Eircom is opposing the Government's plan to invest millions of euro in the telecoms market, and has described the State's initiative with troubled US firm Global Crossing as "counter-productive" and negative for consumer value.

In a withering attack on State policy, Eircom also criticises the Government's focus on supply side elements of the telecoms market rather than attempts to stimulate demand for services.

Eircom's strong criticism of public policy are outlined in a document sent to the Government in January, following publication of a report by The National Competitiveness Council, which criticised the pace of deregulation and the lack of consumer broadband here.

It was obtained by The Irish Times under the Freedom of Information Act shortly before the publication of a policy document by Fianna Fáil this week, which backs the Government's policy to invest €300 million in telecoms over the next three years.

Eircom's lobby document, Comments by Eircom on the conclusions relating to the telecommunications sector January 2002, argues that capital investment in telecoms infrastructure presents a real danger of creating "stranded assets" that would not be remunerated. It concludes that State intervention would dilute the business case for future investment and is a retrograde step.

"Such intervention may, on the one hand, lead to retrenchment of planned investment by operators in anticipation of open and non-discriminatory access to public infrastructure or, on the other hand, to over supply and therefore inadequate return on network investment in certain areas of the network," the document states.

Some state intervention for social or public reasons could be targeted in certain areas such as the access network. But, in principle, the future development of telecoms services should be based on a dynamic, competitive market responding to real market demand, according to Eircom.

The lobbying document also criticises the State's public-private partnership initiative with Global Crossing, which was agreed in 1999, at a cost to the Irish tax payer of almost €62 million so far. Under this agreement, the State agreed to part-finance the provision of international connectivity to companies here at cheap prices in order to attract and retain international foreign direct investment.

Eircom describes the Global Crossing deal as an example of where well-intentioned Government intervention proved to be counter-productive and has had a negative impact on consumer value.

"The international bandwidth market has always been the most competitive part of the telecommunications sector and market prices have declined sharply as over-supply has been reached. Bandwidth from Ireland to the UK and US is now at commodity prices but Ireland is locked into very expensive bandwidth supply agreements with Global Crossing," says the report.

The Government has already appointed two law firms to monitor its agreement with Global Crossing, following the US telecom firms filing for bankruptcy protection in the US recently and will decide next month whether to pay Global Crossing an additional €15 million due under the deal.

Eircom also says the Government's proposed Atlantic Fibre Corridor investment may have the same effect as the Global Crossing deal. Proposed State intervention in the national transmission network will not address the challenge that exists.

The proposal to introduce a new State supplier of network infrastructure, facilities and services is unnecessary and would be a disincentive to private sector investment, says the report.

Public policy should move towards the supply side of the market on the basis that stimulation of demand is ultimately more productive. Eircom proposes providing State aid as a subsidy to the users of the access network. This would encourage the development of e-commerce applications and would be technology and carrier neutral.

According to Eircom, expectations that a rapid deregulation of the telecoms market would lead to the development of low-cost broadband infrastructure had not been met. This was due to the absence of participation by new entrants due to the limited scope of the Irish market, the lack of significant emerging e-commerce demand and the coincidence of a global sectoral downturn, it added.

Meanwhile, it is expected that the State's three major mobile phone firms will begin a lobbying campaign to make changes to the Government's current investment policy. They are concerned mobile firms will face competition from State-backed infrastructure, while they have to pay large sums for third-generation mobile licences.