Inept F.F. legislation to impact on Ireland's competitiveness
BT Ireland announced on Tuesday evening April 26 2006,it was withdrawing from local loop unbundling (LLU) negotiations with Eircom and other telecoms firms, claiming the former incumbent is continuing to frustrate the progress of LLU.
BT Ireland "reluctantly" withdrew from the industry forum, according to Danny McLaughlin, who said in a statement that Eircom's stance on LLU "will jeopardise industry investment and impact on Ireland's competitiveness."
Tom Hickey, chairman of ALTO (the body representing alternative operators in Ireland's telecoms market) said he understood BT's frustration with Eircom and the decision it made to leave the talks. He said the "process" has been ongoing since December 2004 "with little or no movement from Eircom."
Hickey told ElectricNews.Net that other ALTO members and participants in the talks (Smart Telecom, Magnet and Colt Telecom) are also frustrated by Eircom's stance and that they too may be considering withdrawing from the negotiations.
The Oireachtas Joint Committee on Communications was convened in mid 2006 to assess the non roll-out of broadband in Ireland shambles.
The committee called several witnesses, including the communications minister Noel Dempsey, the Commission for Communications Regulation (ComReg), the senior management team of incumbent telecoms company Eircom, and several other telcos.. The main issues under discussion were the impasse over Local Loop Unbundling (LLU) and usage of State-subsidised Metropolitan Area Networks (MANs).
Industry regulation was also a common theme throughout the day. Minister Dempsey said the communications miscellaneous provisions bill, which will boost ComReg's powers, was in the hands of the parliamentary counsel and he expects it will be finalised through the Dail within the next year.!
Overall the minister declared himself dissatisfied with the slow roll-out of broadband.!
Labour's Tommy Broughan said the situation where operators could not get their products to customers because of Eircom's lack of activity was "deplorable and depressing". He reminded Minister Dempsey of comments his predecessor, Dermot Ahern, made about there being a "market failure" and asked why the minister had not introduced a bill to strengthen ComReg's powers when he first came into the Dail as minister for communications.
"You have been dilatory in not taking the bull by the horns and giving significant powers to ComReg," he charged. "Will the PAC [Public Accounts Committee] say DCMNR has failed on lots of issues, particularly broadband? Spending EUR120 million on the MANs was pursuing a white elephant when you should have gone after the regulatory issue," he said.
Earlier in the day e-Net, the company which runs the MANs, had received a grilling from the committee.
It emerged that despite investing EUR120 million in the MANs, the State still relied on Eircom for 90 percent of its online activity, and that e-Net was barely making enough money to justify the State investment.
Minister Dempsey said e-Net had never been expected to make a profit in the first few years. He said it was "a nonsense" to say the MANs were a duplicate system and explained that the Government would never have gone down the path of investing in them if the private sector hadn't provided the infrastructure.
Deputy Eamon Ryan of the Green Party likened the MANs investment to the PPARS and e-voting machine scandals because the Government had invested millions but they only made a turnover of EUR3 million a year.!!
Throughout the day there was a growing realisation among committee members that the broadband issue was more than just a technology matter, but rather a wider political and economic issue.
Other topics discussed on the day included the line quality, the Broadband for Schools initiative and PC penetration.
enn.net speaking to Danny McLoughlin BT chief in Ireland:
ENN: Do you get questioned when in Britain on the difference between broadband infrastructure in Northern Ireland and the rest of Ireland?
McLaughlin: Absolutely. A good example is a big [European] bank for whom we've just finished a renewal of their corporate communications infrastructure. They decided that they wanted to order 1,000 broadband connections so they could train their staff at home on internet banking products. When we said, "No problem, we can do that in Northern Ireland but we can't do it in the South," they were incredulous that in Northern Europe in 2006, 30 percent of their employees could not get broadband at home.
ENN: In Northern Ireland there was a competitive tender to get access to the last 10 percent of households who couldn't get access to regular broadband. Can you see that happening in the Republic?
McLaughlin: In any State with a significant rural population, you reach the economically viable coverage at a certain point. Say for argument's sake 80 percent. Then you have to be clever about how you get some public sector funding to cover the rest in order to avoid a digital divide and exclusion.
Rather than the public sector pay for it -- because I don't think that's right, they should just pay for the infrastructure -- the question we asked ourselves is: how much would the public sector have to inject for us to bring our plans forward?
So bringing forward the investment is the problem and the cost to do that was much less than people thought it would be in Northern Ireland: less than STG10 million to complete 100 percent broadband coverage for the people of Northern Ireland.
ENN: Can you hazard a guess how much it would cost for the rest of Ireland?
McLaughlin: Let's say it has four times the population of Northern Ireland, therefore it would cost around STG40 million. When you think about some of the other investments the public sector makes in telecoms infrastructure which are much bigger than that figure, do [those investments] really contribute to those digitally excluded by a lack of broadband? That's the question I would ask.
Sixty four million people now have broadband access across the 25 countries of the EU, but Ireland remains near the bottom of the pile in terms of penetration.
