COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 28 Mar 2019

Broadband Service Provision: Discussion (Resumed)

Mr. Mark Griffin (Secretary General, Department of Communications, Climate Action and Environment) called and examined.

Chairman

We are resuming our examination of the 2017 appropriation accounts for the Department of Communications, Climate Action and Environment, Vote 29, and we will deal specifically with matters relating to broadband provision. Following our previous meeting with the Department, we met the following broadband service providers and representative organisations to inform members of the committee in respect of the topic: BT, Eir, Imagine, Enet and the Regional Internet Service Providers Association. Members found it to be a useful exercise and this meeting will provide us with an opportunity to discuss the matter in further detail. I apologise to Mr. Griffin and his colleagues for the late start. Due to the celebrations for St. Patrick's week, the Dáil did met for a week or two and there was a build-up of correspondence, which took a little longer to process. We wanted to address that before we began this part of the meeting.

For context, broadband is an issue under the remit of the Department of Communications, Climate Action and Environment. The topic of the previous meeting was the national children's hospital and we examined the major items of capital expenditure under the Government's capital plan, and broadband is one of the major projects in that regard. Across the board, rather than just in the case of broadband or the children's hospital, the Committee of Public Accounts is examining the processes, procedures, governance and procurement in place in respect of such projects. We have not been impressed to date but that is a matter for another day. The committee has decided that, following our earlier meeting with the broadband provider and today's meeting, we will issue a report on broadband and housing, on which we have held a few meetings, as soon as practicable rather than waiting to include them in our periodic report, which is some months away. As a result of today's meeting, we ask that witnesses revert with any information requested as soon as practicable because we want to complete our involvement in the project as soon as possible.

From the Department of Communications, Climate Action and Environment, we are joined by Mr. Mark Griffin, Secretary General, Mr. Ciarán Ó hÓbáin, Ms Finola Rossi, Mr. Fergal Mulligan, Mr. Patrick Neary and Ms Orla Ryan. We are also joined by Mr. Brendan Ellison from the Department of Public Expenditure and Reform.

I remind members, witnesses and those in the Public Gallery that all mobile phones should be switched off or switched to airplane mode because merely putting them on silent mode can nonetheless interfere with the recording system.

I advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members of the committee are reminded of the provisions under Standing Orders to the effect that the committee shall refrain from inquiring into the merits of a policy or policies of the Government, a Minister or the merits of the objectives of such policies. While we expect witnesses to answer questions put by the committee clearly and with candour, witnesses can and should expect to be treated fairly and with respect and consideration at all times in accordance with the witness protocol.

I understand that Mr. Griffin's opening statement will be short as it follows on from our previous meetings. I invite him to make it now.

Mr. Mark Griffin

I will read my statement quickly. The benefit of the meeting is that it will give the committee the opportunity to follow up on some of the matters we discussed on 6 December and the detailed presentation it had from the telecommunications companies on 14 February, which we have studied. In addition to the colleagues the Chairman mentioned, I am joined by Ms Catherine McGinty, Ms Ciara Kennedy and Mr. Bernie Kiely. We will deal with the national broadband plan, NBP, and I understand that there may be some follow-up questions on the metropolitan area networks, MANs, which we will be in a position to address.

As the Chairman mentioned in his opening remarks, the national broadband plan is a key Government commitment and a core component of Project Ireland 2040. The State intervention under the NBP takes place against the backdrop of significant and rampant transformation of technology and digitalisation, which, in turn, is driving exponential growth in the demand for high-quality, reliable high-speed broadband. Continued commercial investment, in parallel with the progression of the State’s intervention, is important and the recent announcements by industry are welcomed.

Given the pace of developments, it is clear that the NBP network needs to be future proofed and capable of meeting increasing data demands, supporting new ways of working and new technologies. In relation to data demand, it is notable that in quarter 4 of 2018, an average fixed broadband subscriber used 170 GB of data per month, which was a 17% increase on the same quarter in 2017 and more than double the volume of data used when compared with quarter 4 of 2015, when the procurement process for the NBP was commenced, which illustrates the exponential growth in data. I did not include in my written statement one point that is notable when looking back over time, namely, that the last big State intervention we undertook, the national broadband scheme, was in 2008. The maximum download speed under that scheme was 2.3 Mbps. The state aid guidelines under which we ran the procurement process had a minimum download speed of 30 Mbps. As we have indicated in the briefing note we sent to the committee, the Commission subsequently updated its outlook in relation to the future technology needs at an EU level.

Chairman

Which commission?

Mr. Mark Griffin

The European Commission. It updated its perspective on what the future infrastructure requirements should be and stated that by 2025, the infrastructure should be capable of providing a download speed of 100 Mbps, while for schools, businesses and transport hubs, it should be capable of a download speed of 1 GB/s, which is a significant change, even over the past two years.

With the NBP, we are trying to provide the foundation for Ireland to meet Europe's 2025 targets for the creation of a gigabit society. Widespread access to such connectivity, underpinned by a scalable, responsive and reliable digital infrastructure, is fundamental to maintaining and enhancing Ireland’s competitiveness at this critical juncture, and will allow all citizens to embrace digital transformation to innovate, be creative and thrive, resulting in sustainable economic growth and positive social dividends.

Since I last appeared before the committee on 6 December, my Department has continued with the assessment of the final tender, and the Minister updated the Oireachtas on that yesterday. That process is now reaching a conclusion and, as the Minister has indicated, he intends to bring a recommendation to the Government shortly. The technology solution proposed by the bidder is predominantly fibre to the premises, FTTP, which is the same technology being rolled out by commercial companies in urban areas.

While the procurement did not specify the technology to be used, all three bidders proposed similar FTTP solutions. As a result of the choice of fibre technology, the basic NBP wholesale entry product will be 150 Mbps download speed, with speeds of up to 1 GB available to businesses. The FTTP solution ensures additional capacity can be added over time to meet future needs at low incremental cost. The bid involves maximising reuse of existing pole and duct infrastructure across the country. A wireless solution will likely be used for a small percentage of premises which are the most remote and difficult to reach.

The State-owned MANs infrastructure continue to play an important role in the regional telecommunications market. The creation of the MANs as an exclusive fibre network facilitates service providers, large and small, in responding to the ongoing growth in demand for bandwidth capacity. Some 70 service operators are using the MANs infrastructure in connection with the provision of fixed and mobile broadband services to over 1 million citizens and business customers, which include domestic fixed and mobile customers, State entities, educational institutions, SMEs, industrial estates and multinationals. The MANs are an important element of the intervention area solution.

I am accompanied by officials who are experts on the technology issues, have been involved in the procurement process and understand the evolution of the project in recent years. I will be deferring to some of them during the course of the meeting. Rather than me acting as the voice for some of the expertise around the table, I believe the committee will get more value from these experts. Looking back on the meeting of 14 February, there were issues around technology such as would 4G or 5G suffice. We will share the workload to the extent we can.

Chairman

I thank Mr. Griffin. For people watching, the Comptroller and Auditor General is not making an opening statement. He made it at the previous meeting. I call Deputy MacSharry.

Deputy Marc MacSharry

I welcome all of our guests. I support Mr. Griffin’s idea of bringing the relevant officials from various sections in the Department who have the expertise to answer questions which may arise. It is an awful shame that his colleague in the Department of Public Expenditure and Reform did not agree by bringing the chief procurement officer when we wanted to talk to him. Mr. Griffin might have a word with him about his exemplary move in broadening responsibility and extending the principle of subsidiarity to those people who are best placed to answer questions.

Mr. Mark Griffin

I think the Deputy might have got me into trouble.

Deputy Marc MacSharry

Not at all. When the individual to whom I refer goes to the Central Bank, I am sure Mr. Griffin will be the new Secretary General of the Department of Public Expenditure and Reform.

Chairman

The Deputy should not influence that process.

Deputy Marc MacSharry

The committee heard from some of the operators. BT in particular outlined-----

Chairman

For the record, will the Deputy indicate that his remarks about the Central Bank were in jest?

Deputy Marc MacSharry

Yes, they were in jest. I am not on the interview board.

Chairman

I just want to put that on the record just in case someone thought they were serious comments.

Deputy Marc MacSharry

Yes, they were in jest. I do not want to implicate any of my colleagues and I am not on the interview board.

At our meeting with service providers and representative organisations, BT suggested that it had first become aware of the fact that the MANs were prepared to be extended to the 2030 date from Parliamentary Questions Nos. 604 and 607 of 23 May 2017. It highlighted that there was a process and that the Minister was considering extending it. On the basis of that, BT wrote to express its interest in participating in that process and to formally register its interest as a bidder. In correspondence, Mr. Brendan Whelan, a principal officer, wrote back on 4 August - the original letter was dated 15 June and the parliamentary questions were tabled in May - stating that it had effectively already extended this, that it was within its rights to extend it and that it was a case of "Thanks anyway". BT further wrote back indicating that it was very disappointed with this and that it might have to go to the European Commission with some of its concerns on the matter.

Was there a parliamentary question from which BT could reasonably have been led to believe that a process was going to commence in which it could register its interest as a bidder? As it alleged that the decision had already been made at the date of the response being given to the parliamentary question in the Dáil, it would not seem transparent if the Minister was going to commence a process, or consider a process, when at that time the extension had already been granted. That is the implication of the correspondence from Mr. Brendan Whelan on the Department’s side and from Mr. John O’Dwyer on the BT side.

Mr. Mark Griffin

The Deputy can cut me off if I am saying things he does not want to hear because I know he only has 20 minutes.

Deputy Marc MacSharry

That is not my style as Mr. Griffin knows.

Mr. Mark Griffin

I know it is not. If I look at the parliamentary question, to which the Deputy referred, there is a line in it which states, "I recently finalised decisions relating to the management of the MANs to provide that the current concession agreements co-terminate in 2030, in line with the relevant contractual provisions." Effectively, the Minister stated that the decision had been taken to extend, as was provided for in the concession agreement. As the Deputy knows, the concession agreement provided for an initial term of 15 years, extendable by a further ten years in the case of both lots of MANs, one which was commissioned in 2004 and the second which was commissioned in 2009. Effectively, the termination date for the first was 2020 and the second was 2024.

We carried out a review and, as the Deputy will have heard me say back in December, the conclusion was that it was preferable for the State for a number of reasons that it would extend rather than retender. That review was based on our internal analysis and it was supplemented by a report we commissioned from Norcontel which further reinforced the preliminary view to which we had come.

There was a consultation earlier in regard to how effective the MANs were, whether it was delivering services in rural Ireland in the manner which had been hoped and whether it was achieving the objectives in terms of providing service to the 70 or so service operators which use the MANs. We consulted with several parties. We did not consult the 70 or so but we consulted BT as part of that consultation process. The view back from the process was that the MANs were performing, that they were working well as a concession agreement and that the State should not sell them, one of the options put on the table.

We had gone through an extensive process to consider the provision in the concession agreement which was whether to extend by a further ten years as provided for. In the interests of transparency, it probably would have been preferable if at the time we had issued a press release to say we had done this. The individual service operators would have understood it by virtue of their interaction with MANs as the concessionaire. On reflection, it probably would have been preferable if, in May 2017 or a little bit earlier when we had concluded the decision-making process, we had issued a press release. There was no good reason we did not do so but, on reflection, it would have been a sensible thing to do at that time to bring clarity to the wider stakeholder group.

Deputy Marc MacSharry

Basically, we had the contract in place and it provided for an extension for ten years in respect of both.

We considered it internally. We got a report from Norcontel that seemed to affirm the Department's assumption that the best thing to do was extend with the current provider, which could be done contractually.

Mr. Mark Griffin

Yes, but it was a very comprehensive review.

Deputy Marc MacSharry

From a pricing perspective, would it have been prudent to consult the market?

Mr. Mark Griffin

Is that in terms of extend or retender?

Deputy Marc MacSharry

Yes.

Mr. Mark Griffin

I do not think so because we had done a lot of due diligence ourselves. In effect we did consult the market as such because we procured by way of a competitive process a company which is very well recognised in the field and would have had a good understanding of the market. It looked at the market.

Deputy Marc MacSharry

This is Norcontel.

Mr. Mark Griffin

Norcontel, yes. It would have had a very good understanding of the market and would have looked at market conditions in detail. It would have looked at the state of evolution of the fibre market at that time. It would have looked at developments in the private sector and a range of other things that were on the telecoms landscape in Ireland at that time, and it would have factored that into its analysis. Indirectly, therefore, we consulted the market. We consulted earlier on its perspective on the MANs as a piece of State infrastructure.

Deputy Marc MacSharry

Would ComReg have had a role in that at all?

Mr. Mark Griffin

No. ComReg does not regulate the MANs.

Deputy Marc MacSharry

I understand that, but because of its expertise as a regulator, can the Department consult ComReg to seek its opinion as to whether it believes the Department is going in the right direction? Is it on the list of parties to be consulted for things like this?

Mr. Mark Griffin

We did not, to the best of my knowledge, consult ComReg on that particular issue.

Deputy Marc MacSharry

Okay.

Mr. Mark Griffin

I suppose on one level ComReg would probably see the MANs as a kind of niche market. Its major regulatory powers relate to those that have significant power, which is primarily Eir. It regulates some of the products that BT offers as well, but it does not regulate MANs because MANs are a specialist niche-----

Deputy Marc MacSharry

I know it does not regulate it, but it would obviously have expertise there. Does the Comptroller and Auditor General have a view on whether something like this should have been tendered for the extension?

Mr. Seamus McCarthy

It is really a matter for the Department if it provides the initial competition for an extension and if it does sufficient research to establish that there is value for money to be obtained there.

Deputy Marc MacSharry

Was Norcontel specifically asked if we should extend with the current operator? Was that the focus of the report?

Mr. Mark Griffin

The main focus of the report was on extend or retender.

Deputy Marc MacSharry

Okay. Could we have that?

Mr. Mark Griffin

I think we have given it to the Committee of Public Accounts secretariat.

Deputy Marc MacSharry

We have it already. All right. The BT letter to us states:

A key point we would like to make not addressed in the Analysys Mason report is that the European Commission State Aid Approval precluded the MSE (Managed Service Entity running the MANSs) from being owned or controlled by an authorised electronic communications operator. This approach was adopted so that the provider of the MANs had the function of infrastructure provider to assist competition in the market rather than to directly compete with the market, which is what has happened.

Mr. Mark Griffin

I will ask Mr. Ó hÓbáin to take that.

Mr. Ciarán Ó hÓbáin

It is in the nature of a state aid decision that the European Commission will repeat back to the member state what that member state is proposing to do so that there is clarity around what it is agreeing to. The decision that was taken in seeking an MSE was that existing operators were precluded from that competition. The ambition was to get a new operator into the market in Ireland to strengthen competition and introduce more competition into the market.

Any operator or anybody providing electronic communications services in Ireland must be an authorised communications operator and must register with ComReg as such. The only fair interpretation of this paragraph is that it is a statement that, at the outset of this process when seeking an MSE, the entity that would come forward to be an MSE could not at that time be an operator, but once it became an MSE, it could not operate the MANs without being an operator and it would so register with ComReg. That is how that should be interpreted and I am not quite sure what BT's analysis around it would be because no entity could operate the MANs without being registered with ComReg.

Deputy Marc MacSharry

Is the Department happy that what is taking place is perfectly legal and appropriate?

Mr. Ciarán Ó hÓbáin

It could not be otherwise.

Mr. Mark Griffin

We notified the Commission as well when the decision was taken of our intention to execute the extension in accordance with the concession agreement and we would have had prior discussions as well.

Deputy Marc MacSharry

Am I reading it right that we paid it €1.2 million per year in fees?

Mr. Mark Griffin

We paid €1.2 million per annum for the phase 2 MANs. If the Deputy looks at the list of MANs, there are some that are more commercial. I think we have circulated the list previously to the Committee of Public Accounts secretariat. I have a copy, myself. The MANs were broken into phase 1 and phase 2. Phase 1 covers more commercial areas where it was more likely that the MSE would be in a position to commercialise the business on the phase 1 MANs. The phase 2 MANs, which were a further 60, were in areas that were deemed to be far less commercial. For example - I will put my hands on the list in a minute - one of the last MANs on the phase 2 list was lit recently and that was in Knock. It kind of gives the Deputy an idea of the scale of location being dealt with in phase 2. There was a payment made for phase 2 of €1.2 million per annum.

Deputy Marc MacSharry

What does that cover?

Mr. Mark Griffin

It is in recognition of the difficulties in managing and attracting business, maintaining the service while still not having a large cohort of clients on the network. Interestingly enough, as part of our renegotiation of the contract-----

Deputy Marc MacSharry

For the extension.

Mr. Mark Griffin

----- for the extension, we eliminated that. That is gone.

Deputy Marc MacSharry

Therefore, we do not pay €1.2 million a year.

Mr. Mark Griffin

No, and we have not paid it since the middle of 2018.

Deputy Marc MacSharry

There is mention of care and maintenance.

Mr. Mark Griffin

Yes, vouched costs for works that would have been done by the management service entity on the MANs.

Deputy Marc MacSharry

We were paying €1.2 million a year to keep things going. We have now negotiated that we pay no annual fee.

Mr. Mark Griffin

Absolutely. We are not paying an annual fee. There is no fee. We are not paying a fee.

Deputy Marc MacSharry

It is there now at no cost to us. Does the care and maintenance aspect mean that in the event of a problem in Knock and something has to be fixed, it can bill that back to the Department?

Ms Fionola Rossi

Yes. As part of the contractual conditions, vouched care maintenance costs are included.

Deputy Marc MacSharry

Recoverable.

Ms Fionola Rossi

They are recoverable. It is the State that owns the asset, so that is one means by which we ensure the asset is maintained in good condition. The payments would not be of high order. There would be, I think, about €10 million on the MANs. There are on phase 2 again, in recognition of the difficult circumstances surrounding those 66 smaller towns covered in the MANs, whereas phase 1 had-----

Deputy Marc MacSharry

Twenty eight.

Ms Fionola Rossi

-----Cork, Waterford and the bigger-----

Deputy Marc MacSharry

Are there statistics on the uptake? Obviously Knock has much less commercial activity than Cork. While the witnesses do not need to give them to me now because it will only hold us up, if there were statistics available of-----

Mr. Mark Griffin

We can get the Deputy statistics in terms of uptake.

It is notable looking at the phase 1 MANs, for example, and the rationale for making a payment for the phase 2 element. We are talking about locations such as Cork that have 44 operators using the MANs; Galway, 34; Kilkenny, 21; Letterkenny, 19; Limerick, 42; and Drogheda 18. We can circulate these numbers. They are all in the high teens.

Deputy Marc MacSharry

These numbers relate to commercial customers.

Mr. Mark Griffin

They relate to commercial operators. With the phase 2 element, only three are in double digits. One is Carrigaline-Passage West-Ringaskiddy, which has 20 operators, and Killarney, County Kerry, has 16 operators. Tralee has 21 operators and Navan has 14 operators. All the rest are in single digits, reflecting the difficulty around securing an uptake in usage in the phase 2 MANs, at least in the early years.

Deputy Marc MacSharry

They are smaller towns.

Mr. Mark Griffin

Yes. As indicated by the Analysys Mason report, there is also much greater competition now from Eir in many, if not all, of these towns.

Deputy Marc MacSharry

According to the opening statement, the cost of the NBP to date, taking in 2013 to March this year, was €25.4 million. Was that figure audited?

Mr. Mark Griffin

The expenditure by the Department in the normal course is audited by the Comptroller and Auditor General as part of the appropriation accounts. I cannot comment on the extent to which the deep dive was done on the individual budget lines by the Comptroller and Auditor General. It is important to say all of this was done by way of public procurement. We have extended the contracts on one or two occasions in line with public procurement rules but we extended them on the basis of the original rates proposed in 2014. That is of significant advantage to the Department.

The other important element on which to comment is the extent of internal management within the Department in governing those costs. Much rigour is applied by colleagues sitting around the table here and by a big team we have in the Department to manage the budget, time sheets, requests for additional work, formal change control procedures and approvals of the quality of work delivered by the various consultancy teams. I am happy the necessary due diligence within the Department is being done, given the levels of expenditure involved. All the invoices are carefully scrutinised by the team and we require detailed narrative work to be carried out, including billable hours and all of that. There is much rigour in place in the Department.

Deputy Marc MacSharry

Has the Comptroller and Auditor General done a body of work on the €25 million spent, specifically relating to value for money?

Mr. Seamus McCarthy

No, we have not done anything specific to value for money.

Deputy Marc MacSharry

It might be worth considering. It is just a suggestion.

Mr. Mark Griffin

One of the important elements, as mentioned by the Deputy and his colleagues on the committee on many occasions, is the public procurement process governing the value-for-money aspect. We went through public procurement and although it has been extended, we got legal advice on our authority to do it. We have particularly put the squeeze on the consultants at each stage and one of the big benefits for us is the level of control we expect in terms of what they will deliver. We are also working off 2014 rates and if anybody knows the consultancy business, the rates over the past number of years have gone through the roof. That is helpful. Nobody likes spending €25 million but it is a big project.

Deputy Marc MacSharry

What is the cost of a consultant per day, for example?

Mr. Mark Griffin

It depends on the activity.

Deputy Marc MacSharry

Let us say it is on the technical side of telecommunications.

Mr. Mark Griffin

I do not know if I have a figure but I do not know if one would get much returned from €1,000 per day.

Deputy Marc MacSharry

Okay.

Mr. Patrick Neary

It ranges from approximately €750 to approximately €1,800.

Deputy Marc MacSharry

That is per day.

Mr. Patrick Neary

Yes.

Deputy Marc MacSharry

It would depend on the complexity and detail involved.

Mr. Patrick Neary

Yes.

Deputy Marc MacSharry

We should all have studied harder.

Mr. Mark Griffin

Public service keeps us going.

Deputy Marc MacSharry

Indeed. On 27 February, the Taoiseach said in the Dáil that the cost of the national broadband scheme would be "many multiples" of what was originally anticipated. He indicated, as Mr. Griffin did in his opening statement, that he expected the decision would be made before Easter. The original indication in 2012 was that €355 million to €512 million would be the spread of anticipated expenditure. That was to connect 800,000 homes and premises generally. The Taoiseach has indicated it will be many multiples of those costs and we are now talking about 540,000 homes and premises. Will Mr. Griffin shed some light on that?

Mr. Mark Griffin

I can make a few comments on it and ask Mr. Mulligan to come in and deal with some of the more granular aspects. He has been grappling with this at the coalface for the past three years. The initial cost estimate cited of €355 million to €512 million was for a scheme of much narrower scope. That scheme was announced in 2014 by the then Minister, former Deputy Pat Rabbitte, and it primarily took in providing fibre backhaul to approximately 1,100 areas, primarily villages, in rural Ireland, with the assumption being that the commercial sector would deal with what we termed the last mile. That is a loose term as the distance could be much further or less than a mile. It was a different scope and it was predominantly focused on fibre backhaul to these 1,100 locations. It did not make provision for connection costs to individual premises.

As our own intervention strategy developed and we did further work on this, and again in consultation with the market, the view was that the scheme was not fit for purpose. It was felt that a scheme that would provide a connection to individual premises in rural Ireland was absolutely critical. I will not get into the cost estimates, if the Deputy allows me that latitude, because we are still in the procurement process. The first cost estimate that was based on a high-level desktop analysis and it was a higher figure than the €355 million to €512 million estimate that was mooted.

There is another aspect and the Deputy might have heard reports from the National Transport Authority, NTA, in the media this morning. We are talking about a bespoke project. It is not like a road, where one could say a project would cost €10 million to €12 million per kilometre or a school where we might know the specification is for a particular size or number of classrooms. This is a project which had no national comparators until Eir did its 300,000 premises, and there were very few international comparators. As the chairman of the NTA said before a committee yesterday, it would not be able to put a cost on MetroLink until the final design is completed, and we have had the same experience.

