An Post's contract to collect the television licence fee cannot be sustained under European law, RTE has claimed.

The State broadcaster is also understood to have told the Government that the £7.4 million (€9.4 million) annual fee it pays An Post is excessive and the service it receives poor. RTE received £64.9 million from the licence fee in 1999, according to its latest annual report.

Its submission for a rise to £120 from £70 in the licence fee stated it was "very concerned" about the level of avoidance, which was among the highest in Europe and rising. An "effective" collection system, it said, should cost RTE £2 million less than the current rate.

RTE cited An Post's financial returns for 1998. The postal firm reported an operating profit of £8.3 million on revenues that year of £389.3 million, including £7.4 million from RTE for issuing TV licences.

The submission is understood to have said: "RTE cannot under European law continue to cross-subsidise An Post's operations." RTE is thought to favour submitting the contract to competitive tender.

Only in Italy was the collection charge higher than in the Republic, it claimed. The charge generates £7.34 per £70 licence for An Post, or 10.5 per cent. "Many financial institutions charge 3 per cent for once-off payments," RTE is understood to have said.

The 13 per cent evasion rate contrasted with 8 per cent of TV owners in Denmark who pay no fee and 6 per cent in Britain.

It is understood RTE added: "A recent report by accountants PricewaterhouseCoopers indicates that the level of home visits, particularly in the Dublin area, of An Post inspectors is below the norm. This impacts considerably on evasion."

Citing the PricewaterhouseCoopers study, RTE's submission also said: "The report indicates there is excessive allocation of An Post's overheads to the cost of collecting the fee. Just 22 people are engaged in fee collection."

PricewaterhouseCoopers has completed a separate study for the Minister for Arts, Heritage, Gaeltacht and the Islands, Ms de Valera, which will be crucial to its application for a fee increase. It is thought that senior figures at the broadcaster do not know what that study's conclusions are.

RTE's submission, which it has not published, argues the fee rise is necessary to sustain public service broadcasting at a time when it faces a financial crisis. The broadcaster reported an operating deficit of £16.6 million in 1999. It predicted last September that it would lose £12 million in 2000 and said "smaller losses" would continue this year.

An Post's spokesman said the licence fee contract was with the Department of Arts, Heritage, Gaeltacht and the Islands. Questions about its delivery of the contract were a matter for the Department. An Post had exceeded agreed collection rates in each of the past 10 years, he said.