MORIARTY TRIBUNAL – DAY 156
THE TRIBUNAL RESUMED AS FOLLOWS ON TUESDAY, 3RD DECEMBER, 2002 AT 11AM
OPENING STATEMENT BY MR. COUGHLAN:
When the Tribunal resumed its sittings on the 29th July, 2002, you, Sir, stated:
“Subject to finalising appropriate procedures with the legal representatives of certain interested persons, the Tribunal has determined that it will proceed from private investigations to actual public sittings at the earliest vantage point possible in relation to the circumstances of the second GSM licence competition, the award of the licence itself, and certain other broadly related matters.”
These public sittings into the circumstances of the second GSM licence competition, the award of the licence itself, and certain broadly related matters arise because Paragraph (g) of the Terms of Reference requires the Tribunal to inquire whether Mr. Lowry did any act or made any decision in the course of any ministerial office held by him to confer any benefit on any person making a payment referred to in Paragraph (e) or any person who was the source of any money referred to in Paragraph (f) or any other person in return for such payment being made or procured or directed any other person to do such act or make such decision.
The Tribunal will concentrate mainly on Term of Reference (g) in the course of these public sittings but will revisit Terms of Reference (e) and (f), colloquially described as the “money trail”, in the light of evidence already heard at previous public sittings and further information obtained by the Tribunal.
The Tribunal has been informed that in the early 1990s, the telecommunications industry was going through a period of massive investment due to technical breakthroughs and liberalisation of the European markets through pressure from the EU Commission. The pressures were particularly acute within the mobile telephony area.
A briefing note for the Minister of Transport, Energy and Communications dated 26th June, 1993, and a memorandum of the Department’s Telecommunications Division dated 18th February, 1993, indicate that the government was aware of EU policy requiring the introduction of a competition for the granting of a second GSM licence in Ireland, and that it had already identified the main elements and broad parameters of the required competition. At that time, it was optimistically thought that an announcement would be made within months calling for applications.
The Department produced a memorandum dated 20th May, 1993, which contained recommendations in relation to the design of the competition and considers the question of how the matter was to be advertised and the amount of detail that would be put into the quote for tenders. The appendices to these memoranda included at Appendix 1 the elements to be included in the GSM licence, and at Annex 2 a preliminary draft of the notes for the guidance of applicants.
Therefore, by mid-1993, the Department had already prepared preliminary drafts of the basic documentation which ultimately formed the basis for the decision of the government for the launching of a second GSM licence competition.
Representatives of the Department attended a workshop on development of regulatory policy for mobile and personal communications in Brussels in September 1993. The workshop was recorded by the Commission as a step in the preparation of a Green Paper on mobile communications which was to be published by the Commission within the following twelve months. The workshop had been arranged to give a ‘kick-start’ to the debate on issues that would be addressed in the Green Paper. Included in the workshop were reports by two external consultants, and they were KPMG and Coopers & Lybrand.
In the late summer of 1993, Mr. Martin Brennan, on his return from Europe, was asked if he was interested in taking up a post dealing with telecommunications policy in a context that the Department’s resources in that area were being restricted to separate policy development from regulatory aspects.
At that time, Mr. Brennan took up his new post. His predecessor in telecoms, Mr. Paddy Ryan, passed him a series of files dealing with work in progress, one of which was, as described to the Tribunal by Mr. Brennan, a very preliminary look at the question of GSM licensing.
Mr. Brennan has informed the Tribunal that sometime in the following couple of months, the Minister of the day, Mr. Brian Cowen, asked him as a matter of priority to prepare for the licensing of a GSM operator within three months. Mr. Brennan responded, based on his limited knowledge of what was at issue, that this would not be possible but that he would attempt to complete research and devise an approach to the selection process within three months.
Mr. Brennan has informed the Tribunal that this was the starting point. Mr. Brennan incorporated his views in a note for the Minister dated 19th October, 1993.
By letter of the 25th October, 1993, the European Commission indicated that in the absence of an explicit undertaking by the Irish authorities to introduce a competition for GSM telephony in the near future and on the basis of a detailed timetable, the Commission would have to consider opening formal proceedings against Ireland.