We have used the competitive dialogue process as it allows us to engage directly with bidding parties. It is used where projects are particularly complex and the target solution is not known at the outset. It allows engagement with these parties' understanding of what the requirements are, as well as their market knowledge and experience of projects both nationally and internationally. The cost framework has been complicated to an extent by Eir's 300,000 premises taking a chunk of homes from the intervention area but as part of that evolutionary process, our understanding of the likely subsidy levels, the technology, construction and operation costs, demand, revenue projection, risks and so on all evolve. We are now satisfied that we know the figure.

We have constantly updated our models. Will I let the expert who is in the bowels of this-----

Deputy Marc MacSharry

I am almost out of time and I have two final questions. During the questioning Mr. Griffin can tease out what he is going to say. My final question arises from the debacle of the national children's hospital. Would he be prepared to give a ballpark figure for how many multiples the Taoiseach might have been talking about, notwithstanding that he cannot give us details of the tender or the like? A ballpark figure to the nearest couple of hundred million of euro might give us an indication.

Second, taking the example of the national children's hospital, there appears to be a crisis in accountability to the extent that even though Mazars did a report we now need another one from PwC to find out whose fault it was that prices went up exponentially. Where does the buck stop on the NBP? Let us say, hypothetically, somebody is before the committee two years hence and the programme goes over budget by 70%. Will a PwC report be required then or is there a structure in place, given what one hopes is the lesson of the national children's hospital, where Mr. Griffin is in absolute control? Who is the chief executive over this? In the case of the national children's hospital, it appears that neither the Minister, the chairman of the board, the development board, the HSE or anybody else had an executive role. Everybody seems to have been non-executive and there was a blurring of the lines of responsibility. We know the outcome, but we do not know who is responsible. Does the Department have a structure in place whereby if the wheels come off this project it is Mr. Griffin's, John's, Mary's or the Minister's fault?

Mr. Mark Griffin

This process has been run entirely by the Department. We have the leadership role. There is no secondary entity involved at a level below where we can say it is that entity. At some stage in the future I hope to be back before the committee saying how well the project is going, but if there is a problem it will be me as Accounting Officer appearing before the committee to explain why and what we have done.

Deputy Marc MacSharry

Mr. Griffin is taking plenipotentiary responsibility.

Mr. Mark Griffin

It is a Department-sponsored project. The money will come directly from the Department's Vote. We have looked at governance arrangements to be put in place after the contract award and we are still at the early stages of that. The last programme for Government referred to setting up an agency that would pull together the NBP, the MANs, ECAS and perhaps some other State infrastructure of a broadband nature under a single State entity so it could be managed by the right people who have the right commercial skills and can generate maximum value for the State. All of that will require legislation. However, as things stand, the responsibility for this project rests with the Department.

Chairman

Deputy Cullinane has 15 minutes.

Deputy David Cullinane

I welcome Mr. Griffin and his team. Mr. Griffin said that the assessment process of the final tender is nearing completion and that as part of concluding that process, the Minister will then bring a recommendation to the Government. We hope it will recommend that the plan proceeds and contracts are then signed. Are the contracts signed at that stage?

Mr. Mark Griffin

It is a two-step process. The Minister will go to the Government with a recommendation, should the Government be willing to proceed, to appoint a preferred bidder. In the normal course there is a substantial-----

Deputy David Cullinane

A recommendation could be made as part of this process that there is a preferred bidder.

Mr. Mark Griffin

Yes, a preferred bidder to be appointed.

Chairman

It is not at that stage yet even though the Department has only one bidder.

Mr. Mark Griffin

One must go through the process of evaluation of what the bidder has put in. When one looks at the level of due diligence that is required-----

Deputy David Cullinane

Is that process part of the assessment that is being done?

Mr. Mark Griffin

Yes. It is assessment to move us to a point where a recommendation may be made for the appointment of a preferred bidder.

Deputy David Cullinane

A recommendation is made for a preferred bidder and it goes to the Cabinet. Will that then be an indicative cost or an actual cost?

Mr. Mark Griffin

It is an actual cost.

Deputy David Cullinane

Can there be an overrun?

Mr. Mark Griffin

The subsidy is capped. We have looked at a number of scenarios. The scenarios are affected by things such as revenue assumptions, demand take-up, the cost of the build on the ground and so forth. We have set out a number of scenarios - a central case, an optimistic scenario and a pessimistic scenario. All of that will be put to the Government. Once the preferred bidder process has gone to the Government, there is a period of time between the preferred bidder being announced and conclusion of a contract. That can take a number of weeks stretching into-----

Deputy David Cullinane

I understand all of that. Hopefully if a contract is signed it will be on the basis of an actual cost.

Mr. Mark Griffin

Absolutely.

Deputy David Cullinane

Mr. Griffin cannot tell us what the actual cost will be for obvious reasons.

Mr. Mark Griffin

Yes.

Deputy David Cullinane

We will know it at that point. Is Mr. Griffin saying that it will be impossible to go beyond that?

Mr. Mark Griffin

Exactly. The subsidy will be capped.

Deputy David Cullinane

That will be the cost. Is Mr. Griffin confident that the project will go ahead?

Chairman

That is a long pause.

Mr. Mark Griffin

I am confident that the project as presented will deliver on all the Government's objectives. The decision to proceed or not to proceed is a Government decision, so I cannot say any more than that. I am not the ultimate decision-maker on whether the NBP contract-----

Deputy David Cullinane

Who is part of the assessment process? Are the Department and Mr. Griffin part of the assessment process?

Mr. Mark Griffin

Absolutely. Our Minister will bring a recommendation based on the evaluation-----

Deputy David Cullinane

I have a question about the assessment process. Are a number of options contained in the assessment process? Has the Department examined all options, including potentially not proceeding?

Mr. Mark Griffin

The fundamental focus of the work has been on evaluating the bid that has been put to us. In fairness to the Government, it would be important for us to point out the implications of not proceeding. It also would be important to do some assessment of what other options might be available if the Government decided not to proceed.

Deputy David Cullinane

Mr. Griffin might tell us what those alternatives would be. If the Department is doing an assessment, it must examine at all the options.

Mr. Mark Griffin

Yes, including to do nothing.

Deputy David Cullinane

There was a report in the Irish Independent recently on foot of the Taoiseach's appearance before the finance committee. He told that committee that he could not give a guarantee that the project would go ahead until the final contracts were signed, and that he and the Government would await the assessment. As part of that assessment - and the Department is overseeing that work - has the option of not proceeding with the plan been examined and is it one of the options that was contained in the overall assessment that will then go to the Government? Obviously, there will not be a preference for the Government to choose. However, in the assessment process was the option of not proceeding with the plan considered?

Mr. Mark Griffin

The assessment process will have to deal with that. When we get to the point of making a formal submission to the Government the obvious thing is our assessment of the bid we have on the table, the risks associated-----

Deputy David Cullinane

When the assessment process is complete, which Mr. Griffin said is near conclusion, is it possible that it will give a number of options to the Government? I accept it is a matter for the Government. The Government will decide what is the best course of action and ultimately on how to proceed. Regarding the information it will get from the Department on foot of the assessment process, will it have a number of options?

Will it be up to the Government to choose which option is best or will there be clear guidance or a proposition as to how the Department feels the Government should proceed?

Mr. Mark Griffin

The Deputy is bringing me towards territory around what might be said to Cabinet which I am reluctant to stray into as Cabinet confidentially and all the rest of it arises.

Deputy David Cullinane

I am not, in fact, as Cabinet confidentiality is based on the decisions Cabinet makes.

Mr. Mark Griffin

True, but-----

Deputy David Cullinane

I am not asking which recommendations are involved. I am asking if it is possible, to put it a different way, that a number of different options, rather than recommendations as such, will be put to Government which will then decide what to go for or will there be a clear recommendation? Is that a fair way to put it?

Mr. Mark Griffin

It is a matter for the Minister to determine ultimately as the person who brings the memorandum to Government, but our preference is that there will be a clear recommendation on the direction of travel. The memorandum may also provide some indication of other options that would have been considered and-----

Deputy David Cullinane

So it is a clear recommendation.

Mr. Mark Griffin

-----the pros and cons and so on.

Deputy David Cullinane

The cost will be very clear as well.

Mr. Mark Griffin

Absolutely crystal clear.

Deputy David Cullinane

Mr. Griffin also said in his opening remarks that the technology solution was fibre to premises and that it would also involve maximising the use of pole infrastructure. Is it therefore the case that it will not all be underground?

Mr. Mark Griffin

Absolutely.

Deputy David Cullinane

I think the Taoiseach said it was all going to be underground. Can Mr. Griffin clarify for us that it is not the case? What percentage of it will be underground?

Mr. Mark Griffin

I will ask Mr. Neary to talk a bit about the technology.

Deputy David Cullinane

Mr. Neary might have a word with the Taoiseach also.

Mr. Mark Griffin

Mr. Neary is our chief technology officer. We have been doing a great deal of work around the reuse of existing infrastructure, including poles and ducts, in the possession of other entities.

Deputy David Cullinane

I really do not need an indepth response. My questions are whether it is the case that it is not all going to be underground and what percentage of it will be.

Mr. Patrick Neary

Any fibre to premises network will use the existing infrastructure that is in place typically for the existing operators in rural Ireland. The primary operator is Eir which has a vast number of poles and ducts which are available. The vast majority of the Eir network in rural Ireland is overhead and carried on poles. As part of our tender, we have encouraged bidders to use existing infrastructure and it is very likely that any deployment of fibre to homes in rural areas will primarily use the overhead poles for telecommunications infrastructure.

Deputy David Cullinane

The vast majority will be overhead.

Mr. Patrick Neary

Overhead on poles.

Mr. Mark Griffin

If one looks at some of the statistics, some of this will be new build, some will be rental from Eir. I do not think I am breaching any confidences in saying we are talking here about approximately 14,000 km of duct being used and approximately 1.2 million poles. That gives one an idea of the scale of the roll-out. On the maps we circulated with the briefing to the committee, when one looks at the areas we are trying to get to, most if not all are remote and not being served by the commercial sector. There are no plans to have them served by the commercial sector. We will reuse very substantial chunks of existing infrastructure and there will be new build by the bidder also.

Deputy David Cullinane

Before the national broadband plan was conceived, there was discussion as to how to roll it out. Was consideration given to using the ESB's existing infrastructure?

Mr. Mark Griffin

There is nothing to preclude, per se, the use of ESB infrastructure. The rules that apply at both national and EU level require providers of major infrastructure to allow their infrastructure to be used in certain circumstances. The whole thesis of the national broadband plan intervention area is that we reuse as much as we can. In some places, that may involve the reuse of ESB infrastructure. We have approximately 1,000 different deployment areas of approximately 5,000 premises each. When we get to the low-level design for each area, we will discuss with the contractor what is the most economical way to roll out broadband in that particular area.

Deputy David Cullinane

Was it considered at any point that the ESB itself would roll out the plan?

Mr. Mark Griffin

There are difficulties. I hope I am right in answering the question, but if I am not, I will get others to correct me. It will not be the first time it has done so. Under state aid rules, we are obliged to go through a public procurement process, which we did. Indirectly through SIRO, its joint venture with Vodafone, the ESB was one of the original bidders. Its focus was primarily on using its own network and it might well have used existing Eir infrastructure. As such, the ESB was on the pitch. For reasons it set out publicly at a later stage, it decided to withdraw from the process. There has been some public commentary in the media and in the Oireachtas about simply assigning this function to a State undertaking. That cannot be done under state aid or EU procurement rules.

Deputy David Cullinane

I do not want to understate the complexity of the issue. Mr. Griffin is right when he says this is a bespoke and unique project. At the same time, there are very few households in the country that are not connected to the ESB. From a layman's perspective, it would have made sense, given that it will be difficult to create a new layer of infrastructure, to use the ESB. Most observers would say the ESB's bid was not a serious one. That is just an opinion that is offered up by some analysts. Am I oversimplifying matters by saying that if the vast majority, if not all, homes have access to the ESB, there is obviously infrastructure there which it would have made sense to use to ensure broadband could be rolled out to every home and property in the country? The difficulty is that we need to get to that position but are now creating a whole new set of infrastructure which is creating problems. Into the mix also come the 300,000 homes Eir took out of the original plan which has complicated matters even more and potentially rendered the proposition non-viable. That is why we are down, potentially, to one bidder.

Mr. Mark Griffin

I will hand over to Mr. Mulligan but I come back to a basic point first. Under EU state aid rules, one cannot simply assign a contract which may involve significant state aid support to a commercial economic undertaking without a procurement process. We took that step and SIRO withdrew from the process.

Deputy David Cullinane

State aid rules basically prevented us from just allowing the ESB to do it.

Mr. Mark Griffin

Automatically, without assigning it through a procurement process.

Mr. Fergal Mulligan

To clarify that, state aid rules preclude one from making a unilateral decision to use x, y or z. As such, there is still nothing going forward under any solution that prevents anybody from using the ESB. Its door is open as is ours. Eir is regulated and the ESB Networks company has products, etc., available. In the context of the understanding that everyone has an ESB connection, most people also have a copper connection from Eircom. There are two infrastructure networks in place that were traditionally serving very different purposes, namely electricity supply and the old landline phone. Both infrastructures remain in place. In June or July 2016, the bidders started on the road of procurement after they qualified. We have had major engagement with one particular entity since Eircom left. When we had three bidders in the process, we spent over 800 hours in dialogue with each bid team. Between July 2016 and September 2017, when SIRO left, the Vodafone and ESB team involved in the bid spent 150 to 200 hours going through how to use the ESB network. With the Eir bid team, the discussion was on how to use the Eir network. With the other consortium, it was about whatever network they chose to use. Obviously, each bidder had a bias towards its own network.

We learned through all that process whether one could use it, whether it was cost-effective to do so and what represented the best value to the State. As we know, Eircom's pole network goes along the road and the ESB's network goes across country.

We can come to this later but the most important thing in any capital project is to find out first how one designs it. If one chooses a particular design, that will dictate which cable one is going to use to get into the house. If one goes along the road with the Eircom pole network, and one is going up a laneway to a farm, it may not be possible to use the ESB network, if it is coming in behind the farm. One just cannot jump from the road over to the field to get onto the ESB network. It is not quite as simple, technically, as using the ESB connection to the house to do the last mile. These are the issues about which we have had dialogue to find this out. There are some homes that have the ESB network going along the road as well, and if during the build - if the current bidder is successful in getting the bid and is building it - it may have the opportunity to get to that farm using the ESB network, if there is not an Eircom pole network there already. That will be its choice, depending on what is the most cost-effective solution. All of these issues are on the table at the moment.

Deputy David Cullinane

That clarifies the issues perfectly for me. It is a vindication of bringing in the experts to the meeting.

I have one final question for Mr. Griffin on the correspondence we received from BT. It gives a breakdown of the Analysys Mason report, the recommendations that were made and their status as to whether they were implemented or not. Has Mr Griffin read this?

Mr. Mark Griffin

I have not read the BT correspondence but I know the status of the implementation of the various recommendations.

Deputy David Cullinane

We have the recommendations and the status of them from the Department, I believe, and then BT's view. It agrees with very few, where they have been implemented. I refer to a couple of examples. Number two was that Enet should update its assumptions used in preparing the desktop survey. It states that it has no visibility of this activity. Number four states that Enet and the Department of Communications, Climate Action and Environment should discuss price changes for dark fibre sub-duct and duct, which will ensure that wholesale customers will not find it more expensive. It states that it has no visibility on these discussions. It further states that Enet should make single strands of dark fibre available. It notes the introduction of this. Number six states that Enet should document all its discounting schemes to ensure that it offers the same type and level of discounts to all requesting customers. It states that it has no visibility of this documentation. Again, right down through all of these it states that there is no visibility of the evidence of this or of the activity. In a detailed reading of this, we can see that it does not accept that the implementations which it states have been made have actually been made. Can Mr. Griffin respond to these issues or has he given us a response?

Mr. Mark Griffin

I cannot because we have not seen that. In our correspondence we gave an update on the various recommendations. We have not seen the BT response. I am more than happy to commit to a bilateral meeting with BT as soon as possible to go through this with it. If that requires a further trilateral meeting between the Department, BT and Enet, we will organise that very quickly.

Deputy David Cullinane

Perfect.

Chairman

Is Mr. Griffin stating that he has only become aware of this letter since arriving here?

Mr. Mark Griffin

In regard to the BT letter, I have not-----

Chairman

Mr. Griffin has not seen this letter before today's meeting.

Mr. Mark Griffin

Not that letter.

Deputy David Cullinane

Perhaps we can ask the Department to maybe get a response.

Chairman

We got it directly, but Mr. Griffin has not.

Mr. Mark Griffin

We have not seen it.

Chairman

I can understand that Mr. Griffin would have to be given this.

Mr. Mark Griffin

We had an update on the various recommendations. Effectively, we do not have the BT comments. I will give a commitment that we will meet BT to go through this and if a trilateral meeting with BT, ourselves and Enet is required, we will do that quickly.

Chairman

I thank Mr. Griffin.

Deputy David Cullinane

I have one final point. To return to an issue that just occurred to me when Mr. Griffin was dealing with last issue, on the ESB infrastructure, I understand what Mr. Mulligan said about the direction that the infrastructure would come from. He gave the example of some premises that might be some distance away from the actual poles. Would 4G or wireless technology not be a solution in instances where that might have been a problem?

Mr. Fergal Mulligan

I will probably defer to Mr. Neary who is more a wireless technology expert than I am. I am a mere accountant and not an engineer. My simple answer to that is that it very much depends on where one is in Waterford, Wicklow or Kerry. Is one in line-of-sight to a mast on the nearest hill? Again, that is something that has been looked at in detail across every townland in this country.

Deputy David Cullinane

I ask that because Mr. Griffin said in his opening statement that wireless solutions would be used for the most remote areas.

Mr. Fergal Mulligan

It may be. There may be poles on the road or the ESB network may be behind it farm, but it may still not be cost-effective to get a fibre to that farm and a wireless solution may be used if there is a base station somewhere in the proximity that gives it the service quality that we are saying is required, which is at least 30 Mbps.

Deputy Catherine Connolly

Fáilte roimh na haíonna go léir. Ní mór dom a rá that my life has got worse reading about ducts, sub-ducts, dark fibre and all sorts of things but behind-----

Mr. Mark Griffin

When I came to the Department first, I thought it was ducks as in the things that quack.

Deputy Catherine Connolly

It just shows one that learning is life-long, with fibre-optic cables and all sorts of things. I am going to look at metropolitan area networks, MANs, and the national broadband plan. I will turn to MANS first. Back in 2008, the Comptroller and Auditor General did a report with which the witnesses are probably familiar. Whoever the Comptroller and Auditor General was at that time talked about slow uptake and he pointed out certain things that he discovered. The Department was on notice that there were issues with MANs. I want an update on the uptake of MANs. If the Department does not have it to hand, I would like to receive it in writing later.

On the report we received, this is all about accountability. I am not here to ask about fibre or dark fibre, but to ask about value for money and the processes. When we had a meeting on 14 February, the Analysys Mason report was handed to us. That report was from March 2018. Why, for openness and accountability, was this not published quickly in March 2018 and not in February 2019? On that day, there was a certain cynicism because prices had reduced significantly when this was published. Why was this not published immediately, given the seriousness of the complaints made and what was stated in this report? Can I have a simple answer as to why this was not published? Does the fault lie with Department, the Government or the Minister? Who does it lie with?

Mr. Mark Griffin

In fairness, the fault lies with us. Very briefly, what we tried to do when we got the Analysys Mason report-----

Deputy Catherine Connolly

I am aware the Department engaged and it took longer.

Mr. Mark Griffin

-----was to try to come up in answers-----

Deputy Catherine Connolly

I have looked at it. The Department acknowledged that the engagement took longer but how could it take almost a year before it published the report? It was published on the day the independent providers-----

Mr. Mark Griffin

In retrospect, it would have been far preferable if we had published the report when we got it.

Deputy Catherine Connolly

Absolutely.

Mr. Mark Griffin

As civil servants, the instinct is to say we have a report and to ask what we can do to fix it and to ask how can we respond to its recommendations. It would have been preferable, however-----

Deputy Catherine Connolly

From my limited experience of this, it makes sense to publish. Information is paramount and people can make up their own minds. Now we are filled with cynicism. On the date the independent providers came in, this was suddenly produced. We were left scrambling around trying to read it, and I have read since then.

Mr. Mark Griffin

No, I-----

Deputy Catherine Connolly

More importantly, what about the implementation of this report? Where are we at? If the Department does not have this information and if it is still ongoing, can it send that to us?

Mr. Mark Griffin

The BT letter is helpful in some respects, although we have not seen it. Enet and the Department have implemented 11 of the 13 recommendations.

Deputy Catherine Connolly

Some 11 of the 13 recommendations have been implemented. Very good.

Mr. Mark Griffin

Two further recommendations will be done on improved communications with external stakeholders. There is then a chunk of work which we asked ComReg to do.

Deputy Catherine Connolly

That is what I was coming to because the Department gave us a very helpful updated letter on 13 March. The Minister requested ComReg do this and four bullet points were set out. Where are we at with that? When will ComReg complete this?

Mr. Mark Griffin

It states the third quarter of 2019.

I have a note which describes what they are doing in a little more detail.

Deputy Catherine Connolly

Will Mr. Griffin come back with that? These are just the practical questions.

Mr. Mark Griffin

That is fine. With regard to the detail, they have asked consultants to do the work and will start on 1 May. There will be fieldwork in May and June, a draft report in July and a final report in August and September, then we will publish it. We will not publish it in the way that we published the previous one. It will be a little more expedient.

Deputy Catherine Connolly

On the MANs, an internal review as done in 2016. Is any other internal review going on? I was a bit confused. I saw an internal review complemented by Norcontel in 2016. Is there any other internal review?

Mr. Mark Griffin

That led to the decision.

Deputy Catherine Connolly

Yes.

Mr. Mark Griffin

No.

Deputy Catherine Connolly

So there is no other internal review of which we should be aware?

Mr. Mark Griffin

No.

Deputy Catherine Connolly

Mr. Griffin stated that the internal review was limited to whether to extend or tender.

Mr. Mark Griffin

It was limited to whether we should sell the MANs-----

Deputy Catherine Connolly

Or tender or renew.

Mr. Mark Griffin

-----stick with the concession-type arrangement or with the status quo, which was-----

Deputy Catherine Connolly

The status quo was going to come to an end. Surely the decision was whether it would be extended, would go to tender or be stopped.

Mr. Mark Griffin

It is effectively that, yes.

Deputy Catherine Connolly

The Department came up with a report with Norcontel.

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

At that point, issues were raised by people in respect of the MANs and transparency. We were told that there were issues. Did it not occur to the Department at that stage to look at the bigger issues given what was raised in this report which was published this year? It was on Mr. Griffin's desk since 2018 and issues were raised previously. Why did the Department not include all those other issues in the review?

Mr. Mark Griffin

A bit of perspective on this is required. Some 70 service operators are using the MANs. We had one formal complaint from BT that was supplemented through the work of the mobile phone and broadband task force by two additional complaints which were not articulated in a great deal of detail. Those were from WestNet and a company called iMedia. To us, that did not represent a fundamental concern.

Deputy Catherine Connolly

I understand that.

Mr. Mark Griffin

When one looks at the relative-----

Deputy Catherine Connolly

I understand the context. Within the Department's processes, would what subsequently emerged in the Mason report not have been clear? It raised serious issues. It mentions a number of options and recommends one. It talks about a lack of transparency with prices and lack of openness and makes very specific recommendations. Were they not all obvious back in 2016?

Mr. Mark Griffin

I will deal with it in a couple of ways. We have regular reviews with Enet on a range of performance indicators.

Deputy Catherine Connolly

The Department has an obligation under the contract and service agreement.

Mr. Mark Griffin

We do all that.

Deputy Catherine Connolly

The Department has to get reports every quarter.

