National Broadband Plan B: Is semi-State intervention viable?

5 Nov 20181.36k Views

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There is speculation that the tangled web that is the National Broadband Plan could be saved if various players, from ESB to Aurora, are invited to the table, writes John Kennedy.

Any minute, any hour, any day now, auditor Peter Smyth will report to An Taoiseach Leo Varadkar, TD, and the future of the troubled National Broadband Plan (NBP) will be decided.

But first, a lesson from history: in the early 1980s, one of the most coveted things to have in Ireland was a working phone line. It feels like a long time ago but is eerily reminiscent of the situation today where, in rural Ireland, a broadband connection is the thing to crave. Back in 1984, or thereabouts, there was a waiting list of 16 months and, unless you knew a politician, the chances of getting a phone line were very slim.

Telecom Éireann (now Eir) emerged from the former P&T (Aire Puist agus Telegrafa), which was an amalgam of the post office and the telecoms network in Ireland, and was instructed by the Government of the day to eradicate that waiting list within four years. Within four years, every home that wanted a phone had one, and the State-owned Telecom Éireann was still profitable, despite the expensive exercise.

“Did you know that the first pay-as-you-go mobile service in the world was Eircell?” recalled University of Limerick economics lecturer Dr Dónal Palcic, an expert on the matter of privatisation. “That just shows you how innovative our semi-States could be when they wanted to be.”

Palcic, like myself, has been a witness to the jigs and reels and the tangled web that has been Irish telecoms since the fateful (some would say fatal) decision to make Telecom Éireann (rebranded for IPO purposes in 1999 as Eircom) a private business on the public markets.

Prior to IPO, it was a profitable company with zero debts and employed 15,000 people. 19 years, several owners and a near-bankruptcy later, Eir is now in new hands, those of Xavier Niel’s NJJ alongside Iliad, a European telecoms player. Because it is a telco consortium rather than a venture capital firm that owns a majority stake, things are finally looking up for Eir. Led by the very capable Carolan Lennon as CEO, Eir plans to have 1.9m premises passed by fibre by the end of this year and 330,000 rural premises next year. It is even creating jobs, with plans to bring 750 customer service staff in-house.

But what might have happened if things had been done differently?

“The roots of the issues we face today can be traced all the way back to the decision to fully privatise Telecom Éireann,” Palcic told Siliconrepublic.com. “It is now almost 20 years since the Government decided to float its entire stake in the company on the stock market in July 1999.

“Ireland was unique in this regard, with every other European country selling off their incumbent telecoms operators in stages. The decision to relinquish all control over the future direction of the telecoms network meant that the Government was powerless to prevent the sale of Eircell to Vodafone in 2001 but, more critically, the two highly leveraged buyouts of the remaining fixed-line business in 2001 and 2006. It is the latter two buyouts and the ‘short-termist’ strategies (which largely focused on cash extraction) that were pursued by the two private equity groups that owned Eircom in the 2000s, that have been the biggest blow to investment in the fixed-line network since privatisation.

“The Government’s response to the market failure that emerged in relation to rural broadband infrastructure over the past two decades has been limited and has contributed to the situation we find ourselves in today.”

State-owned enterprises as white knights

As we await Smyth’s report, there is speculation that semi-State bodies such as the ESB as well as Aurora Telecom (part of Ervia Group), a dark-fibre player created in 2000 to use the natural gas network’s ducting, could be crucial to the Irish Government’s Plan B if the NBP in its present form is not deemed fit for purpose.

Last week, I urged policymakers to be creative if there was going to be a plan B for the NBP. I pointed out how regional wireless ISPs were cut out of the NBP, but could still play a vital role if their wireless networks were linked with existing fibre networks.

For Palcic, even the most creative policies face hurdles. “Notwithstanding the difficulties surrounding the cancellation of the current NBP procurement process, if the Government were to direct the ESB to carry out the investment, there would be obvious State aid issues were it to subsidise any of the required investment from Exchequer funds. If no Exchequer funds are provided to the ESB, it would represent a major financial burden for the company to undertake all of the necessary investment itself, particularly given the uncertain return on this investment going forward.

“While the cost of this investment could be significantly reduced if the ESB was able to utilise other State-owned infrastructure and if the civil works programmes of every State-owned company and local authority could be coordinated, there is currently no agency or body with such a degree of oversight to ensure that this could happen.”

But nothing is impossible either. “The suggestion that a confederation of semi-States be handed the task is effectively the same idea as the Broadband 21 company that was mooted in Fine Gael’s NewEra plan from 2010. It might be difficult to achieve an amalgamation of telecoms assets across semi-States in a short space of time but if there was enough political will, we might finally see it happen.”

He said the biggest issue will be financing the roll-out. “One way of helping to deal with this issue would be if the Government was to forgo dividends for a period of time from State-owned enterprise(s) instructed to roll out broadband. This could avoid the need for direct Exchequer subsidies and the State aid issues that would represent. The cash saved by the State-owned enterprise from the forgone dividends could then be directed towards investment in broadband.

“For example, Ervia is still due to pay the Government approximately €500m in dividends over the next few years (arising from the sale of Bord Gáis Energy in 2014). If these dividends (Ervia will pay about €100m per year to the Government in a phased way to avoid Eurostat rules on using privatisation proceeds to help improve the general Government balance) were not paid to the Exchequer and were instead used by Ervia to invest in rural broadband infrastructure, this would not count as direct Exchequer funding of the investment.

“The same idea applies to the ESB, who also pay a significant dividend to the Exchequer every year. Obviously, the Government would need to plug the small hole in its Budget each year if it forgoes such dividends, but this is far more easily done than getting around State aid rules related to Exchequer subsidisation of investment.”

Palcic offers some food for thought and ideas worth considering. Ireland is not without options. And crucial to this is avoiding the mistakes of history.

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Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com