A meeting took place between Mr. Brennan, his Assistant Principal, Mr. Conan McKenna of the Department of Transport, Energy and Communications, and Mr. Charles Smith and Mr. Jimmy McMeel of the Department of Finance, on the 1st November, 1993. A note of that meeting includes a reference to the Department of Transport, Energy and Communications view that an appropriate balance should be drawn between the initial fee and any ongoing take from the licence. The note also states that it was the Department’s intention that the decision would be made by the Minister following the appropriate statutory consultations, but that the question of a submission to Government was being left open for the moment. It was agreed that the Department should keep in touch with a view to developing a common approach in relation to any valuation tender.
By letter dated 15th November, 1993, the Assistant Secretary of the Department of Finance wrote to Mr. John Loughrey, Secretary of the Department of Transport, Energy and Communication, suggesting that in view of its significance and in view of recent contacts and a statement by the Minister in the Dail of his intention to soon launch a competition, it would be desirable that the Department of Finance should be closely associated with the project at all stages, including the operation of the tender process, the selection of consultants, and the evaluation of bids, as well as involvement in the elaboration of a suitable fee structure. For this reason, the Department of Finance suggested the creation of a small interdepartmental Project Group.
On the 26th November, 1993, Mr. John Loughrey furnished a memorandum to the Taoiseach which gave a broad indication of progress in preparation for a competition launch. Mr. Martin Brennan has informed the Tribunal that while there were other staff in the division, he was assisted in the early research phase in the main by Mr. Conan McKenna, who was then an Assistant Principal working with him. He probably had ongoing informal contact with Mr. Sean McMahon, who was the Principal Officer dealing with telecommunications regulatory affairs in the Department, and who had commenced in that capacity at the same time that Mr. Brennan was assigned to the area. Mr. Conan McKenna was succeeded in September 1994 by Mr. Fintan Towey. Ms. Nuala Free and Ms. Margaret O’Keefe were job-sharing Executive Officers in Mr. Brennan’s division. Mr. McMahon was assisted by a number of people in his own division, and more particularly by Mr. Ed O’Callaghan, the Tribunal has been informed.
From an early stage, Mr. Brennan had regular contacts with Mr. Jimmy McMeel, an Assistant Principal Officer in the Department of Finance and Mr. Billy Riordan, an accountant on loan from the private sector to the Department of Finance.
Officially, a Mr. Denis O’Connor, also on loan from the private sector, fulfilled a similar role to Mr. Billy Riordan in the Department of Transport, Energy and Communications, but when the project team was up and running, he was replaced by another person on loan from the private sector, Mr. Donal Buggy.
In this early research phase, Mr. Brennan had contact with Mr. John McQuaid, head of the technical side of telecommunications area; and he, Mr. McQuaid, was assisted by Mr. Aidan Ryan. All of these individuals, with the exception of Mr. Conan McKenna, participated as members, deputy or fulfilled an executive role in the GSM Project Group. Mr. Martin Brennan ultimately chaired the Project Group. Andersen Management International were eventually appointed as consultants to that group. The interdepartmental Project Group was formed in March 1994. Mr. Brennan has informed the Tribunal that in the period when he was learning and researching the business of a GSM process, he effectively had an open-door policy to interested parties.
It gradually became known in the market that he was engaged in this task, and various parties representing potential interested parties came to see him. Mr. Conan McKenna sat in on most, if not all, of these meetings. Examples of the kind of things that Mr. Brennan discussed with visitors were, what would be a reasonable time-frame between announcement and closing date; views on the respective merits of auction versus beauty contest versus hybrid; whether there would be merit in having all applications compulsorily on plain white paper, without names, other than in a covering letter which would not be made available to the selectors; whether it be possible to limit the overall physical size of applications; questions around roll-out time frames and geographical coverage.
Mr. Brennan’s primary source of intelligence about how to approach a selected process for a licence for GSM, apart from the files inherited from Mr. Ryan, lay in the report prepared by KPMG for the European Commission, which formed part of the material used in the workshop attended by departmental officials in September 1993.
On the 28th March, 1994, permission was sought by the Department of Transport, Energy and Communication from the Department of Finance as a matter of urgency for the sanction of and expenditure of up to £20,000 sterling on consultancy expenses for KPMG Peat Marwick (Mr. Roger Pye, Partner), in order to obtain expert and authoritative international input to the work of the Project Group. This sanction was quickly obtained and the services of KPMG were engaged on the 30th March, 1994. They were furnished with draft documentation for the proposed GSM licence.