Mr. Mark Griffin

When we consulted on the review in 2014 or 2015, we canvassed a number of users of the MANs. The view that came back was that the MANs were operating effectively and performing well so, by extension, one could conclude from that the concessionaire itself was doing a good job on the MANs. It met all its annual investment obligations to extend the MANs and met all its key performance indicators, KPIs. We had three complaints out of a pool of 70 service operators. At that stage, we flagged our intention to undertake a detailed review which we had commissioned Analysys Mason to do, to look at pricing issues. It is important when looking at the Analysys Mason report to look closely at what it says.

Deputy Catherine Connolly

I have read it. I only have a few minutes.

Mr. Mark Griffin

There is one key sentence which I think sets the context for the report very well. It is on page 2. It states, "The analysis presented in this report shows a range of areas in which enet should improve its adherence to the Code of Practice". It is talking about improvement. I know of no organisation, Department or entity that does not have scope for improvement.

Deputy Catherine Connolly

Improving the transparency of pricing is essential, as is ensuring non-discrimination between ETNL and other Internet providers. There was difficulty with separation between two sister companies. There are four options. One is to separate them completely and it does not go down that road. There were very clear issues. They are not just minor issues or areas for improvement. They are all about transparency and accountability, and giving maximum information.

Mr. Mark Griffin

A significant problem that Analysys Mason flagged up in the report related to transparency but it was more about how they documented procedures.

Deputy Catherine Connolly

Notwithstanding the issues, it is more about how it looks when the report is not published and the prices suddenly drop by 50% on the day of publication.

Mr. Mark Griffin

The price was dropped but they were talking about a drop from the maximum price. When one looks at the detail of the report, it was only in exceptional circumstances, because of competition in the market, that Enet used that maximum price. To respond to the point that the Deputy is trying to make, we recognise that there are deficiencies. There are 13 recommendations with 11 implemented. The key bit is what the Minister has referred to ComReg to look at, which is that if there is an issue with regard to transfer pricing arrangements between Enet and ETNL-----

Deputy Catherine Connolly

The point that I am making badly is that arrangements in place, whether through the concession agreement or service-level agreement, should be able to capture those issues quicker and not in the manner that they have been captured.

Mr. Mark Griffin

Part of the work that we are doing in the Department is to look at whether and to what extent governance in the Department needs to be improved.

Deputy Catherine Connolly

I am just watching the clock. I do not mean to be rude but I want to ask a number of questions. Mr. Griffin can address the improvements in the Chair's time. I would love to hear them and I am sure the Chairman would be delighted to give Mr. Griffin all the time in the world. With regard to the NBP, is there a cost-benefit analysis?

Mr. Mark Griffin

There are several cost-benefit analyses. We updated it.

Deputy Catherine Connolly

Have they been published?

Mr. Mark Griffin

The original analysis was published.

Deputy Catherine Connolly

When was it published?

Mr. Mark Griffin

In 2015 or 2016.

Mr. Ciarán Ó hÓbáin

It was July 2015.

Mr. Mark Griffin

In July 2015. So with the evolution-----

Deputy Catherine Connolly

I understand it was not published. So, to be clear, what was published?

Mr. Mark Griffin

A redacted version of the cost-benefit analysis was published in July 2015.

Deputy Catherine Connolly

Okay. There have been many cost-benefit analyses. The Department has published one which has been redacted. Have others been published?

Mr. Mark Griffin

No.

Deputy Catherine Connolly

Why have they not been published?

Mr. Mark Griffin

They are commercially sensitive.

Deputy Catherine Connolly

The cost-benefit analysis tells us what is the cost and benefit of broadband. Has the version that the Department published provided all of that with regard to the cost and quantitative analysis of the benefits?

Mr. Fergal Mulligan

Maybe I will just explain the cost-benefit analysis.

Deputy Catherine Connolly

No.

Mr. Fergal Mulligan

This will be very simple.

Deputy Catherine Connolly

I am asking if it has been published and our guests are indicating that it has but that some parts have been redacted.

Mr. Fergal Mulligan

Substantially redacted. I will explain that.

Deputy Catherine Connolly

When I look at that, I will not be able to see why broadband-----

Mr. Fergal Mulligan

If the Deputy lets me explain why not, I will do so. It will be published in due course. The reason it has not been published yet is because since 2015, which is four years ago, there have been six versions of that because every time the map changed, from 757,000 initially, to 540,000 now, we needed to change it. The main reason is because there is substantial information in there with regard to the cost of fibre, ducting, subcontractor prices and so on which are highly sensitive to the market. We would eventually publish the much fuller details if a Government decision is made.

The analysis is going through a final iteration with the Department of Public Expenditure and Reform. That is a concluding process; it is not finished yet. When the Government decision is made, that is the conclusion of the CBA process.

Deputy Catherine Connolly

There is something not quite right with doing a cost benefit analysis and then it not being available. There are many other cost benefit analyses because clearly, that is right. Things change and the map reduces as somebody pulls out. There is no cost benefit analysis for us or the public to see, however. I am going to park that for the moment. When the cost benefit analysis was done, was it on the basis of 800,000 premises?

Mr. Fergal Mulligan

Every cost benefit analysis is based on the exact scope-----

Deputy Catherine Connolly

No, when the Department did its original cost benefit analysis, what number of premises were included?

Mr. Fergal Mulligan

The 757,000 that were initially identified through the mapping.

Deputy Catherine Connolly

I see 800,000 and I see 540,000, which we will come to, but the very original one on the cost benefit analysis was 757,000.

Mr. Fergal Mulligan

In 2015 it was 757,000 premises.

Deputy Catherine Connolly

Subsequently, Eir pulled out and we are down by 3,000. Is that right?

Mr. Fergal Mulligan

Yes.

Deputy Catherine Connolly

We are down to 457,000. Then we add back on about 80 because we find out they are not-----

Mr. Fergal Mulligan

There are more premises to bring in, yes.

Deputy Catherine Connolly

The analysis originally was all wrong, was it not?

Mr. Fergal Mulligan

The analysis was based on the information that was garnered from the market at the time of where the commercial sector would go and where it would not go in 2015.

Deputy Catherine Connolly

But it was wrong.

Mr. Fergal Mulligan

It was absolutely correct in 2015-----

Deputy Catherine Connolly

Absolutely correct, and then in January 2016 it was wrong.

Mr. Fergal Mulligan

-----and then operators-----

Deputy Catherine Connolly

Just stay with me now.

Mr. Fergal Mulligan

Okay.

Deputy Catherine Connolly

It was absolutely correct at a point and the next day it was wrong. Is that it?

Mr. Fergal Mulligan

No, what happened between our iteration and the next was a board of management in Eir, for example, decided in the interim period to make a commercial investment, so we reflected the updated information that occurred post our initial analysis.

Mr. Mark Griffin

That obviously affects the benefit to cost ratio. The other things we have to layer in on the positive side are the changes in the census in 2016. Every time there was a change in a map of substance-----

Deputy Catherine Connolly

I know, I understand all that.

Mr. Mark Griffin

-----we did the CBA, reassessed the viability of the project.

Deputy Catherine Connolly

I am not going to take up Mr. Griffin's time or my own on that. I understand that. I am losing my train of thought in respect of dark ducts and fibres and all sorts of things. That is what they are called, dark ducts and fibres.

Mr. Mark Griffin

It does not get any easier for spending 24-7 on it either, I can assure the Deputy.

Deputy Catherine Connolly

It does not get any easier, but perhaps we could learn at some point in respect of accountability. Of the Eir 300,000, and they have passed the premises, how many have been taken up? Is there an answer for that today?

Mr. Mark Griffin

I do not have a figure but what I can do is quote what the CEO of Eir said.

Deputy Catherine Connolly

Does the Department not have to monitor? Does it not have an arrangement with Eir?

Mr. Mark Griffin

We monitor the number of premises passed and we get some maybe informal meeting on the connections. The CEO of Eir said that 14% of the premises had been passed but since they have looked at it about double that have been connected for the number of premises that have been passed-----

Deputy Catherine Connolly

I am not really interested in what Eir is saying; it is a private provider, unfortunately. We made decisions in the past. It is not unfortunate for Eir but the decisions were made. Has the Department not got an arrangement with Eir? It is paying Eir to roll out this service, it tells the Department it is passing so many premises-----

Mr. Patrick Neary

We monitor the agreement very closely, including the connections.

Deputy Catherine Connolly

Lovely. How many houses have taken up?

Mr. Patrick Neary

We are not in a position to share that information.

Deputy Catherine Connolly

Why not?

Mr. Patrick Neary

Eir has told us it is confidential and that it is commercially confidential to it.

Deputy Catherine Connolly

Does Mr. Neary understand how it might look generally?

Mr. Patrick Neary

What Eir has said is that it is in line with the initial projections of its business plan.

Deputy Catherine Connolly

I am delighted to be reassured by Eir but as a member of the Committee of Public Accounts, I am not reassured.

Mr. Mark Griffin

We are very encouraged by the numbers that we know, absolutely.

Deputy Catherine Connolly

Lovely. We will be inspired.

Mr. Mark Griffin

We would be very encouraged in terms of an indication of the likely profile of take-up when the NBP rolls out.

Deputy Catherine Connolly

I will come back to it, Chairman. I will put my hand up again.

Deputy Catherine Murphy

In case I forget, the officials might give us a note on the remaining bidder for the national broadband plan, detailing from the date the tender process opened what the make-up of that bidder was. It has changed. I would like to know what it was, what it is now, what the various changes were in the interim and the dates of those, please.

Mr. Mark Griffin

It is important to say, as we said in December, that there is a formal process to be gone through at each stage where there is a change in the composition of the bid team. That has to be signed off by the Department.

Deputy Catherine Murphy

If we could have that, it would be helpful.

Chairman

For the public record, who is the one bidder today?

Mr. Ciarán Ó hÓbáin

Granahan McCourt.

Chairman

For the public watching, who is that? They have never heard of this name.

Mr. Fergal Mulligan

We are in the throes of a procurement process so I am limited to some extent. Granahan McCourt is, as we know, David McCourt and Walter Scott.

Chairman

Just assume that the people watching do not know the names. Tell the people watching who the State is talking to.

Mr. Fergal Mulligan

Granahan McCourt is a company that has had investments in Ireland in many companies, one of which was Enet in the past. It no longer owns or controls Enet. That was sold off a couple of years ago. It has operations across the world and its senior management team is made up of Walter Scott, who is an American businessman, and David McCourt, who is an American businessman who would have significant operations in Ireland generally. They have put forward a consortium for the bid to win the NBP.

Chairman

Are they quoted on the Stock Exchange?

Mr. Fergal Mulligan

I do not believe so.

Chairman

Are we dealing with a private company or a public company?

Mr. Fergal Mulligan

Yes, a private investment company in Ohio called Tetrad is one of the main people behind the consortium.

Chairman

Would Mr. Mulligan say that again? I missed it.

Mr. Fergal Mulligan

There is a private investment company which is run and owned by the Scott family. Walter Scott is the main proprietor of that investment vehicle which is putting the private equity into the bid.

Chairman

Tell the public who Walter Scott is.

Mr. Fergal Mulligan

People will have heard of Warren Buffett.

Chairman

Yes.

Mr. Fergal Mulligan

Warren Buffett and Walter Scott would be of the same ilk in terms of their many billions of whatever dollars they have earned over many years. They have many, many interests in the United States and across the world. I think he is on the board of Berkshire Hathaway, which is the Warren Buffett investment fund. They are well known in the States. If you look up Walter Scott Jr. you will see a full profile of who and what he is, and the same with David McCourt. That is as much as I can say in terms of the public knowledge about them. They are very well known in terms of investment in the business community.

Chairman

So it is substantially an American entity.

Mr. Fergal Mulligan

Yes, and they would have had substantial interests in telecoms operations in America and in other places.

Chairman

The company the Irish taxpayer is dealing with - is that a shelf company with a €2 share capital or has it €1 billion worth of share capital?

Mr. Fergal Mulligan

In the context of where we are with the national broadband plan, the NBP will be an Irish company. It was always required in the procurement documents that whoever won the bid would be required to set up an Irish resident company tax-based in Ireland. It is a designated activity company for the NBP intervention.

Chairman

So that company has not been set up yet.

Mr. Fergal Mulligan

It cannot be until there is a decision by Government to actually award a contract.

Chairman

So we are dealing with a group of substantially American private investors who will set up a company to sign the contract when the time comes.

Mr. Fergal Mulligan

Just to clarify that, all bidders would have set up a subsidiary company as part of their general group. It was just a specific requirement for governance reasons, similar to the conversation we had about Enet and the MANs where BT was recommending to have a separate company. For the NBP we made the decision in 2015 that whoever won the NBP would have a separate registered tax-based company in Ireland dedicated to the NBP.

Chairman

Has the Department specified how many of the directors of that company would be Irish or non-Irish?

Mr. Fergal Mulligan

We have specified that the number of directors needs to be a minimum of five and a maximum of nine, I think. We have not specified where they need to be from.

Mr. Mark Griffin

The big thing that we are dealing with the whole time is that all the people we face off against are predominantly Irish and have vast amounts of experience within the Irish technology and telecoms sector.

Chairman

They are the local face of this American company.

Mr. Mark Griffin

Absolutely but they will be the local faces driving NPB-Co when it is established. They have a lot of experience in network set-up, a lot of experience in the commercial aspects of running a network, and many of them would have worked in companies like Eir.

Chairman

Can I just ask one question and then I will come back to Deputy Catherine Murphy? We hear every day of the week that companies cannot get contracts from public bodies in Ireland because their turnover in the previous few years was not at a certain level. The officials will be familiar with that. It is a very basic question.

The Department is proposing to sign a contract with a company which does not even exist yet but will be incorporated in some solicitor's firm which, by definition, will have no previous business or turnover by which it can be judged. It may be judged based on who its shareholders are, but the company, if it has no turnover, would not be eligible to apply to build a single local authority house in Ireland because it would not meet the previous turnover requirement. That is a basic thing that public bodies do. How is it that a company that does not exist is likely to get this award with no previous turnover? The witnesses may think that a strange question but it is one the public will ask. I will park that question and the witnesses can come back to it.

Deputy Catherine Murphy

I note that Granahan McCourt is the lead but there are subcontractors included as well. Will they be included? Granahan McCourt may or may not have the finances, and there are issues about that, but the technical ability to deliver is the other side of it.

Mr. Mark Griffin

The Deputy will be very familiar with the names of the subcontractors.

Deputy Catherine Murphy

I know I will be.

Mr. Mark Griffin

They are companies that are used as subcontractors by BT and Eir and so on.

Deputy Catherine Murphy

It would be useful to see who has a beneficial interest in this.

Mr. Mark Griffin

Yes.

Deputy Catherine Murphy

I want to go back to the MANs. Ireland has one of the most expensive State-owned broadband networks in Europe. The Minister issued a press statement after the Analysys Mason report was produced. The headline issue identified in that statement was that there was a 50% reduction to €2.60 per metre. We saw the response from BT to some of the points in the Analysys Mason report. The Minister referred that issue of pricing to ComReg and it was an issue on which it had no responsibility previously. I subsequently met a number of providers that are wholesale entities, so to speak. I asked if the reduction was of benefit to them and they said they had got quotes after the announcement of the reduction and, lo and behold, those quotes contained increases, rather than reductions, in price. There is something fairly serious happening here because the end user will pay for this. I continue to be dissatisfied with the lack of transparency and whether there is a real effort to get to grips with price here because one of the determinants for the take-up of the service will be price. We need to look at what is happening with the MANs. The witnesses might comment on that to begin with.

Mr. Mark Griffin

I will comment although it is hard to do so without knowing the specific bid, the specific customer and the particular product on offer. There is a remark on page 20 of the Analysys Mason report, referring to dark fibre, that states that the analysis shows that price per metre is strongly affected by the term of the contract and the proportion of the MAN distance used. I do not know if the providers who approached the Deputy are comparing like with like in terms of offers and if the project is the same as was originally costed.

Deputy Catherine Murphy

They were comparing it with what they had been quoted prior to the announcement. I will suggest that they make a complaint because that seems to be needed to trigger someone to take a look at it. There is a real issue with cost here because we are out of line.

Mr. Mark Griffin

I do not want to appear to be making excuses but I am conscious of a couple of things. There is a company called Enet in Limerick which employs 100 people and I want to ensure that the engagement on both sides of the table reflects the factual position as well as possible. The Analysys Mason report made comparisons between the price of dark fibre for Enet and ComReg and used international comparators. It stated that benchmarks of dark fibre prices are not widely available. Dark fibre wholesale offers are not common, and those that are available do not have published prices. Analysys Mason had to go to Sweden because of the absence of good national comparators and said that the prices vary according to different areas of the country.

Deputy Catherine Murphy

I have read the report and do not need Mr. Griffin to read it back to me.

Mr. Mark Griffin

There is a degree of equivocation in what Analysys Mason has said. Comments were made about the prices of things in certain circumstances. The important thing for the operators that the Deputy is talking about is for them to talk to Enet. One of the criticisms that representatives from Enet made when they were before the committee on 14 February was that nobody was coming to talk to them. To the extent that any complaints were made, they were made through the Department.

Deputy Catherine Murphy

The key issue is what the end user is getting-----

Mr. Mark Griffin

Yes.

Deputy Catherine Murphy

-----what the State input is, and whether we are getting value for money.

Mr. Mark Griffin

Yes.

Deputy Catherine Murphy

It is quite useful to talk to the people who are providing the service-----

Mr. Mark Griffin

Absolutely.

Deputy Catherine Murphy

-----to find out about their interaction with Enet, for example, and it is very different from-----

Mr. Mark Griffin

Analysys Mason spoke to many companies that were providing the services and also took account of the complaints that were lodged with the Department by Enet. Those who are concerned with what they perceive as poorer terms on offer after an intervention that should have led to a better outcome should talk to Enet. If there are issues, they should also talk to the Department.

Deputy Catherine Murphy

I understand they were having difficulty talking to Enet but I will go back to them and to the Department.

Mr. Mark Griffin

We will take the matter up with Enet if the Deputy provides us with some information.

Deputy Catherine Murphy

Okay, that is fine. The total that the State has spent on MANs so far is €176 million. That was a piece of information given to us by the chief executive officer of Enet. The revenue share represents about 5% of a return over the past 15 years. When we discussed this previously, one of the reasons for not going to tender was because investments were being made by Enet and there was a return to the State which represents about 5% over 15 years, which is not a sizeable return.

The State was paid €8.8 million in revenue from 2004. It is not a huge amount of money. Looking at that and listening to Eir, which I accept is a commercial entity with a parallel fibre network, it was fully expecting to see a competitive process for the concession contracts and they were done earlier than anticipated. In hindsight, has the return to the State been sufficient that a competitive process was not required? Is it a question of how the Department handled the communication or is there something more than that?

Mr. Mark Griffin

How we handled the communication has not been helpful. As I said to Deputy Connolly, it would have been preferable if we had been clearer around the outcome of the extend versus retender issue. One must look at why the MANs were set up because they are a unique offering. Some 84 or 85 are rings within towns, some of them large and some of them small.

It can be because the take-up was low or having to operate on a commercial basis to generate additional take-up. The reason we went to look at the extend versus retender option was not to do with their having invested €30 million. We did a very detailed analysis around performance but also on what would be the right thing for the market in terms of whether we would extend or retender. The Norcontel report covers some of that. It is clear that, leaving aside the financial aspects, several qualitative and quantitative outcomes were identified which would give greater certainty to telecoms operators on the availability of the MANs infrastructure. That would allow them to draft their own investment plans. We were entering a time where there was very substantial change, which can be seen both from the private sector investment and our own work in the period under review.

Deputy Catherine Murphy

In short, Mr. Griffin is saying the Department believes it made the right decision.

Mr. Mark Griffin

It was the right call. The financial benefits that would accrue through the renegotiation reinforce that.

Deputy Catherine Murphy

To take the national procurement policies, if one wants to buy a box of biros, one is supposed to secure three quotes. There were entities that were interested in quoting and expected an announcement. I am surprised that it happened as early as it did because there was some time to run. I expect people need a lead-in time to make investments and so on. What would have been the downside to going to tender and making sure there was a testing in the marketplace?

Mr. Mark Griffin

First, we did the detailed analysis. Second, if one goes to a retender and does not emerge with a successful solution, the only option is to return to the existing incumbent who will have one over a barrel because he will know the tender process has failed. Therefore, the prospect of being able to negotiate what had been negotiated originally, which was a €21 million extra return to the Exchequer, would be absolutely and utterly off the table.

Deputy Catherine Murphy

Would that not be a reason to examine the national procurement strategy and ask, given that only two entities provide that service, why we would do that because we would be held over a barrel? Surely one could make that argument for many things.

Mr. Mark Griffin

One could. The Deputy referred to the national procurement framework. Contracts and agreements are written in a particular way. This was written in, crystal clear, that after the first 15 years of the contract, it was open to the contract authority to secure an extension of up to ten further years. That was there from 2004 when we had the first concession agreement. It was replicated in 2009 for the other MANs. To be honest, if I came before the Committee of Public Accounts in 12 months, or even now, and I said I had a report from Norcontel stating this was the most preferable option, we had done some preliminary desk work which found we would accrue €21 million in extra benefit and we would provide greater certainty to the telecom operators and the sector, but we decided to go in another direction-----

Deputy Catherine Murphy

The Analysys Mason report, BT in its response and some of the providers I mentioned were critical of how Enet have managed this in terms of pricing, transparency and a whole range of other things. That is what the report says. Enet has hardly been pristine in how it handled this.

Mr. Mark Griffin

Is this the follow-up to the Analysys Mason report or the report itself?

Deputy Catherine Murphy

It is the follow-up to the report.

Mr. Mark Griffin

The Deputy is referring to the BT letter and other-----

Deputy Catherine Murphy

Yes. The report identifies some of the failures. One could not say it has worked perfectly - far from it - and we have very expensive broadband.

Mr. Mark Griffin

That is in the view of some operators and I am not making little of their views by any means. However, the Deputy should not look at this as something that has been fixed in stone. We have a report that sets out a suite of recommendations. We have a response from Enet which outlines what it has done. The indications are that 11 of the 13 recommendations have been implemented. We now have the letter from Enet which we have not seen. There may be other complaints from operators which could say that the response is inadequate. We need to know that because we will be engaging with Enet on an ongoing basis regarding its performance on the contract.

Deputy Catherine Murphy

After the MANs contracts were allocated in 2004 and 2009, was it a question of leaving it to Enet to operate the system or was ongoing analysis done?

Mr. Mark Griffin

A full suite of governance arrangements is in place in the Department. This involves quarterly meetings, an assessment of key performance indicators, annual engagement, a three-year rolling plan-----

Deputy Catherine Murphy

The pricing system is so vague that a big operator, BT, has spoken of a lack of transparency, discounts and so on. How does one get to that point?

Mr. Mark Griffin

I return to a point I made earlier. We have 70 service users on the MANs and we have had complaints from three of them.

Deputy Catherine Murphy

The key issue for Mr. Griffin is that service users should complain. That is the only thing that-----

Mr. Mark Griffin

We need things to be brought to our attention so that we know that there is a problem. The report is written in a very balanced way. It does not say that prices at reduced or reasonable levels were not available to service operators. The criticism is primarily, as I read it, that it needs to be better documented. It appears that perhaps there is an issue about the transfer pricing arrangements between Enet and ETNL. We need to bottom out on that. We will look at that but ComReg has been commissioned to undertake that work by the Minister and will produce a report. As I said, the Deputy should not take the set of recommendations that issued on foot of the report as the last word. We will constantly evaluate whether the recommendations are being implemented. We will take further feedback from BT, which is a customer and a competitor of Enet, and from other entities. We will review this on an ongoing basis. The Analysys Mason report refers to the need for a further review within a two-year period.

Deputy Catherine Murphy

On the national broadband plan, I am very concerned that we only have one entity involved. The lack of a competitive process is highly problematic. I appreciate that this is a bespoke process that we will not undertake a second time. However, the process has the same feel to it as that of the national children's hospital. What specific safeguards can be put in place to ensure delivery? It is not just a question of awarding the tender. The plan must be delivered within a timeframe.

