Ireland: Eircom Appeals ComReg’s Decision On The Cost Of The Universal Service Obligation

The appeal relates to ComReg's decision (D01/14) (published on 9 January 2014) concerning eircom's application for contribution to eircom's costs in discharging the Universal Service Obligation (USO) (http://www.comreg.ie/_fileupload/publications/ComReg1403.pdf).   Please also see supporting material – Report prepared by Oxera for ComReg on assessment of eircom's application and responses to the earlier consultation on eircom's application.

ComReg determined that for the year 2009-2010 there was a positive net cost of €5.1m in respect of eircom's provision of the USO and that this positive net cost does not represent an unfair burden on eircom. Accordingly, ComReg rejected eircom's application for funding.

By way of background, in June 2012 eircom was re-designated as the universal service provider (USP) in Ireland for a further two years - from 1 July 2012 until 30 June 2014. This designation is shortly coming to an end, and ComReg has recently issued a consultation on the scope of the USO designation and eircom's obligation to provide a printed directory of subscribers (ComReg's Phonebook research is also available). Responses to the consultation were due by 5pm on 15 April 2014.

In terms of USO funding, Regulation 11 of the European Communities (Electronic Communications Networks and Services) (Universal Service and Users' Rights) Regulations 2011 (the Universal Service Regulations) provides that the USP may submit a request for funding (ie, application) for a claimed net cost (including intangible benefits) of meeting the USO and that ComReg is obliged to assess such a request. eircom submitted an application on 31 May 2012 for funding in respect of USO services provided in the financial year 2009-2010.

Applications must be in accordance with ComReg Decision D04/11, and taking into account the principles and methodologies set out in ComReg Document 11/15 ("Costing of universal service obligation: Principles and Methodologies"). D04/11 sets out the approach taken by ComReg when assessing a funding application and in ascertaining whether or not an 'unfair burden' has arisen from the provision of the USO (eg, due to the positive net cost of meeting the USO). 

ComReg's preliminary view on eircom's application and whether the positive net cost estimated did in fact represent an 'unfair burden' was set out in ComReg Consultation 13/45 (10 May 2013).  Having considered the responses to the Consultation, ComReg set out its final view in D01/14 (referred to above) regarding whether eircom had adhered to the principles and methodologies in calculating a net cost arising from provision of the USO.

In summary, ComReg considered that:

• The consultancy costs incurred by eircom in respect of any application for 2009-2010 do not form part of the direct net cost of the USO.
• The direct net cost of the USO for 2009-2010 is €7,139,331.
• The intangible benefits estimate of the USO for 2009-2010 is €2,043,786.
• The direct net cost is €7,139,331 and that the intangible benefits amount to €2,043,786. As such, ComReg's view was that the positive net cost for 2009-2010 of the USO is €5,095,545.
• A positive net cost of €6,225,219 or €5,095,545 for 2009-2010 is not an unfair burden on eircom.

The cost of meeting the USO has long been the subject of debate, and with rising costs in the industry and declining revenues, is a key issue for eircom and potential future USPs.  We will be following the court developments with interest, and will update on this in our next eZine.

eircom's performance of the USO – quality of service targets

Following on from ComReg's decision on eircom's application for USO funding, on 31 January 2014 ComReg published its Information Notice (ComReg 14/09) regarding eircom's performance against the quality of service targets for the USO for the period 1 July 2012 – 30 June 2013. 

The quality of service targets are legally binding and relate to timescales for connection, fault rate occurrence and fault repair times. The targets are backed up by a €10m financial security mechanism (cash deposit) put in place by eircom.  The guarantee remains in place for each of the two annual periods for which eircom is designated as USP. Where eircom fails to meet any of the performance targets, ComReg is able to withdraw the relevant corresponding amount from the guarantee, by way of financial penalty.  This enables ComReg to gain access to the financial amount quickly and acts as a further incentive on eircom to meet the quality of service targets.

ComReg's review shows that while eircom's overall performance against the targets continues to rise, there is still room for improvement, particularly as regards certain fault repairs.  Most notably, eircom failed to achieve its targets for fault repairs completed within four working days and fault repairs completed within five working days for the period 2012/2013, with eircom falling short of the relevant targets by 1.4% for repairs within four working days, and by 4% for repairs within five working days.  This resulted in financial penalties of €80,000, which eircom has paid. 

A detailed breakdown of eircom's performance against each target, what this means in terms of eircom's annual cash deposit, and overview of eircom's annual quality of service performance since 2008 (when binding targets were introduced) is set out in the appendices to ComReg 14/09 (referred to above). 

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