KPMG commented on this draft documentation in the Report dated 6th April, 1994, and noted that the draft documentation furnished contained, inter alia, a combination of beauty parade and a fee element with unclear weightings, and at Point 3.2, included in the selection criteria in the draft tender document, “financial capacity” of proposed licencee.
From the report of KPMG, it appears that the following were the draft selection criteria in the documents furnished to them by the Department:
KPMG commented on the selection criteria as follows: “Selection criteria. The criteria listed in the tender are valid for the selection of the best operator for Ireland. A more clear indication of the relative importance of each of the criteria would greatly facilitate the bidding any evaluation process. Additional work in this area is required prior to publication.”
On receipt of the KPMG comments, the documentation submitted to them was redrafted, and the redrafted selection criteria were: “The Minister intends to compare the tenders on an equitable basis in accordance with the information required herein and specifically with regard to the list of evaluation criteria set out below in descending order of priority:
It is also to be noted, at this early stage in the evaluation of the process, that it was envisaged at paragraph 4 of the redrafted document that “tenderers must give full ownership details for proposed licencee”, and at paragraph 10, that “tenders must demonstrate the financial capacity and technical experience and capability to implement the system if successful and must include a business plan for at least the first five years and a complete technical proposal.”
The first meeting of the GSM Project Group took place on the 29th April, 1994, and the question of retaining outside consultants and the necessity for Telecom Eireann to deal with all preliminary matters were discussed.
By letter dated 4th May, 1994, the European Commission issued a reasoned opinion and gave Ireland two months to act before the Commission initiated proceedings against Ireland.
The letter from the European Commission is addressed to Mr. Sean Fitzgerald of the Department of Transport, Energy and Communications. It’s from the Competition Director.
The letter reads:
“Dear Mr. Fitzgerald,:
I write to you concerning a bilateral meeting held on the 28th June, 1993, with Mr. Ryan and his staff where we discussed two important and urgent issues in the telecommunications area.
The first of these concerned the implementation of the 1990 Services Directive in the Republic and in particular the scope of exclusive rights on voice telephony. By letter of the 30 July 1993, I have received a response on this issue. I would like to reserve my position on this reply until I see how matters develop in the market.
I now need to follow up the second issue on which I have not received a reply. This concerns the GSM mobile telephony monopoly in the Republic. I should be pleased to know what steps you are taking for the granting of additional GSM licences and what time-frame is envisaged.
Recently the Commission initiated infringement proceedings against two Member States which have failed to authorise at least a second GSM operator. The Commission is also in discussion with a third member State which has not opened up GSM mobile telephony to competition.
You will understand that in the absence of an explicit undertaking by the Irish authorities to introduce competition for GSM mobile telephony in the near future and on the basis of a detailed timetable, the Commission will have to consider opening formal proceedings against Ireland.
I will be very grateful if you would provide the Commission with a reply to my question within a period of four weeks. My services are at your disposal for any help and further information you may require.
On the 10th June, 1994, KPMG furnished their comments on the documents redrafted by the Department following on their initial comments, and they do not appear to pass adverse comments on the ranking of the “credibility of business plan and financial viability of applicants” in the selection criteria in the draft tender document.
By letter dated 11th June, 1994, Mr. Douglas Goldschmidt, the then Chief Executive of ESAT Telecom, wrote to the Department and furnished some thoughts on how the upcoming GSM licence bid might be evaluated and about the types of fees which might be associated with the GSM licence. Such a communication should not necessarily be viewed as improper, as the Department continued to have an open-door policy.
It’s addressed to Mr. Brennan and Mr. McMahon, and it reads:
We have pulled together some thoughts on how the upcoming GSM licence bids might be evaluated and about the types of fees which might be associated with the GSM licence. These are merely suggestive, and we hope they are useful.
Please call me or Ed Kelly if you should have any questions or would like to discuss them further.
By letter dated 1th July, 1994, the Irish permanent representative requested Commissioner Karel van Miert for an extension of one month in the date for which a formal reply to his letter of the 4th May was required.
On the 11th July, 1994, Mr. Jimmy McMeel of the Department of Finance wrote to Mr. Brennan and informed him that Finance were anxious that the market should be allowed to fix the amount of the up-front payment and ongoing royalty in the context of the tender process.
Mr. Brennan replied to Mr. McMeel by letter dated 12th July, 1994, informing him that there was “no crock of gold” available for the licence and that his best estimate was that £20 million might be the most that could be obtained which, at that level, it could have the effect of significantly higher tariffs and less real competition when fed into the project economics. This view as expressed by Mr. Brennan was not a unique view and was a view which was held by many members of his Department and perhaps represented the view of the department.
