Ocean's arrival puts spotlight on cost structure

Ocean's arrival in the Internet market as a provider of free Internet access has already raised questions about two of the foremost telecommunications issues: interconnect fees and the provision and operation of low-cost 1891 numbers for accessing the Internet.

According to sources, Ocean will get a larger cut of interconnect phone charges than usual from Telecom Eireann when its free service users dial into the Internet. This will help to offset the heavy costs of operating the new service, which is unlikely to generate a profit in the short term.

In addition, Ocean - a joint venture between the ESB and British Telecom - asked for a more financially-beneficial arrangement for the use of 1891 numbers than Telecom offers other Internet service providers. When Telecom rejected the proposal, the dispute was placed before the telecommunications regulator, Ms Etain Doyle, last week.

With no agreement on a 1891 number - which keeps daytime Net access charges for consumers at less than half the cost during peak time - Ocean instead opted to offer local call access to users at Telecom's regular phone rates.

Interconnect charges, the fees telecoms operators pay each other when their calls pass across another operator's network, are one of the most secretive and heated points of dispute between Telecom Eireann and its competitors. Nearly all calls must pass across Telecom's network, since it is the primary provider of network services in the State.

While all the competing operators complain that Telecom's interconnect charges are too high, they are reluctant to reveal the interconnect charges they have arranged with Telecom, since they all work out their own price regime.

According to industry sources, this averages 3p per unit on Telecom's charges to the consumer of 9.5p per unit plus VAT. In other words, Telecom pays rival operators an average of just under 30 per cent of a call's cost for it to move across those operators' networks.

According to a source, Ocean agreed a deal to receive nearly half the cost of a call itself. Because calls originate on Telecom's networks, Telecom bills customers for the calls then pays a share to Ocean, leaving Ocean free of billing costs as well. These average 15 per cent of operating costs, says Mr Barry Flanagan, co-founder of Internet service provider Ireland On-Line.

"If Telecom are doing the billing and Ocean are getting 50 per cent of the call, that's a sweet deal," he said.

Ocean's business development manager, Mr Derek Kickham, declined to comment on the interconnect arrangements, but said: "The interconnect regime is not as favourable to operators here as in the UK." He also said 1891 numbers were "a hugely complicated issue".