Friday, 29 January 2010

Running to Stand Still: Next Generation Broadband in Ireland

Donal Palcic: Forfás published its latest report on Ireland’s broadband performance last week and as usual it evoked a strong sense of déjà vu. At times I feel sorry for the good people at Forfás who work on producing such reports, who must be frustrated at making countless constructive policy recommendations year after year only to see little or no progress on their implementation. Every year, the Forfás broadband reports highlight the positive developments in the Irish broadband market but every year they are forced to concede that we are still lagging significantly behind our peers.

A quick trawl through the introductions of reports from the last few years highlights the difficulty Forfás must have in coming up with a new formula of words to describe the same problem:

Forfás Broadband Report Nov. 2004:
“although there have been a number of significant developments in the Irish broadband market in recent years, Ireland continues to compare poorly for overall take-up of broadband and has slipped further behind the leading countries”.

Forfás Broadband Report Nov. 2005:
“although there have been a number of significant developments in the Irish broadband market in recent years, Ireland’s relative performance has not improved”.

Forfás Broadband Report Dec. 2007 (referring to findings of Nov. 2006 report):
“although there had been a number of significant developments in the Irish broadband market in recent years, Ireland’s relative performance continued to lag that of its competitors”.

Forfás Response to DCENR Consultation Paper on NGN (Oct. 2008):
“despite recent progress, Ireland continues to lag behind competitor regions in the range, speed and cost of broadband services. Critically, we also remain behind leading regions in developing a next generation network that will allow Irish businesses and households access to the advanced broadband services of tomorrow”.

Fast forward to the latest report and we are told that “while progress is being made in improving the cost and availability of basic broadband, Ireland is lagging at least 3 to 5 years behind competitor countries in terms of rolling out infrastructure capable of high speed next generation broadband”.

Part of the blame for our consistently poor performance must be laid at the feet of the Government. While it has (belatedly) intervened in the market through various programmes such as the County & Group Broadband Scheme, Metropolitan Area Network programme and National Broadband Scheme, these initiatives, while welcome, are simply not enough. Given the structure of the Irish telecommunications industry and its market and infrastructural characteristics, the Government needs to adopt a much stronger role in implementing effective policies and actions that will facilitate a more rapid rollout of next generation high-speed services.

ComReg also has a role to play in stimulating investment by private telecoms operators in the market. Key actions to facilitate private investment which were highlighted in the latest Forfás report are: 1) ensuring an appropriate return on investment; 2) examining the potential for infrastructure sharing and co-investment between private operators; 3) enabling wireless spectrum for the delivery of higher-speed broadband; and 4) ensuring wholesale access to Eircom’s products is made available (e.g. full local loop unbundling etc.).

While the above ComReg actions are of obvious importance in terms of the development of higher-speed services, Government actions also have a role in determining the speed at which the required private sector investment takes place. As highlighted in a number of Forfás reports, the State can play a significant role in facilitating investment.

The creation of a ‘one-stop-shop’ for State-owned broadband infrastructure would provide private operators with easier integrated access to core network infrastructure and facilitate further competition in the market. This recommendation was mooted years ago, however progress on this initiative has been painfully slow. As it stands the DCENR has established an Implementation Task Force to oversee the project and there is no indication of when we might expect to see it.

Other policy initiatives which have been suggested on a number of occasions and which have not been progressed quickly enough are: 1) making the provision of ducting in all new premises mandatory; and 2) making the provision of ducting in all relevant public works and State infrastructural development programmes mandatory (e.g. electricity, gas, rail, roads, water, sewage etc.). The latter is one area where the coordination of civil works by one utility network with all other networks would greatly lower the cost of investment for all. Indeed, the millions that will need to be spent in fixing the damage done to the road and water networks during the recent floods and cold snap present a perfect opportunity for installing ducting where feasible.

Even if all of the above was implemented tomorrow, it is far from certain that enough private investment in next generation infrastructure (particularly access infrastructure) will be stimulated, especially in rural areas. It may still be necessary for the Government to provide this infrastructure itself, or at the very least to partner with the private sector in delivering it. Failure to do so will put us at a massive competitive disadvantage to other countries in years to come.

The chief area of concern in the development of advanced high-speed broadband infrastructure in Ireland is the local access network. While investment by UPC in upgrading its cable network and investment by other companies such as Imagine in WiMAX technologies have improved things in this regard, these services are only available in certain parts of the country. Eircom’s dominance of the fixed-line market means that investment in its local access infrastructure will be of crucial importance in ensuring a more rapid rollout of next generation services across the country.

Eircom’s new owner, STT, appears to be establishing a more cordial and cooperative relationship with ComReg and has indicated that it plans to invest in Eircom’s network and intends to stay in Ireland for the long term. The recent move to drop Eircom’s legal case against ComReg’s decision to lower the monthly charge for shared line LLU services from €8.41 to €0.77 reinforces the view that the company will be more cooperative with the regulator than under previous owners. That said it is hard to see how STT plans to undertake significant investment in Eircom’s network given its approximate €4 billion debt burden. Indeed, S&P recently put Eircom’s rating of B on ‘creditwatch negative’ and warned that the company could breach covenants on some of its debt in the next year.

