Following  the October 25th, 1995 announcement that Esat Digifone had won the mobile phone licence competition, there were reports in the newspapers saying that Dermot Desmond's IIU Ltd had an involvement.

Kyran McLaughlin, the stockbroker who had put in place the Irish institutions that had been replaced by IIU, became concerned. He wrote to Denis O'Brien on November 22nd, 1995, and referred to the visit to his office by John Callaghan on September 29th, when Callaghan had asked him to ask the banks to step aside.

"Even though we both recognised that this was embarrassing, I did notify each of the three parties that you were asking them to step aside to make way for a financial party which was prepared to put forward a stronger financial commitment. It has now emerged that this investor was IIU."

McLaughlin said a number of questions were now likely to arise from the institutions. One would be why were they not asked in September 1995 to make a stronger commitment along the lines being offered by IIU. One of the reasons the banks had not made a stronger commitment initially was that at the time no-one knew what the price of the licence would be. In the event of an auction, the price could have been £25 million or more. By September the price had been capped at £15 million.

A second question that would arise, McLaughlin said, was whether IIU had information in September 1995 that was not available to the banks. Another was when the Department was told that the institutions providing finance to the consortium had changed. McLaughlin was also concerned about the damage to Davy's reputation which might arise from the fact that Davy was no longer involved in raising funds for Digifone.

He said the banks would be particularly concerned if the 20 per cent stake held by IIU was sold on "at a significant profit over a short period of time".

There was no reply to the letter. In July 1996 McLaughlin wrote to O'Brien again. "Dear Denis," he wrote, "every time Esat gets extensive coverage in the newspapers, we get further queries from the institutional investors who were prepared to commit £8.5 million in support of your GSM licence application in June 1995." He requested that O'Brien respond to his November letter. On August 8th O'Brien and Callaghan called to see McLaughlin at Davy's.

McLaughlin was told, according to his note of the meeting, that Communicorp needed a firm guarantee for the 20 per cent to be taken by investors and the 40 per cent owned by Communicorp and that the Communicorp directors believed that "no normal institution would give them that, but IIU did".

He was further told that IIU had no inside information at the time it got involved. No one had any inside information, he was told. He was also told that a new holding company, Esat Telecom Holdings (ETH) was planning a private funding in January 1997, probably through Credit Suisse First Boston, and a public offering later in 1997. "If there was any Irish interest they would be pleased to use Davy."

Advent was not happy either after the announcement of October 25th, 1995. It disputed the right of Communicorp to terminate the July 12th 1995 agreement that would have given Advent 5 per cent of Digifone. Lawyers for both sides argued the various points involved. The dispute was resolved in December 1995 and an agreement was signed by O'Brien on Christmas Eve.

The deal involved Advent agreeing to transfer its stake in Communicorp to O'Brien. In return it got 3.5 per cent of O'Brien's shares in ETH, and the right to take up to 30 per cent of each of the contemplated private placings of ETH stock due to take place via Credit Suisse First Boston.