The Commission for Communications Regulation (ComReg) has found that Vodafone, O2 and Hutchison are not in breach of third generation (3G) licence obligations to launch a commercial service by January 1st, 2004.

The decision by ComReg means the companies will not have to pay the Exchequer tens of millions of euros in fines for failing to comply with strict penalty clauses in their 3G licences.

ComReg chairman, Mr John Doherty, told The Irish Times yesterday that the firms were meeting their obligations despite a lengthy delay in making any services available to the public.

He also said ComReg would publish the terms of the firms' 3G licences within the next 10 days, although some details may not be made public because they are still "commercially sensitive".

Currently, none of the three firms is selling handsets to the public in retail outlets and only a limited number of 3G services are in use by corporate customer.

The roll-out of 3G services, which enable firms to beam high-speed internet and video clips to mobile phones, is a sensitive issue in the Republic. In 2000 the telecoms regulator objected to a proposal by the Minister for Finance to hold an auction to award 3G licences. The regulator argued a "beauty contest" would ensure a better quality and speedier roll-out of 3G services. A "beauty contest" was duly held.

But although the State sold its 3G licences off at a fraction of the price of the British licences, roll- out in Britain has occurred at a faster pace than in Ireland.

It is believed ComReg recently reviewed the firms' compliance with their licences following concerns raised by the third mobile operator, Meteor, which decided not to purchase a 3G licence, in part, because of the strict conditions outlined in the bid process.

Meteor is believed to have complained to ComReg that the 3G licence holders have not complied with the definition of a commercial launch that was laid out by ComReg during the 3G bid consultation.

In the lead-up to the submission of bids, ComReg said that a commercial launch was: "the time from which the service is publicly announced and offered to the public at defined and published tariffs [typically when test-operations with specifically appointed test-users cease\]."

Industry sources believe it is possible Meteor and Orange, two firms that eventually decided not to bid for 3G licences, might have decided to enter the contest if the original definition of a 3G launch were not set so strictly.

But in an interview yesterday, Mr Doherty said ComReg thought that the firms had complied with the definition laid out during the 3G consultation. He said delays in the introduction of the service in the Republic had been caused by a lack of handsets and a delay in the competition to award the licences. The process was held up for a year over disagreement on how the competition should be run.

"The key ingredient is the ready availability of handsets. We expect in the third quarter of this year these products will be available to buy," he said. "I think the penalties in the licence are obligations accepted by the companies and clearly we will be enforcing those obligations."

Meanwhile, Mr Doherty said he had still not ruled out imposing a retail price cap on mobile phone operators if ComReg's latest plan to increase competition in the market fails.

"We still find it difficult to reconcile the suggestion that Irish people just talk more on their phones. For example, it is extraordinarily strange that in the Irish market O2 would have an average revenue per user of €551 and £259 380) in the British market."

His comments follow the announcement of ComReg's plan to prise open Vodafone and O2's mobile phone networks for use by rivals to increase competition.

Reacting to the recent public furore surrounding Eircom's latest hike in line-rental charges, Mr Doherty said ComReg was not being deflected from the business of regulating what was a "fragile" Irish telecoms market.

"It is understandable that human emotion came into play and clearly we understand the point that people were making. We equally understand we have a difficult job to do, basically acting within the legal framework that we are operating in. Eircom has to rebalance.

"If we are serious about being a broadband capital, we need fibre to the kerb or to the home and this is going to require significant investment," said Mr Doherty, who argues that Eircom has to invest in its network to provide a state-of-the-art telecoms infrastructure for Ireland.

But he criticised Eircom for failing to develop its wholesale telecoms business and being biased in favour of its retail operations.

He said it was important that when Eircom's IPO was over that it concentrate on a vision of what it wants to be in five years' time.