When the natural gas network was being established, if, for argument's sake, 20 households in a housing estate wished to avail of gas, that would be sufficient to warrant putting a gas pipeline through the estate. Other households could then join the network at a later point. I appreciate that it is possible for people to connect to a network subsequently.

What timeline is allowed for people to connect up to it? Will that be specified in any tendering process? The original suggestion of the amount of money it would cost being a fraction of what it will cost is an issue of serious concern given that the number of households that require to be connected is fewer now than the number talked about when that original amount, albeit a desktop exercise, was suggested. If there are 300,000 fewer households that require to be connected but it will still cost multiples more, how could the desktop exercise have got it so wrong? Mr. Griffin might talk us through that.

Mr. Mark Griffin

I will let Mr. Mulligan deal with the connection issues. When we look at procurement processes, it is not unusual for certain projects to find oneself in a situation where one only has a single bidder at the end. If we look at the equivalent of the UK in terms of its national broadband plan, it received only one bid at the end. It was from BT, the final company that was participating in the process. Fujitsu pulled out before submitting a final bid. It is not unusual and it is not ideal. We will be perfectly upfront on that.

Going back to the value for money point, we have used a competitive dialogue process which allows us do a helicopter move and circle in and reiterate as more evidence becomes available. We have done significant market engagement. We have interrogated various proposals from the three bidders. It has allowed us deepen our understanding of likely subsidy levels, technology, construction operation costs and demand revenue projections.

The other important point to bear in mind, and this is very useful to us from a comparison perspective, is that at the penultimate stage before receipt of final bids and before Eir withdrew from the proposal, which is known as the invitation, submit, detailed submissions, ISDS, stage, we had two bidders submit proposals which included their financial estimates of the cost of the project. That was very helpful to us in terms of the comparisons to be made.

We have got modelling expertise from ComReg. We have looked at international models. We have got a separate report from KPMG which looks at how to engage, based on national and international best practice, and value for money in the context of a single bidder assessment. That will form part of the valuation that will be submitted to Government.

The other point-----

Deputy Catherine Murphy

I am sorry but time is against us.

Mr. Mark Griffin

There is another suite of things that will be knitted into the contract to ensure value for money. These include performance indicators, penalties, oversight arrangements to monitor not just the financial stuff but the progress on deliverability, cost take-ups, substantial claw-back provisions, significant checkpoint reviews-----

Deputy Catherine Murphy

Can I just-----

Mr. Mark Griffin

I can give the Deputy that in writing if she wishes.

Deputy Catherine Murphy

That would be helpful.

Mr. Mark Griffin

It is available. The fundamental difference between this project and the children's hospital is that the debate now is on how we reached a situation where a cost estimate is very different from what we thought it might be at the start. The children's hospital is an issue around how costs escalated when construction had commenced.

Deputy Catherine Murphy

I have two final questions. First, is there a plan B? Second, some hotel or other business owners in parts of rural Ireland have stayed with their local provider, and with a system that is not the direct fixed fibre option, where that has been available to them. Has any review been done to ask people why they have done that as opposed to what is seen to be the better of the options, for example, fixed fibre, where they take the fibre to the-----

Mr. Mark Griffin

Cabinet.

Deputy Catherine Murphy

Yes. Why would they do that if there is a superior system?

Mr. Mark Griffin

It may well be the case that it serves their needs for the functions they are discharging at the moment. Fibre to the cabinet may be of more use at a point in time.

Deputy Catherine Murphy

Might it be that the interaction between the business and a human being, for example, or a company is a preferable approach? Are there aspects like that that have been overlooked?

Mr. Mark Griffin

I do not think so. There is a suite of retail service providers operating, for example, in a 300 km area at the moment.

Mr. Fergal Mulligan

If I may come in on that, I am not sure of the location but any business across the country most likely outside our intervention area have a raft of choices from fixed and wireless. As we pointed out, fibre to the home or fibre to business is fantastic but fibre to cabinet or a wireless solution can be equally as good depending on one's proximity to that network, the quality of that network and the price of it. All those things are factored in. In terms of any hotel or business, depending where it is in any part of Ireland, outside the intervention area, that is the competitive environment we are in. In the blue and light blue areas people have a raft of choices. It is the amber area in which the issue resides and that is what we are trying to address.

Deputy Kate O'Connell

Following on from the last question, Mr. Mulligan said it can be equally as good but I am assuming that is if the particular hotel is on flat land with trees without leaves and no wind blowing. We heard at the last meeting, whenever it was-----

Chairman

Before Christmas.

Deputy Kate O'Connell

-----a few months ago, that cable and fixed wireless or mobile wireless are not equatable. From my short studies on it, it only works where there is not clogging up of the system, the weather is good, the leaves are not on the trees and the wind is blowing in the right direction. I know there are businesses that it suits. Many businesses in Dublin fall into that category where they have wireless masts on the side of buildings to ramp up the speed.

In terms of what we are trying to achieve here, and the Chairman spoke about people at home watching these proceedings, I believe it is something monumental. We are trying to put down fixed cable infrastructure to serve the country into the future but it is a bit like the gas analogy. People may not want or require it in their homes today but they may want it as technology advances, our fridges start talking to us and we have all these advances that apparently will happen. My understanding is that once the proper cable broadband infrastructure is laid down or up, as the case may be, they may not need it today but in 15 years' time the capacity exists to expand for those requirements. Mr. Griffin might explain that to the committee because much of it has been lost in the idea that we are trying to provide Netflix for everyone. We are not trying to provide Netflix for everyone. We are trying to provide an infrastructure that leaves people in Carlow, Ballyferriter and Tyrrellspass as connected as people in Dublin. My understanding is that regional development can happen and not be in any way inhibited by lack of access to proper cable and that we will not have a company coming in and telling people their broadband will work perfectly fine once there are no leaves on the trees, they are on flat ground and the wind is blowing in the right direction. Mr. Griffin might outline that for the committee.

Mr. Mark Griffin

To go back to the Deputy's earlier point, which we circulated with the briefing for the committee, that shows the challenges faced with a fixed wireless application. The comparison I like to make and with which all of us are familiar is that we built the M50 with two lanes. There are now four lanes on each side and it is still massively congested. The N7 is a disaster zone because we are putting on additional capacity.

One can take a short-term or a long-term perspective on this. We have taken a long-term perspective over a 25-year period. One of the fundamental issues for us is the technology we can put in place that will guarantee that in 25 years' time, irrespective of what happens between now and then, and we know there will be massive developments in terms of the ask of the public and businesses, including virtual and augmented reality, automated driving, remote surgery, artificial intelligence and precision farming, we will have a technology to cater for that.

We will not have to go back in a second time. We sometimes have a particular problem in the provision of infrastructure. In 2008, we thought that download speeds of 2.3 Mbps under the national broadband scheme were cutting edge, but by the time we started, it was out of date. However, this project will endure.

It is interesting to see the assessment that was made as to what one does in rural areas. One must look to what is happening in urban areas and the decision by Eir in the past few weeks to have a fibre overlay in all major cities and towns across the country. That will involve fibre to the home, not a cabinet. Siro, which has been assisted through the NBP process by virtue of the fact that the State brought forward legislation, is bringing fibre to the home. The question we must ask ourselves as administrators and politicians is whether we want to put something in place in rural Ireland that is sub-optimal and will simply further exacerbate the urban-rural digital divide. Even though we were technology neutral, we are clear that the fibre to the premises technology proposed by the bidder - interestingly, by all bidders - is the right direction to allow future proofing to be guaranteed.

There is a further statistic that may be of interest. The European Union did some work when it was scoping out the direction of travel up to 2025. Some 59% of respondents think they will need fixed download speeds of 1 Gbps in 2025, with only 8% of respondents saying they will need download speeds below 100 Mbps. It is the right thing to do.

Deputy Kate O'Connell

The argument in respect of the 300,000 Eir customers who were carved out, the uptake of the scheme and the questions that have arisen this morning in that regard ring true to some extent. One does not expect those 300,000 people to need it today, but they may need it in the future. As such, it is a pointless analysis.

Mr. Mark Griffin

Exactly. There is also the issue that many of those 300,000 people are currently tied into contracts. They may have a 12-month contract. When those contracts lapse, they will then shift to the higher level of service.

Deputy Kate O'Connell

Others may do so as their children get older and have different study requirements and so on.

Mr. Mark Griffin

One must consider it from the perspective of what rural Ireland might look like in 25 years and how it links into the work of the Joint Committee on Climate Action, such as reduced commuting. Multinationals coming into the State are absolutely open to people working from home once they have the right infrastructure. That leads to a reduction in commutes and the associated frustrations and difficulties for families and children. One must consider the social dividend of that.

Deputy Kate O'Connell

The social benefits, yes. I wish to follow up on the questions about the parent company of Enet. What sort of investors are involved? Are they American investors or Irish pension funds? Mr. Mulligan referred to the head of the company. Is the money coming from standard pension funds and so on or from elsewhere? Who is paying the bills?

Mr. Fergal Mulligan

I do not wish to be short, but because we have not concluded the procurement process I do not wish to get into too much detail on this issue. I have probably said as much as I ought. The investments are all private equity which may come from many sources, such as pension funds or whatever. A significant amount money is involved. The people with whom we are dealing are those whom I mentioned-----

Deputy Kate O'Connell

From an ethical perspective, are there any limits on with whom we will get into bed in terms of Government procurement?

Mr. Fergal Mulligan

Absolutely. There are rules, as well as absolute copper-fastened guarantees from investors that the money is there and will be there when it is committed.

Deputy Kate O'Connell

The money is coming from a legitimate source.

Mr. Fergal Mulligan

Absolutely.

Mr. Mark Griffin

All of that due diligence is done as part of the evaluation processes. On the bidder, the team he has coalesced around him - all of whom are Irish apart from one individual - and who have taken part in the bid process have massive experience across the telecoms sector in Ireland. They have had significant responsibilities in rolling out national telecoms networks in various countries, delivered 170,000 km of fibre across 56 private projects and managed or delivered €30 billion in contracts business values. These are big hitters. We would not be comfortable as a Department in putting forward a solution unless we had faith in the entity. The other thing it is important to say is that the evaluation process as part of the final bid assessment looks at all of these issues, including the capacity of the bidder and its technical ability to deliver a project on this scale.

Mr. Fergal Mulligan

On that issue, we have worked with all of the bidders since 2016. We have spent 800 or 900 hours working with the engineers. I am back to the issue of who can deliver this project. On our side, there have been ten or 20 experts in attendance at each meeting with the opposition - the three bidders - with ten or 20 commercial, technical and legal experts. The technical experts with whom we dealt across all the bidders, including the remaining bidder, are people who worked for 30 or 40 years on the Eircom network or a Vodafone network. They are all Irish-based engineers with 20, 30 or 40 years of experience. One of the head experts on the side of the bidder with whom I deal every day started off in the Department of Posts and Telegraphs and built the Eircom network. That is the type of person on the current bid team. Obviously, people moved around in various companies. We are not dealing with people who have just flown in from New York and are telling us how to build a network here. They are indigenous, home-based people who have worked on the Irish networks, mobile and fixed, for the past 30 years.

Deputy Kate O'Connell

In response to a question of Deputy Catherine Murphy, Mr. Griffin referred to penalties, oversights and clawbacks. How will that work when a contract has been awarded? I would consider these things, such as scope for movement on certain issues, to be a nightmare for investors. At the end of the day, investors want a return on their money. How do these penalties and so on fit into a contract? The witnesses may respond after we break for lunch. I am concerned about a contract being signed with this company that obviously has lots of expertise and, based on the evidence that has been given, seems to be capable of doing the job, but that when we say we want clawback and penalties it will respond, "On your bike. You need us." What protection exists in that regard?

Mr. Fergal Mulligan

To go back to the 800 or 900 contact hours since 2016, the first thing we did in 2016 was to issue a draft contract. At that time, the draft contract was based on the best available contracts we could get from the UK, where it has run broadband contracts, and the initial broadband scheme contract. After nearly two and a half years of negotiating with almost every senior legal house in Dublin and across the water, the contract currently runs to 1,500 pages. Within it is the governance of this for 25 years. That includes the requirement that the operator must pass and connect every home in the intervention area. It is very much a contract that requires connections. The subsidy includes connecting every home in the intervention area where a consumer seeks a connection, be it in year 1 or year 25. That is the contract. It is based on when people want it, to go back to the gas analogy. When people will want to connect to the network is a critical issue. When will Mary Murphy or Jimmy Doherty want a connection? It might be in 2020 or 2025. We predict that in our modelling and the bidder is predicting it in its modelling. That demand may occur sooner or later than expected, but we know generally that people will connect to this network because it will probably be the only network available in the next 25 years. People may have a choice. If demand exceeds our expectations, the clawback would kick in. In the event that the scheme is hugely successful, there may be far more profit in the contract than we ever envisaged. In that context, the contract has within it specific percentages regarding exactly how much would be clawed back and recouped by the State. That has been agreed with the existing bidder as we are concluding the tender process, There are three clawback mechanisms. There is one for any cost savings, whereby we recoup any money the operator expected to spend but did not spend.

Second, there is a mechanism if they make more profits than they ever thought they would. Third, there is a mechanism for us to find out at the end of the contract whether the business has a value. There are significant clawbacks to the State within the contract. They apply to all bidders. Again, all of this was subject to huge negotiation over the past two or three years. The point has been made that if we look for too much clawback, they will look for too much money. All of that has been concluded. It is significant. By the time the contract is signed, there is no change to that. They are locked into that and they must do it whenever those accounts are ready.

Deputy Kate O'Connell

If a big piece of cable running down the middle of a road is serving 20 houses and the Department predicts that five of them will connect right now, but 15 of them connect, obviously that means far more money for Enet.

Mr. Fergal Mulligan

Yes.

Deputy Kate O'Connell

That is where the clawback comes into play.

Mr. Fergal Mulligan

Yes.

Deputy Kate O'Connell

In terms of profits, I assume the procedure is robust enough to deal with cases like those we have previously come across. I refer to the practice of people paying themselves enough money to ensure the company does not make any money. I presume people like the Comptroller and Auditor General are keeping an eye on that so that there is proportionality when it comes to pay, etc., and profits are not being hidden.

Mr. Fergal Mulligan

Absolutely. That brings us back to the point about the special purpose vehicle we require under the contract, that this is a stand-alone, ring-fenced company and that it allows full traceability and transparency with regard to all the money that goes in from the State and from the private sector, as well as with regard to everything that is spent. That is one of the critical parts of the contract.

Deputy Kate O'Connell

I thank Mr. Mulligan.

Chairman

I call Deputy Aylward.

Deputy Bobby Aylward

I was late getting to the meeting. I apologise if I ask questions that go back over ground that has already been covered. We are all asking questions about competition. According to the old saying, competition is the life of trade. We started out with five or six companies that were supposed to be interested in the national broadband plan, but that number dwindled down to four, three, two and eventually one. Is the Secretary General happy that we are down to one? As I have said, competition is the life of trade. Would it be better if there were two or three bidders and the Department could use one against the others to try to get the best value for taxpayers' money? I would like Mr. Griffin to comment on that. I know this question has probably been asked several times already.

Mr. Mark Griffin

It is always better if there are more people bidding in at the final end of a process because it leads to competitive tension. There have been cases in this country and overseas in which just one bidder remained at the final stage of a project. For example, there was just one final bidder at the end of the UK equivalent of the national broadband plan. The other bidder dropped out at the last moment. We had to figure out what to do in the circumstances we found ourselves in. We looked at what we did over the course of the procurement process to ensure value for money was guaranteed. The procurement process we had engaged in involved competitive dialogue. This kind of process is used for bespoke projects when the technical scope of the project - what the final network design will look like - is not fully known. It allows one to engage with the bidders in the process in looking at things like subsidy levels, technology, construction and operating costs, demand and revenue projections. It was helpful for us that there are a number of different stages in the competitive dialogue process. During the penultimate stage, which was the ISDS stage, we got two bids - one from the final bidder and one from Eir. This gave us a chance to compare the bids and the factors taken into account, etc. We had something to compare against. The other useful thing from our perspective is that we did a great deal of financial and technical modelling during the procurement process. We used models that ComReg uses for regulated services. We looked at models that are used internationally. A great deal of financial modelling was done by the Department and its advisers, KPMG. At the final stage of the process, we asked KPMG to compile a report which would assess the position with regard to value for money, for want of a better term, when there is just one bidder. The other important component is making sure we have robust post-contract governance arrangements, the suite of protections Mr. Mulligan and I have mentioned, the performance indicators, the penalties, the oversight arrangements, the checkpoint reviews, the clawback provisions, the stand-alone board which is responsible for the-----

Deputy Bobby Aylward

I know Mr. Griffin could go on, but I would like to clarify one point. Is he able to say here today that the Department is happy that it has crossed the t's and dotted the i's and can stand over the only remaining competitor from the perspective of value for money?

Mr. Mark Griffin

I am. It would have been preferable if there had been more than one bidder at the final stage. We did not have more than one bidder because two bidders withdrew for reasons of their own. Based on the controls we have put in place, what we know about the network which is to be delivered and the post-contract governance arrangements, we are satisfied that we have put in place a robust assessment process and measures to be included to supplement that.

Deputy Bobby Aylward

I ask Mr. Griffin to tell us more about the contract. Is it a 25-year contract? I heard 25 years being mentioned.

Mr. Mark Griffin

Yes.

Deputy Bobby Aylward

If the national broadband plan is to be rolled out over 25 years, does that mean some people in this country will not get broadband for 25 years?

Mr. Mark Griffin

No.

Deputy Bobby Aylward

Sorry. I ask the officials to explain that.

Mr. Mark Griffin

The build will take place over the earlier years of the contract.

Mr. Fergal Mulligan

It is a 25-year contract because there are three aspects to it. The winning bidder who is successful will have to design, build and manage the network. That means it will all be built in the first stage, whatever number of years that takes. We know that people will iteratively and incrementally connect to the network. People will connect as each area is built from the top of the country to the bottom. It is inevitable that many new homes will be built over the coming 15 or 20 years. We are requiring the winning bidder to honour the contract for 25 years so that this company is required to connect someone who builds a new house, someone who does not get a broadband service until the tenth year, for whatever reason, or someone who moves house. It will be a contracted connection.

Deputy Bobby Aylward

Is it the case that the contract requires all the connections to use fibre-optic cables?

Mr. Fergal Mulligan

The term we use is "predominantly".

Deputy Bobby Aylward

Predominantly. Okay.

Mr. Fergal Mulligan

We are not eliminating the likelihood of using wireless services in certain circumstances where it may make no sense to bring a fibre connection to a building. If wireless is used, it will have to be as part of a significant technical solution that ensures there is a speed of at least 30 Mbps.

Deputy Bobby Aylward

Right. I would like to ask about the infrastructure that is going to be used. Will the existing system of poles be used? Are they ESB poles or Eircom poles? Will the company be able to access poles that are owned by Eircom or are the property of Eircom? Is Eircom bound to give access to any pole it has to the new company that will be providing this network?

Mr. Fergal Mulligan

There are multiple forms of infrastructure across the country. We expect that whoever is building this network will use the most cost-efficient solution to get maximum value for money. At the moment, the proposition is that the best and most cost-effective solution involves the use of Eircom poles. Those poles are fully regulated by ComReg, which oversees how they are used, as well as the monthly or yearly charges that Eircom is allowed to charge for poles and ducts. They are fully regulated and will continue to be.

Deputy Bobby Aylward

They will be rented from Eircom to the company.

Mr. Fergal Mulligan

We will have a 25-year contract with the existing bidder. That bidder will have many subcontracts with infrastructure providers, including Eircom. If it decides to use the ESB in certain instances, it will have a contract with the ESB. It will have contracts with Enet and others. If it uses towers and masts, it will have contracts in respect of them. They have been in discussions with many providers, including Eircom, for the past two years. There are very substantial subcontract agreements and rental agreements in place for 25 years. They will underpin our contract. We have assurances regarding access to all of the infrastructure.

Deputy Bobby Aylward

Is that being done by the Department or by the company to which the contract is being given? Who makes the deal with Eircom or whoever? Who signs up to the deal? Is the company that is going to come in - Enet - doing the contract or is the Department in charge of the contract? I refer to the contract for accessing the infrastructure.

Mr. Fergal Mulligan

There will be one contract between the Minister and Granahan McCourt, if it is successful in the tender. Then Granahan McCourt will have a number of contracts sitting under its contract. We will oversee those contracts and make sure they are in place before we sign a contract. There are many layers of contracts with many subcontractors in this process, as there are in many complicated processes. There are build contractors. There is the contract with Eircom for renting infrastructure. There is the contract with the company that is going to put in the equipment. There is the contract with the company that is going to design the network. The consortium will need to have many subcontracts in place. As part of our due diligence, before we ask the Minister to sign a contract, we have to make sure all the other contracts are in place and are fit for purpose.

Deputy Bobby Aylward

Okay. How is it envisaged that the broadband will be rolled out? I know there is a 25-year contract. As a Deputy for a rural constituency, I cannot emphasise enough how important broadband is for rural Ireland.

When couples ask me to help them out with planning permission, I am almost asked about broadband coverage in the area first. This occurs regularly. Ten years ago, no one even knew what broadband was and now I am asked about broadband coverage before-----

Mr. Mark Griffin

I will let Mr. Mulligan deal with that. We are hearing that all the time as well, through both parliamentary questions and representations to the Department. It is very reassuring at one level because we know the demand exists and that it has life-changing potential for people in rural Ireland. I refer to the way rural Ireland is structured.

Deputy Bobby Aylward

Mr. Griffin said people can work from home and that companies are happy to leave staff at home if there is coverage.

Mr. Mark Griffin

We last met in December. The Deputy raised the case of a constituent with nine children. All he needed was a pole in the garden but it could not be provided. The plan will deal with that. I ask Mr. Mulligan to elaborate.

Mr. Fergal Mulligan

In terms of how long it will take, the nearest benchmark we have is that Eir is close to concluding the 300,000 we all know about across Ireland. That is fibre over all the poles and through the ducts and to every home. The company started that process in late 2016. In mid-2019, or in June of this year, it says it will be complete. That means it takes in the order of two and a half years to get 300,000 done.

Deputy Bobby Aylward

I am talking about rural Ireland because coverage is very good in the towns. It will be good in the towns. Naturally, they are prioritised because they have dense populations. In five years, will most of rural Ireland be covered? I realise 100% will never be covered. No one can ever say 100%. Will most of rural Ireland have broadband of up to 100 Mbps?

Mr. Fergal Mulligan

Based on the plan in front of us, we are quite confident that the majority will be covered within a timeframe of that order. We are not going to villages or towns; we are concentrating in the main on rural townlands and so on because Eir is bringing fibre to the villages.

Deputy Bobby Aylward

It is good for listeners to hear that.

Mr. Mark Griffin

This company has one mandate and job, which is to deliver fibre to rural Ireland. It has no other business.

Deputy Bobby Aylward

I want to ask about technology. Fibre-optic cable seems to be the priority. One hears on the grapevine that there is new technology coming on stream the whole time, and some speak about satellite. Will what we are doing now be outdated in five years? I realise technology keeps progressing but there is talk that there could be satellite coverage. I do not know whether that is probable. I would not be well up enough to know but-----

Mr. Mark Griffin

I will ask Mr. Neary, our chief technology officer, to deal with that and perhaps the issue of 4G and 5G, which are also in the ether in terms of solutions.

Mr. Patrick Neary

It is worth reflecting on the process we have undertaken. It has set out the requirement to bring a high-quality, reliable broadband service to rural people, with a minimum download speed of 30 Mbps and a minimum upload speed of 6 Mbps. We set that out and we want it to be future-proofed so it is fit for purpose over 25 years. At the table, during the process of procurement, three large consortia of experts came forward with their proposals. Through that engagement and with our own advice and expertise, we have examined all technologies. We have examined fibre to the home, wireless technology, satellite technologies and how they could be deployed in the most efficient manner in the areas we are talking about. That has taken probably two years, end to end. Throughout that period, however, the bidders have concluded the best solution is predominantly fibre to the home.

