TELEPHONE charges will be capped for up to five years under a new Bill published yesterday. The move, coupled with increased competition in the telecommunications sector, will inevitably lead to a drop in telephone charges, the Minister for Transport, Energy and Communications, Mr Lowry, has

An independent regulator will be appointed early next year to supervise the sector, when the Bill, known as the Telecommunications Bill, 1996, is signed into law. As part of the new legislation, the Minister will sign a tariff order whereby telephone charges will be capped for a minimum of two years and possibly up to five years.

The mechanism will limit overall price levels to a figure linked to the Consumer Price Index (CPI). The regulator will review the mechanism after two years and prices could increase or decrease slightly under the system. However, it is highly unlikely they will increase, according to industry sources.

The cap is really targeted at Telecom Eireann, as it is aimed at whatever company is in a dominant position at the time. It has been devised to give Telecom and its new strategic alliance partner KPN/Telia a "stable environment" to prepare for full competition in the sector by the year 2000.

The cap will not apply to the mobile phones sector, where the view is that competition already exists because Esat Digifone is entering the market.

A spokesman for Telecom Eireann said last night that the company was "comfortable" with the idea of a cap as it was the industry norm.

"We have been running ahead of the price caps which operate in Europe generally, because of the £130 million price reduction in tariff charges which we implemented during the past two years."

The spokesman claimed these reductions had reduced telephone costs to business users by 24 per cent and to residential users by 14 per cent.

The Bill, published yesterday, is aimed primarily at facilitating the strategic alliance with KPN/Telia. EU legislation also requires that the Minister's role as sole Telecom Eireann shareholder be separated from his "sectoral development" role.

The regulator will have a staff of 50, drawn chiefly from the Department, of Transport, Energy and Communications. The office, to be known as the Office of Director of Telecommunications Regulation, will be funded by the telecommunications sector through licence fees and levies. At present, almost 30 different companies supply value added services.

The Minister said yesterday that he hoped the Bill would be signed into law by the end of November. In December, two worker directors will be replaced on the board by members of the KPN/Telia consortium. The consortium will have three board members on the 12 member board.

KPN/Telia is paying £183 million for a 15 per Cent stake in Telecom Eireann. It has an option to acquire a further 20 per cent stake for £200 million after three years.

There is also a mechanism whereby Telecom will then be valued independently, and the Exchequer will get a further percentage of the company's added worth.

The consortium will also have the option to sell up to 15 per cent of Telecom Eireann in three years' lime under the terms of the alliance. However it will have to increase its stake to 35 per cent first.

The consortium, comprising Dutch and, Swedish telecommunications companies, is understood to have begun working with Telecom this month. No money will change hands until the Bill is passed into law. The deal was signed in June.