That's according to the latest Broadband Scorecard, from the European Competitive Telecommunications Association (ECTA), which reveals that broadband penetration across the EU grew 14.1 percent in the first quarter of 2006.
Overall, the number of lines rose by 5.5 million, an increase of 9 percent on the preceding quarter. However, the report indicates that during the three-month period, Ireland's broadband growth rate fell from 28 percent to 19 percent.
Currently, Ireland's position in the EU15 is 14th in terms of penetration; when the ascension countries are added in, the Republic is 17th out of 25.
In overall penetration terms, Ireland has moved up only 1.27 penetration percentage points and is beaten by seven other countries.
Denmark tops the league with broadband penetration of nearly 30 percent, followed by the Netherlands (26.8 percent) Finland (24 percent) and Sweden (22.9 percent). Ireland's rate stands at a paltry 8 percent while Greece trails far behind other member states at just 2 percent. The average EU15 penetration rate is 15.9 percent.
According to ECTA, poorly scoring countries are not growing quickly enough to catch up with their neighbours, which is creating a widening gulf between connected and unconnected countries across the EU.
"People often like to make comparisons between broadband take-up in the EU, US and Japan, but actually the divergence within Europe itself is even greater," said Steen Clausen, managing director of ECTA.
"We don't have to cross continents to see how best to boost Europe's broadband. The answer is right in front of us. Countries that are performing relatively well, such as Denmark and the UK, have taken action to ensure there is choice and competition, while broadband access in laggard countries such as Greece and Ireland is still to a large extent dominated by the former state-owned incumbents," he added.
Lobby group Ireland Offline reacted angrily to the latest report saying that unless something dramatic happens in the next few months Ireland is going to lose the broadband battle.
News that around 45,000 of Smart Telecom's phone customers had been cut off spread rapidly across the globe. "Ireland's dominant telephone company, Eircom PLC, shut down services Tuesday to smaller rival Smart Telecom in a dispute over unpaid bills," reported the Houston Chronicle.
Then the news got worse: "Ireland's Smart Telecom asked for its shares to be suspended on Tuesday after provider Eircom forced a shut down of a substantial part of the its residential phone business," wrote The Scotsman. And it wasn't just the English speaking world that took notice: "Irish operator Smart Telecom has switched off residential phone services and has suspended share trading," reported Telecom Paper in the Netherlands.
At least the International Herald Tribune wrote that "the Irish communications regulator said that it had reached a deal to restore services to customers of Smart Telecom after Eircom forced a shutdown of a substantial part of its residential phone business."
So all's well that ends well then. Perhaps not. All these reports mentioned Ireland first and Smart second and an incident like this could well make foreign businesses wary.
"It would be prudent for investors to consider the environment right now," said Danny McLaughlin, chief executive of BT Ireland. "I don't think it's good for the industry when an operator with thousands of customers gets into trouble."
While there may be some initial setbacks the impact on foreign investment will be temporary at worst. The Googles and eBays of this world operate on a different plain and won't let an incident like this affect their operations. The same can't be said of Irish businesses.
"Many companies couldn't do business. Companies that are involved in importing or exporting couldn't contact their suppliers because they had no connection," said John Quinn, head of strategic development with Digiweb.
Several telecoms providers, including Digiweb, received calls from businesses connected to Smart who were cut off and needed to get re-connected fast. While there was a short-term gain for many, it could prove costly to the up and coming players in the long run.
"There is no doubt it will affect other operators. It will have an adverse affect on the public perception of the market," said Stuart Draper, head of research at Dolmen Securities. "People are going to stick with what they know."
And what they know is Eircom. When it comes to name recognition, the telecoms food chain in Ireland is straightforward; there's Eircom followed by BT Ireland, because most people have heard of British Telecom, and then the rest. Since Smart is the best known of "the rest" its recent troubles do not bode well for other telecoms providers.
"Smart has the highest media profile of these operators," said Dr Susi Geiger of the Smurfit Business School at University College Dublin. "There could be serious knock-on effects for other telecoms companies in the industry."
Many of the operators in the industry are unknown to the ordinary consumer placing Eircom once again in prime position to benefit. "Many consumers are still getting their heads around the fact that there is competition in the industry," said Dr Geiger.
"The incumbent has a natural advantage. Consumers are inert and are happy going the habitual route," she said. "It takes a high degree of frustration for consumers to change and people only reached that level with Eircom in the last two years. The situation with Smart will frighten consumers very much and could put them off other smaller operators."
The sudden manner in which Smart's customers were cut off further hurt other operators' cause. Turning on the radio for the morning news only to find that you've had your phone and broadband connection cut off hardly softened the blow for customers.
"There could be a knock on effect on consumers' perceptions about going with another operator," said Tom Hickey, chairman of the Association of Licensed Telecoms Operators (ALTO). "There was already an imbalance, but perhaps the scales have been tipped a little further."
