Advertisers would face higher rates under proposals put forward in a report on RTE which says the State broadcaster is not benefiting sufficiently from the growing economy.

The review urges more challenging financial targets and says RTE is selling advertising time too cheaply. It recommends the company increases rates by a fifth within the next five years.

The 250-page Review of Structures and Operations proposes radical changes to RTE's commercial arm, including sales, marketing and commercial enterprises.

The document was given to staff last week and the RTE Authority has yet to make a detailed response.

While the focus of most commentaries on the report have been on programming and job loses, sales and marketing will have to produce the revenue necessary for RTE to face the changes in the broadcasting environment that will put huge pressures on the station.

RTE is not only facing increased competition, but the challenges of digital television. The report recommends an increase in sales and marketing staff.

It focuses on the competitive environment created by the arrival of TV3. "This year will be a milestone in the history of Irish broadcasting with the arrival of a new commercial national television station," according to the report.

"Arising out of this market change, there are a range of issues which will need to be addressed so that we can re-position ourselves for growth in what inevitably will be a changing advertising market."

The most radical conclusion of the report is that the method of pre-emptive, auction-style selling, currently operated by the station should be phased out.

RTE's rate card has a range of prices for a slot for a particular programme. For instance, an advertiser can buy a 30-second slot during the news for £1,600. Somebody else can then come in and offer £3,000 and so on, with the slot ultimately going to the highest bidder.

The report is recommending that RTE moves instead towards a system of making deals, committing the station to supplying certain audience figures over a period of time for a negotiated rate.

As far as the team which compiled the report is concerned, this could lead to increased income so long as RTE values its audience properly. It says that RTE can also increase its advertising revenue by widening its net. Northern Ireland, London and further afield in Europe should provide opportunities for growth, it says.

"In addition Northern Ireland will be crucial to the growth in our audience through cable and through a general increase in coverage throughout Northern Ireland an area where at least two of our competitors trade on very competitive rates."

The challenge of TV3 makes 24hour broadcasting for one of the two channels an urgent development "in terms of viewer loyalty and in terms of additional revenue possibilities in the medium term," the report says.

It proposes that the changes, especially towards a "deal management" system, would mean more staff with specific training in negotiating deals.

One proposal that will alarm advertisers is that rates should be raised by 20 per cent within the next five years, in addition to the pattern of historical increases. "This will require extremely skilful management and considerable resolve," it adds.

The report says that in the context of the buoyant economy higher growth in advertising revenues should have been achieved over the past few years. Targets should be set at higher levels.

It also argues that advertising with RTE especially on television is cheap in terms of the cost of reaching 1,000 people. Applying this measure, it says, television is cheaper than newspaper advertising in Ireland, which is the reverse of the situation in Europe.

While it is in the nature of the advertising industry to whinge about RTE and the rising costs of doing business with it, Mr Steve Shanahan, media director of QMP, agrees that advertising with RTE is cheap. This, he says, is partly due to the fact that advertising spending in Ireland, per head of population, is very low compared to Europe.

Multinationals do not like RTE's pre-emptive system, he adds, because they prefer to have a fixed price settled for a given audience.

Mr Aiden Dunne, the media director of McConnell's Advertising, says the pre-emptive system allows the market to decide on price. "It is a very pure market-driven system," he says. If there is demand, then the price goes up. It goes down when there is little money around.

But he points out that an important part of its foundation is that advertisers have nowhere else to go because of RTE's virtual monopoly.

For example, a particular spot might sell for £1,000 in January and rise to £2,000 in October. The media buyer, looking for a particular audience, will have to judge when the targeted viewers are present, how much the relevant advertising slot is worth and then pitch for the slot.

He agrees with Mr Shanahan that while the rise in RTE's real advertising rates has been above inflation, at 8 per cent, that only reflects growth and is consistent with real economic activity.

Mr Shanahan says that the preemptive system calls for advertising media buyers to use their judgment as to the value of a spot. It means that at 4.50 p.m. every day there is a rush as agencies try to buy space at E at the last minute in the hope of achieving the lowest price. E being forced to change its system because of the arrival of TV3, Mr Shanahan is sceptical. RTE will remain the major advertising vehicle, he says.

While TV3 might have been a catalyst for changing the system the real reason appears on page 170 of the report, more money. If RTE is cheap, the authors of the report clearly want that to end and believe the preempt system far from increasing the cost of advertising has meant RTE has not reached its potential.

The report says: "In terms of RTE's ability to effectively manage and enhance revenue in line with the value of audiences delivered on both radio and television, the pre-empt system has little merit compared with the deal-based approach." E has consistently undervalued the total potential of the audiences delivered to advertisers, as the report maintains, then the preempt system is a poor method of rectifying the situation. A deal based system puts RTE in control and should enable sales and marketing to manage revenues towards their true potential. "Clearly advertisers, after consideration have to decide to purchase the airtime at the, generally higher, price which will be required."

Controversially, the report also recommends that RTE should use its "unique strength" and cross promote between radio and television and on different channels.

"Apart from programmes, audiences are the only commodity which RTE has to sell," it says.

While recognising that some outside RTE might have problems with this RTE has been criticised for cross promoting by newspapers and local radio the report says the practice should be an essential part of maximising and delivering audiences. This should be handled at a corporate level in order to overcome territorial attitudes.

It adds that given the strength of radio during the day and television in the evening and at night, both should assist each other "at every practical opportunity".