The Moriarty Tribunal in Dublin Castle has flagged its intention to investigate the largest commercial decision ever made by a serving government minister - the awarding of the second mobile phone licence to Esat Digifone in 1996.
It is the first ministerial decision the tribunal has announced it is to examine in public session. Senior civil servants, Danish consultants and even EU officials may be called.
The licence was awarded to Esat Digifone at the end of a hotly contested and eventually bitter competition. The price it had to pay was £15 million (€19 million), a small proportion of the overall cost of setting up the company. What made the decision so significant was the opportunity it presented to make enormous profits.
Which is what happened. When BT bought Esat Digifone early last year, it paid approximately £2.4 billion. The shareholders were: Mr Denis O'Brien's Esat Telecom (ET) and Norwegian company Telenor, 49.5 per cent each; and Mr Dermot Desmond, who by then held only 1 per cent.
Back in early 1995 when the licence competition was launched, the then Minister for Transport, Energy and Communications, Mr Lowry, said up to 15 consortiums might enter bids. It was thought the licence fee might be about £45 million. Mr Lowry said: "the level of fee will be determined by the market".
He added that the competition was not an auction and the main criteria for selecting the winner would be "the ability of the winning consortium to develop the market".
Mr O'Brien was interested right from the start. Initially his bid was expected from an entity called Esat GSM, involving ET, US firm South Western Bell and German company Deutsche Telecom. At the time Mr O'Brien was expecting start up costs of £60 million, excluding the licence fee.
By the second week of June, however, as the deadline approached, his group seemed to have fallen apart and ET was looking for new partners. Three consortiums had officially declared their interest. The deadline was Friday June 23rd. ET seemed to be about to miss the boat.
Then a complication arose. The European Commission, according to the Department of Transport Energy and Communications, objected to the terms being offered to the bidders. The deadline was extended while the Department and the commission negotiated new terms.
The commission wanted a charge similar to the second licence fee to be charged to the existing mobile phone company, Eircell. It was felt that otherwise the newcomer to the market would be placed in an unfair position.
This led to concern in the Department about setting a high price because it hoped Telecom Eireann, then a State company, would find a strategic partner. The last thing Telecom Eireann, owner of Eircell, needed, was a new £40 million tranche of debt.
The Department had a second concern. It feared that a high licence fee would simply be passed on to the new company's eventual consumers. This would be contrary to the overall objective of the exercise, which was the reduction of telephone charges through the introduction of competition.
With both these factors in mind, it was decided a maximum fee of £15 million would be set for the new licence. A new deadline, 12 noon on Friday, August 4th, was announced.
On the deadline day The Irish Times reported that ET had teamed with Telenor to form Esat Digifone (ED), which was bidding for the licence. The companies were each to own 40 per cent of ED, with "unnamed Irish institutional investors" to hold the rest. In all, six consortiums made bids.
Inside the Department a GSM group had been established, which comprised civil servants from the Department of Transport Energy and Communications, from the Department of Finance, and consultants from Danish company Andersen Management International. The group was chaired by Mr Martin Brennan, then a principal officer and head of Mr Lowry's Department's technical division. A weightings system was devised whereby the bids would be given scores for various aspects such as credibility of business plans and financial projections, network cover, and so on. The bid which scored the highest would be awarded the licence.
Mr Justice Moriarty has specifically mentioned that the tribunal would look at the weightings system. A key matter will be whether anyone outside the civil servant/ Danish consulting group committee, was given details of the weightings system. Departmental sources say the issue was recognised at the time as a key one and that the weightings were kept a closely guarded secret.
Late in the evening of October 25th, 1995, Mr Lowry announced that ED had been identified as the "clear recommendation" from the bidding process. The announcement took everyone by surprise as it had not been expected for some time. Mr Lowry said he'd received the recommendation from the decision-making process and, after consulting with the then Finance Minister, Mr Ruairi Quinn, he had decided to make the decision public immediately.
After the announcement it was reported that ED was "currently finalising negotiations with institutional investors" in relation to the 20 per cent not owned by ET or Telenor.
In the wake of the announcement some of the losing consortiums expressed not only disappointment but "puzzlement". US companies involved in consortiums got their embassy to lobby the government for full disclosure as to how the decision was made. The Department resisted. The complaints continued, perhaps not coincidentally, up to when the licence was officially awarded to ED in May 1996.
One issue which emerged was the licence fee. A newsletter published by the Financial Times said the £15 million fee was "the lowest so far in any European cellular auction, in terms of both the total price and the price per head of population".
When the awarding of the deal was raised at a meeting of the Dail Public Accounts Committee in April 1996, Mr Dessie O'Malley questioned whether ED had sufficient funds to proceed with its plans. On the day after the committee's meeting Mr Lowry hosted a press conference where civil servants from his Department were available for questioning by the media. Among those present were Mr Brennan and Mr John Loughrey, secretary of the Department. The latter said the selection process had been "squeaky clean".
One topic raised was the question of how exactly the capping of the fee came about. It seems the EU may have raised a general query concerning the levelling of the playing pitch between the winning bid and Eircell, and this prompted the Department to go back to the EU with the idea of a cap on the fee. "We proposed a deal to the commission," Mr Brennan said.
Two other issues which emerged were who owned the 20 per cent not owned by ED and Telenor, and whether ED had the money it required. Mr Loughrey declined to comment on ED's finances. He said the Department was happy it had a "good fix" on the company's ownership, and the Department had been shown a shopping list of investors who would take up the remaining 20 per cent. In the event, Mr Desmond's company, IIU Nominees Ltd, took on the 20 per cent shareholding. The tribunal has said it would appear the shares were held for Mr Desmond. This 40:40:20 breakdown in the shareholding was in place on May 16th, 1996, when the licence was officially awarded.
It is now known that a $50,000 (€58,596) donation was made to Fine Gael in December 1995, in the immediate wake of the licence announcement. The money came from Telenor, which was later reimbursed by Esat Digifone, and may have been originally solicited in connection with a November 1995 Fine Gael fund-raising lunch in New York. It has also since emerged that companies which formed part of losing consortiums, actually attended the lunch.
It has also emerged that in October 1996 Mr O'Brien was thinking of giving £100,000 to Mr Lowry, whom he thought was having a hard time. He wanted to share his good fortune with someone whom, he has said, had always dealt fairly with him. Around the same time £147,000 sterling (€242,414) was being lodged to an offshore account belonging to Mr Lowry by the late Mr David Austin, who had received the money after selling a Spanish property to Mr O'Brien.
Furthermore, it has emerged that in 1998 and 1999, when Mr Lowry was pursuing property deals in England, he sought finance by approaching Mr Aidan Phelan, a long-term business associate of Mr O'Brien's.
On the face of it none of these facts indicates that the 1995 licence competition was corrupt, as all of them have to do with the period after the awarding of the licence. Nevertheless the process is to be probed aggressively.
