McCann, Chairman, ESB, Lower Fitzwilliam Street,
Esat Digifone have contacted me concerning
difficulties in securing planning permission for
mobile phone masts in key sites around the country.
Planning authorities are reluctant to consider
multiple masts in sensitive locations unless it is
clear that there are substantive reasons why
co-location is not practicable, and every effort has
been made by the relevant parties to each agreement.
It is Government policy to support co-location
wherever feasible, and I am writing to all State
companies and Government agencies who own or operate
communications sites to urge maximum co-operation.
Indeed, if this cannot be achieved by voluntary means,
I will have to consider whether there is a role for
the regulatory and licensing process to address these
issues in the overall interest of developing
I understand that you feel you were precluded by your
participation in the Persona consortium from agreeing
arrangements with other parties. I cannot accept that
this is a valid justification for not cooperating on
matters which would overcome planning difficulties
possibly on a reciprocal basis. Indeed many such
arrangements would only come into play in practical
terms in circumstances which released you from your
Persona obligations, i.e. the formal issue of a
licence to Esat Digifone.
I trust the ESB can reconsider its position and adopt
a constructive approach to the single issue of mast
sharing with all interested parties.
Michael Lowry TD
Minister for Transport, Energy and Communications"
The Tribunal has taken this matter up with the
departmental officials and has been informed by Mr.
John Loughrey that both Mr. Loughrey and Mr. Sean
Fitzgerald were involved in advising the Minister to
sponsor the maximum cooperation concerning the
location of masts for mobile telephones, as well,
indeed, for other transmission facilities, so as to
minimise planning and environmental problems in
general and, indeed, minimise local and political
concerns about the location of such masts. According
to Mr. Loughrey, the letter to the Chairman of the ESB
of the 27th March 1996 was intended to do no more than
encourage the ESB to adopt a flexible and constructive
attitude towards allowing mobile antennae to be
attached to pylons and masts in their ownership.
While the letter arose from concerns expressed by Esat
Digifone, who had already contacted the ESB on this
matter, the Department would have encouraged the ESB
equally to allow Eircell to locate such masts on ESB
property. Mr. Loughrey has informed the Tribunal that
the policy was non-discriminatory. The Department
wanted to maximise co-location to the greatest extent
possible. For the most part, this would require
co-operation between Telecom Eireann/Eircell and Esat
Digifone. Mr. Loughrey has informed the Tribunal that
Mr. Alfie Kane, Chief Executive of Telecom Eireann,
was also contacted by the Department to adopt a
similar position of flexibility and creativity in
addressing this problem. Mr. Loughrey has further
informed the Tribunal that while the Minister could
have issued directions to Telecom Eireann and to the
ESB, the Department's stated preference at all times
was for voluntary agreements between all parties based
on satisfactory commercial arrangements.
The Tribunal will inquire as to the circumstances in
which and the matters which prompted Mr. Michael Lowry
to write in these terms to the ESB, a company for
which he had overall responsibility as Minister for
Transport, Energy and Communications, in aid of Esat
Digifone, and in particular bearing in mind that the
ESB was a member of the Persona consortium, which was
the second-ranked applicant in the evaluation process
and where the evaluation report had recommended that
the Minister open exclusive negotiations with Persona
for the grant of the second GSM licence if the
negotiations with Esat Digifone broke down. It would
appear that at no time in its dealings with the ESB
did the Department or the Minister inform either Mr.
McCann or Mr. McSweeney that Persona were in second
position to get the licence in the event that
negotiations with Esat Digifone failed.
In the continuing licence negotiations between the
Department and Esat Digifone, Mr. Owen O'Connell,
solicitor for Esat Digifone, provided Ms. Regina Finn
with what she recorded in a fax to Mr. Martin Brennan
and Mr. Fintan Towey was the latest information to
come to light about the shareholding in Esat Digifone.
She informed Mr. Brennan and Mr. Towey that Mr.
O'Connell was to provide further details in writing.
It's a fax to Martin Brennan and Fintan Towey from Ms.
