The successful applicant for the third mobile phone licence will have to pay up to £10 million under the terms of competition published yesterday. The licence will be awarded for 15 years and the new operator will have to pay a one-off administration fee of £1.5 million. The new service should be operational by 1999 and is expected to lead to a sharp reduction in mobile phone charges.

However, last night industry sources - including possible bidders - raised doubts as to whether a third licence is economically viable. They said the current operators were growing their business so fast and will have such a headstart in the market that it will make it extremely difficult for any new competitor to win business.

The licence will provide for a combined DCS1800 and GSM mobile phone licence. DCS technology is more suitable for cities and high density areas, while GSM can be used over less populated areas.

Sources expressed surprise last night that the Director of Telecommunications Regulation, Ms Etain Doyle, whose office is running the competition, had chosen to advertise a combined licence. It had been expected that just one licence - the DCS licence would be issued.

The briefing note accompanying the competition announcement - the director gave no formal briefing - says that the director has considered the matter very carefully "The overall objective of this competition is to stimulate further competition in the mobile sector for the benefit of the end user. "An additional nationwide licence would best meet this objective," the statement says.

"DCS 1800 technology is less effective in providing coverage in rural areas compared to GSM," it continues. "A combined DCS 1800/GSM would therefore provide the best means of achieving nationwide coverage," it says.

The statement says there is limited GSM spectrum available and accordingly only one combined licence can be issued at present.

Under the terms of the competition the third operator must provide national coverage to at least one-third of the population using DCS 1800 spectrum within two years of the licence being issued. It is expected that the licence will be issued at the end of May 1998.

The combined network must provide national coverage of 80 per cent of the population within four years of the licence issue.

The existing operators - Eircell and Esat Digifone - will not be allowed to get DCS 1800 licences until at least January 1st 2000, as the Director believes "the new operator should be given a headstart" .

The information memorandum, accompanying yesterday's announcement says that the competition provides a "unique opportunity" to enter into the most vibrant and rapidly growing economy in Europe, with an expected average annual growth rate of at least 5 per cent up to 2005. It says the Irish telecommunications market offers significant potential for growth.

However, industry sources said with both Eircell and Esat Digifone growing so rapidly, the market will be difficult to enter. Digifone has around 32 per cent of the GSM market, with almost 100,000 subscribers and Eircell, with over 350,000 subscribers (half of whom are on GSM) has the remainder.

"The real question will have to be whether a third operator believes he can get enough growth in the market, given the headstart the other two operators have," said one source.

"I think serious questions would have to be raised about the viability of such a licence, " said another, "especially given the fact that Eircell and Esat will also get DCS1800 licences."

The Director's statement said the licensing of a third operator will increase competition and provide consumers with a greater choice of operators who must compete on price, quality and range of services to gain and maintain subscribers.

The Director also wants to "encourage" the sharing of masts and sites. It is understood that Eircell and Esat Digifone do not currently share sites and industry sources said last night it was unlikely either company would rush to facilitate the new competitor.

Sites could pose a serious problem for a new entrant, especially if planning permission had to be sought. Planning was an issue which proved a serious obstacle for Digifone.

A spokesman for the Director admitted that she could not force existing operators to share sites with the new entrant.

Last night, Digifone chief executive Mr Barry Maloney said his company was satisfied with the terms of the competition.

However, when granted their licence they had been lead to believe another GSM licence would not be granted for seven years and they would be examining this.

He also said the Director would be reviewing analogue (a radio controlled mobile phone system run by Eircell) as part of an overall review.

He welcomed this, saying it was ridiculous - Ireland was the only country in Europe (except for the Faro Islands) where analogue was growing.