I think Mr. Brennan’s letter of the 12th July, 1994, is addressed to Mr. McMeel.
“Thank you for your letter of the 11th July, 1994, regarding the question of “State take” from the second mobile operator.
Firstly, I wish to put the matter in perspective. There is no “crock of gold” available for this licence. Our best estimate, taking all factors into account, including the very high numbers reported in respect of Greece and Italy, is that if an up-front payment was the only ingredient, it would amount to only about £18 million; it could be rounded up to £20 million. (You will no doubt have noted that Telecom Eireann independently used this amount in their model). Bearing in mind that there could be up to six competitions running simultaneously in Europe, these figures may err on the side of optimism.
Secondly, we are confident that what we are proposing is eminently defensible and presentable.
Thirdly, an up-front payment of the order of £20 million would represent an increase of about 50% in the capital investment required for the project. Feeding this into the project economics would be likely to lead to significantly higher tariffs and less real competition than would otherwise be the case. One of the key drivers of our general telecommunications policy must be high availability of services at comparatively low prices, and we are loath to put in place an arrangement that would be clearly counter to this. (The other possibility would be lower profitability with commensurately lower corporation tax.)
We have spoken formally to the market quite extensively in recent months, and the feedback is that no matter how we present the options, if we leave two floating cash lines, the up-front amount will dominate.
Another important consideration is that your Department’s analysis focuses on the State-take from the second operator in isolation. Naturally one could expect the NPV to come out in the same ballpark for a variety of options in this case and theoretically it should be a matter of indifference to the State in that event. This could be true insofar as cash flow to the State is concerned but taking the wider effects on the project into account it is a doubtful premise.
Most importantly in this context, however, is that an approach weighted towards royalty will capture the entire turnover of the mobile telephone business, including Eircell. Bearing in mind that Eircell is a highly profitable business it is of considerable interest to establish a direct State-take from it. An alternative approach which would be saddle Eircell with an equivalent up-front payment to be offered by the market would likely be highly contentious and at the end of the day would be no more than a paper transaction since it would impact directly on the profitability of Telecom Eireann and come out of shareholder value by one means or another.
Finally, if our analysis is correct (and we have considerable confidence that it is) then as and if the initial payment goes above £10 million the potential royalty would tend towards derisory levels; the market would recognise this and be even more inclined to plump for the temptation of a high up-front payment perhaps even exclusively.
In summary, this Department believes that there is an overwhelming case in favour of the option which we have chosen but would very much like your Department to accept this on the basis of conviction. We see no merit in this aspect being put forward to the Government as an open issue.
An aide-memoire was prepared by the Department of Transport, Energy and Communication for the meeting of the Government which took place on the 2nd November, 1994. Item 10 in the aide-memoire deals with tender competition. And the Government were informed:
“There will be a written tender procedure to select the competing licensee. The approach is to put an initial price of £3,000,000 on the licence and to let the market determine the full value of the licence in terms of ongoing payments. The amount and form of payment for the licence was devised by reference to the experience in other countries making appropriate adjustments for criteria such as market size, relative wealth, and other aspects of the business opportunity. On this basis, it was estimated that possibly £20m
could be secured if an up-front payment only was sought. However, this would represent an increase of about 50% in the capital investment required for the project. Feeding this into the project economics would lead to significantly higher tariffs and less real competition than would otherwise be the case. One of the key objectives of introducing competition is to achieve high availability of services at comparatively low prices. The licence fee is structured to support this objective while at the same time providing for substantial State benefit. The tender document identifies a number of criteria, in descending order of importance, which will be used in evaluation of tenders. They are as follows:
“While the level of ongoing payments is one of the criteria it is specifically stated that this is neither the sole nor the most important criterion on which a decision will be made. The annual State-take will be a royalty based on revenue rather than profits. Tenderers will be asked to indicate, for information purposes only, the likely direct and indirect employment consequences of these proposals in Ireland. Consultant will be required to assist with the evaluation. The perception of objectivity in our evaluation and comparison of tenders will be critical”.
This of course represented the Department thinking at that time, but it subsequently evolved.
