The replacement of Advent and the three Irish institutions with Dermot Desmond's IIU Ltd had a number of repercussions.

It was a cause of political controversy when it emerged that Desmond held 20 per cent of the shares in the winning consortium. It created tensions between Telenor and O'Brien.

The licence competition won by Esat Digifone in October 1995 gave it an exclusive right to negotiate for the licence. The licence itself was not awarded until May 16th, 1996.

In October 1995 the group that selected the Digifone bid did not know that IIU was involved. In April 1996, the Department of Transport, Energy and Communications began to zero in on the precise make-up of the Digifone consortium. The consortium was owned 50/50 by Communicorp/Telenor in October 1995 but this was to change as the licence handover date approached.

In April 1996 Owen O'Connell of William Fry solicitors provided the Department of Transport, Energy and Communications with information about the make-up of Esat Digifone at that time. This letter contained the first formal notification to the Department that IIU was involved in Digifone. The letter explained that Communicorp had been split up so that shares in a new company, Esat Telecom Holdings (ETH), could be placed with US investors. ETH took on Communicorp's telecommunications interests, with Communicorp retaining O'Brien's radio interests.

ETH, O'Connell informed the Department, owned 37.5 per cent of Digifone. Telenor owned a further 37.5 per cent. Dermot Desmond's IIU held 25 per cent of the shares.

O'Connell said it was "understood" that most or all of the shares held by IIU Nominees Ltd would, in due course, be disposed of by it, probably to private and institutional investors.

The paragraph in O'Connell's letter which referred to IIU, according to John Coughlan SC, counsel for the Moriarty Tribunal, does not appear to reflect what had occurred between Desmond, O'Brien, Michael Walsh of IIU, and Telenor/Communicorp and Digifone on September 29th, 1995.

On that date IIU had agreed to become involved and in return to get 25 per cent of Digifone. On the same date, in a "side letter" signed by Walsh, for IIU, and O'Brien, for Digifone, IIU "assigned all of its rights and obligations to Bottin", according to Coughlan. Bottin is a company that holds investments for Desmond. In other words, the 25 per cent had, in effect, been "placed" with Desmond personally.

What happened, then, as the date approached for the licence handover, was that the minister, Michael Lowry, decided the original shareholding profile, 40/40/20, which was contained in the bid, would have to be reflected in the consortium that received the licence. In other words, the IIU shareholding had to drop by 5 per cent.

Some bargaining took place within the consortium and eventually it was decided that Telenor and ETH would each buy 2.5 per cent of Digifone from IIU, bringing IIU's shareholding to 20 per cent, and Telenor and ETH's shareholdings up to 40 per cent each. In return for this, IIU was to get £2.7 million, being £1.375 million for each 2.5 per cent. An effect of this, therefore, was that IIU was up £2.7 million before the licence had even been awarded.

It was becoming clear to Telenor at around this time that the involvement of Desmond in the Digifone consortium was sensitive. On May 4th, 1996, Arve Johansen, in Oslo, wrote a memo to himself concerning Advent being replaced by IIU and Telenor having to, for a time, reduce its Digifone shareholding below 40 per cent.

"In hindsight, it is quite clear who benefited from this arrangement [the one with IIU\]. I have good reason to believe the terms put forward by Advent for investing in Communicorp did not suit Denis O'Brien. With the above arrangement, which he orchestrated for all other sorts of reasons, he has actually achieved to bolster his/Communicorp's balance sheet and paid for it with Digifone shares at the cost of Telenor. He has done this in an atmosphere of trust where Telenor has even agreed to bridge-finance Communicorp while he raises funds through a private placement in the US."

Furthermore, Johansen wrote, it was clear from a meeting with departmental officials on May 3rd, that IIU "was not a favourable name from an 'Irish public' point of view... My feeling is that if Telenor had owned it alone, he [Department official Martin Brennan, who had chaired the licence selection commiteee] would have been more comfortable than with the current shareholders."

The licence was actually handed over on May 16th, 1996. Right up to the last minute, the consortium members were in negotiations with one another. The licence was going to cost £15 million and with a 40/40/20 shareholder breakdown, this meant ETH would have to cough up £6 million to cover its share. It didn't have the money. Furthermore, in order to buy 2.5 per cent of the Digifone shares from IIU, ETH had to cough up £1.375 million and, again, it didn't have the money.

Side letters were signed on May 16th to cover these issues. IIU gave ETH until May 30th to pay the £1.375 million. Another letter confirmed that Desmond personally owned all the 20 per cent held by IIU. Another agreement stipulated that Telenor and IIU would pick up ETH's £6 million due for the licence fee. IIU paid £2 million of it and Telenor £4 million. The loan was to be repaid by ETH by September 16th, 1996. These and other agreements were signed in the offices of William Fry solicitors on May 16th, 1996. Later that day the licence was issued and a press conference held.

With the State's second mobile phone licence in his hand, O'Brien was on his way. Within weeks of signing the various documents in Dublin, ETH had raised $47 million in the US through Credit Suisse First Boston.

The investors included George Soros, John Hancock, Credit Suisse First Boston, New York Metropolitan Life and Advent. Most of the shares were bought at $6 and sold less than four years later at $100.

Over the coming years, more than $1 billion was raised in the US by ETH, subsequently Esat Telecom group plc. This money was used to grow both the fixed- line Esat Telecom business and the mobile phone business. By the end of the decade Esat's share of the Irish telecommunications market - land-line and mobile - was approaching 25 per cent.

When BT sought to buy Esat Telecom group plc, in early 2000, the group had an after-debt value of about $2.4 billion. In other words, the invested and risked $1 billion had created a return of $2.4 billion. However, BT was only interested in Esat if it could also acquire a controlling stake in Esat Digifone. The problem was that Telenor also wanted control of Esat.

By this time Desmond had reduced his stake to 1 per cent. Telenor and Esat Telecom had 49.5 per cent each. Desmond's 1 per cent was critical and his decision to support O'Brien cleared the way for a sale to BT for the price offered.

The sale occurred at the height of the telecommunications boom. Desmond got $25 million. Telenor got more than $1 billion. O'Brien got $300 million. Despite all the money they made together, the impression given by the tribunal's proceedings is that the relationship between Telenor and O'Brien is decidedly frosty. The tribunal's public hearings are due to resume again shortly.