Regina Finn within the Department. She then has a
note on the cover sheet as follows:- "Attached is the
latest information to come to light about the
shareholding in Esat Digifone. Owen O'Connell is to
provide further detail in writing. You may wish to
Then the note has a detailed graph, which I won't go
into at the moment, but if we just go down to the
text. "Owen O'Connell, William Fry Solicitors,
provided the following information on behalf of Esat
"At present Communicorp is the vehicle whereby Denis
O'Brien holds shares in Esat Digifone. Communicorp
also has ownership of Esat Telecom and the radio
interests of Denis O'Brien. The objective is to
uncouple the telecommunications and the radio elements
of Communicorp because they are incompatible from the
point of view of investors. With this in mind,
Communicorp will retain the radio interests and
"slide" out of the current picture in relation to
Then it states that Esat Telecommunications Holdings
was incorporated to take over the telecommunications
interest of Communicorp, and it sets out the ownership
Denis O'Brien 57%
Then it goes on: "A flotation is currently underway
by First Boston Bank which involves the placing of
shares in Esat Telecommunications Holdings Limited.
It is not yet known what percentage of the company
will finally be owned by American investors."
Then it has under that, "Esat Telecommunications
Holdings Limited in turn owns
"Esat Telecommunications Limited 100%..
"Esat Digifone 37.5%.
"Telenor Invest AS owns 37.5% of Esat Digifone
Then the note continues: "IIU (a Dermot Desmond
company) currently holds 20% of Esat Digifone, which
it intends placing with institutional investors. It
also has the right to acquire a further 5% (by means
of) the 12% of Esat Telecom Holdings Limited which is
held by 'miscellaneous'?)
"Owen O'Connell is to provide further information in
writing, including deadlines for this change in
On the 17th April, 1996, Mr. Owen O'Connell wrote to
Ms. Regina Finn in the Department in the following
"Ms. Regina Finn, Esat Digifone Limited.
"I refer to our telephone conversation of yesterday
regarding the ownership of Esat Digifone Limited and
of Esat Telecommunications Limited. The position is
"Esat Digifone Limited.
"There are 3 million ordinary shares of one pound each
in issue in this company. They are held as to 1.125
million shares held by each of Esat Telecommunications
Holdings Limited and Telenor Invest AS and as to
750,000 shares by IIU Nominees Limited."
Somebody has put in a note "37.5%". The 37.5% relates
to the shareholding of Communicorp or Esat Holdings
And the note saying "25%" refers to the 750,000
"It is intended that by the time notification is
received from you that the second GSM licence is
available for issue, the issued share capital will
have increased by £15 million to £18 million (all
comprising shares of one pound each) held as to
6,750,000 by each of Esat Telecommunications Holdings
Limited and Telenor Invest AS, and as to 4,500,000 by
IIU Nominees Limited.
"The 25% of Esat Digifone Limited held by IIU Nominees
Limited effectively represents the institutional and
investor shareholding referred to in Esat Digifone's
bid for the licence. You will recall that this
referred to an immediate institutional/investor
holding of 20%, with a further 12% in short and medium
term stages. Of the anticipated 12%, 5% has been
pre-placed with IIU Nominees Limited. It is
understood that most or all of the shares held by IIU
Nominees Limited will in due course be disposed of by
it, probably to private and institutional investors.
"Esat Telecommunications Holdings Limited.
"This company is owned (either directly or indirectly)
as to approximately 57% of its issued share capital by
Denis O'Brien, and as to approximately 31% thereof by
a group of investment funds managed and controlled by
Advent International. The remaining 12% is owned
(again directly or indirectly) by a number of
individuals (including Denis O'Brien) who are
primarily present or former directors, employees,
advisers or shareholders in Esat Telecom Limited.
(These percentages assume the full conversion of all
existing issued convertible debentures in the company,
i.e. they are expressed on a 'fully diluted' basis.)
"A placing of shares is near to completion in the
United States whereby the effective ownership of Esat
Telecommunications Holdings Limited will be altered by
the subscription for a substantial number of shares by
a number of US financial institutions. The US
institutions are likely to hold approximately
one-third of Esat Telecommunications Holdings Limited
after the placing (although Mr. O'Brien will retain a
majority of voting shares); in addition Advent
International may increase its holding somewhat by
participating in the placing.
"Other group companies.
"You asked me about a number of other companies of
which you were aware, including Esat GSM Holdings
Limited and Communicorp Group Limited. While these
companies remain in being and are within the overall
group structure, they will not have a direct role in
"I believe that the foregoing accurately summarises
the effective and beneficial shareholding of the
parties concerned, although the full shareholding
structure is somewhat more complex than outlined and,
as I told you on the telephone, many of the effective
shareholdings are held indirectly through other
companies. If you wish, a full briefing can be given
as to the exact shareholdings of all parties in and
through all companies, but I am not sure that this
will serve any productive purpose. Please contact me
if you would like such a briefing.