Deputy Bobby Aylward

Just yesterday, I received a presentation from a representative from Eir. That representative mentioned the roll-out of the old land lines, which were copper rather than fibre-optic cable. The representative said that if there are good copper lines – many of them are old – up to 80 Mbps or 100 Mbps could be achieved. Are these lines all to be replaced with the fibre-optic lines? It sounds phenomenal to me. It involves an awful lot of money.

Mr. Patrick Neary

The solution the Deputy is referring to is where a fibre line is brought to a cabinet. The line from the cabinet out to the house is copper. That is the solution Eir has deployed in the cities and suburban areas. The main issue with that solution is that the distance from the cabinet to the home can sustain a service of only 30 Mbps over copper.

Deputy Bobby Aylward

Are all the copper lines to be replaced by fibre-optic cables?

Mr. Patrick Neary

One can go only about 1 km from the cabinet and still deliver a high-speed broadband service. That is very restraining in terms of the number of homes that can be served directly close to the cabinet. It does not work in a rural setting because not many homes are within 1 km. In rural areas, the idea would be to bring fibre all the way to the house.

Deputy Bobby Aylward

What percentage of the population has reasonable cover at present? Have the witnesses those statistics?

Mr. Patrick Neary

Currently, 74% of premises in Ireland have high-speed broadband.

Deputy Bobby Aylward

Seventy-four percent have satisfactory cover.

Mr. Patrick Neary

With 30 Mbps or above. That is our estimate.

Deputy Bobby Aylward

What about the 700,000 who are left out of the loop?

Mr. Patrick Neary

By the end of this year, we expect the number to rise to 77% because there is more rolling out to happen this year-----

Deputy Bobby Aylward

Last week in Carlow, there was a launch by Vodafone and SIRO. This must be cutting down on-----

Mr. Mark Griffin

Vodafone and SIRO are doing towns and villages. They are not going out into the rural areas.

Deputy Bobby Aylward

They must be cutting back on the waiting list – the 700,000 we are speaking of.

Mr. Mark Griffin

No, because they are rural. We are looking at the rural premises, the ones that are being left behind by the commercial operators.

Deputy Bobby Aylward

That is what the NBP is to address.

Mr. Mark Griffin

In addition to the technical evaluation, we have looked at what other European markets are doing and whether they are bringing fibre to the premises or using other technology. In the UK and Germany, it is fibre to the premises. In France, all the commercial operators are bringing fibre to the premises, as is the case in Italy, Spain, Portugal, the Netherlands, Sweden, Switzerland and Norway. The horse being backed by the commercial operators in Ireland and internationally is a fibre-to-the-premises solution.

Deputy Bobby Aylward

Our job is to scrutinise the expenditure of taxpayers' money. The Taoiseach said in the Dáil - I have asked about this a few times - the final cost will be a multiple of the original. Could the witnesses shed any light on that? Owing to the furore over expenditure on the national children's hospital, many believe there is a waste of money. What will the final figure be? Have they any idea? Will it be a multiple of what we are talking about now?

Mr. Mark Griffin

First, it is a change in the cost estimate. That is a very important distinction to make. We have not spent money other than on the advisory services we use to assist us in developing the overall approach. We have not spent money on a building. It is different from the children's hospital in that respect. The cost will be a lot higher than what we had-----

Deputy Bobby Aylward

Are we talking about billions of euro?

Mr. Mark Griffin

I am not going to give the Deputy a figure.

Deputy Bobby Aylward

Not even an idea?

Mr. Mark Griffin

No.

Deputy Bobby Aylward

So Mr. Griffin is afraid to say.

Mr. Mark Griffin

I am not afraid at all but until the Government has been fully briefed on this, I do not believe it would be appropriate.

Deputy Bobby Aylward

The Taoiseach said in the Dáil the cost would be multiples-----

Mr. Mark Griffin

He said multiples.

Deputy Bobby Aylward

That is more than four times the original.

Mr. Mark Griffin

I do not know. It all depends on how it is defined.

Deputy Bobby Aylward

It could be four.

Mr. Mark Griffin

I would need to look at a dictionary and see what a "multiple" is, going back to my primary school maths.

Deputy Bobby Aylward

So Mr. Griffin's interpretation of multiples is the problem. Does he still expect an announcement to be made by the Taoiseach before Easter, which is what I asked about last week?

Mr. Mark Griffin

The Taoiseach has indicated his intention to announce before Easter. The Minister said it in reply to oral questions yesterday, and he also indicated arrangements would be made to brief the Oireachtas.

Deputy Bobby Aylward

Mr. Griffin is saying it is all systems go at this stage.

Mr. Mark Griffin

Yes.

Chairman

Mr. Griffin said at the beginning the next step is to approve the preferred bidder.

Mr. Mark Griffin

Absolutely.

Chairman

Whether there is a contract signed will be known some time afterwards. What is to be done by Easter?

Mr. Mark Griffin

For us, it is to finalise the evaluation work. There is a lot of it done. It is to bring a memorandum to the Government with a recommendation.

Chairman

That should be done for a preferred bidder.

Mr. Mark Griffin

Assuming that the Government wishes to go with it, it would be for the appointment of a preferred bidder.

Chairman

In my experience, things may change after a preferred bidder is appointed.

Mr. Mark Griffin

There would be a number of contractual issues to be nailed down.

Chairman

Okay. At this stage, we will suspend for lunch. We are not yet finished and there may be some further questions for the witnesses.

Sitting suspended at 1.20 p.m. and resumed at 2.30 p.m.

Chairman

I ask all present to ensure that their mobile phones are turned off. We will now continue our discussion on broadband. The next speaker is Deputy Connolly for her second round of questions.

Deputy Catherine Connolly

The 25-year broadband contract will be rolled out at a certain price. We do not yet know that price.

Mr. Mark Griffin

We know the price.

Deputy Catherine Connolly

Mr. Griffin knows the price but he cannot reveal it.

Mr. Mark Griffin

I cannot tell the committee what is the price.

Deputy Catherine Connolly

We know that it is a 25-year contract and the price has been fixed. If the decision is made, it is a matter of when it will be rolled out.

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

We were told it is one of ten major projects. A few weeks ago, we were told that the national broadband plan is in its final stages.

Mr. Mark Griffin

Prior to a tender recommendation.

Deputy Catherine Connolly

When will the recommendation be ready? I acknowledge that Mr. Griffin already mentioned that.

Mr. Mark Griffin

As the Taoiseach indicated, our aim is to bring a recommendation on the preferred bidder to Government by Easter. The Taoiseach stated that he will make arrangements to brief the Opposition to ensure that-----

Deputy Catherine Connolly

Mr. Griffin hopes to bring that recommendation to Government by Easter.

Deputy Catherine Connolly

That is okay. The Department hopes to have it done by Easter.

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

At this point we have MANs doing what they were set up to do in 98 cities and towns. Is that right?

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

I will come back to that matter. Eir took over 300,000 houses on a totally commercial basis.

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

The Department is paying nothing to Eir.

Mr. Mark Griffin

No.

Deputy Catherine Connolly

However, it has a service level agreement with it.

Mr. Mark Griffin

Yes, absolutely.

Deputy Catherine Connolly

All of the connections were to be rolled out by the end of 2018.

Mr. Mark Griffin

The figure was to pass 300,000 premises by the end of 2018.

Deputy Catherine Connolly

That did not happen.

Mr. Mark Griffin

There is a slight delay, but it will have it done by the middle of this year.

Deputy Catherine Connolly

Does the service level agreement allow for a delay? Is there any penalty?

Mr. Mark Griffin

There are penalty mechanisms within the-----

Deputy Catherine Connolly

Have they come into operation?

Mr. Mark Griffin

No. Effectively, one is looking at a force majeure situation because of-----

Deputy Catherine Connolly

It is a short delay.

Mr. Mark Griffin

A short delay. Storm Ophelia-----

Deputy Catherine Connolly

However, penalties are built into the service level agreement.

Mr. Mark Griffin

Absolutely. It is a written agreement.

Deputy Catherine Connolly

At what point would they kick in?

Mr. Mark Griffin

I imagine if there was a substantial delay in-----

Deputy Catherine Connolly

If the agreed end date was the end of December 2018, what would be a substantial delay, given that we are now in March?

Mr. Patrick Neary

The force majeure situation, as the Secretary General described it, would extend the end date, but the contract allows a backstop of six months beyond that date.

Deputy Catherine Connolly

Mr. Neary is very courageous to use that word.

Mr. Patrick Neary

Perhaps it is not a good one. Six months beyond the target deployment completion date is when the agreement is-----

Deputy Catherine Connolly

It would be a matter of interpretation as to what-----

Mr. Patrick Neary

At the outset it was six months beyond December 2018. We have allowed additional time because of Storm Ophelia and Storm Emma. Therefore, it is six months beyond that date.

Deputy Catherine Connolly

What is the outer limit?

Mr. Patrick Neary

It would be the end of this year.

Deputy Catherine Connolly

The Department's agreement with Eir is that it would pass the houses, not the uptake.

Mr. Patrick Neary

The agreement covers passing certain milestones. Then there is an obligation to connect the premises within a certain length of time of receiving an order according to the regulated price for connections. That is within the agreement. Once it receives an order, it will be obligated to connect the premises.

Deputy Catherine Connolly

The premises could be a school, a private home or a business.

Mr. Patrick Neary

Yes.

Deputy Catherine Connolly

The original figure of 800,000 premises and the reduced figure cover all premises.

Mr. Patrick Neary

It is a mixture of residential and business premises.

Deputy Catherine Connolly

Eir or some operator is obliged to connect. I ask Mr. Neary to explain it to me because I am a little lost.

Mr. Patrick Neary

The commitment-----

Deputy Catherine Connolly

When they are passing-----

Mr. Patrick Neary

It is passing according to milestones. Eir is only obligated to connect once it receives an order from a service provider. It is a wholesale network. A consumer would order from an operator such as Sky, Vodafone or-----

Deputy Catherine Connolly

A much smaller operator like the ones that came before us.

Mr. Patrick Neary

Absolutely. They will place an order with Eir which will then be obligated to fulfil it within a defined period.

Deputy Catherine Connolly

What is it?

Mr. Patrick Neary

Off the top of my head, I think it is within two or four weeks.

Deputy Catherine Connolly

How is it monitored? If the smaller provider comes forward and it does not happen and the person in the house loses out, how is it monitored by the Department?

Mr. Patrick Neary

There are two aspects. First, as Eir is a regulated company, there is oversight by ComReg of its operations in certain instances.

Deputy Catherine Connolly

In terms of its agreement with the Department.

Mr. Patrick Neary

No. Separate from our agreement we have our own monitoring process in place.

Deputy Catherine Connolly

That is what I am asking about. I am asking about the Department's monitoring.

Mr. Patrick Neary

We meet Eir on a monthly basis. We have conducted on-site inspections of its works. It is obligated to publish the rate for homes that are available every month to industry.

Deputy Catherine Connolly

The rate of-----

Mr. Patrick Neary

When homes are available to be connected, it has to publish that information for industry every month. Effectively, every month industry sees the new homes that are available for which connections can be ordered.

Deputy Catherine Connolly

I asked what the uptake was, but the officials do not have figures. When does the Department get the figures for the uptake when the final connection is made?

Mr. Patrick Neary

What we see on a monthly basis is the number from Eir of the orders being connected in reporting directly to the Department.

Deputy Catherine Connolly

The Department is aware of the figures.

Mr. Patrick Neary

Yes, we are.

Deputy Catherine Connolly

However, we cannot be aware of them.

Mr. Patrick Neary

It is considered to be commercially sensitive from Eir's perspective.

Mr. Mark Griffin

Eir would state it is commercially sensitive, but if it is happy to share the information with the committee, that would be fine. We know what the figures are.

Deputy Catherine Connolly

All I can do is ask a few questions after reading the reports. Our experience with MANs is such that things came out in reports retrospectively. That is why I am teasing out the governance and monitoring arrangements. The officials are saying Eir reports to the Department and that they are happy with this, but nobody else can know. We must take their reassurances that it is all good. Everything was supposedly also good with the MANs, but we only found out that it was not when we saw the two reports. If I am being a little too hard, just correct me.

Mr. Fergal Mulligan

I will come in there from the point of view of reassurance. Again, under the NDP, the objective is that everybody who wants a high-speed broadband connection will have one.

Deputy Catherine Connolly

This is just about Eir with its 300,000 premises.

Mr. Fergal Mulligan

It is relevant to my point.

Deputy Catherine Connolly

Okay.

Mr. Fergal Mulligan

Within the figure of 750,000, it signed a commitment agreement with the then Minister, Deputy Naughten. There were approximately 300,500 Eircodes. In the commitment agreement every Eircode is itemised.

Deputy Catherine Connolly

Within the agreement how many premises are there?

Mr. Fergal Mulligan

There are 300,000 Eircodes. A building may have one or two Eircodes. Therefore, I cannot say the figure is 300,000 premises.

Deputy Catherine Connolly

I understand. The Department is going by Eircodes, of which there are 300,000.

Mr. Fergal Mulligan

Yes. Among those Eircodes, there is a substantial number of small and medium-sized businesses, schools and a mixture-----

Deputy Catherine Connolly

Does the Department have the total number of premises?

Mr. Fergal Mulligan

We have every single one of those premises.

Deputy Catherine Connolly

What is the total number of premises?

Mr. Fergal Mulligan

If the Deputy looks at our high-speed broadmap map on our website, she will see that the Eircode is identified in light blue.

Deputy Catherine Connolly

Do the witnesses have a figure?

Mr. Patrick Neary

It is 300,000 premises.

Deputy Catherine Connolly

Therefore, there are 300,000 Eircodes and 300,000 premises.

Mr. Patrick Neary

What Mr. Mulligan is clarifying is that a building may have multiple Eircodes. If the Deputy's question is how many buildings there are-----

Deputy Catherine Connolly

That is my question.

Mr. Patrick Neary

I do not have the number to hand, but I can get it.

Deputy Catherine Connolly

That would be handy.

Mr. Fergal Mulligan

Off the top of my head, there would be a small percentage of buildings, I imagine, in rural Ireland that would have multiple Eircodes. For example, a farm could be considered to be a business by the Central Statistics Office and also a residential home. That one home could have two Eircodes. We could get the number from the CSO.

Deputy Catherine Connolly

That is okay.

Mr. Mark Griffin

It is not going to make a material difference.

Mr. Fergal Mulligan

On the Deputy's point about the connections, while Eir is stating it is commercially sensitive information and, as the Secretary General said, it could volunteer that information to the committee-----

Deputy Catherine Connolly

It did not do so when we asked it.

Mr. Fergal Mulligan

In Ireland today there are Virgin Media, SIRO and Eir. They are the main builders of fibre connections to homes. SIRO, Eir and all other operators provide the information for the regulator. We have the Eir information. What we have seen, without giving the committee exact numbers, is that uptake has been very good and it is getting stronger and bigger every month. Why it was slow in the initial year - 2017 - was that Eir Retail, the retail arm of Eir - it is Eir Wholesale that is building the network - was the only one selling it. Eventually Eir Wholesale started to bring in Sky and Vodafone. The Deputy might have noticed lately that there is an ad featuring Dermot Bannon on RTÉ for high-speed fibre broadband. The number of people looking for high-speed broadband has grown substantially since.

Deputy Catherine Connolly

There is a catalyst effect.

Mr. Fergal Mulligan

Exactly.

Deputy Catherine Connolly

At this point we have a national broadband plan for less than-----

Mr. Fergal Mulligan

Approximately 540,000.

Deputy Catherine Connolly

Based on the figure today, the Department expects an 77% connection rate to broadband by the end of the year.

Mr. Patrick Neary

The national broadband plan handles about 23%.

Deputy Catherine Connolly

All of the other connections are being provided by the MANs. It is a small number and they are commercial.

Mr. Fergal Mulligan

To clarify, the MANs are predominantly service providers for business. They provide backhaul for residential premises, but they do not connect to them, as I understand it.

Deputy Catherine Connolly

I understand. On the commercial side, the national broadband plan will provide for a figure of 23% or less, if it changes, which-----

Mr. Fergal Mulligan

One could put a plus or a minus sign beside it.

Deputy Catherine Connolly

It seems to be a minus sign because more providers are coming on board.

Mr. Fergal Mulligan

I will go back to my first point. The Deputy made a valid point about monitoring the number of 300,000 with Eir. In the next ten, 15 or 20 years there may be a small proportion that Eir will not connect for whatever reason.

Under the NBP, there is a commitment to connect everyone in Ireland if a connection is required and a commercial company will not do it. Our 540,000 figure has a plus or minus in the contract to allow for the fact that there may be premises over the next ten years that commercial companies told us they will connect but might not do so.

Deputy Catherine Connolly

That goes back to how 85,000 premises were added originally.

Mr. Fergal Mulligan

Exactly.

Deputy Catherine Connolly

I recognise the logic in that. I am not necessarily agreeing with it but I acknowledge what Mr. Griffin is saying. How much money has come back to the Government through the MANs? As a result of the report the management fees were eliminated. Were they more than €1 million per year? That was a major change arising from the report. Is that correct? Were there three sources of revenue? What has been received to date under the MANs? Am I correct in saying the total spend to date is €180 million?

Mr. Mark Griffin

The total spend to date includes the capital investment when the MANs were initially constructed. That was approximately €180 million and a little less than half of that was funded from the ERDF. There are three sources of funding from the arrangement we have renegotiated. The Deputy mentioned the elimination of the management fee, which is just short of €8 million. There is an increase in the revenue share of approximately-----

Deputy Catherine Connolly

What is the €8 million? Is that added over the years?

Mr. Mark Griffin

Yes. That is the saving. The improved revenue share is estimated to be more than €7 million.

Deputy Catherine Connolly

That is in total.

Mr. Mark Griffin

Yes. That is an additional revenue share that was negotiated. There is a further reduction in the State's potential liability at the end of the contract. That is a clawback mechanism in place that amounts to approximately €6.4 million. The assessment also demonstrated that by extending rather than retendering, we could add to the value of the asset under different scenarios. If we retendered, the additional value to the asset would be €14 million but if we extended, it would be approximately €35 million. That is a different benefit arising out of it. Those are the financial benefits. As I said earlier, there is a range of non-financial benefits that we see as being as important, if not more important, than those.

Deputy Catherine Connolly

One was that the Department did not want to discourage investment by Enet in the service. It was set out in one of the papers that putting this back out to tender would be a disincentive to the service provider with respect to investment. I understand it is built into the contract that the company would invest and keep everything up to date.

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

That logic does not apply as a result.

Mr. Mark Griffin

We have seen the company invest over and above the contractual requirements. The disincentive may come in a winding down period if it did not expend at the same level.

Deputy Catherine Connolly

Surely the contract provides for that. Otherwise, the Department would build into a contract that only that entity can get it. It would be predetermined that the company would get an extension if the logic that it will not invest in the final stages unless it gets the tender again is used.

Mr. Mark Griffin

That is only one consideration. We are not saying it would not invest but there would be a disincentive for the company to invest over and above the mandatory requirements in the contract.

Deputy Catherine Connolly

If he does not mind me saying it, that does not make any sense. If a contract asks a party to invest, there must be a standard to which that party should invest.

Mr. Mark Griffin

Yes, but the company has invested over and above that level.

Deputy Catherine Connolly

I know and understand that but that is the business of the company in question. To say it is a disincentive-----

Mr. Mark Griffin

It is not just their business, as it is an extension over and above what it is required under the contract. The additional value to the asset is in State ownership.

Deputy Catherine Connolly

The MANs are in State ownership but it is being managed by this entity.

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

The process will come to an end so what will happen then.

Mr. Mark Griffin

We will either retender or sell.

Deputy Catherine Connolly

No decision has been made on that.

Mr. Mark Griffin

The extension is to 2030.

Deputy Catherine Connolly

I understand that. It is too far out to anticipate what will be done.

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

There will be a retender or sale.

Mr. Mark Griffin

Yes. There is no provision for a further extension.

Deputy Catherine Connolly

I saw that. That there is no provision for further extension means it will either be sold or retendered.

Mr. Mark Griffin

We will need to think about the market at that stage.

Deputy Catherine Connolly

Are we getting an entity to run the national broadband process as well if we are to own it?

Mr. Mark Griffin

No. A range of models were considered at the outset of the project.

Deputy Catherine Connolly

What is happening at this point?

Mr. Mark Griffin

It is a gap-funded model so we will provide a subsidy to the operator to run the operation.

Deputy Catherine Connolly

The operator will own it.

Mr. Mark Griffin

Yes. We did a large amount of analysis on the benefits or otherwise of different models at the outset of the project.

Deputy Catherine Connolly

With the 23% - or less or more - that might be left, what ongoing analysis is being done for other options? I presume that is instead of going in the direction of one entity running the process with a colossal price. That relates to the 23% of premises that are left. We are not here to speak about providers as we deal with value for money. However, providers have said they can do more and technology is changing. Could the Government roll out an NBP for 20% of premises with a colossal price in those circumstances?

Mr. Mark Griffin

The price reflects the nature of the intervention being made and we would intervene in the most remote parts of the country.

Deputy Catherine Connolly

What are the other options, particularly if uptake is not what is expected?

Mr. Mark Griffin

We considered a range of options at the outset. Mr. Mulligan can explain this in a bit more detail. In 2015, when we looked at the nature of the intervention strategies, we examined what was happening internationally-----

Deputy Catherine Connolly

The Chairman has been very generous so at this point, as the market continues to change and the number of potential consumers continues to deteriorate as they are picked up by private operators, is the Department giving options to the Government aside from this plan? The number of premises that will be affected seems to be going down and I presume the price will go up. We have not been told the price but I am making that assumption.

Mr. Fergal Mulligan

We can put it in context. On the map on the screen we can look at the west of Ireland, Galway or anywhere else. The blue and light blue areas show what commercial operators will serve and the rest is amber. Whether the amber areas change by a premise here or there because of the intervention of a commercial operator, our intervention will still be required. When we looked at this in 2015 and 2016, there were choices and there are still choices today. We looked at them in 2015 and we consistently look at them; we reappraised the project in 2018 after Eir left. We continue to do it because we do not want to do the wrong thing. If we want to cover 100% of every townland in Galway, taking in every family, we must do it. If a commercial company connects some of them along the way, the issue does not change.

Deputy Catherine Connolly

I have heard that and the Government is constantly telling us how important this is. We are not here to deal with that. We need to get a cost-benefit analysis and whether the process is worth it. We need to know if there are other ways of doing it. It is what I would like to hear. What is the expected cost per household after all this significant investment?

Mr. Mark Griffin

Is that the cost of connection?

Deputy Catherine Connolly

Yes.

Mr. Mark Griffin

It would be the same cost of connecting as it is in urban Ireland. It is €100 per household.

Deputy Catherine Connolly

What about the ongoing operating cost to receive the service on a monthly basis?

Mr. Mark Griffin

The packages being sold to Eir's 300,000 premises are similar to those being sold in urban Ireland.

Deputy Catherine Connolly

Could I have a figure?

Mr. Mark Griffin

It is approximately €45 to €55 per month.

Mr. Fergal Mulligan

When this is built, consumers will pay in the order of €40 or €50 per month for a high-speed broadband service. That is similar to Dublin.

Deputy Catherine Connolly

I know that and there is a subsidy. There is money going in at the capital level and there is a cross-subsidy.

Mr. Fergal Mulligan

We cannot talk about the capital and operating costs over 25 years today.

Deputy Catherine Connolly

I know that.

Mr. Mulligan said it is expected to be about €50 per month.

Mr. Fergal Mulligan

Yes, the retail price.

Deputy Catherine Connolly

That is what I am talking about. As a result of all this investment, whatever we decide about the ideology behind it, Mr. Mulligan expects that customers will pay no more than €40 to €60 per month.

