Government has tough call to make as broadband tender enters endgame

Sometime in 2015, Eir ditched a plan to connect 66 regional towns to its new fibre broadband product and switched attention to some 300,000 homes located in more rural, harder-to-reach parts. The homes, which were being lined up for the Government's National Broadband Plan (NBP), had been deemed uncommercial by the State's largest telco. The company said, however, falling input costs and better-than-expected demand had prompted a rethink and a subsequent change to its business plan.

Rivals claim the move was designed to wreck the NBP process and/or railroad them out of the Government’s tender. Removing a third of the homes from the NBP contract, they claim, makes it unworkable as an investment. They also highlight that losing such a valuable contract in its own backyard would be disastrous for Eir as it gears up for a probable flotation in 2018 – hence the company’s hardnosed play.

Eir strongly rejects these assertions, claiming it is investing €200 million in a significant infrastructure project which will replace existing copper wires with fibre cables along 23,000km of Irish roads. It also notes that the 300,000 homes will be connected by the end of 2018 significantly ahead of the NBP schedule.

Either way, the Department of Communications which is overseeing the process has a tough call to make. If it opts to include these 300,000 homes in the scheme, it could run up against EU state aid rules which forbid governments from subsidising an intervention if a private operator is willing to supply the same area on a commercial basis.

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By excluding the 300,000 homes, it is at the mercy of a private operator to deliver broadband and already this year it has been forced to add up to 170,000 homes to the NBP’s provisional intervention area, which currently covers 927,000 homes, because of business plans that failed to materialise.

People are understandably frustrated with the delay in broadband delivery but the department is under considerable pressure to get this process right and the intervention area is the biggest variable in the equation.

Substandard connectivity

A botched process could leave rural parts with substandard connectivity for decades, a scenario that would only accelerate the Dublin-centric nature of our economy.

Equally, if the tender is not legally bullet-proof the Government could find itself dragged through the courts by disgruntled underbidders who are unlikely to lack financial muscle given the various US hedge funds involved.

The three shortlisted operators – Eir, Siro and Enet – are expected to be notified by the department of the finalised intervention footprint in February, ahead of a formal bidding process later in the year. Work on the project is expected to commence in early 2018 with the network due to be ready in 2022, two years later than originally scheduled.

The plan aims to erase the so-called "digital divide" by equipping nearly a million homes across rural Ireland – 40 per cent of the housing stock – with a high-speed network.

While the tender only specifies a minimum download speed of 30 megabits per second (mbps), the winner – or winners – is almost certain to build a fibre-to-the-home network with the potential for speeds of up to 1 gigabit, which is the international gold standard.

This will safeguard against rapid obsolescence, a feature of previous Irish broadband plans.

According to a recent survey by price comparison website Switcher, about a third of Irish broadband connections involved speeds of less than 5mbps, which is not even classified as broadband in the US because of the limited functions that can be conducted.

The survey also revealed the stark divide between urban and rural areas when it came to broadband with Legan in Co Longford officially the slowest area in the State, with average broadband speed of just 2mbps, some 36 times slower than Drimnagh in Dublin 12, the fastest area. The report highlighted a persistent feature of broadband markets here and elsewhere: the difference between what people think they're signing up for and what they're actually getting.

Currently, the advertising guidelines suggest “up to” speeds need only represent what a fraction of subscribers receive, meaning most are getting way less than the number used to advertise the package they buy.

To counteract this, the French advertising standards agency recently banned operators from using the term “up to” when it came to advertising speeds.

Rural homes

With more than 900,000 homes currently earmarked for the Government’s plan, the capital cost of the project is likely to exceed €1 billion with the State’s subsidy still to be determined.

A likely headache will be the final 5-10 per cent of homes, those located in the most out-of-the-way locations. In most of Europe, rural populations live in small villages; not so in Ireland where a legacy of one-off housing and dodgy planning has led to a scattering of houses across the country. In Britain, the government was forced to drop plans to connect the final 5 per cent of homes on cost grounds. It remains to be seen if the Government here gets snagged at the same stage.

The commitment to connecting the entire population opens up a debate about whether broadband should be part of a universal service obligation (USO), in effect putting it on the same footing as essential utilities such as electricity and water. Proponents argue that because people are being pushed online for basic transactions such as banking and utility bills, the lack of basic broadband is discriminatory.

To some extent, the NBP, in guaranteeing broadband to a rural population, is a de facto USO albeit one that is not enshrined in law. A question then remains as to whether giving it a legal status would ensure future investment.