Broadband at the crossroads


24 Feb 2005

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Speaking exclusively to siliconrepublic.com, Communications Minister Noel Dempsey TD says he is still confident the 500,000 broadband target can be reached by the end of 2006. “There’s no doubt that until recently there was a market failure and that’s why in the late Nineties the Government set out with a plan to install metropolitan area networks (MANs) for larger towns of [a population of] 1,500 plus. As well as this, various telcos are putting a hefty investment into the €18m Broadband for Schools project. I wouldn’t say the market is perfect yet. There are difficulties that need to be overcome but despite this, Eircom has got the message and is making genuine efforts to address those issues.”

Referring to a recent TrendWatch report by Amarach, an independent consultancy firm used by ComReg, that showed home internet penetration falling from 37pc in 2003 to 35pc in 2004, Minister Dempsey argued that the figures could be skewed due to the fact that some 90,000 new homes are being built each year.

“I wouldn’t agree that there is a plateau in demand. In fact, it is likely that demand is going to accelerate and increase as the €18m Broadband for Schools project reaches fruition,” he says. The project to bring broadband to some 4,000 schools countrywide could act as an impetus for parents to put broadband in their homes, he adds.

Dempsey warns, however, that it is not only about numbers. “We have to talk in terms of quality and what would concern me is that a lot of what’s on offer is the bare minimum 512Kbps. We have to aim for the 2Mbps level, that’s where we are going. I was on a visit to Hong Kong recently and witnessed a debate about having a minimum of 5Mbps up to 100Mbps as part of a schools rollout and if we can get to such a level and a situation where there is a rollout and real competition I would be happy.”

Minister Dempsey concludes: “In my estimation a ‘head of steam’ has developed and the only way the pressure will be released is by the rollout of extra broadband. Other market operators and Eircom have come to realise that and a scramble to deliver is under way. Once the impetus has built up, it will be unstoppable.”

The impetus Dempsey speaks of has been gaining ground in recent weeks and operators ranging from Esat BT to Irish Broadband and Smart Telecom have been chomping at the bit to capture the virgin territory of 500,000 new broadband connections, the Government’s target for Broadband. For example, Smart Telecom is planning to introduce countrywide 2MB DSL services from 1 March for €35 a month, with the first 100,000 customers to sign up getting free line rental. In recent weeks wireless player Irish Broadband, whose services are currently available in Dublin and Cork was awarded licences to provide wireless broadband in Sligo, Navan, Celbridge, Wicklow, Bray, Tralee and Killarney. Waterford, Galway, Drogheda, Dundalk and Limerick with plans afoot to go live in weeks.

However, the most significant indicator of changes to come came from the incumbent operator Eircom, which announced the roll out of the next phase of its DSL broadband service to 200 rural communities across the country, broadband enabling 90pc of its phone lines in Ireland by March 2006. Some 200 communities with almost 200,000 lines are to be enabled during the next 12 months. A total of 180 have already been named by Eircom, leaving 20 locations that have still to be decided on. The announcement was preceded by Eircom’s financial results, which illustrated how significantly broadband now underpins the company’s strategy going forward. It revealed that it had broadband enabled more than 1.5 million customer lines nationwide and had 118,000 broadband connections, wholesale and retail. Of this number, it is understood that at least 30,000 are Esat BT customers using Eircom lines.

“Having rolled out broadband to every town in Ireland, our focus is now on smaller communities,” says Eircom’s commercial director David McRedmond. “This announcement to extend broadband to 200 of these communities will see broadband available to 90pc of Eircom lines. We now want to complete the job with 100pc roll out and we are working with Government to make this aspiration a reality.”
McRedmond concedes that Ireland is coming from an extremely low base and that much work needs to be done to accelerate the pace of ordering of the new services. “At the height of demand we would be signing up to 4,000 orders per week and in recent weeks we have seen numbers average at above 3,000 orders and returning to pre-Christmas levels.

“There is a need to get broadband penetration to 500,000 and beyond, and we are working hard on making changes to our product and the way we promote our product.”

Responding to criticism about local loop unbundling (LLU) and the technologies Eircom employs to rollout broadband, McRedmond counters: “There’s a myth that we haven’t got the technology. We are using the latest Alcatel equipment and we have people in our labs in Citywest Business Campus working to create ubiquitous DSL products.”

In recent weeks Eircom has signalled that it will appeal a directive by the Commission for Communications Regulation on LLU.

McRedmond says that ComReg has been “trigger happy with directives and using very forceful instruments. We have to deal with that of course and we are keen to find out what other operators want”.

On the issue of broadband speeds, McRedmond says: “The issue is at what point do we increase bandwidth? We can do it but the demand isn’t there right this minute for higher broadband but it is there to get on to broadband quickly and cheaply. Our focus is to get broadband to as many people as possible. Remember, there are more than 100,000 people out there with 512Kbps access and who absolutely love it.

