Crossing Ireland’s digital divide

21 Jun 2007

The new Home Computing Initiative (HCI) promises to fix Ireland’s static PC penetration, making it easier for workers and citizens to buy computers. But will the lack of a tax incentive cause it to lose steam?

Ireland is the sick man of Europe when it comes to the number of PCs in our homes.

This is hard to believe when one third of all PCs sold in Europe are manufactured in this country, according to ICT Ireland figures.

The Central Statistics Office estimates that 58.5pc of all households in Ireland had a home computer in 2006, up from 55pc in 2005. But this remains poor when compared with countries like Sweden and Denmark, where PC penetration has reached 82pc and 84pc respectively.

It is hard to pinpoint a root cause as to why exactly a highly educated and cash-rich country like Ireland with one of the largest tech industry concentrations in Europe is performing so poorly.

But in other countries tax incentives appear to be the trigger that spurred massive growth in home computing adoption, resulting in economic, educational and flexible working advantages for students and workers.

PC penetration was boosted in Sweden when its Government pioneered a tax-free employee PC scheme in 1997, resulting in an increase in PC penetration from 40pc to 80pc.

In Italy, the Government implemented a student PC scheme where a €100 voucher for basic computing skills courses accompanied €175 grant towards buying a computer.

In the UK a home computing initiative with tax breaks added over 500,000 additional PC-enabled homes. It was scrapped, however, in March after it emerged some individuals were found abusing the system to buy LCD TVs while availing of tax breaks.

In Ireland, industry lobby groups ranging from chambers of commerce to IBEC and even an Oireachtas Committee on Communications have recommended tax incentives or at least exemption from benefit-in-kind (BIK) to spur growth.

After years of lobbying, a compromise has been reached. The Home Computing Initiative (HCI) will not employ tax incentives but, with the Taoiseach’s blessing, will allow businesses and such organisations as the credit unions to band together to buy computers in bulk and avail of substantial discounts.

The HCI is the brainchild of groups like ICT Ireland and individuals like Colin McHale of Intel and Tim Willoughby of the Local Government Computer Service Board (LGCSB).

Employers, community groups and financial institutions will then allow workers and citizens and particularly those perceived as on the other side of the digital divide – students, the unemployed and the elderly – to buy a top-of-the-range PC and pay it off on a monthly basis.

AIB is planning to roll out the scheme to its 24,000 employees while Ireland’s largest credit union, the Garda Credit Union St Raphael’s, will promote the scheme to its 32,000 members. The Government has promised to help the HCI by using its influential reach into diverse community groups as well as the public sector workforce to promote the scheme.

Cathal O’Connor, head of asset finance at AIB Corporate Banking Ireland, estimates that if 20pc of Ireland’s private sector workforce signed up for the scheme it would unlock €140m in revenue to the local computer industry. If just 10pc of civil servants went for the scheme, a further €70m in revenue would be released.

O’Connor is adamant that for the scheme to succeed it would need to be promoted extensively, otherwise it will lose steam. “Employers should look at the scheme as a way of providing a benefit to employees. We will be looking at getting together a brochure with a number of different competitive bundles.

“It is fantastic that there’s finally a scheme in place and that organisations like Intel and the Department of Taoiseach support it. We needed a starting point and the next three to six months will tell if this is workable and creates the sea change that Government is looking for.

“However, the next six months will also reveal whether or not a tax incentive is required. If take-up isn’t significant, the Government won’t get that sea change.”

O’Connor said seasoned intermediary groups such as Axia and OneCall Technologies that have gained experience rolling out these schemes in the UK are now entering the Irish market. These groups arrange the necessary finance and co-ordinate the scheme for organisations.

Noel Lynch, managing director of OneCall, explained: “We’ve set up an Irish operation and expect to be fully operational in September. The value of the whole scheme is that it’s very simple. People make the decision, we can explain the paperwork and make it easier for employees to enter.

“Deductions from workers’ salary on a monthly basis make it comfortable for them, plus the knowledge their employer is behind them adds that extra comfort.”

Lynch agrees that the absence of a tax incentive like the UK might be an issue. “Really the tax incentives allowed us to open the door and chat with human resources departments. The reality of the situation is the simplicity of helping people get PCs. The fact that people could buy them through their salary was the driver rather than the tax credit. But the incentive helped too.”

Based on buyer experiences in the UK, 60pc of citizens and workers who took up the scheme opted for notebook computers. “Of these, 85pc went for the highest-specification device, while only 4pc chose entry-level models,” said Lynch.

Intel has been instrumental in HCI-type schemes in more than 50 countries.

McHale, Intel’s country manager for sales and marketing, believes the scheme could work successfully in the absence of a tax incentive.

“When we studied it, only one third of those countries had a tax incentive and the other two thirds turned out as successful initiatives even without the incentives.

“Based on the average success of these schemes, I estimate the HCI could see a 5-6pc increase in the Irish market and that will help the country catch up on the European average within three years,” said McHale.

LGCSB’s Willoughby said that while the employee benefit aspects of the scheme are obvious, the real winner, it is envisaged, will be the disenfranchised in Irish society. “That’s where the Government will come in, helping to use its access to aggregated groups like the elderly and through social partnerships. These are the groups that typically the computer industry can’t reach.”

Willoughby and McHale say they are having direct conversations with groups like the Irish League of Credit Unions to get them to endorse the HCI.

HP Ireland general manager Martin Murphy agrees that the scheme needs to be seen as more than just helping employees alone buy computers. “It’s vital we cross the digital divide on this one. We need to ensure that people on the margin like the elderly and the unemployed have equal access to the equipment as someone working for a reasonable employer.”

But he still thinks the spectre of tax incentives will return. “HCI is great to see and it’s a good starting point in the debate but a lot more will need to be done to drive up PC penetration in the home, in schools and communities around Ireland.”

Kathryn Raleigh, director of IBEC-based ICT Ireland, agrees: “I would never say never but from my understanding it is not going to happen in the near future. That said, we’re not going to give up on the need for a tax incentive.

“But in the spirit of the scheme a tax credit is only beneficial to those in employment and so they have to make it beneficial to others too, particularly the e-excluded, people who are retired and students not working yet,” said Raleigh.

Case study: the thin blue line

With 32,000 members, over €350m in assets and a lending payload of €145m in the past few years, the Garda Credit Union St Raphael’s will be the earliest adopter of the Home Computing Initiative (HCI).

The manager of St Raphael’s, Oliver Harrington, says only this week the company has struck a deal with UK intermediary OneCall to offer computer purchase deals to its members.

“The membership is a mix of young and old. As well as the garda force, every member of a garda’s family is entitled to join. We’re going to offer a number of packages aimed at the beginner, the person that thinks they’re a wizard and the expert.

“We intend to launch the service in the first week of September when people are going back to school or on holiday. They will apply for a loan with 4.5pc interest and we’ll give it to them over three years. It’s cheap money to buy a good computer and the Government backs it.

“I would say that if we had a take-up of 1,000 – bear in mind our age profile – it would be very successful. We’re willing to give time for the confidence to grow in the product.”

Harrington says that because of St Raphael’s size it is used as a template by the Financial Regulator for other credit unions to follow.

“In August we will be introducing a sort code for easy transfer of money from one institute to another and we will also be introducing ATM cards.

“This is driven by the competitive landscape in Ireland’s financial world. Bank of Scotland has brought in more competition and because loyalty is only as good as the services you offer, services like HCI will matter,” says Harrington.

By John Kennedy

Pictured – Oliver Harrington, manager of Garda Credit Union St Raphael’s