Mr. Fergal Mulligan

Again, our information is based on a wholesale open access company-----

Deputy Catherine Connolly

I know that is with a view to extending the service to every house.

Mr. Fergal Mulligan

When it is built, there will be 40 or 50 retailers selling many services such as broadband, television and so forth over this network. The wholesale service is regulated at present. ComReg regulates Eir's wholesale broadband service in urban areas outside our area and the average cost of that is approximately €30, excluding VAT, or a little less. The same wholesale price will apply in the intervention area. Retailers, therefore, will have the same opportunities to sell the same services at the same price across the country. That is the model.

Mr. Mark Griffin

On the benefit to cost ratio, we have constantly updated the CBA and the benefit to cost ratio is still positive. We cannot say certain things today but the Taoiseach has indicated that the Oireachtas will be briefed and we will be in a position to provide a great deal more information, including what the Deputy is seeking today-----

Deputy Catherine Connolly

After the decision is made.

Mr. Mark Griffin

-----after the preferred bidder but not before contract signing.

Chairman

Will Mr. Griffin clarify that again? It is important. Clearly, there are two stages. There is the preferred bidder, then there will be a Dáil debate for information or statements.

Mr. Mark Griffin

I am not sure what the mechanics will be.

Chairman

The contracts will not be signed until some time after that.

Mr. Mark Griffin

Yes. The Minister said in the Oireachtas that the contract signing will take a number of weeks, but it will probably take a little longer than that. There will be an adequate period of time for whatever arrangements are agreed between the political parties for the briefing to take place and for the exchange of a substantial degree of information that we have at present but we have not been in a position to share with the committee today.

Deputy Catherine Connolly

If the Government decided not to go ahead with it, there would be no implications other than the broadband would not be rolled out in the time span that has been agreed.

Mr. Mark Griffin

If the Government decided not to go ahead with it the problem that 1 million people-----

Deputy Catherine Connolly

I am talking about the company and the tendering process. There are no implications for that.

Mr. Mark Griffin

In what sense?

Deputy Catherine Connolly

Contractual.

Mr. Mark Griffin

There is no contract signed.

Deputy Catherine Connolly

There are no implications whatsoever.

Mr. Mark Griffin

It has made a bid.

Deputy Catherine Connolly

I understand that, but there are no implications if the contract is never signed.

Mr. Mark Griffin

No.

Deputy Catherine Connolly

Theoretically, if the Dáil decides it is not worth it or it is too expensive for the number of premises left, will we examine the other options the Department will be putting forward?

Mr. Mark Griffin

I do not know what way the Dáil engagement will work. That has not been set out yet. I cannot say at this point what the nature of the interaction will be with Opposition parties in the Oireachtas-----

Deputy Catherine Connolly

I understand that. What the Department will put before the Government will be a recommendation-----

Mr. Mark Griffin

Yes.

Deputy Catherine Connolly

-----plus the other options the Department has examined.

Mr. Mark Griffin

We will put everything on the table.

Deputy Catherine Connolly

Will the cost-benefit analysis be made available at that point as well? I presume it will no longer be commercially sensitive.

Mr. Mark Griffin

We will have to look at that. Let us say, for example, the Government did not decide to proceed and we have to go back to a different process which has different technology or a different roll-out mechanism, it is probably a suite of figures one would not wish to put in the public domain because it would potentially prejudice and give hostages to fortune in a further procurement process. Our intention will be to be as open as possible. We believe we have done a huge amount of positive work. We have a proposal here that is sound, but that still has to go through some due diligence. The view of the Government and the Minister is that it is important to have an opportunity to explain to the Oireachtas what this project is about.

Deputy Catherine Connolly

We all know what the project is about.

Mr. Mark Griffin

Deputies do not have the detail, and the detail is very important.

Deputy Catherine Connolly

It is the cost of it.

Mr. Mark Griffin

The cost is related to the detail. It does not stand alone.

Deputy Catherine Murphy

I wish to return to the MANs. The Department has essentially fulfilled the role of the regulator because ComReg was not regulating prices. The Department got Norcontel to carry out an analysis and following that, the MANs concessionary contracts were extended. Then there was the Analysys Mason report. I cannot remember whether the report or the extension came first. Is it fair to say that the Department was regulating or monitoring the MANs?

Mr. Mark Griffin

We were certainly monitoring the MANs but we did not regulate the price. That is clear from the Analysys Mason report. We are not a price regulator for regulation of prices, ComReg or significant market power.

Deputy Catherine Murphy

Was that not a failure or an oversight given some of the things that emerged in the Analysys Mason report and given the fact that ComReg has been asked to do work as well?

Mr. Mark Griffin

We are not entitled to regulate price under the concession agreement. The basic thesis is for entities other than those that have significant market power or are in an effective monopoly situation. The only one that has SMP is Eir at present. The market will dictate the price and if one pitches a price at a level that is not acceptable to service operators one will not make a living.

Deputy Catherine Murphy

Then we are into the scenario where there was no tendering process. We went through that this morning. I have my views on it but that is neither here nor there. I will move on. I do not know if Mr. Mulligan can give us the information but he mentioned the connection cost being €100 per household, irrespective of where it is in the country. I do not dispute that everybody should have access to broadband. How it is delivered is the point at issue, including how it is delivered quickly, effectively and sustainably into the future in terms of bandwidths and so forth. However, there is clearly a sizeable difference in the actual cost when one gets to the final 15% of hard to reach households that are not commercial. Does he have a general figure for that? A household on a hillside is very different from a terraced house on a housing estate. Is there a general figure for that or is that in the cost-benefit analysis?

Mr. Fergal Mulligan

I will explain what we have done. I will not give exact numbers because, again, that is commercial. I will outline how we arrived at our numbers and how all the bidders arrived at theirs in the context of the models one does to arrive at the best estimate. Of course, one does not know the actual cost until one gets to the driveway, farm or wherever because one has to count the number of poles and so forth. We have spent two or three years at it in conjunction with the consultation with bidders since 2016 and everybody has their best estimates of cost. Through the technical data we have now and the CSO data we have every Eircode postcode in the country mapped. We have worked with ComReg on that as it has that for its own regulatory reasons. We have every road in the country mapped through GeoDirectory and all the mapping tools we have these days. We have every metre in the country covered in terms of how much road network there is, which is approximately 100,000 km. We know how many poles would be needed, how many new poles would be needed and how many poles will be needed to get from the curtilage of a road to a house. That is all mapped and modelled. That gives us the route length, how many metres of fibre are needed, how many poles are needed and what is likely to be underground and over ground. They are the best estimates we have. We have numbers - the numbers by house and the average numbers by 500,000 houses. We know what the likely most expensive home will be and we know what the cheapest home will be. We have all that information internally.

Deputy Catherine Murphy

However, Mr. Mulligan will not be able to give that to us.

Mr. Fergal Mulligan

Not today.

Mr. Mark Griffin

I do not see a reason that we would not be able to give it as part of a later briefing.

Deputy Catherine Murphy

The public spending code must be complied with when something is over the threshold of €20 million. Is it usual that a cost-benefit analysis would be commercially sensitive? Is this an unusual scenario in the context of the delivery of this network?

Mr. Mark Griffin

It is not sensitive. We can articulate the benefits at great length. It is difficult to put the cost in the public domain when we are still involved in the tender process.

Deputy Catherine Murphy

I certainly understand the Department does not want to drive up prices but wants to keep them down.

Mr. Mark Griffin

Exactly. We have complied with the public spending code throughout our management of the cost-benefit analysis.

Deputy Catherine Murphy

The Department is changing its approach as things change, for example, to reflect the number in the commercial sector-----

Mr. Mark Griffin

We carried out a cost-benefit analysis when Eir withdrew from the process and again as recently as March this year.

Deputy Catherine Murphy

I wish to discuss the expected cost in 2015. I am reading from a report produced by Mr. Colm McCarthy, with which I am sure Mr. Griffin is familiar. The projected cost reflected a specified standard. Has the bandwidth changed since 2015?

Mr. Mark Griffin

Our basic requirements specified in the contract were a download speed of 30 Mbps and an upload speed of 6 Mbps.

Deputy Catherine Murphy

Is that what the €500 million figure was benchmarked against?

Mr. Mark Griffin

It was benchmarked against a different approach, namely, the provision of fibre backhaul at about 1,100 locations, with no provision being made for connections in the last mile. The 30 Mbps speed was not standard.

Mr. Fergal Mulligan

The €500 million figure dates from before the intervention strategy, on which there were consultations in 2015. The figure was quoted in 2014. In 2015 we arrived at our initial estimates and settled on a standard. The minimum standard of 30 Mbps is set by the European Commission. When and if we award a contract, it will be based on the bid submitted which will be based on the speeds promised by the operator. Our note points out that the entry product is at a speed of 150 Mbps.

Deputy Catherine Murphy

We started off with 800,000 premises and are now down to 540,000. A chunk of them have been taken out by Imagine and Eir.

Mr. Mark Griffin

The only chunk that has actually been taken out is the cohort of 300,000 premises. The figure of 757,000 was reduced by 300,000 and we added 84,500 back in. We have the most recent proposals published by Eir and Imagine before they met the committee in February. We have made a analysis. Mr. Neary may want to comment on that matter.

Mr. Patrick Neary

We have met Eir and Imagine since they appeared before the committee. They have indicated that they have no plans to commit to any deployment or apply to change the map at this point. We are monitoring the roll-out of the announcements they have made and will continue to do so in the coming months. They have agreed to report to us on the matter.

Deputy Catherine Murphy

Why is the price going to increase when there are fewer premises involved? It just does not add up.

Mr. Ciarán Ó hÓbáin

I will provide a very simple explanation without going into the estimated subsidy. We are going to intervene in the market that is 96% of the landmass of Ireland. A network must be built to connect all of the 750,000 premises in that area. The number of premises to be served has been reduced, but they are still scattered throughout the landmass. A provider will have to use as much fibre as is needed to connect the premises on a certain road. It might connect 40 houses whereas previously it would have connected 60. It requires the same number of kilometres of fibre, but the revenue decreases to reflect the fact that 20 houses not covered. The reduced number of premises impacts on revenue without much of a change in operating costs.

Deputy Catherine Murphy

It is almost a disadvantage that others have intervened.

Mr. Ciarán Ó hÓbáin

If we were to roll back a decade or more in order that the intervention area was the island of Ireland and nobody was providing high-speed broadband, firms would be bidding big money to win the contract.

Deputy Catherine Murphy

If the State had decided to build and own the network from day one, it would probably have been more cost-effective in the end. The network will be extended out to those places.

Mr. Fergal Mulligan

Mr. Ó hÓbáin's was describing the situation if, hypothetically, we were to build our own network across the country. As can be seen on the map, the network we are building will use existing infrastructure. The infrastructure we are using is owned by Eir, the ESB or other concerns. The only thing we are purchasing is the cable which will be connected to poles owned by other concerns. The network will run to the most remote areas throughout the country where the business case is never good. That is why we are doing it. The 25-year business case will be impacted on by the fact that there are fewer premises.

Deputy Catherine Murphy

I want to come back to the report published by Analysys Mason. The headline was an expected reduction in cost per metre. We all saw it as very good news because if the wholesale cost is reduced, the retail cost will be reduced. The Minister then referred a review of pricing to the Commission for Communications Regulation, ComReg. What role does ComReg have in looking at the analysis and ensuring the commitments are kept? Is it a role of the Department or of ComReg and the Department jointly?

Mr. Mark Griffin

It falls to the Department to ensure implementation of the recommendations contained in the Analysys Mason report. Of the 13 recommendations, 11 have been implemented. BT has raised issues and we have committed to taking them up with BT and Enet. The Minister has referred a specific issue concerning transfer pricing between Enet and ETNL to ComReg to confirm that the inter-company transfer pricing arrangements are in compliance with the code of practice. While examining this issue, ComReg will provide another layer of due diligence by confirming that the 13 recommendations have been fully implemented. It will be another chance to address residual concerns. The findings will then be reviewed for possible further recommendations to the Minister.

Deputy Catherine Murphy

The State's investment in metropolitan area networks, MANs, was somewhere short of €180 million. It is a concessionary contract. We own the MANs. What are they worth, or has such an evaluation been made? Does the revenue they have raised for the State match projections?

Mr. Mark Griffin

I cannot give a figure for their value. Like all physical assets, they will have depreciated in value over time. We will have to do some work to value them, but we will do it.

Deputy Catherine Murphy

Is it more than €180 million?

Mr. Mark Griffin

With depreciation, etc., probably not. Enet has added extensions to a value of €30 million. By its nature, a fixed asset starts to depreciate in value from year one. I cannot actually say what the book value of the MANs is, but we will make an assessment which we will forward in due course.

Chairman

Surely the Department of Communications, Climate Action and Environment did that at the time it was extending the contract. It has told us that at the end of the contract there will be a value on the asset that will either come back to the State or whatever else.

Mr. Mark Griffin

We do have a-----

Chairman

When it came to extending the contract, the Department must have conducted that exercise to know what it was renewing.

Mr. Mark Griffin

We made an assessment-----

Chairman

Does the Department have a current or recent figure?

Mr. Mark Griffin

We made an assessment of the likely figure for the asset at the end of the tender period, which was-----

Chairman

At the time of the extension the Department obviously had to know what it was extending.

Mr. Mark Griffin

I do not have that figure with me.

Chairman

I presume the Department can confirm it conducted that exercise. It could not have extended the period without knowing the value of the asset.

Mr. Mark Griffin

The value of the asset at the time-----

Chairman

Yes, at the time.

Mr. Mark Griffin

It would have been assessed by Norcontel. We had further work done-----

Chairman

How recent is it? What year was it? Was it the year of the extension?

Mr. Mark Griffin

It was 2016.

Chairman

In other words, the Department would have a value for the asset at that point in time.

Mr. Seamus McCarthy

And the methodology used in extending the period.

Chairman

Yes. The Department has probably not reconducted the exercise. We are not asking it to redo it because it would be a big cost. Will Mr. Griffin send on the valuation?

Mr. Mark Griffin

We did do it at the time with the Department's internal financial adviser, rather than Norcontel.

Deputy Catherine Murphy

It is important in the context of how a company is actually operating. One could have a company that is not investing, for example. If that is the case, it becomes a less valuable asset.

Mr. Mark Griffin

That is true, but there is an obligation on it to reinvest and it is monitored by the Department. That is all part of the key performance indicators. We would have had to look at what the valuation was, taking account of depreciation, reinvestment and so on. I will need to check what the figure was-----

Deputy Catherine Murphy

How many staff in the Department work on the technical side of things?

Mr. Mark Griffin

There are staff on Mr. Neary's side of the Department, the chief technology office, who provide the technical input. There are also a number of administrative staff who work on the metropolitan area networks. Off the top of my head, the number is probably less than ten.

Deputy Catherine Murphy

Presumably, there is some revenue shared with the State. What is the profile?

Mr. Mark Griffin

We will come back to the committee with the valuation. We can also set out the revenue share that has accrued to the State since the MANs came into operation. We will provide a little more detail on the estimated additional benefits to the State that were renegotiated as part of the extension process.

Deputy Kate O'Connell

Mr. Griffin referred to a figure of €30 million on top of the €176 million for the value of the MANS and the Enet investment. Can we clarify that the asset is still ours?

Mr. Mark Griffin

Absolutely.

Deputy Kate O'Connell

There were questions raised about regulation at the start of the session. I want to get this question right because I do not want the wrong message to be sent from the committee. Am I right in saying that if the Department had intervened, it could have been seen as price fixing, as such? I am referring to the operators of the MANs. Mr. Griffin mentioned the market. Competition enters the market. Service and price are market driven.

Mr. Mark Griffin

Yes, absolutely.

Deputy Kate O'Connell

Some of it can be misconstrued. To my mind, if the Department had set a price, the Competition and Consumer Protection Commission would have been after it.

Mr. Mark Griffin

Yes.

Deputy Kate O'Connell

I assume that the €100 connection fee has been set in order that everybody can have an equal bite at the cherry.

Mr. Mark Griffin

It is the same as in urban areas.

Deputy Kate O'Connell

Therefore, somebody in Tyrrellspass can get it in the same way as a person in Dublin, for example. This means that a person living up the side of a mountain is not at a disadvantage and that a multinational is as likely to move into that area because the broadband service will be good enough. I assume that €100 is just a random figure.

Mr. Mark Griffin

It is based on the regulator's-----

Deputy Kate O'Connell

It is, but it is not in any way connected to the actual cost of doing the job.

Mr. Mark Griffin

In some cases, it may be, but in the case of rural properties the vast majority of the connection charges will be in excess of that figure, as distinct from the charges applied to the customer.

Deputy Kate O'Connell

Other factors might be meeting rock on the way up a person's driveway and boring costs.

Mr. Mark Griffin

Absolutely. There could be trees along the driveway and so on. Where costs are at the extreme end of the spectrum, a contribution may be required.

Mr. Fergal Mulligan

There are protections in the contract to make sure nothing silly will go on. For aesthetic reasons, people may not want to have a couple of poles along the side of their garden and may want to have the whole place dug up. In that situation we say to consumers that they should have to make a contribution towards the cost. It is cheaper to place the poles along the side of a ditch, for example, rather than have an underground duct right up to the front door. We have catered for all of this within the contract to make sure we will not spend money in a situation where the consumer chooses to have the cable run underground.

Deputy Kate O'Connell

Which choice would be based on the aesthetics and reflected in their bill.

Mr. Fergal Mulligan

Yes.

Deputy Kate O'Connell

On the cost benefit analysis and the figures not being placed in the public domain, one could argue that the benefits are not quantifiable at this point because we just do not know what is coming down the road. Is it correct to say any cost benefit analysis only presents the picture at a moment in time?

Mr. Mark Griffin

That is a really important point. When one tries to make a cost benefit analysis for a piece of infrastructure, in respect of which one is looking forward over a 25 year period and in a sector where the transformation is so dramatic, it is very hard to apply the normal rules of play, as set out in the public spending code. In the cost benefit analysis we have set out a range of quantitative benefits that are aligned perfectly with the public spending code, but we have also looked at a range of elements that are not easily quantifiable such as education, e-commerce and e-health, which involves a more qualitative assessment. In fairness to the Taoiseach, when he was at the committee, he referred to the fact that when one built this kind of future-proofed network, one could not rely solely on the typical things that applied to a bog standard - my term - cost benefit analysis.

Deputy Kate O'Connell

Yes, the knowns. The question really concerns the cost of not doing it.

Mr. Mark Griffin

There is also that question.

Deputy Kate O'Connell

That is the analysis on which I would like to focus. It frustrates me a lot when I travel around the country and see massive advertisements for companies that will sort all of this out. On the figure of 757,000 premises, minus 300,000 plus another 80,000, the only amount we can take from the 757,000 is 300,000 because it is a like for like substitution. Eir was providing the same. Therefore, it is 757,000 minus 300,000 because anyone else will only offer an alternative.

Mr. Mark Griffin

They would have to enter into a commitment agreement, as Eir did in the case of the 300,000 premises. Other than that, it would simply be a verbal proposition-----

Deputy Kate O'Connell

Reference was made to that fact that no submission had been made on behalf of Eir or Imagine to do any more.

Mr. Mark Griffin

No. In fact, when we met Imagine, it saw the value and importance of the national broadband plan in continuing as it was.

Deputy Kate O'Connell

Obviously, because it needed to piggyback on it at various points. I see it as infrastructure for the future as opposed to providing home services. Any figure means that we are back to the moment in time issue. We do not know if there will be a massive growth spurt in some part of the State. The figures are all fluid, but, essentially, we are building infrastructure similar to the electrification programme back in the day. It is for the future and there is only one way to go about it - putting the best possible structures in place for development. No one is coming forth with better options than fibre optic cable and closed lines.

Mr. Mark Griffin

No. We have looked at all of this and are very conscious of commentary in some quarters about how if one waited for or went with 5G, it would solve all of one's problems.

ComReg came out with a very good report a number of months ago that basically scotched this and made it clear that, with regard to supporting technological development in rural Ireland, 5G was a complementary technology to the NBP. We had our own internal analysis carried out by Analysys Mason, which made it clear that at international and at national level, and we have seen this in the SIRO and Eir proposals in particular, the horse being backed is fibre to the premises and this is what gives the absolute guarantee on future proofing.

Chairman

I want to put some questions, having listened to the proceedings. What is the nature of the contract? I do not want to conflate the two but when we discussed the national children's hospital, we were told it was a one-off specific issue and not like building a motorway. The witnesses today are saying the exact same - that it is a one-off and there is nothing else like it. They are not in the same space but they could be. The children's hospital had a two-phase contract. What is the nature or type of the broadband contract? I am not looking for commercial details. Is it design, build, operate and finance? Does it have one stage or two stages? What are the review processes? What is the nature of the contract being worked on?

Mr. Fergal Mulligan

In July 2015, we published the consultation that went through all of the options for the type of contract. This was after we made a decision that this was an infrastructure for the future and it needed to be future-proofed. During the consultation we received more than 100 responses from the public and operators. In December, before we went through the procurement process, we made the decision this would be a gap-funded model to design, build, operate and finance for 25 years.

Chairman

Who is doing the financing?

Mr. Fergal Mulligan

In a gap-funded model it is a mixture of the State and private sector.

Chairman

I understand but explain it in English to the listeners.

Mr. Fergal Mulligan

A gap is a commercial stimulus model-----

Chairman

Simplify that again for me.

Mr. Fergal Mulligan

It means it is a mixture of private and public.

Chairman

That is fine.

Mr. Fergal Mulligan

It is not the same as a public private partnership, PPP, where a road is built. In this instance, we went to the market and at the time it was €757,000. We never published any figure on how much the State might put into the project because we did not want to lead the bidders. We simply went to the market and stated we wanted high-speed broadband of at least 30 Mbps, we did not name a technology, and we stated we wanted the market to tell us how design, build and operate it and to tell us how much money the operators might want from the State to do this and live by the contract for 25 years, knowing they might have 300,000 or 400,000 customers over that 25 year period at €30 or €40 a head. This was the task put forward to the bidders that qualified, three of whom were at the table. They told us they believed the predominant technology should be fibre and they told us how they would design it. All three gave us very different designs but similar operations because they would be selling the same services and all three gave us very different financial models of how it would be financed. At the invitation to submit detailed solutions stage in September 2017, we got a number from two operators on how much money they thought the State would have to put into the project and how much they would put into it. That was called a dummy run of the bid. We had two numbers at that point. This is where we are today. The contract, which has 1,500 pages, has strict obligations for them to show us their designs for each of the 100 areas of 5,000 premises throughout every part of the country and that must be proven before it is built.

Chairman

Who set the 100 areas?

Mr. Fergal Mulligan

We did. The Department decided we would look for these 100 areas of 5,000 premises because it would be the best way to chop up the payments. We pay by every area that is done.

Chairman

We will come to the payments shortly.

Mr. Fergal Mulligan

They put in their money, which we will not disclose. The State must then honour its commitment and the subsidy from the State is paid over the 25 years.

Chairman

Is there a subsidy for connection at the beginning and then an annual operating subsidy to provide the service?

Mr. Fergal Mulligan

We will pay them first to pass all the premises and then we will pay them as they connect. If somebody orders a connection when the order is completed to the satisfaction of the Department we will pay the company a certain amount per premises. We will pay it after the event in every case. We will not pay the subsidy before the event.

Chairman

The company will be paid at a pass order stage.

Mr. Fergal Mulligan

If, for example, there are 5,000 premises in Donegal, the first task will be to pass those 5,000 premises. We will pay when we get an independent certificate stating they have been passed.

Chairman

Yes, but nothing will have been done.

Mr. Fergal Mulligan

The fibre cable will be on all of the poles and perhaps in Donegal this would amount to more than 10,000 km. The company will have designed the network, trimmed the trees and the hedges and put fibre cable on every pole.

Chairman

They will have done that.

Mr. Fergal Mulligan

All of that will have been done.