Consumer groups remain to be convinced that independent operators will be able to overcome this obstacle. Many operators, including Smart, use Eircom's infrastructure to provide their services. IrelandOffline, a broadband interest group, does not rule out a repeat occurrence.
"It's going to be a big problem in the future. People feel safe with Eircom and BT but with anyone using another operator's infrastructure you could run into the same problem," said John Timmons, vice chairman of IrelandOffline. "While there are some operators who use their own infrastructure the majority rely on Eircom."
If one positive does come out of all this it is that it may serve as a wake up call to the industry and ComReg. "We need to make sure this never happens again to consumers. We need to find an alternative to protect them should an operator get into trouble," said Quinn.
Domestically, the Irish telecoms industry -- already red in the face last year from calling for Eircom to sort out its infrastructure to facilitate broadband competition -- had to continue holding its collective breath as the former state telecommunications firm changed hands for the fourth time in its 22-year history.
Here come the Aussies
In May we learned that Eircom was to be sold to Aussie investment house Babcock & Brown in a deal worth a hefty EUR2.4 billion. The arrangement was approved by shareholders in July with the Eircom Employee Share Ownership Trust (Esot) retraining a minority stake. Eircom was de-listed from the Dublin and London stock exchanges, and Eircom big guns Phil Nolan and Tony O'Reilly stood down in September to be replaced by Frenchman Pierre Danon as chairman, and Australian Rex Combs as chief executive.
The same day B&B's Combs was appointed to his new role, Eircom and its latest owners were barraged by demands to remove infrastructural restrictions that make it difficult for consumers to change their broadband providers, and the ongoing saga of Ireland's poor broadband record has continued unabated throughout 2006.
A month previously, in April, BT Ireland dramatically pulled out of round table negotiations with Eircom, ComReg, Communications Minister Noel Dempsey, and other broadband players because of its stated exasperation with Eircom.
This development seemed to galvanise Minister Dempsey who then began making noises about getting his oft-remarked upon (but heretofore never seen) Communications Miscellaneous Provisions bill before the Oireachtas. Several senior government sources have all independently told ENN not to hold our collective breaths for this legislation which, amongst other things, should give ComReg the enforcement powers it needs to bring proper competition to the broadband market.
The other 'stick' Minister Dempsey seemed to wield against a stuck-in-the-mud Eircom was Project Dingle. This carefully media-managed leaking of information to several Irish journalists now seems a bit of a red herring. The minister was apparently looking at consolidating the communications and fibre-optic resources of several semi-state bodies to create a state-owned telco that could get the ball rolling on improving broadband penetration. Nothing about this plan has been heard of since.
Going, going, Goggin
ComReg itself is inextricably linked with the Irish telecommunications sector, and 2006 was a bit of a drag for the seemingly forever-embattled regulator.
Its lack of powers in terms of enforcement, and the fact that it has never levied a fine on an intransient telco, has earned it criticism from all sides: telcos, industry bodies, lobby groups, the media and politicians of all shades. ComReg chairperson Isolde Goggin stepped down in December to be replaced by fellow commissioner Mike Byrne; industry watchers will be keeping an eye on the regulator next year to see if there is a change of emphasis at the Lower Abbey Street HQ under a new skipper.
However ComReg's fortunes have been improving recently, with an unseasonal summer surge in broadband take-up something to brag about, and the vanquishing of ComReg's bete noire: Smart Telecom.
The Smart money
Senior management at Smart seemed to funnel all of their energies during 2006 into duelling with ComReg in the High Court over its stalled application for the State's fourth 3G licence. Company accounts show Smart wrote off EUR9.9 million to pursue the licence.
In October, Justice Peter Kelly ruled that the regulator was spot-on to withdraw its offer of the 3G licence to Smart, citing irregularities concerning a EUR100 million bond Smart was obliged to lodge with ComReg to secure the lucrative licence.
Even so, in terms of what Smart will be remembered for in 2006, it will most likely be the day Eircom pulled the plug on nearly 45,000 of Smart's fixed line customers, ostensibly because of an unpaid debt due to the infrastructure owner.
Newspapers the world over marvelled at how such a drastic occurrence could transpire in a supposedly high-tech, liberal, western economy, and it is still not clear what damage this has had on not only the telecoms sector's reputation but Ireland Inc in terms of foreign investor confidence.
To be fair to Smart's acting chief executive Ciaran Casey (who took the helm when larger-than-life Smart founder Oisin Fanning unexpectedly retired for health reasons), he said the company's board took full responsibility for the mishap, yet called on the Government to "reassess" the telecoms market in the wake of the debacle; diplomatic speak for "sort it out lads".
Fanning's chum and Smart Telecom backer Brendan Murtagh of the Cavan-based Kingspan construction dynasty took over struggling Smart in October. For the grand sum of EUR1, moneybags Murtagh bought EUR40 million worth of Smart's debt and around 17,000 broadband customers. Not known as a man who flies by the seat of his pants, it will be enlightening to see what Murtagh does with Smart in 2007.