Smart Telecom plans to offer its own broadband service to customers in direct competition to Eircom and Esat BT, which should stimulate more competition in the Republic.
The firm, which is currently seeking funding worth up to €20 million, has signed a deal with Eircom that will enable it to install its own equipment at 50 local telephone exchanges to supply a range of broadband internet and telephone services.
This agreement will enable Smart Telecom to become only the second telecoms operator in the Republic to undertake a process known as "local loop unbundling" - where rivals gain access to Eircom's network in order to offer their own services.
Esat BT is the only other telecom to install equipment at Eircom's local telephone exchanges. It has "unbundled" 40 telephone exchanges throughout the State and supplies its own broadband DSL (digital subscriber line) services to customers.
DSL technology upgrades a standard copper telephone line that runs from a customer's house or business to a local exchange. This upgrade enables the line to carry internet traffic at speeds many times faster than a standard telephone connection.
"What this means for customers is that, once Smart Telecom has unbundled a customer's line, we will be able to offer that customer a complete range of new products and services at prices that we determine," says Mr Oisin Fanning, Smart Telecom's chief executive. "This will free us from the handcuffs of being tied to Eircom's network."
Smart Telecom estimates the cost of unbundling lines at the 50 main Eircom phone exchanges will cost up to €100 million over four years. This would cover the cost of installing equipment at the exchanges, paying Eircom for use of its lines and subsidising broadband modems for users.
The huge cost of "unbundling the local loop" has acted as a major disincentive in Ireland and abroad for telecoms firms to promote this type of infrastructure competition. A report by telecoms consultancy Ovum last year concluded the process in Europe had been a failure with just 3 per cent of DSL services using unbundled phone lines.
In the Republic, until now, Eircom's rivals have supplied most of their customer's with a repackaged version of Eircom's broadband service, i-stream.
About 10,000 of Esat's 12,000 broadband customers are using a wholesale product rented from Eircom every month. The other DSL broadband providers: UTV, NetSource, Digiweb and Leap Broadband are all offering a " bitstream" version of Eircom's DSL.
Mr Peter Evans, a director at Esat BT, says it is more efficient to provide residential customers with Eircom's existing service, known as a "bitstream DSL service", rather than unbundling the local loop. Esat has only unbundled specific lines to enable it to provide some corporate users with their specially tailored services, he says.
Eircom's bitstream offering is available wholesale at a price of €20.10 per month and the wholesale LLU [local loop unbundling\] price is €16.81. So for an extra €3 firms are getting access to all the Eircom product so hence no-one is taking up LLU."
Testing lines and connecting customers incurs extra charges levied by Eircom making unbundling an even more expensive and time-consuming project.
Mr Fanning says that the cost of accessing the local loop in the Republic is at the top end of the scale in Europe but, to provide true broadband to customers at speeds of up to two megabytes into homes and several kilometres from exchanges, the network must be unbundled.
"This will remove Eircom's stranglehold on infrastructure and will enable us to introduce innovative products such as free calls between Smart customers."
But Smart Telecom is hopeful that the current review of local loop access prices by the Commission for Communications Regulation (ComReg) will force Eircom's charges down.
ComReg is due to issue a decision on a range of access charges that Eircom's rivals will have to pay to unbundle the local loop to offer their own specific broadband services. An earlier decision by ComReg to set a monthly access price at €14.67 provoked a court challenge from Eircom, which was eventually settled in favour of the current review and an interim price of €16.81
The upcoming decision on the access price is likely to prove hugely controversial and Eircom's US consultant, Criterion Economics, has expressed discontent with ComReg's model for setting the price.
Mr Hal Singer, a consultant with Criterion, told The Irish Times yesterday that ComReg was choosing an econometric model to get the lowest possible access price with little economic justification.
Criterion has submitted its response to ComReg's proposed econometric model on access prices and further court action from Eircom is a distinct possibility when a ruling is made.
But rival firms and some telecoms experts argue that the high cost of unbundling is a deterrent that needs to be addressed.
"Unbundling is the best hope for broadband because introducing competition will introduce differentiation of services," says Mr John Gunnigan, a consultant with Dotecon.
But there needs to be sufficient gap between the unbundling price and the bitstream price to incentivise firms to unbundle, says Mr Gunnigan.
With a decision on the wholesale price for local loop unbundling due from ComReg shortly, firms such as Smart Telecom will hope it will offer them greater incentive to invest in unbundling. But ComReg can expect Eircom to scrutinise the pricing closely.