Chairman

Mr. Mulligan can understand that I want to go through the nitty-gritty so that people will understand it.

Mr. Fergal Mulligan

When the 5,000 premises are passed and all of the fibre cable is on every road, the consumers and businesses will put in an order to a retailer and that retailer will order from this national broadband company. When the national broadband company goes out in another truck to connect from the road to the home, we will make another payment.

Mr. Mark Griffin

The company will not have to get to the end of the 5,000 premises before connections can start.

Mr. Fergal Mulligan

The connections can start once the first 300 or 500 homes are done.

Chairman

They will have put in some of the network, and at the point when the block is done, the Department will give it a block payment for the work done to date and then pay it as connections happen after the event.

Mr. Fergal Mulligan

Exactly.

Chairman

I just want to understand because there is so much talk. People understand this level of debate.

Mr. Fergal Mulligan

The nature of the contract is the company will be paid only based on verified actual costs incurred. We will pay it for the work done once that work has been confirmed independently by somebody to have been done to the standard required in the contract.

Chairman

Will the company have to finance quite a bit of it at that stage? Mr. Mulligan said it is design, build, construct and finance. I know there will be a subsidy.

Mr. Fergal Mulligan

The bidder will have put forward its share of the money. That is confidential. The existing bidder will put the money into the bucket of money with the subsidy and the bidder's money will be used up in the initial years.

Chairman

I have a quick question for the Comptroller and Auditor General. Has the State done a contract like this before or is this the first of this scale and type? What is the closest to it? Is it the concession for the motorways?

Mr. Seamus McCarthy

PPPs are probably the closest but their payment triggers are much simpler. This sounds like a much more complicated verification process for payment.

Chairman

They will probably be monthly, weekly or regular payments-----

Mr. Fergal Mulligan

There will be very regular payments.

Chairman

-----of the subsidy from the Department.

Mr. Fergal Mulligan

Yes.

Chairman

I am getting that. There will be a Government decision soon on whether to appoint a preferred bidder and this will be the next step. After that, there will be Oireachtas consultation, statements or whatever the process is. We will not decide that here. After that, a contract may be signed.

Mr. Mark Griffin

There is always the potential for a contract not to be signed between-----

Chairman

In recent years, we have had cases of preferred bidders being appointed for major projects for the State in PPPs. People have then changed their plans or approaches, or finance has no longer been available. Up to that point there is no liability to the State in terms of the costs incurred by the potential preferred bidder. The bidder carries the costs until the contract is received.

Coming back to the communications area, we had the second mobile phone licence. Eircom was privatised and sold off and has exchanged hands multiple times. Will the winner - and I say winner because it is presumed that company will make money - be able to sell it on to somebody from China or Taiwan?

Mr. Fergal Mulligan

The way the contract works means we cannot prevent a sale to a reasonable third party but if the winning bidder were to sell, there are arrangements in place whereby we would share in any upside there might be in the event of that sale. I will not disclose what the upside is. We would also have to approve the sale so it could not go to an unsuitable third party. I will not go into the definitions and I will leave that to the lawyers. There are a lot of protections in the contract.

Chairman

The Department will have to approve it if the successful bidder wants to sell on the contract. How about if the successful bidder wants to sell off some of the shares in ownership?

They do not sell the contract, but there is a complete change of ownership of the bidder.

Mr. Seamus McCarthy

It is more typical with PPPs that the sale of the company rather than the sale of the contract occurs.

Chairman

The sale of the contract was-----

Mr. Fergal Mulligan

I meant to say the company not the contract. The contract is with the company.

Chairman

I am distinguishing between the two.

Mr. Fergal Mulligan

The contract flows with the company and the company is obliged to honour the contract for 25 years, regardless of ownership.

Chairman

I presume then if the Department approved it to a suitable major global player-----

Mr. Fergal Mulligan

A third party. Same obligations.

Chairman

It is the same obligation but, presumably, an onward sale means the Department loses control at that point.

Mr. Fergal Mulligan

No.

Chairman

On every onward sale.

Mr. Fergal Mulligan

At every point for 25 years, that contract must be honoured.

Chairman

Eircom changed hands several times. Did the State have control over the onward sales? People will ask these questions. Not the Eircom, the-----

Mr. Seamus McCarthy

With Eircom, it would not have had control. With this, it would have.

Mr. Mark Griffin

It would with this. The obligations with the contract would flow. However, we may be getting into a level of detail that-----

Mr. Fergal Mulligan

The State never had a contract with Eircom.

Chairman

In the interest of protecting the taxpayer, we do not want to find it sold to someone and this happening after the first sale. I give the following parallel. When a local authority sells a house to a tenant, it has to give consent for the first onward sale to ensure it is suitable but it then loses that right on subsequent sales. What I am asking about happens in the public service in Ireland.

Mr. Seamus McCarthy

Typically, the value in the special purpose vehicle company is the contract with the State. It is in the interest of any acquirer of that to ensure the contract is honoured because that is where the value is in the company.

Chairman

Eir said here that it will be providing the 1.2 million poles and a lot of the infrastructure. It will probably make its money at that end of it even if it is not a final bidder. That is clear. Who sets the charge Eir can impose? Is it the regulator?

Mr. Mark Griffin

It is a regulated price set by ComReg.

Chairman

We have not been there yet because we have not had this contract, however. The regulator has not gone there.

Mr. Mark Griffin

However, the regulated price is a standard regulated price, is it not?

Chairman

I am not referring just to the cost of connecting to the Eir network. We are talking about a new network of fibre being put on the existing poles.

Mr. Fergal Mulligan

There will be close engagement between the Department and ComReg given the importance of the national broadband plan. On foot of its expertise in the area of regulation, ComReg often gives us advice. As we understand it, it has been engaging with Eircom on understanding the pole and duct network in rural Ireland in its review of that pricing. That is ongoing as we speak.

Chairman

I think of another major utility, namely, Irish Water. I am not sure it is the same utilities regulator but the relevant regulator did not allow some of the costs incurred by Irish Water to be taken into account for passing on to the customer. The regulator considered that there were different levels of investment. Will that situation arise here in terms of the cost of providing the fibre? Will the same principle apply?

Mr. Fergal Mulligan

We are not in a position to comment on whatever ComReg pricing review takes place. ComReg is independent and whatever outcome it has, it has. As the regime stands, there is a standard rental price.

Chairman

There is no problem with the current regime. We are in a new regime with this. It is a new fibre cable and the old pricing structure does not apply.

Mr. Fergal Mulligan

I might clarify that. The solution we are engaged with here is to rent the poles and the ducts from Eircom. Eircom will not own the fibre cable. That will be within the special purpose vehicle. We will oversee the cable and we will oversee the rental price the special purpose vehicle will charge to the retailers. That will be with the Department. As I said, the contract provides that it will be no more than €30 per month to the retailers.

Chairman

From a pragmatic perspective, the public like these questions. I will not go there but a senior person in the country thought these cables were going to be underground and did not know about the 1.2 million poles that will carry the fibre. Be that as it may, will Eir be able to replace its existing copper cables with this and rent back from the SPV the use of the fibre for its existing network of telephone customers? Does Mr. Mulligan get my point?

Mr. Fergal Mulligan

It is a good question.

Chairman

Will this be capable of wider use than just broadband? Will it be able to be used for telephones?

Mr. Fergal Mulligan

This is happening in the UK and all over Europe. Copper cables have been used in all countries for the last 40 years. They have a finite life. The plan of incumbents across Europe, as the Secretary General has said, is to replace copper with fibre. Fibre does everything copper did in the past. One can use it for one's existing landline telephone, security system and television and much more. Fibre allows one to carry that massive data copper could not. The regulator's plan in Ireland, as with Ofcom in the UK and others internationally, is to bring in a regulatory regime where there will be a transition from copper to fibre. That will be overseen by regulators in every member state because there is currently a universal service obligation attached to it. It is BT in the UK while in Ireland Eircom is the universal service provider for voice. Therefore, it has to maintain the copper network nationally on those poles and can only remove it with the approval of the regulator. That is a process they are currently looking at with a view to establishing a transitional arrangement.

Chairman

In other words, the entire cost of putting up the fibre for the broadband does not necessarily need to be included in the national broadband plan. Some of the cost incurred will have a benefit for Eircom.

Mr. Fergal Mulligan

It is a shared cost.

Chairman

Eir should share some of the costs of putting up the fibre. While some of the customers might be Eir's own broadband customers, others may not necessarily be its customers. The full cost should not fall. Somebody has to work out the sharing of that fibre and who is going to benefit. If Eir is a beneficiary, unconnected with the provision of the national broadband plan, it should share a portion of the cost. How has the Department worked that out?

Mr. Fergal Mulligan

ComReg published a decision on that a few years ago. As such, a solution to that is already in place in the regulatory environment. If there are ten poles on a road with copper and fibre cables on them, the current regulatory decision says the pole cost is shared 50:50. If it is an Eircom copper line along with a fibre line, we share the pole and duct cost 50:50. ComReg is-----

Chairman

Is that new poles?

Mr. Fergal Mulligan

That is for any existing poles where we "cohabitate", as we term it. It is just a simple 50:50 rule.

Chairman

I presume the copper cable will come down.

Mr. Fergal Mulligan

When it comes down, eventually, the full cost comes back on the fibre because Eircom does not have a service on the poles.

Chairman

Ultimately, Eircom will lose its cable network as the cable will be owned by the SPV that is running the broadband. Eircom will then be a customer of the SPV to get access to the fibre.

Mr. Fergal Mulligan

Yes.

Mr. Mark Griffin

That would be the sensible approach.

Chairman

I presume all of this is what the 1,500 pages are about.

Mr. Fergal Mulligan

However, these are commercial decisions Eircom will make about what it does with its network. All we can say is that it is likely it will take down the copper, but we cannot say for sure.

Chairman

It is its call.

Mr. Fergal Mulligan

Yes.

Chairman

The witnesses can understand me asking.

Mr. Mark Griffin

There will be a negotiation, obviously, with the SPV.

Chairman

I think the witnesses have acknowledged the criticism of the Department on two communications issues. It should have put out a statement when it extended the MANs contract. No one knew about it. It was also acknowledged that the Department should have published the Analysys Mason report much earlier. Will communication from the Department with responsibility for communications improve as this process goes on? We hope so.

Mr. Mark Griffin

If the Chairman can only find two examples, we are not doing too badly.

Chairman

It is only two here this morning. That is all I will say. Has the National Development Finance Agency had a role in the financing of this? It is meant to have a role in respect of every major capital project. What has been its role?

Mr. Fergal Mulligan

The NDFA has advised us on the commercial aspects of the bids. We have been engaged with it since 2015 and over the last four years that engagement has been significant. It has advised us where appropriate.

Chairman

Is it advising the Department on the funding aspects of the final contract?

Mr. Fergal Mulligan

Where relevant to its role, it has been involved, absolutely.

Chairman

Who decides when it is relevant? Is that the Department's call or the NDFA's?

Mr. Fergal Mulligan

It is the NDFA's call. It has a clear box within which it advises.

Chairman

We have discussed before that this will involve a great deal of construction work with 200,000 poles to be erected if this is to happen. Can the witnesses explain the issue of the derogation from the Government's contracts committee on construction projects? There will be a lot of construction contracts here. We had it with the children's hospital also where we were told this was a once off. Where is the Department on that issue or has it arisen?

Mr. Seamus McCarthy

I think the SPV, as a commercial company, would be outside the scope of Government contracts.

Chairman

We will need clarification on this. We had detailed discussions about the national capital plan, the children’s hospital and the derogation. The public will not see the subtle difference between this, which is taxpayers’ money, State contracts and infrastructure, and the point that just because an SPV company has been established solely for these contract purposes that we are free of it. Will the Department come back to me on this with a note?

Mr. Mark Griffin

Yes.

Chairman

The public would expect the same level of Government procurement rules. Do SPVs fall outside public procurement rules?

Mr. Seamus McCarthy

That would be my sense of it.

Chairman

That is a significant issue. I would be concerned if this amount of taxpayer funding – megabucks - goes into a project but is off-balance sheet through an SPV established solely for this contract.

Mr. Seamus McCarthy

The presumption would normally be that operators in the commercial sector are driven by commercial imperatives and would be doing things as cheaply as possible.

Chairman

I do not mind that. However, we will not get a figure on the subsidies.

Mr. Mark Griffin

On that specific issue, we will come back to the Chairman. The governance controls within the contract where we have oversight of every single penny which is spent are important. We will come back on that point.

Chairman

Does the Department get the point about derogation from public procurement rules? It was a significant issue with the national children’s hospital. As Chairman, I am concerned that if every big contract-----

Deputy Kate O'Connell

Was it not the case that the derogation concerned the type of contract?

Chairman

No, it was a derogation of having to go through the Government contracts framework for procurement because it is a once-off specific complex project.

Deputy Kate O'Connell

What is the alternative?

Chairman

The alternative is to go through the Government’s standard procurement process.

Deputy Kate O'Connell

If it is a private company, however, then the process does not apply.

Mr. Seamus McCarthy

With the children’s hospital, the derogation was that it would not be obliged to use a fixed-price contract.

Deputy Kate O'Connell

The contracts committee gave a derogation but it concerned the contract.

Mr. Seamus McCarthy

It then became a matter for the board as to what was the best and most appropriate type of contract to use.

Deputy Kate O'Connell

In this case, this is a private company. How would the Comptroller and Auditor General have jurisdiction over it?

Mr. Seamus McCarthy

I do not have jurisdiction over this.

Deputy Kate O'Connell

What is the alternative?

Chairman

I do not have an alternative view. I am just putting the facts out there and letting them fall where they may.

Mr. Mark Griffin

We will come back to the committee on this.

Chairman

The public presumed a contract like this would be subject to Government procurement rules. I am putting it on the record that because it is a private company and because an SPV was established for this, it falls outside our remit. I just want people to know that. I am not saying it is good, bad or indifferent.

Mr. Mark Griffin

The process leading to the appointment of the SPV is fully in accordance with the Office of Government Procurement guidelines.

Chairman

Will Mr. Griffin provide all of that information in his note?

Mr. Mark Griffin

We will.

Chairman

Just to run through the figures again, out of 757,000 premises, 300,000 will be completed this year by Eir? Is the Department satisfied with that? On the figure of the extra 85,000 premises which were brought back in, were those new builds or premises which were missed?

Mr. Patrick Neary

They were primarily in suburban areas. Some were just outside cities - Cork and Dublin – and larger towns. These were places where the commercial deployment was not realised in due course as anticipated. We identified those and could not find any operator signalling that it would cover those premises at the time. That led us to bring them back in.

Chairman

Will the Department send us a note on that issue?

Mr. Patrick Neary

Yes.

Chairman

In the context of all big contracts and payment on delivery, what happens if the company in question goes out of business and the State must compete the process? Does it lodge a performance or a completion bond with the State?

Mr. Fergal Mulligan

There is a bond. We have all the protections in the contract which allow for any unforeseen events, if it does not go to plan and we have to intervene.

Chairman

One hopes that will never happen. However, I am just making sure there is a bond in place.

Mr. Fergal Mulligan

Given the risks, the amount of money involved and the number of months spent on the contract writing up for every bad eventuality, we have everything in there which gives maximum protection to the State. If, in the event the process does not go to plan, the State can step in and keep it going.

Chairman

Will the payment from the State go through the Department’s Vote every year?

Mr. Mark Griffin

Yes.

Chairman

We will be discussing it then when the Department attends the committee about its Vote.

Mr. Mark Griffin

Yes. I cannot wait.

Chairman

It will go through the Vote and then through the SPV. Then it will be out of the committee’s remit. There are milestones of delivery and expenditure incurred. The Department will have a mechanism for monitoring that. If the contract were signed today, how long will it be before the 543,000 families and businesses have broadband?

Mr. Mark Griffin

There are deployment milestones. The first point is that the contractor is required to provide services to broadband connection points. For example, in Skibbereen, Vodafone has announced five of its hubs to allow people to work locally. Based on discussions with local authorities and broadband connection officers, that will be an initial delivery across the country.

Chairman

That is people working from office hubs. Are Mountrath and Portlaoise on that list?

Mr. Mark Griffin

There is a scattering in the Chairman’s constituency which is important. In the second year of deployment, the aim is to be passing 123,000 premises. There will be a substantial and accelerated provision.

Chairman

What about the third, fourth and fifth years of the deployment? I have heard all about milestones. When the contract is signed, people will want to know when they will get broadband.

Mr. Mark Griffin

We probably have to do a fair bit of work once we get down to the detailed design. We have a high-level design done already and we will get down to a detailed design as soon as the contract is awarded.

Chairman

From when the contract is signed, will it be four or five years or longer?

Mr. Mark Griffin

It would be inappropriate to comment on this because we have not had the opportunity to brief the Government on it. We understand about the passage of time and the frustration people are experiencing. We know about the delays, some of which have been outside our control. The absolute imperative is to get this rolled out as quickly as possible. The EU objective is that all premises will be provided with services by 2025 which will give them 100 Mbps download capacity. We will be capable of meeting that deadline.

Chairman

Is it the case that we can say thanks to the EU that we will get there by 2025?

Mr. Mark Griffin

We could do it a lot quicker.

Chairman

Hopefully.

Mr. Mark Griffin

People should rest easy tonight that the 2025 deadline set out by the EU will not be missed-----

Chairman

That is important. I have given the Secretary General the opportunity to say that on the record.

Mr. Mark Griffin

-----and that we could do it earlier.

Chairman

It is still a bit off. People will be disappointed.

Mr. Mark Griffin

The important thing is that once people see activity on the ground-----

Chairman

Yes, I know.

Mr. Mark Griffin

There will be a huge amount of activity whether it is the broadband connection points or, actually, vans going out with premises being passed and activity on the ground. The plan would be that every single county in Ireland would see activity on the ground from the word go, and that is really important. There will be a system which will give certainty to householders as to when they are likely to receive the service.

Chairman

It has been said that there is a 25-year contract. Is that from the time one signs the contract?

Mr. Mark Griffin

Yes.

Chairman

So the first five years will be the completion. There will always be installation with new properties and development over the period but, really, it will be just maintain, upgrade and repair the service. The year 2025 and how Eir fell behind due to Storm Emma were mentioned. Is it correct to say that every time there is a bad storm the deadline is pushed out by three months? It is a force majeure so one cannot be held accountable. Obviously the contract is going to build in force majeure measures not to meet the milestone. It has been mentioned that two storms have resulted in Eir not having its 300,000 premises done by last Christmas. I can only take it that if that is what happens in the industry then that will happen with this contract. A couple of bad storms will result in everything being moved out.

Mr. Mark Griffin

Yes, but one can also have circumstances where things could move a lot more quickly than we had thought because the state of the infrastructure is a lot better and the ducts are in a lot better state than maybe had been predicted. So there is give and take.

Chairman

Yes. We all want that earlier but the other could happen. The Secretary General has mentioned force majeure here already. I am picking up from what the officials have said as possibly being relevant to this contract, if it has already been relevant to-----

Mr. Mark Griffin

It is the same for every contract but I would not make a big issue of it. Our objective, once this thing gets approved, is that we will hit the ground running and deploy all of the resources required.

Chairman

There is provision for an extension in the MANs contract by Enet. Will there be a provision in this contract for an extension? Will the contract be reviewed after ten years?

Mr. Mark Griffin

It is a 25-year contract so it is not 15 years plus ten years or ten years plus15 years.

Chairman

Is there a provision for an extension?

Mr. Mark Griffin

It is a full 25-year contract.

Chairman

It is a full 25-year contract like what?

Mr. Mark Griffin

There is some-----

Mr. Fergal Mulligan

There is a provision in the contract. At year 25 - and it is in the contract as a commitment where the number of premises that are connected at the time - if the bidder is willing to continue to operate at its own cost all of those premises and not look for more subsidy or come back with the cap out because it is not commercial, there is an extra ten years. So, effectively, it is a 35-year contract. If in year 25 they are not willing to commit to that, well then at that point we reserve the right to take back the assets and the business.

Chairman

Right. What happens if they want an extension? I mean provided-----

Mr. Fergal Mulligan

At no cost.

Chairman

Right. It sounds to me a bit like the provision for an extension in the MANs contract.

Mr. Fergal Mulligan

It is not necessarily. Again, this is a commercial company but the MANs is the State-owned network.

Chairman

Yes, that is fine. I wish to ask some straightforward questions. Will people in rural areas have to apply for the service or will a fibre cable be run up every boreen whether the houses want it? Will it be a question of supplying the cable after it is sought by people in the area? What is the plan? It would be dreadful if there are people crying out for and willing to pay for the service next year but the Department says: "No, we are going to do this halfway up the mountain". We know that there may be one house up there and the inhabitants might not want the service. How can one prioritise getting the service? This is a consumer business. How can we get the service to the customers who want it early? We all acknowledge that there will be some customers who might never want the service. Is the Department going to spend money passing their doors? How can one prioritise? One needs a system in place where people can request the service and customer demand is recognised like it is with any other business. If there is not a strong demand then the company will get to people later on. Where demand exists and the public wants the service in their houses then there should be a bias towards facilitating requests.

Mr. Fergal Mulligan

Sorry, Chair. The assumption is that every premises wants high-speed broadband over the next 25 years so this network is going to be built everywhere. What we will not be doing, obviously, is building up anybody's driveway if they have not made an order.

Chairman

Pardon?

Mr. Fergal Mulligan

We will not be building on anyone's private land unless they have made an order.

Chairman

Correct.

Mr. Fergal Mulligan

Within the contract there is a balance to be struck where there is a one-off house a significant distance away from the next house. There is no point in bringing a fibre cable to that house if they never want it, the premises is a holiday home or the premises is dormant or vacant. There are contractual conditions in the contract that if a consumer does order, in that house that is far away or whatever, the contract with this company requires it to connect the consumer within a certain amount of time, and I think it is a number of weeks. So, we do not waste money building the fibre if it may never be needed. If they do need it then there is a contractual condition that they must connect it within a certain period of time.

Chairman

Is there a demand driven approach?

Mr. Fergal Mulligan

Absolutely.

Chairman

That is important from the point of view of the public.

Mr. Fergal Mulligan

Yes.

Chairman

I acknowledge that it has been said that no requests have been received. When the chief executive of Eir was here she said that if she goes to her board and gets another €100 million she will be able to roll out the scheme to another 80,000 premises. Obviously that has not progressed. She said it was possible, and it was not a commitment. She has not gone to the Department with that commitment since but maybe she is waiting to see what happens here first. I do not know. All I am saying is that she made htat remark.

I know the Department might not want to answer my next few questions today. Has the Secretary General any concept, and he must have based on the information his Department has received, of how much it is going to cost to deal with the 540,000 houses? How was the total cost of the project versus the amount of the subsidy liable to be paid by the taxpayer calculated? Let us say something costs €100. How does one decide how much must be paid by taxpayers? What is the decision-making process in terms of how much taxpayers must pay? Have the bidders outlined what they want? Please tell me the percentage but I do not think the Secretary General will want to do so. How does the Department decide the percentage of the subsidy for the project that the taxpayer is going to carry? What is the process?

Mr. Mark Griffin

That is being fleshed out as part of the dialogue process. A lot of the assessment around the level of subsidy required is based on projections really around demand and revenue. Different views emerged on that at different stages, as Mr. Mulligan has indicated. If there is a more benign outcome on the level of demand and level of revenue than the bidder had anticipated then there are clawback mechanisms built into the project to allow some of that come back to the State. We know at this point what the level of subsidy is likely to look like. We have set out or we have available in our own material and assessment of what the optimistic scenario is, what the central scenario is and what the more pessimistic scenario is. So we know then, taking account of each of those scenarios, what the level of subsidy requirement from the State will be. If it turns out to be the more central or more optimistic scenario, well then mechanisms arise within the contract to allow us to recoup costs and to ensure that the subsidy levels are driven down.

Chairman

How often are these clawback procedures enacted? Is it an annual process? One is not going to wait 25 years.

Mr. Fergal Mulligan

Absolutely not.

