ESB should build broadband network in co-operation with other State utilities

Failed broadband process should be abandoned

Donal Palcic, Eoin Reeves19/10/2018

Last week’s controversial resignation of minister Denis Naughten is generally believed to have thrown the National Broadband Plan (NBP) into crisis. The truth is that the plan has been in crisis since two of the three bidders withdrew earlier this year.

The current process should have been abandoned months ago. This is not what citizens craving decent broadband want to hear. But there is no case for persisting with a tendering process when there is no competition. This will only result in significant overpayment for the development of vital public infrastructure that the private sector will then own and control.

When the alternatives for delivering the NBP were first appraised the State-owned option was ruled out. Instead, the KPMG ownership report published in December 2015 concluded in favour of contracting with the private sector under a so-called gap funding model. The arguments supporting this were crucially predicated on the assumption that the procurement process would be competitive.

It was expected that competition for the contract would drive down the amount of subsidy required from the Government. Unfortunately, the withdrawal of both Eir and Siro (the ESB/Vodafone joint venture) meant all bets were off. The current tender should have been abandoned as soon as Eir pulled out last January.

 

Best option

What should the Government do now? If the plan is to be delivered without wasting public money the best option is to reconsider an option that will involve far more public involvement and control.

There are a number of “more public” options available to the Government. The most extreme would be to simply create a new State-owned utility company for broadband infrastructure. Ironically, this is exactly the vision that Fine Gael set out in its NewEra plan in 2010 prior to being elected into government.

That plan envisaged establishing a new company, Broadband 21, which would amalgamate the telecoms assets of existing State-owned enterprises such as the ESB, Bord Gáis, CIÉ and the metropolitan area networks to create a new national, open access, next generation broadband network. The plan stated that €1.8 billion would be invested over four years with the goal of getting Irish broadband speeds into the top five among OECD countries.

The amalgamation of existing State-owned telecoms assets has never materialised and one has to wonder why the current Government is now willing to provide subsidies, which could amount to €500 million or more, to a private operator who will then own and control the infrastructure.

The creation of a new State-owned company would likely take a long time and would also have the disadvantage of any investment carried out being on balance sheet.

A relatively more straightforward potential alternative is simply to instruct our existing public enterprises to carry out some or all of the required investment.

Investment by our commercial public enterprises would be off balance sheet and would free up the exchequer funds earmarked for the NBP subsidy for other much needed services.

 

Most obvious company

The ESB is the most obvious company to use in this regard. It already has a substantial telecoms network business through its Siro joint venture with Vodafone.

It is also connected to every home and business in the country and can use some of its existing infrastructure to roll out broadband. The ESB has paid almost €1.47 billion in dividends to the exchequer between 2008 and 2017.

A large portion of these payments were in the form of “special dividends” during the economic crisis with some of this financed by ESB borrowings.

Instead of using the ESB as a cash cow, the Government could simply agree to forgo dividends from the ESB for a period of time, with that money instead directed towards investment in broadband infrastructure.

Moreover, the cost to the ESB of rolling out broadband infrastructure could be significantly reduced through co-ordination with other State-owned utilities.

For example, Irish Water is currently digging up roads all over the country to upgrade its network. Why can’t it be instructed to install ducting for fibre optic cable as part of any civil works programme they are involved in?

The same applies to Bord Gáis Networks and other public enterprises engaged in civil work programmes across the country. The co-ordination of plans by a network holding company that oversees the investment activity of the ESB, Bord Gáis, Irish Water etc would ensure there is no duplication of costly civil works and lead to a lower cost of investment.

It is time for Fine Gael to remind themselves of their NewEra plan and pull the plug on the failed NBP procurement process. The NewEra plan proclaimed that “there is an alternative” for Ireland’s economy. The alternative vision placed public enterprise at the heart of plans for investment in Ireland’s infrastructure.

The sooner the Government accept their own plan the faster people in rural Ireland can get the high speed broadband infrastructure they need.

If Fine Gael continue to ignore their own advice, perhaps Fianna Fáil could use the above proposal to form the basis of a realistic discussion on the best way forward for the National Broadband Plan as part of the renegotiation of the current confidence and supply agreement.

 

This article originally appeared in the Irish Times and can be found here: https://www.irishtimes.com/opinion/esb-should-build-broadband-network-in-co-operation-with-other-state-utilities-1.3665640 

 

Posted in: Corporate governanceInvestment

Tagged with: privatefinanceprivatisationpublicservices

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).


Dr Eoin Reeves

Eoin Reeves

Eoin Reeves is head of the Department of Economics at UL and Director of the Privatisation and PPP Research Group. His research interests lie primarily in the economics of infrastructure and the public-private mix in public service delivery. This includes issues such as privatisation, liberalisation, and different forms of private sector participation in the delivery of public services. 

Eoin has published a number of economic studies of such reforms in edited books and international peer-reviewed journals. These include analysis of the privatisation of state owned enterprises (Annals of Public and Co-operative Economics, Telecommunications Policy), employee share ownership in the context of privatisation (Economic and Industrial Democracy, Employee Relations), contracting out public services (Economic and Social Review), PPP in schools (Public Administration, Public Money and Management) and PPP in Water Services (Economic and Social Review).  He recently co-authored a book titled Privatisation in Ireland – Lessons from a European Economy.


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