“In terms of reaching the 500,000 benchmark — bear in mind that that figure is based on a DSL penetration rate of 27pc population penetration — we are provisioning for 30pc, which is beyond most people’s targets. We have one of the most liberalised telecoms regimes in Europe, our interconnect call rate is the second cheapest in Europe and we would prefer to develop a good relationship with the other operators in the marketplace on LLU,” McRedmond adds.

Despite the ambitious plans of both the Minister and Eircom, there can be no getting away from the truth that Ireland is coming from an extremely low base, both in terms of PC penetration and broadband penetration. One would be blinkered to suggest otherwise and it is obvious that the increase of PCs in the country can only be achieved hand in hand with new broadband connections.

The average DSL connection of 512Kbps in Ireland compares harshly with the doubling of standard DSL services in the UK by BT to 2Mbps, 3Mbps or 4Mbps services in Germany and the suggestion of 15Mbps services in France.

In 1999 when the Irish telecoms market became deregulated one of the first tasks to be tackled was LLU. It is 2005 and out of 1,000 exchanges countrywide only 40 exchanges and some 2,500 lines have been unbundled.

In December, Forfás warned that Ireland currently has a broadband deficit of 360,000 connections and must meet this target by 2007 to reach the OECD average. In the intervening years, as other countries progress, we will need to increase this number to 700,000 connections to catch up, it added. The Central Statistics Office (CSO) estimates that some 649,400 households in Ireland have a home computer, an increase of 67,000 households since June 2003. This means that 46.2pc of households had a home computer in 2004, compared with 42.2pc in 2003. Internet access grew to 537,000 households (38pc of the population, up from 33.5pc
in 2003).

However, conflicting statistics in the abovementioned TrendWatch report appear to be at odds with CSO data. According to a graph based on a survey of 1,047 people, the estimated percentage of adults with home internet access fell from 37pc in Q4 of 2003 to 35pc in Q4 2004. Amarach managing director Gerard O’Neill says there is a leveling off in demand but feels there may be good reason for it: “Things have appeared to have levelled off but I would attribute that to churn and substitution of broadband for dial-up.”

Even so according to figures from a forthcoming OECD report, entitled Communications Outlook for 2005, Ireland has fewer than three broadband subscribers per 100 people, compared with 24 in Korea, 17 in Denmark, 12 in the US and seven in the UK. ComReg’s quarterly analysis (based on Amarach’s figures) found that 6pc of those with home internet access use DSL, up 2pc from the same quarter last year.

Peter Weigl, a German citizen living and working in Co Mayo, is an outspoken critic of the pace of regulation in the Irish communications marketplace and is a prime example of consumer activism through his website, Comwreck.com. Quoting an EU 15 country league table, Weigl estimates that Ireland currently has a broadband penetration (subscriptions per 100 inhabitants) of 1.59, compared to the EU average of 7.22.

“The price for LLU in Ireland is the second highest in the EU,” Weigl laments. “Ancillary prices charged by Eircom are resulting in slow take up by other operators. Esat BT received €11m from the Government as part of a public private partnership but ancillary charges for accessing a mere 40 exchanges swallowed that money up.” Referring to ambitious plans by providers such as Leap and Smart Telecom, Weigl says: “There are so many steps but there is still hope. If Smart concentrates on the main exchanges it will get a lot of customers.”
Weigl compares the situation in Ireland with an average 512Kbps connection and an overall cost for the year (including line rental) of €228.67, with the typical German customer who will pay €82.60 per annum for 3Mbps uncapped. “If things stay the way they are now we will definitely reach a plateau because the consumer isn’t being invigorated,” Weigl adds.

Esat BT CEO Bill Murphy warns that the Government’s 500,000 target may not be reached due to the ongoing slow rate of LLU, which is preventing his company from offering broadband countrywide and from enhancing services. He also believes Eircom is missing out on a big opportunity by failing to grasp wholesale opportunities. “We are not on path to reach 500,000 and ComReg needs to do much more,” Murphy says, reminding both ComReg and Eircom that, when it happens, change is good for the market. “Last year we had only 5,000 broadband customers. As of 31 December, we had 30,000 broadband customers out of a total customer base of 100,000.”

Smart Telecom boss Oisín Fanning, however, appears to have faith in Eircom’s ability to enable LLU. “If done right it is possible to unbundle the local loop. By June we could reach one million households with our product. Since revealing our plans for 2Mbps services in one week alone we had 1,600 people sign up in advance for our service. If the pricing is right people will come. For every exchange there will be massive costs. However, we’ve raised the money to pay rent, heat and electricity 12 months in advance for these exchanges. In total we will be targeting 62 exchanges covering 1.2 million lines over the next six months.”

By John Kennedy