Bones of contention

12 Jul 2006

Increased competition around broadband may be driving cheaper prices and faster speeds but the same old problems are hanging over the market, according to Conal Henry, chief executive officer of e-Net, the company charged with running the Metropolitan Area Networks (MANs).

He argues that there are three key components to broadband: price, quality and availability. “On price we’re nearly there and it’s less of an issue than it was. Quality and availability, however, are still a significant problem,” he says.

“The goal is to try and get DSL of some description to everybody. We haven’t even managed to do that. The problem is simple. It’s been about the capital investment from the incumbent being used to pay down debt rather than grow the business,” he says.
While Eircom maintains it is doing a good job of upgrading exchanges to make them broadband-ready, it accepts that there is still work to be done but believes the issue is more about education than availability.

“The penetration of broadband into small and medium-sized enterprises (SMEs) is still nowhere near where it needs to be. Our focus is to make it as relevant to those companies as possible,” says Eoin McManus, head of business marketing at Eircom. “We want to ensure our customers are getting the kind of product that suits them but we still feel there’s a huge opportunity to get small companies on the internet through broadband.”

Despite costs coming down on broadband packages, Leo O’Leary, general manager of indirect channels in BT’s business unit, agrees that there is still a lot to do. “If it was just a price war it would imply that broadband was well understood in the market but we think there’s still a major education piece to be done.”

The two largest telcos are using broadband as a key to unlocking deeper layers of service provision to the SME sector, providing them with technology tools and services to help them engage more effectively with the internet.

“BT sells the value-added services alongside the ‘pipe’, which is another educational piece because SMEs still struggle with the idea,” says O’Leary.

Eircom offers a similar proposition, added-value services around email addresses, web hosting, online data backup and security. Recently it launched Email Marketer, a software product that helps small firms turn the internet into a marketing opportunity. “Basically it’s a tool that facilitates online marketing,” says McManus. “Retail businesses are starting to realise how important their databases are for them and are trying to find an inexpensive way of communicating with their customers.”

Other telecommunications companies have been differentiating themselves by targeting their broadband propositions at specific needs.

At Irish Broadband, the pitch was always about fixed-wireless connectivity and it won a lot of customers early on because it reached places where DSL ‘wire-in-the-ground’ broadband was unable to go. As availability has improved, head of marketing Oral Duffy argues that it’s the feature set around fixed-wireless that still makes it such a strong proposition. “Unlike DSL wireless broadband, the upload and download speeds are the same, which is important for a lot of businesses,” she says.
ADSL (asymmetric digital subscriber line), the bread-and-butter service of most providers, has faster download speeds than upload. Eircom doesn’t think there is enough demand for so-called SDSL (symmetric digital subscriber line) to justify having a product. BT, Smart Telecom and Magnet Business, however, all believe it is becoming a key selling point.

“High-data users want faster upload speeds and they don’t want to have to share it with other people using the same exchange,” says Louise McKeown (pictured), head of business sales at Magnet Business. “That’s what has driven Magnet to launch new services.”
She believes the broadband proposition to SME customers is no longer about price. “The market is moving towards feature-rich services,” she remarks.

She says that Magnet has a substantial customer base of architects and designers, people that traditionally needed to have separate lines inside their companies because they were sending and receiving large data files. “They don’t have to do that anymore: they can use the same lines as the rest of the business.”

Henry points out that the vast majority of broadband product sold is Eircom ADSL but believes customers will quickly come to realise its limitations. “It’s fine for a bit of browsing but try to move beyond that and you soon hit problems. There are contention issues and slow uplink speeds.”

He believes Eircom will “grudgingly move its products forward” but sees an opportunity for other players in the meantime, especially as exchanges are unbundled and service providers are able to get total control of the products they bring to market.
McKeown says contention is becoming a big issue. Contention ratio describes the number of customers allocated to fixed amount of bandwith. For business customers, for example, Eircom is delivering a 24:1 contention ratio, which means 24 end-users are effectively fighting over the available bandwidth.

“We never educated the Irish market properly,” she says. “Everyone tried to tell customers broadband was wonderful and they should have it but very few providers mentioned contention. Basically, you are selling a service that has a condition to it so you have to tell business customers. Now everybody knows about it because in certain areas, around Dublin and Cork particularly, they are beginning to feel the pinch. In six months it could become a major issue.”

When customers find that promised download speeds of 2Mbps rarely mean 2Mbps, the market for uncontended products will only increase, according to McKeown. Businesses are already prepared to pay more for a guaranteed service.

Second-guessing where else the market will go is difficult. “Broadband is like electricity when it was invented: we really don’t know how it’s going to be used in the future,” says Henry. “The richness of applications will determine how people use it in the long run.”

By Ian Campbell