Mr. John Loughrey, in a note dated 3rd November, 1994, informed Mr. Sean Fitzgerald, Assistant Secretary, that the question of a second cellular phone licence was discussed at length at the previous night’s Cabinet meeting but that no decision had been taken. It was decided that the aide-memoire should be expanded.
On the 11th November 1994, the Government: “1. Noted the Minister’s proposal to hold a tender competition leading to a single licence for the operation of digital mobile telephony in competition with Telecom’s Eircell; and decided that the Minister should consult with the Cabinet Sub-Committee on Telecommunications established on 4 May 1994 before a decision is made on the award of the licence.”
Mr. Brian Cowen was the Minister in the Department at this time. In a memorandum of the 6th January, 1995, Mr. Lowry, who had been appointed to that Ministry in December of 1994, was advised that it was not necessary to resubmit the issue of the second GSM licence to the Government unless he wished to do so for political reasons.
This is a note to the Minister, and Secretary, and deals with certain issues for consideration. And the first one is:
“1. Re: Submission to Government.
The Minister has authority to issue a GSM licence under Section III of the Telecommunications Act, 1993. The issue was brought to the notice of the former Government. It is not necessary to resubmit the matter unless the Minister wishes to do so for political reasons and take account of the informal Government decision of 21 December 1994. It would delay an announcement.”
I should also perhaps read 2:
“2. Representations made to the Chief Executive of Telecom against applying the same fixed and royalty payments to Eircell as will be paid by the successful bidder. It was our intention to apply the same licence conditions to Eircell (Telecom’s mobile business) in the interests of preserving fair competition. It is not alluded to specifically in the draft tender documentation.
Mr. Towey’s note sets out the background to this issue.
Around this time, Department of Transport, Energy and Communication documents and Department of Finance documents indicate that information was being obtained about the Commission’s concerns regarding initial payments made by those awarded GSM licences which might be to the detriment of the new operator and which the Commission believed to be discriminatory conditions and incompatible with the rules of Article 90, paragraph 1, and 86 of the EC Treaty. These concerns appear to relate mainly to the cases of Italy and Belgium. It suffices to say at this stage that the initial payments in the cases of those two countries appears to have been very large.
On the 25 January, 1995, the Minister for Finance, Mr. Ruari Quinn, wrote to Minister Lowry regarding the budgetary provisions which had been made in connection with Telecom Eireann’s dividend and the second mobile telephony licence. A sum of £25 million had been forecast for dividends from Telecom, and it was suggested that it would be better to leave it to the market to decide the licence fee for GSM, and that £20 million could reasonably be expected.
The letter is dated 25th January, 1995. And it’s addressed to Mr. Michael Lowry, TD, Minister for Transport, Energy and Communications re Telecom dividend, second mobile telephony licence.
I am writing to you regarding the budgetary provisions which have been made in connection with the above.
I have included in my non-tax revenue forecast a figure of £25 million for dividends from Telecom and, despite the case advanced by the Management of the company, I believe that this is a reasonable expectation. Payment could be by way of a final dividend of £15 million for the year 1994/5 and £10 million interim dividend for the year 1995/6.
Obviously the level of the dividend for the calendar year as a whole will depend on the financial performance of, and outlook for, the company, and payment will depend on the emerging position on this front.
I note, in this regard, that the Chief Executive Officer has submitted a forecast of a £1 million profit for the year, with zero dividend payment, and that he has reiterated this view. I would like to make a number of points on this.
Firstly, the Exchequer must continue to service accumulated telephone debt of more than £300 million retained at the establishment of Telecom Eireann. It is legitimate to expect direct return on that investment. The return to date has been extremely low. Secondly, the forecast will have to be looked at in the light of the final picture on turnover and costs. On the basis of the performance to date, the outturn should be better than projected. Thirdly, an increase in depreciation from k170 million last year to k250 million this year seems excessive. A more moderate increase in the depreciation charge this year, with further increase in the following two years, should be sufficient.
There is also the question of a fee from the second mobile licence. We agreed at our bilateral Estimate meeting recently to include £5 million as a minimum up-front fee for this. It seems clear from discussions between our Departments that we cannot be certain now of a stream of royalties in the years ahead, so the sensible thing to do would be to leave it to the market to bid on a basis which would allow a much larger up-front payment to be made. I understand, on the basis of what has happened elsewhere, that a payment in excess of £20 million pounds could reasonably be expected. I will be glad to hear quickly what you think of this so that I can settle this part of my budget.
Minister Lowry responded to Minister Quinn on the 26 January, 1995.
