Eircom has been granted a judicial review of a directive issued by the telecoms regulator which could cost the company more than £15 million (€19.05 million) in annual fines and question the viability of its leased line business.
The dispute centres around a directive which removes a cap on penalties levied against Eircom for failing to meet service agreements to deliver leased line networks to competing operators.
The company revealed yesterday it had a liability of some £5 million in fines for failing to supply network connections to rival operators within a 26 day period over the past 12 months.
Eircom said the removal of a cap on fines - which was set at one-and-a-half times the target delivery date and averaged about £3,000 per circuit - would "question the whole viability of its business".
Director of corporate communications at Eircom, Mr Gerry O'Sullivan, said with no cap on penalties, fines could reach as high as £10,000 per circuit. He said this was something the company could not allow as a typical circuit may only generate £11,000 in revenue.
"We have to defend value for shareholders," he said. "It's a issue of protecting the assets of the company."
With the demand for leased lines rapidly increasing a conservative estimate of the likely costs of an uncapped penalty system could be more than £15 million in annual fines for Eircom.
Eircom admitted it was taking almost double the 26-day period set out in its service level agreement to provide infrastructure to competitors. These delays were due to the explosion in demand for leased lines, said Mr O'Sullivan.
Following court action initiated yesterday by Eircom the new directive which was due to go into effect at 5.30 p.m. yesterday will be delayed until a judicial review is heard on the 9th of October.
Mr O'Sullivan also claimed the new directive had been issued without any consultation and rival operators, such as multinationals like British Telecom, were choosing to "piggyback" on the back of Eircom's network.
However, this was rejected by a spokeswoman for the regulator's office. She said there had been no fall off in companies building their own networks and insisted Eircom's provision of leased lines had been persistently inadequate.
"We've tried to broker agreements with them on three separate occasions and Eircom has failed to deliver on them each time," she said.
She said if the regulator would not remove the cap on penalties Eircom would have no incentive to deliver the service after it passed a certain time delay. Mr David Cooke, chief executive of Esat's Broadband Business said the action was a further attempt by Eircom to frustrate the development of competition.
"It is unfair on customers and we would call on the Government to give greater powers to the regulator," he added.
Mr David Hughes, managing director of Worldcom Ireland, said the company had had numerous fruitless meetings with Eircom to resolve the difficulties and then had asked the regulator to intervene.