The EU has changed its State Aid rules to facilitate joint public-private investment in broadband infrastructure in both rural and urban areas. Governments in other European countries have recognised the importance of investment in fibre-based next generation networks by intervening in their telecoms markets. For example, last year, Finland (a country with a similar urbanisation rate as Ireland) made universal minimum internet access speeds a legal requirement. The Finnish government committed to a minimum speed of 1Mb/s per second from July of this year and 100Mb/s by 2015. Another example is the UK, where the British Government has set up a Next Generation Access fund (to come from a £0.50 monthly levy on all telephone landlines). The approximate £1 billion in funds that the levy generates will be used to facilitate the installation of fibre-optic cable in rural and suburban areas where it might otherwise have been unprofitable for the private sector to invest.

Further afield, the Australian Government has announced a multi-billion fibre-to-the-home project which will provide 100Mb/s connections to 90% of homes over the next eight years. The project is to be run as a joint venture with the private sector where the State will own a minimum of 51% of the project. In Singapore, the Government is providing almost US$500 million for a joint venture project with a private sector company to construct the passive infrastructure for a national next generation broadband network. A further US$166 million in funding is being provided for a separate joint venture with Starhub, a subsidiary of Eircom’s new owner STT, to build and operate the active infrastructure for the national network and will be competed by 2015.

It is clear that other countries realise the strategic importance of high-speed broadband and are taking steps to ensure their countries don’t fall behind. What is worrying for Ireland is that we are already behind many of the above countries as it stands and cannot afford to fall further behind through inaction. While many of the policy and regulatory actions mentioned earlier, if implemented, could do much to facilitate improved private investment in infrastructure, Ireland can ill afford to wait and see if the required investment will take place, and at the required pace. The Irish Government needs to become more proactive and play a stronger role in the development of Ireland’s next generation broadband infrastructure, particularly at the local access level. This requires either direct investment by the State or co-investment with the private sector (Eircom’s dire financial situation could provide an opportunity for the Government to step in and make a deal with the company in relation to its network infrastructure). Maybe then future Forfás reports won’t need to perennially point out that we lag competitor countries in terms of our broadband performance.


Paul Hunt said...


Your post, of course, is welcome and valuable, but it drives one close to a sense of despair. If there is only one area where massive investment is required, this is it. But the course the Government is pursuing (engineering a soft landing for the property market, keeping, at least, some banks in Irish "control" and trying to reduce the fiscal deficit) means that all we'll get are "task forces". Although I'm keen that the people have the opportunity to replace this Government immediately, I'm not sure a new government would be much less constrained. I know we've agreed to differ on this, but I can't see how some recycling of existing semi-state assets can be avoided if we are to leverage the scale of fnancing required.

Donal Palcic said...

Thanks for your comment and I share your sense of despair! While we have disagreed in the past on the issue of privatising existing semi-state assets, I can't see them being privatised any time soon. So while they still remain under public ownership I believe they can actually make a significant contribution to the development of a national next generation network through better coordination of their network assets.

It is true that the rollout of fibre networks across the country will require massive investment, however the cost of this rollout of passive infrastructure can be significantly reduced if existing State-owned and local authority assets are utilised in a more coordinated way.

We need a national inventory of all existing duct assets (SOEs and local authority) to give us an idea of exactly how much fibre can be installed as things stand. In all areas where no ducting exists (and even where it does), the better coordination of any future civil works programmes will ensure that the cost of installing ducting can be lowered considerably. So whenever a local authority or SOEs like the ESB, Bord Gáis or Irish Rail are carrying out civil works, ducting should be installed where feasible regardless of need. The benefits are obvious, any future rollout of fibre can be achieved at a fraction of the cost.

Only an effective national framework put in place by the Government (and Regulator) can enable more efficient coordination of public sector assets. We need a clearly focused guiding vision and strategy for a next generation network from the Government. This then needs to be translated into policy and regulatory clarity. All of this is doable and common practice in many countries, I'm just not sure when the Government is finally going to move beyond the "task force" stage and actually begin implementing it.

Paul Hunt said...


Thank you for your generous and constructive response. What you are proposing makes perfect sense - as does the intent of Stephen Kinsella's post on the "smart economy". We just need to remember that all of this barely registers on the Government's radar. It focuses on defining and crossing hurdles in sequence (e.g., Lisbon II, revised programme of government, NAMA and Budget 2010) to ensure its political survival. Nothing else matters. The next hurdle is comprised of the discount on loans transferred to NAMA, the amount of bank recap required and how this will be managed and financed. Every sinew is being strained to keep the coalition intact until the end of 2011 (or early 2012) and to minimse the loss of votes at the next election. There is no long term vision and consideration of the public interest only arises when something needs to be done to supress any rumblings on the Government backbenches. That's why I believe the immediate focus should be on removing this Government and letting the people decide. All else is froth and well-meaning aspiration.