“Thank you for your recent letter following on our discussion about the Estimates. I want to respond now about the GSM licence.
“I am convinced that the overall national strategy for telecommunications should seek to enhance our competitiveness and promote economic growth through the provision of high-quality services at sharply competitive prices. Mobile is a sector where we can follow this strategy at an early date without having to wait for improved competitiveness in Telecom Eireann and without damaging the company; for the time being, it is a relatively stand-alone segment of the communications with very significant growth potential. Telecom Eireann accepts this view and are planning for vigorous growth of the Eircell operation themselves. An expanding mobile sector also increases the volume of telephone traffic through the fixed network with consequent benefits to Telecom Eireann.
The analysis we have undertaken shows that if we are to charge or expect a licence fee commensurate with certain other countries then prices would settle out at a level of about 20% higher than would be the case without such a fee; it is assumed that whether a fee up front or an equivalent royalty has a neutral effect but increases the capital investment on which an operator will seek an acceptable return.
Furthermore, we are now aware that the Commission of the European Union has started to investigate with the Member States concerned the competition aspects of the licence fees for the second GSM operator. Our information is that the Commission is pursuing both cases where fees were charged equally on new and incumbent operators and where only the new operator was charged, citing slightly different arguments in both cases. Telecom Eireann also made strong representations, which were reasonably well grounded, to the effect that a royalty which was effectively determined by a competitor and could be set at a level taking account of the longer-term ambitions in the Irish market could damage the mobile business of Eircell – the Telecom Eireann mobile operation.
Finally, mobile telephony is, and is likely to continue to be, a profitable business yielding other benefits to the State.
In all these circumstances, I am strongly of the view that an access fee set at a level that will more than cover our costs and at the same time should escape scrutiny by the Commission is the appropriate course and that £5m is the appropriate level.
I am providing separately for the payment of significant frequency spectrum fees and the introduction of a regime whereby the telecommunications sector will defray the cost of regulating and administering itself without any resort to the Exchequer in an annual licence fee to be applied eventually to all operators.
I hope you will be in a position quickly to agree to this, because at this stage delay in launching the competition is a problem in itself.
At the end of January 1995, a draft speaking note of Minister Lowry for Cabinet was prepared registering his unhappiness regarding the position of the Department of Finance on Telecom’s proposed dividends and the GSM licence fee.
In an aide-memoire for the Government meeting on the 31 January, 1995, the Minister informed the Government of his intention to announce a competition for the award of a single licence in competition with Telecom Eireann. He also informed the Government that having regard to the risk of legal action from the Commission concerning large up-front fees for GSM licensees, and the argument of Telecom Eireann concerning the imposition of royalties on the incumbent operator, that he had decided to limit an entry fee of £5 million for the new entrant and drop the annual royalty requirements and award the licence to the bidder presenting the most attractive approach to market development, a commitment to a high-quality nationwide service, and an innovative approach to tariffs and a low price.
There was a further aide-memoire to Government dated 3rd February, 1995, which dealt with the option for payment of access fee by a new operator. The options were:
By letter dated 6th February, 1995, the Department of Finance wrote to the Secretary of the Department of Transport, Energy and Communications noting that the Minister for Transport, Energy and Communications had decided to have the GSM licence fee determined by the market, and indicated that the Minister for Finance did not agree that no provision for Telecom’s dividend should be made in the 1995 budget.
A further lengthy aide-memoire was prepared for the Government meeting on the 7th February, 1995. The aid-memoire noted that the Minister for Transport, Energy and Communications and the Minister for Finance had agreed that there should be provision for the market to determine the appropriate up-front fee payable in the course of tender process. The aide-memoire also informed the Government of the selection process.
“Consultants will be engaged to assist in the process of final selection and will also be on board in time to assist in the final stage of preparation of the Department’s information memorandum mentioned at paragraph 10. The selection of the successful tender will be determined by reference to the following:
The highest bidder will not necessarily be successful, and this is clearly stated and emphasised in the tender documentation. The documentation indicates that the Minister intends to compare the applications on an equitable basis, subject to being satisfied as to the financial and technical capability of the applicant, in accordance with the information required therein and specifically with regard to the list of evaluation criteria set out below in descending order of priority.