"At the risk of labouring the point, I must reiterate
the anxiety of Esat Digifone to procure a grant of the
second GSM licence as soon as possible, since
significant damage to its plans and prospects is
already being incurred and could largely be avoided by
the grant of the licence.
"I look forward to hearing from you.
And this was a letter written by the solicitor to Esat
I should perhaps draw particular attention to that
part of the letter in which Mr. O'Connell states "The
25% of Esat Digifone Limited held by IIU Nominees
Limited effectively represents the institutional and
investor shareholding referred to in Esat Digifone's
bid for the licence. You will recall that this
referred to an immediate institutional investor
holding of 20%, with a further 12% in short and medium
term stages. Of the anticipated 12%, 5% has been
pre-placed with IIU Nominees Limited. It is
understood that most of the shares held by IIU
Nominees Limited will in due course be disposed of by
it, probably to private and institutional investors".
It does not appear that this particular paragraph
reflects what had occurred between Dermot Desmond,
Denis O'Brien, Michael Walsh, IIU, Esat Digifone,
Communicorp and Telenor. It is to be recalled that
from the 29th September, 1995, IIU had a right to
subscribe for 25% of the shares in Esat Digifone in
return for agreeing to furnish a letter to the
Department and in return for underwriting the portion
of Esat Digifone's equity not taken up by Telenor.
From that date, Telenor had a right to subscribe for
37.5% of Esat Digifone's equity. Communicorp had the
same right, and IIU had a right to subscribe for 25%,
based on an agreement which had occurred on the 29th
On the 29th September 1995 a side letter was signed by
Michael Walsh on behalf of IIU and Denis O'Brien on
behalf of Esat Digifone in which it was agreed that
from that date, IIU had assigned all of its rights and
obligations to Bottin. Mr. O'Connell was the Esat
Digifone solicitor on the 29th September, 1995.
The communication to Ms. Regina Finn on the 16th
April, 1995, and the letter to her on the 17th April,
1995, appears to be the first formal notification - I
stress "formal notification" for the moment - to the
Department of IIU's involvement in Esat Digifone. It
is to be recalled that the letter of the 29th
September 1995 had been returned to Denis O'Brien, and
he had been informed that it would not be taken into
Now, if I could go back to Ms. Regina Finn's note
which she sent with her fax to Mr. Martin Brennan and
Mr. Fintan Towey, and the graphic, please.
Now, the letter of Mr. O'Connell's on the 17th refers
to IIU Nominees Limited. The graphic makes it clear:
Institutional investors on the right, IIU/Dermot
Desmond. That's a matter which I will be referring to
when I come to deal with another series of questions
answered by Michael Lowry in the Dail on the 30th
On the 30th April, 1996 Mr. Michael Lowry was involved
in a number of exchanges involving the second GSM
mobile licence in the Dail. And I intend opening it
all for the sake of completeness, but I just, for the
moment, wish to make reference to the following
passage: "Deputy Brennan's comments are negative and
destructive, the Communicorp funding requirement was
underwritten by a party acceptable to my Department.
The intention of the consortium partners to arrange a
private placement with what can only be described as
blue chip institutional investors was disclosed by
them to the Department. Stockbrokers were named and
letters of commitment for specified amounts from the
investors were submitted. In addition, strong
expressions of interest in loan and equity
participation in the consortium were available from
other leading international financial institutions.
This was the position when the decision was made."
The draft speech prepared in the Department for Mr.
Lowry does not appear to make any reference to
Communicorp's funding requirements being underwritten
by a party acceptable to his Department.
The Tribunal will inquire as to the circumstances
whereby Michael Lowry became aware of the fact that
the Communicorp funding requirement was underwritten
by anyone. The Tribunal will also inquire as to
whether this fact was known to the Department and as
to whether it was acceptable to the Department or
Now, I intend going into the debate, Sir, which will
be fairly lengthy at this stage. And in fairness, I
have to put up some of the drafts, because this is a
matter which the Tribunal will have to inquire into,
and it might be more appropriate if I was to leave it
over till the morning.
CHAIRMAN: All right, Mr. Coughlan, for what I think
may be perhaps the final day of your considerable
opening remarks, eleven o'clock tomorrow morning.
THE TRIBUNAL THEN ADJOURNED UNTIL THE FOLLOWING DAY,
THURSDAY, 12TH DECEMBER, 2002 AT 11AM.