Guest post by Donal Palcic: Next Generation Broadband and the Smart Economy

Donal Palcic30/07/2009

Donal Palcic: I read with interest the recent first report of the DCENR’s Knowledge Society Strategy process (entitled Technology Actions to Support the Smart Economy). The report claims that Ireland is now one of the “most advanced countries in the world for wireless and mobile broadband technologies” and that a “competitive market is delivering broadband speeds for Irish consumers from a range of broadband providers”. The report goes on to detail a number of action areas that will deliver the critical next generation network (NGN) infrastructure necessary for the development of a smart economy. The majority of the report then devotes most of its space to describing initiatives such as the recently announced Exemplar network.

Nowhere in this report are any of the key issues surrounding the development of a true NGN mentioned or discussed. The report’s claim that we have a competitive broadband market is also highly questionable given Eircom’s dominance of the fixed-line market and Ireland’s perennial position towards the lower end of most EU/OECD broadband scorecards. The Forfás response to last year’s NGN consultation paper shows that Ireland is currently not well placed to take advantage of future trends in broadband. Although the number of broadband subscribers has increased significantly since 2005, Ireland’s relative position has not improved as other countries are moving ahead at an even faster rate. The fastest speeds available in Ireland currently lag those of our European counterparts while the cost of our fastest broadband services is relatively higher.

A quick perusal of the latest ComReg quarterly market data (for Q1 2009) shows that there are now over 1.27 million broadband subscribers in Ireland. An examination of the breakdown of broadband subscriber numbers by subscription type presents some interesting facts:

DSL subscribers make up approximately 53% of overall broadband subscribers in Ireland, while the mobile broadband market, which has recorded explosive growth in recent years (over 90% increase in subscribers over the past year alone), accounts for some 28% of subscribers. Eircom dominates the DSL market where it provides 96.6% of DSL access either directly (Eircom retail) or indirectly (wholesale bitstream). Only 3.4% of DSL access is from unbundled local loops (LLU), which is significantly behind the EU average where LLU constitutes 44% of all lines supplied by competitors (ECTA Broadband Scorecard Q3 2008). The lack of local loop unbundling and the high price of line rental charged by Eircom is arguably a significant factor behind the considerable growth in mobile broadband subscribers (particularly in the residential market) and further evidence of Eircom’s dominance in the fixed-line market.

So where do we actually stand in terms of developing a next generation network? The Knowledge Society Strategy report ignores the most important obstacle to developing a NGN in Ireland, namely Eircom’s fixed-line network and the critical local loop (last mile) infrastructure. The last mile is a key area of concern given the lack of investment by Eircom in this area. The current local loop infrastructure, which is largely twisted pair copper, is fast becoming incapable of delivering currently available bandwidth-intensive services. The services of the future (3D TV etc.) will require even higher levels of bandwidth. While cable operators such as UPC are investing in infrastructure capable of providing speeds of up to 100Mbps, such services are only available to a relatively small (mainly urban) portion of society. In order to develop a true NGN, the deeper rollout of fibre across the national network (i.e. to the kerb (cabinet), to the home etc.) is necessary. Eircom’s local loop infrastructure thus constitutes the most significant bottleneck in the future development of next generation broadband services.

Two possible options available to the Government are:

1) Take Eircom’s network infrastructure back under public ownership (or if a deal on obtaining the network alone cannot be reached, take Eircom as a whole back under public ownership, separate the network element from the remaining business elements which can then be sold off while retaining the network). Eircom’s fixed line network should then be amalgamated with the entire portfolio of State telecoms assets (MANs, NBS, and the telecoms networks of the ESB, Bord Gáis, Irish Rail etc.) and managed by a new State-owned telecoms network company. The new company can then provide network services to private operators on an open-access basis across every level of infrastructure (first, middle and last mile).

2) Amalgamate all of the existing State telecoms assets under a new public network utility as above and construct a new national NGN in a greenfield approach.

Option 1 need not cost the Exchequer significant sums of money. A new State-owned telecoms network utility will be able to finance investment through revenues generated and its own borrowings. Eircom is currently up for grabs for approximately €100 million. While there are obvious issues surrounding the level of Eircom’s approximate €4 billion debt, the strategic importance of Eircom’s network is simply too large for the Government not to take radical action now and bring Eircom’s network back under public ownership. A failure to do so will simply ensure that Ireland falls further behind her European and international counterparts. Even if the Government has to take on some part of Eircom’s debt in order to obtain the network, this does not have to add to our ever increasing national debt and can be managed by the new State-owned network. When Telecom Éireann was corporatised from the Civil Service back in 1984 it inherited a loss-making business, approximately IRP£1 billion in debt and a network in dire need of investment. As a commercial public enterprise, it returned the company to profitability within four years, spent significant sums of money upgrading the network and managed to deleverage its balance sheet, all without any assistance from the Exchequer.

While Option 2 does not involve taking Eircom’s network back under public ownership (and therefore taking on some/all of Eircom’s considerable debt), the problem of access to, and investment in, the local loop infrastructure remains. Given that the local loop is currently one of the key barriers to the development of high speed broadband services, Option 1 is arguably superior to Option 2.

Provision of access to a fully integrated national telecoms network on an open wholesale basis would facilitate increased customer choice without any requirement for the Government to re-enter the business of telecoms service provision. It would also facilitate improved competition amongst service providers and equitable investment in infrastructure, whereby a State-owned network company can be mandated to invest in rural areas, preventing the deepening ‘digital divide’ which is already occurring as private operators only invest in more economically attractive, densely populated urban areas.

Given the rapid pace of technological development and the constantly increasing information needs of business and society, our telecoms infrastructure is as important, if not more important, than other strategically important infrastructure such as our road and rail networks. Simply put, high-speed broadband is now a necessity for everything from economic growth to social inclusion. While the initiatives outlined in the DCENR’s latest Smart Economy report are to be welcomed, the issue with the local loop infrastructure is far more important. If the Government acts now it can create a realistic physical platform for a truly competitive telecoms market and the basis for growth towards a smart economy, and in doing so facilitate Ireland’s future economic growth once it emerges from the current crisis.
Dr. Donal Palcic lectures in economics at the University of Limerick

Posted in: InvestmentEconomics

Tagged with: Eircomsmart economy

Dr Donal Palcic

Donal Palcic

Donal Palcic is a lecturer in economics and Assistant Dean International at the Kemmy Business School, University of Limerick. His primary area of research is in public sector economics with a particular focus on infrastructure policy, public enterprises, privatisation and public-private partnerships. Donal has co-authored Privatisation in Ireland: Lessons from a European Economy (2011) and has also published a number of refereed journal articles and book chapters on the same topic. He is a member of the Privatisation and Public Private Partnerships (P4) research group based in UL. Donal has also discussed privatisation-related issues both in the press and on national radio on various occasions (see P4 media page for details). In 2016, Donal spent five months as a Visiting Research Fellow at the Cornell Program for Infrastructure Policy in the Department of Policy Analysis & Management, College of Human Ecology, Cornell University (USA).



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