“Tenderers will be requested to specify the approach which will be adopted to the disposition of windfall gains following the award of the licence. Such gains could materialise as a result of significant reduction in interconnection charges or possibly through a legal requirement to return the licence fee. The objective will be to ensure that the benefits are passed on to the consumer. Tenderers will also be asked to indicate, for information purposes only, the likely direct and indirect employment consequences of their proposals in Ireland. Consultants will be required to assist with the evaluation. The perception of objectivity in our evaluation and comparison of tenders will be critical”.
At this time, it appears that the question of a financial capacity and technical capacity have been taken out of scoring criteria in the evaluation process and have been elevated to the position of requiring the consideration of the Minister and the Minister to be satisfied of those two elements before recommending who the successful applicant should be, that applicant having been assessed in descending order of the criteria contained in the bullet points in the aide-memoire to Government.
The Government decided on the 7th February, 1995, that a Cabinet Sub-Committee consisting of the Taoiseach in the chair, the Tanaiste and Minister for Finance, Social Welfare, Transport, Energy and Communication, and Enterprise and Employment should review the proposed financial terms, tendering procedure and proposed advertisements for the GSM licence.
The Cabinet Sub-Committee met on the 16th February, 1995, and agreed to proceed with the proposed GSM tender competition as outlined in the Minister for Transport, Energy and Communications’ aide-memoire for the Cabinet committee, which did not differ materially from the aide-memoire which had been presented to the previous meeting of the Government.
On the 17th February, 1995, a memorandum, and not an aide-memoire, was prepared for Government. It was from the office of the Minister for Transport, Energy and Communications. And it sought this decision:
“The Minister for Transport, Energy and Communications seeks the approval of the Government that an open competitive and bidding process be announced with a view to the granting of licence to a second cellular phone operator. The bidding process will be promoted and controlled by the Department of Transport, Energy and Communications, and it is expected that a recommendation will be put by the Minister to Government in time for a final decision by the 31 October, 1995.
“The general terms and conditions attaching to this licence are set out in the attached appendix.
“Cabinet committee consideration.
“The Cabinet committee referred to in Decision S22048E examined the Minister’s proposal on the 16 February 1995 and concluded that:
“The proposal of the Minister for Transport, Energy, and Communications on the tender process for the award of the licence be agreed;
“The rationalisation of leased line charges would be completed as a matter of urgency, and the new agreed regime of charges would be settled within two weeks. The Minister for Transport, Energy and Communications undertook to consult with the Minister for Enterprise and Employment on leased lines tariffs before any decision was taken;
– Then a decision was sought in relation to proposals for independent regulation of the telecommunications sector.
The decision of the Government was made on the 2nd March, 1995, and it was:
“at a meeting held today, the Government approved the announcement of an open competitive bidding process with a view to granting of a licence to a second cellular phone operator on the basis that
The conveying of this decision of the Government made reference to the memorandum which had been submitted to Government dated 17 February, 1995.
On the 2 March, 1995, there was the formal announcement of the competition by the Minister, and the request for tender documents and a memorandum for the guidance of licence applicants was made available on payment of a non-refundable fee of £5,000. The formal announcement stated that only organisations which purchased the documentation may participate in the competition.
This history of the evolution of policy which resulted from the decision of the Government of 2 March, 1995, appears to show that, in the course of debate between the Department of Transport, Energy and Communications and the Department of Finance, the policy with regard to a licence fee developed from one where it was proposed to charge an initial fee of £3 million, coupled with an ongoing royalty payment to one where it was proposed to charge an initial fee of £5 million with no ongoing royalty payments, and to one where provision for the market to determine the appropriate up-front fee payable in the case of the tender process subject to a minimum fee of £5 million. This minimum initial fee appears to be equivalent to the proposed administrative cost of the competition.
This history also shows that the question of financial capacity or financial viability of applicants and technical experience and capability of applicants was removed from the criteria which was to be used in the evaluation of tenders and would appear to have been given greater prominence in that the Minister had to be satisfied as to the financial and technical capability of the applicant in comparing the applications on an equitable basis in accordance with the information required in the RFP, and specifically with regard to the list of evaluation criteria.
When I have used the expression “RFP”, that is the tender document. This in fact has the technical expression of RFP, which is a Request For Proposals. This is the document which was issued on payment of £5,000 by anyone who wished to consider whether they proposed entering the competition for the second GSM licence.
This document is a document issued by the Department of Transport, Energy and Communications, and it’s headed “Competition for a licence to provide digital mobile cellular communications GSM in Ireland”.
Paragraph 1: “The Minister for Transport, Energy and Communications of Ireland invites applications for a single licence to provide and operate within Ireland a public pan-European cellular digital land-based mobile communication system as described in the Annex to Council Recommendation 87/371/EEC of 25th June 1987 (O.J. No. L196, 17.7 1987 p81) in competition with the equivalent offering by Telecom Eireann.
Paragraph 2 set out the section of the statute under which the licence would be issued, and that it would be valid for a period of 15 years.
Before I deal specifically with provisions in this document, I should perhaps indicate that the document contained provisions which provided that the selection process would be terminated by the 31 October 1995; that there would be an opportunity given for applicants to pose questions in writing; that short presentation would be made by applicants, and that consultants would assist in the process.
Paragraph 3 of the RFP: “The applicants must give full ownership details for proposed licencee and will be expected to deal with the matters referred to in the following paragraphs in their submissions.”
Paragraph 4 provided that “The minimum initial fee for the licence will be £5 million, and applicants are free to offer a higher amount to win the right to the licence”.
Paragraph 9 provided that “Applicants must demonstrate their financial capacity and technical experience and capability to implement the system if successful and must include a business plan for at least the first five years with a complete technical proposal. All relevant assumptions made in these plans should be clearly stated. All financial analysis, projections, prices, etc. in the plan should be expressed in 1995 prices. Applicants are requested to supply the models, etc., used in electronic form to the Department. Use of a standard spreadsheet (e.g. Excel or Lotus 1-2-3) would assist evaluation. The technical proposals should cover, inter alia, an infrastructural plan, critical path, quality of service and standards of equipment. The question of performance guarantee should be addressed, and the milestones against which performance may be measured should be indicated. Applicants must demonstrate ability to comply with at least the following minimum standards.”
Then it set out various minimum standards.
Paragraph 19 states: “The Minister intends to compare the applications on an equitable basis, subject to being satisfied as to the financial and technical capability of the applicant, in accordance with information required herein and specifically with regard to the list of evaluation criteria set out below in descending order of priority.
Paragraph 19 of this document was a clear reflection of Government policy and was the basis whereby the Minister could bring the matter to Government in accordance with Government policy with a recommendation for a decision to be made by Government not later than the 31 October, 1995.
Now, that time-frame changed later, but that was the only change in respect of Government policy other than, of course, to deal with the question of an alteration of the document concerning the fee applicable for the licence.
Mr. Martin Brennan, in response to queries concerning the construction of this particular paragraph, has informed the Tribunal that the RFP document was an attempt to gather together all the things that should be included in a competition process.
Having regard to paragraph 19, he thinks it is clear that the perambulator part is a prerequisite to admission to the competition assessment. He has also informed the Tribunal that at some stage in their preparatory work, they considered the possibility of a two stage process, with the first being a prequalification stage. This was certainly mentioned to or by KPMG when they were assisting the Department.
Mr. Brennan’s feeling, rather than his recollection, is that elevating the financial and technical capability issue to what he has described as “the chapeau”, was a pragmatic response to this issue. Other than that, he cannot attach any particular significance to the matter.
Mr. Fintan Towey, in response to queries from the Tribunal as to the construction of this particular paragraph, has informed the Tribunal that he believed and was always of the view that the requirements expressed in, again, what Mr. Towey describes as “the chapeau”, would potentially have been used to disqualify candidates in advance of a full evaluation in accordance with the detailed criteria. He did not consider it possible that any applicant that was deficient in these respects could score well in the more detailed evaluation, given the importance attached to financial and technical capability in the evaluation. Had the number of applicants been significantly greater, the chapeau requirements may have been used on a preliminary basis to narrow the field. In any event, Mr. Towey has informed the Tribunal, this did not arise.
CHAIRMAN: Well, perhaps just five more minutes, Mr. Coughlan; is that…
MR. COUGHLAN: The second meeting of the GSM Project Group took place on the 6 March, 1995. The minute of that meeting records that Mr. Martin Brennan was in the chair, and in attendance were Mr. Fintan Towey, Ms. Maev Nic Lochlainn, Mr. Sean McMahon, Mr. Denis O’Connor, Mr. Jimmy McMeel, Mr. Billy O’Riordan, Mr. John McQuaid, and Mr. Aidan Ryan. The minute continues:
“Update: MB indicated any significant changes on the GSM issue since the last meeting, i.e.