Chairman

I suggest that it should be an annual process or something like that.

Mr. Fergal Mulligan

Again, the contract was written whereby we will have monthly or quarterly annual accounts on everything that has been spent and all moneys coming in. The expectation is that we will have a substantial team in the Department from day one that will oversee everything that the bidders are doing in terms of what they are spending because they have to prove what they need before they get it and the contract cheques will be signed off in the Department on the basis of money spent. So we will have full visibility of what they are spending versus what they budgeted to spend. At the end of each year we will then know how much money they either have spent or did not spend and then they do not need it. Again, we will not have given them the money in the first place.

Chairman

Yes.

Mr. Fergal Mulligan

So that is a situation where it is a reverse clawback, if one can call it that.

Chairman

Yes, one might not pay it out.

Mr. Fergal Mulligan

They have not got the money in the first place.

Chairman

Yes, and hold back something.

Mr. Fergal Mulligan

In the event that there is more demand than they anticipated, that would be a few years down the line because in years 1, 2 and 3 there is no point in going at that. So, that is probably year 5 or 7.

There is then a through-up, as they call it.

Chairman

Yes.

Mr. Fergal Mulligan

There is a significant through-up in years four, six and eight when the estimated costs are divvied up. The simple context of how to arrive at a subsidy is that, over 25 years, all the bidders are in our own internal analysis which has gone on for several years and comprises multiple huge databases and spreadsheets that put together a big body of costs and commercial stuff-----

Chairman

Who will audit it from the taxpayers' point of view?

Mr. Fergal Mulligan

This is again part of our preferred bidder process. If there is a preferred bidder process, there is an independent audit of the bidder's model. We have already audited it ourselves since January so we will have a second audit of the bidder's model in, say, April or May. That will be done and dusted before the contract is awarded to ensure there are no errors. Those are the sorts of things that are done between the preferred bidder process and the contract award.

Chairman

Mr. Mulligan mentioned that KPMG is doing a value for money report. What is that? I presume that value for money from the taxpayers' point of view hinges around the subsidy that the State will have to pay. Has the report been done or completed?

Mr. Mark Griffin

It has been completed.

Chairman

When was that?

Mr. Mark Griffin

It was completed after the submission of the bid in September and it assessed whether or not the bid, in a single bidder scenario, represents value for money for the State.

Chairman

What criteria was KPMG given to make that assessment? Who set the criteria for KPMG to judge the value for money? What were the terms of reference for that report?

Mr. Mark Griffin

Assessing value for money in a single bidder situation is a difficult thing to do but it was an assessment of the solution looking at a range of factors that would be appropriate to consider in assessing what sorts of controls need to be put in place. It builds on everything else we have done, and I spoke about the dialogue solution, and considers what sort of things need to be taken into account to ensure value for money. Those are things like the Department being allowed to review, scrutinise and monitor the planned network build from final tender through to completion of detailed designs and monitoring; testing and verifying the actual network build and build costs on a transparent, open book basis; the payment of satisfactory achievement of clearly defined deployment milestones, which Mr. Mulligan mentioned-----

Chairman

That sounds like auditing the costs and progress of the project, but what about value for money? Is there a figure per house that the Department has said represents value for money and, if it costs double that price, it is not value for money? It is all right to measure the cost but does it represent value for money? People might say that €1,000, €2,000 or €5,000 per house represents value for money. If this was a value for money report, what mechanism or criteria were arrived at to determine that?

Mr. Mark Griffin

The CBA is very important in that respect.

Chairman

What is very important?

Mr. Mark Griffin

The cost-benefit analysis or CBA.

Chairman

Yes.

Mr. Mark Griffin

That is very important in determining whether, as a tool, the spend represents value for money relative to the benefits to be secured. The other thing that was looked at was international-----

Chairman

Who did the cost-benefit analysis?

Mr. Mark Griffin

PricewaterhouseCoopers, PwC.

Chairman

KPMG did the value for money report?

Mr. Mark Griffin

I would put "value for money" in inverted commas because it is a hard thing to compute.

Chairman

What was the difference between the two reports?

Mr. Mark Griffin

PwC did the formal cost-benefit analysis in accordance with the public spending code.

Chairman

All right.

Mr. Mark Griffin

KPMG looked at what other things could be layered on top of that to provide greater assurance as to whether what was being proposed represented value for money in a single bidder scenario. We looked, as did KPMG and our technical people, at international models around things like connection costs. They looked at the average connection cost in rural deployments in Spain and other member states. We have that benchmark to allow us to make that sort of assessment. We are still going through some of that work and we are quite comfortable with what KPMG put forth as a single bidder solution assessment methodology. The cost-benefit analysis is still positive, notwithstanding the changes to the map that have occurred over the past couple of years. We will be going to Government in the next number of weeks and we will be required to give those assurances about value for money in a single bidder situation.

Chairman

The Department is not there yet on the value for money aspect.

Mr. Mark Griffin

There are a few bits and pieces that probably require further scrutiny between now and the making of a recommendation. In the round, looking at how the process has been managed, what we have learned during the competitive dialogue process, the models that we have from ComReg and those we looked at internationally, the cost-benefit analysis from PwC, our assessment of the qualitative benefits, the controls that are in place for post-contract governance and the work that KPMG has done through the single bidder solution assessment methodology, we are comfortable on that.

Chairman

Let us say a contract is signed and a figure is given for 543,000 houses.

Mr. Mark Griffin

Yes.

Chairman

The Department will divide the price in the contract by the number of houses-----

Mr. Mark Griffin

Yes.

Chairman

-----and it will have a figure that it thinks represents value for money.

Mr. Mark Griffin

Yes.

Chairman

If the figures are way above that, somebody might say that does not represent value for money.

Mr. Mark Griffin

We will have to justify that. We will have to justify why we believe it is good value for money and ensure that people are comfortable around the governance arrangements that we are proposing to put in place. Our objective, when we go to brief after the preferred bidder process, is to try to be as open as we possibly can, elaborating on many of the things we have said today of a technical nature on 4G, 5G, fibre to the home, satellite and all the rest-----

Chairman

Okay.

Mr. Mark Griffin

-----and all the governance arrangements that Mr. Mulligan and others have spoken of.

Chairman

The following comes up at the PAC all the time. Given that there are payments over a 25-year period and a 25-year contract, how will the Department arrive at an internal rate of return or cost of money charged for that period? Who is advising on that? We have had differences between the Comptroller and Auditor General and NAMA as to how those types of figures are arrived at and what is appropriate. Has that been factored in?

Mr. Mark Griffin

KPMG has advised us on the internal rate of return. We have also discussed it with the National Development Finance Agency, NDFA.

Chairman

Will the cost for that be included?

Mr. Mark Griffin

Yes.

Mr. Fergal Mulligan

All the rates of return are in our own modelling and the bidders' models.

Chairman

Yes.

Mr. Fergal Mulligan

The cost-benefit analysis has the rate of return that is appropriate to that advised by the NDFA.

Chairman

We spoke earlier about the technical and financial ability and so on. The witnesses said that all the people dealing with this have done projects in America, Spain and all over the world and are highly skilled. They know the finances and technical issues and have done this in big countries. My worry is that if all that financial and technical ability is on their side of the table, it is not possible for us to have an equivalent level of experience in the field to match it on the State side. As Chair of the Committee of Public Accounts, I always get worried when we enter negotiations that the entire worldwide expertise for the industry is on the other side of the table because this is just another country to some of these people. It would be our first time to sit down with these types of people and consider contracts like this, whereas they may have done it several times in other countries and they know how to get the best out of negotiations.

Mr. Mark Griffin

Of course.

Chairman

Does the State have an equivalent level of experience, and I am not talking about technical knowledge, to match that on the other side of the table?

Mr. Mark Griffin

I can speak firstly about the procurement process. We have marshalled an expert team, some of whom the committee has seen today, some who have spoken and some who have not. We have also been supported by expert advisers like KPMG and PwC who are well known in corporate finance. Analysys Mason is probably one of the best known international telecommunication companies when it comes to its understanding of the technology.

We worked very closely with ComReg on aspects of the national broadband plan and received a great deal of useful advice from it. The teams we have in place from the external expert advisers are Mason Hayes & Curran's legal advice. The teams we have in place from the external legal advisers are highly competent, available to us as needed and working with us in large numbers, in many cases on site in the Department. Mr. Mulligan has any numbers of experience in telecoms companies, while Mr. Neary has worked in telecoms companies in the private sector. We have a lot of experience which has stood to us extremely well in the procurement process to date. The big challenge for us, and we are extremely conscious of this, is how we equip the organisation to face off, which may or may not be the wrong term, in a post-contract governance situation. We see as part of the next phase of the process, assuming that in the event that a positive decision is taken, that we will gear up immediately to ensure that we have the right commercial, financial, technical, corporate and management advice available to the Department. The programme for Government refers to the establishment, for want of a better term, of a telecommunications management agency, which would probably be a non-commercial body but with a commercial mandate. It would have the capacity to hire in people with the expertise that we need. It would be responsible for the administration and oversight of the national broadband plan, the metropolitan area networks, MANs, emergency call answer centre, and a range of other telecoms functions within the State system. In truth, the success or failure of this probably hinges on a lot of things but the biggest one is to ensure that we have the most robust governance available to us after the contract award and when people come in to report something to us, whether it is commercial, financial, technical or whatever it is, we have the right people who can face off against them, talk to them, negotiate with them and come up with a resolution on whatever issue that is to the best advantage of the State.

Chairman

Let us move on to after the contract is signed. I assume that whatever price subsidy is in the contract will be the price on the day that the contract is signed. We know that construction inflation is added in to any construction contract and there will be construction involved in getting this network up over a couple of years. There may be some delays, perhaps for regulatory reasons or caused by different local authorities, which will result in a compensatory claim. I presume these are all part of the contract. When we get a contract it is based on the price on the day if it was all delivered today but that will not be the price of the contract if it takes three years and construction inflation must be built in.

Mr. Mark Griffin

We have factored most if not all of those factors into the scenarios that we painted, namely, the optimistic, middle case and pessimistic scenarios. Things such as construction inflation have been built into the calculation. As far as we are concerned, a subsidy cap is a subsidy cap, full stop.

Chairman

I return to the map. We are discussing the large amber area. Will Mr. Griffin explain that in layman's terms for the benefit of the public.

Mr. Mark Griffin

I will ask Mr. Neary to respond.

Mr. Patrick Neary

The amber area on the map is the area of the country where commercial operators will not deliver high-speed broadband in the near term. In the area marked dark blue high-speed broadband of 30 Mbps is available today. The light blue area is where Eir has committed to deliver high-speed broadband and complete the roll-out by the middle of this year. In the amber area, following state aid rules, we have identified where market failure exists so that no operator intends to deliver high-speed broadband. That has been the subject of our procurement since we made the change in April 2017 regarding 540,000 premises.

Chairman

A figure of 757,000 premises was set about two years ago and now stands at approximately 540,000. Have there been any changes in those two years which will be in effect in when the contract is signed, possibly some time this year?

Mr. Patrick Neary

We did ask the market in 2018 for any further observations on the map or any changes. We did not receive any changes then. That figure is probably the most recent.

Chairman

Will Mr. Neary explain how this amber area was arrived at?

Mr. Patrick Neary

In 2013, we sent out an information request to every operator in the country asking for an initial view of where they had coverage the nature of the coverage. Through 2014, we developed criteria and a standard and held two consultations to inform that to indicate whether there should be a high-speed broadband service or not. At the end of 2014, we published an initial view of the area. That contained 757,000 premises. We looked for views from operators-----

Chairman

Was it based on townlands? How did the Department draw up the map? People wonder how they ended up in the amber area. Will Mr. Neary explain how the boundaries were decided?

Mr. Patrick Neary

We attempted to get to a per premises basis - down to an Eircode - to identify whether each individual premises was receiving high-speed broadband or not. There is some approximation in that because of the level of information available from operators. Some operators can give exact information on a per premises basis, while others have more of an approximation. Through the development of the map in 2014, we developed the best view of how this could be represented on the map or not.

Chairman

Did townlands come into it?

Mr. Patrick Neary

No. It is on a per premises basis. It is done on a precise basis. We produced statistics on townlands so that people could see how much of the surrounding area in which they live had or did not have coverage but the map itself was done on an individual premises basis.

Chairman

What about the non-amber areas?

Mr. Mark Griffin

It is very hard to see on a national map. It might be useful to show County Laois, for example.

Chairman

No, it is not for me.

Mr. Mark Griffin

I know but it is much more understandable when one is dealing with a particular area.

Chairman

Laois is only for illustrative purposes, even though I have an interest in it.

Mr. Mark Griffin

We can focus on another county if the Chairman prefers.

Chairman

No, we will stick with County Laois.

Mr. Mark Griffin

The map displayed is of Kildare. We do not have Laois.

Chairman

Part of Kildare is in my constituency, as it happens. My concern is that people who are not in the amber area are still having difficulty getting broadband. How many people are affected? It is one thing to say there are plans to get there but how many people outside the amber area are unable to get high-speed broadband service as we speak.

Mr. Patrick Neary

We are aware that not everyone in the dark blue area can get high-speed broadband. We are monitoring that very closely. The change we made back in 2017 was where we had identified 84,500 premises for which we were confident no operator would serve in the short term. We brought those back into the amber area. We continually monitor the progression of developments in the dark blue area from operators. As the committee will have heard from a number of operators recently, they are continually upgrading and developing the services in cities and towns.

Chairman

Are they extending their current service availability into amber areas?

Mr. Patrick Neary

No, they are not doing that in the amber area. Those operators are primarily looking at-----

Chairman

Eir is a big outfit. People call us all the time and say Eir is providing broadband down the road from them. When they call Eir and quote the code, they are told they are in an amber area. It is up to the Department to provide for them. Eir is passing the buck to the Department.

Eir knows that there will be a subsidy to provide broadband to that house. If it provides a connection now, it will be making its own commercial investment. Why would Eir spend its own money when it knows that there will be a State subsidy, some of which accrues to it for providing the network? Some people have been in the amber area for a considerable time. They are seriously disadvantaged by this. Commercial operators are not going into these areas. They are letting the customer wait, knowing that whichever provider goes in there in due course will get a subsidy to do so. Operators are hanging back. Does Mr. Neary follow my point?

Mr. Patrick Neary

Yes. However, the map indicates where there is not much competition for an operator that builds a new network. If an operator goes into that area, it is likely to be the main operator there. There is the counterargument. I refer to Eir's roll-out of broadband to 300,000 premises. That firm moved into an area where it felt there would not be much competition, if any. One can look at this both ways. The map would indicate to operators that there is not a high-speed broadband provider in that area of 84,500 premises.

Chairman

I will reverse the question. Approximately how many high-speed broadband connections have been provided in each of the past few years? I have the quarterly report from the regulator.

Mr. Patrick Neary

There has been dramatic growth in high-speed broadband in Ireland.

Chairman

I am referring to delivery.

Mr. Patrick Neary

I have the figures here.

Chairman

Without getting to the figures, I will take a counter-intuitive approach. If the Department did not exist, the private sector would be ploughing ahead and signing customers up. Firms would not be refusing to go into the amber area.

Mr. Mark Griffin

In that case the private sector would keep offering the service that is being offered at the moment over the copper network.

Chairman

The copper network is not capable of taking the high-speed broadband.

Mr. Mark Griffin

No.

Chairman

Very well. I call on the Department to make sure that Eir pays well for getting upgraded fibre to its network. It must not be let off the hook. Do the witnesses take my point? Some tens of thousands of people are being connected every year. Eir's representatives said that the firm could do more. It was not a commitment, but it might do so. That company has connected 300,000 premises. There is no reason it would not do more. We all know that a point will eventually be reached at which it is not commercially viable for any operator. Given that the Department started with a figure 757,000 and after a couple of short years it has reached a figure of 543,000, is it possible that this figure could reach 350,000 in another two or three years without any State support?

Mr. Mark Griffin

We do not see that possibility.

Chairman

What the witnesses are saying is that, without the rural broadband plan, all of these connections would come to a halt.

Mr. Mark Griffin

The commercial companies deemed what is on the table now to be commercial. One of the big issues for residents of rural Ireland in planning their lives, their jobs, how their children are to be educated and so on is certainty. If we sat back and waited for the commercial sector to intervene in a few years-----

Chairman

I will ask the hard question then. How many properties are in the State? What is the overall figure?

Mr. Patrick Neary

The overall figure is 2.3 million .

Chairman

I am making the other argument. Some 1.9 million properties have been connected by the private sector without any subsidy. We probably did not think it would connect that many five years ago. I am playing the devil's advocate. The private sector has connected 1.9 million without a penny from the State. It now sees that the State is going to sign a massive cheque. Of course commercial firms will hang back, knowing that the taxpayer is going to subsidise the rest of it. They were never going to complete the 2.3 million, but they could certainly have gone further than they have up to now. That figure of 1.9 million could be 2.1 million or 2.2 million. At this point 80% of the work has been done commercially. Why is 20% the magic figure at which there is no more scope for commercial operations? I am worried that the existence of this plan will bring the cost onto the taxpayer. I am being the devil's advocate by saying that if this subsidy was not there, some of these people would be getting commercial connections.

Mr. Mark Griffin

Out of the 2.3 million premises, the vast majority of those that have been served with high-speed broadband are in urban areas.

Chairman

I know that.

Mr. Mark Griffin

They are in towns, cities and villages. Those connections are clearly more commercial because more people are living in those areas and more business is transacted. Since Eir first proposed to provide 300,000 connections in 2015, no other commercial investment in connecting rural Ireland has been committed to.

Chairman

Small numbers of connections have been made by some of the wireless providers.

Mr. Mark Griffin

Small numbers of connections have been made by fixed wireless providers and things like that. However, it is recognised in virtually all member states across Europe that a cohort of properties in rural regions will never be served by the commercial sector because it is not commercial to do so.

Chairman

Everybody in Ireland accepts that. The question is what that figure is. It was 757,000 and has now reached 543,000. There could be scope for that 543,000 to be reduced without a State subsidy. We might end up providing a subsidy for houses that would be connected commercially if there was no subsidy. Does Mr. Griffin understand the question?

Mr. Mark Griffin

Absolutely. However, the only shift in the figure of 757,000 in more than three years has been the 300,000 premises connected by Eir.

Chairman

I understand that. That is why I say that once somebody is listed in the amber area, the broadband industry will avoid them because firms know that a subsidy is coming. They are holding back. That is what I feel from my contact with the firms. Operators are delighted when a premises is in an amber area.

Mr. Mark Griffin

We are seeing something very important with the national broadband plan and the 300,000 connections committed to by Eir. The firms that want to provide retail services are not standing back. We know that once infrastructure is rolled out in the amber areas, large numbers of large and small retail sellers of broadband or bundle services are ready to invest very considerable amounts of money to access the retail market in rural Ireland.

Chairman

We are nearly there. The public will think that the workmen installing the broadband will be from the same firm as the guy who will arrives at the door selling the product. Like the MANs, however, this is really the wholesale end of the business. The retailers will come and buy it from the wholesaler, which is this company.

Mr. Mark Griffin

Exactly. The retailer could be Sky or whoever.

Chairman

Will the witnesses explain that in a sentence for the public? Members of the public will see the truck coming to install rural broadband and think their houses will be connected in a week. However, that effort is only putting in the infrastructure, that is, it is the wholesale end of the business. The retail will come later.

Mr. Fergal Mulligan

The retailers, such as Sky, Vodafone, Ripplecom and other small, medium and large companies will sell broadband to individuals and businesses. The national broadband plan company will send workers in high-vis jackets to bring the connection to consumers' sitting rooms. They will drill holes in the wall or whatever. That is the wholesale company. They will make it ready and then, Bob's your uncle, consumers will get a service from their service provider.

It is like ESB Networks, which does all of the networking up to the box in one's house, but it might be from Bord Gáis that one buy one's electricity.

Chairman

Or Ervia.

Mr. Fergal Mulligan

It is the same system.

Chairman

That is good. Mr. Mulligan or someone else mentioned 500 m as the length of a cable. I cannot recall the exact sentence but at present, in rural areas there may be a box at one point and then another box at another point up the road but the distance to reach the house in between could be another 700 m or 800 m, by the time one gets to it via the driveway, laneway, or farm. Such rural dwellers probably would have to incur a heavy cost to get this service to their house if they are not in the amber area. If they are in the amber area, does this plan bring the service to the house or to the edge of the public roadway? What is going to happen? The State cannot be expected to pay to get services into everybody's private house. I hate to say it but when one comes to the edge of my property, it should be my job to take it from there. Regardless of how I wish to bring it into my house, the taxpayer should not have to pay for it.

Deputy Kate O'Connell

I have some questions.

Chairman

I will allow the Deputy in, as I am finished now, but who pays for this?

Mr. Patrick Neary

The network will be brought sufficiently close to curtilage of a house in order that if someone orders it, they will get connected within a couple of weeks. That is essentially how it operates.

Chairman

If they want to get it done underground, that is their own affair.

Finally, will there be an annual operating subsidy to the company? If one wishes to keep the comparative wholesale price as it is in other regions, will it be necessary to have an ongoing subsidy after it has all been installed to keep the price down?

Mr. Fergal Mulligan

The nature of the project is that over the 25 years, we will be subsidising the majority of the capital costs. In the initial years, this will be part of that cost but over the 25 years it will be the majority of the capital cost. The model is such that the operating company will stand on its own two feet and will be profitable by virtue of the revenue it will get from consumers.

Deputy Kate O'Connell

For the public at home, I understand we have high-speed fibre-optic cables running down roads, which are totally different to copper cabling. There is no loss of conductivity and is a totally different product. It has larger capacity with little or negligible loss of information over distance versus other forms such as wireless which we have had in the past. This will run along a network like EirGrid - as in the picture essentially - except with cables and spurs then will come off it to go up boreens and to villages, or whatever. If one does not want to cut down one's trees or for them to be obstructed, one pays an additional fee for aesthetics.

What we are undertaking here is a national broadband plan, which is the infrastructure and the cable, that is, the capital investment. Thereafter, once the cable is laid one pays one's bill to the companies - the equivalent of Bord Gáis or whatever - which provide the service. There is therefore a competitive element after the infrastructure has been laid down.

Returning to the 25-year contract, and the additional ten years, will this company have to retender for the additional period? If there is a preferred bidder with a signed contract, after 25 years will this company have the capacity to extend by another ten years if it wants-----

Mr. Fergal Mulligan

Yes.

Deputy Kate O'Connell

-----without retendering? I am just making sure and hopefully, we will not still be here then but possibly we will.

Mr. Fergal Mulligan

To clarify that point, under this gap-funded commercial model and in normal circumstances, once the job is done and the company has operated for 25 years, the contract is over, it is gone with no more relationship, and it just runs like in Eircom. What we achieved through the contract negotiations dialogue was that as we do not want a cliff edge at year 25, where it might turn off some customers if they are not profitable, we said that we wanted the company to honour that contract for another ten years-----

Deputy Kate O'Connell

A sort of transition.

Mr. Fergal Mulligan

-----so it is effectively 35 years, to ensure the company does not turn anyone off. In year 26, for example, if some person's wire is cut or severed by a shotgun or some such event, the company still will be required to fix it under an extra ten years of the contract. Consequently, that house or farm will continue to get service at no cost to us. We achieved that through negotiations. On the 1,500 pages, it is a 25-year contract, with an extra ten years to honour a service to every customer it has connected at year 25 for another ten years. That is not relevant to a retendering process, it was just an add-on we had to the existing contract.

Deputy Kate O'Connell

Obviously, in the event of a big storm on day one after the 25 years, the State does not want there to be no one there to fix it.

Mr. Fergal Mulligan

Exactly.

Deputy Kate O'Connell

Returning to cables being blown down, let us say that we have the dual cable, that is, the copper cable and the fibre up on a pole going down a road. Whose fault is it if the wind blows it down? If Eir has a cable on it, and the national broadband people have a cable on it, who is in charge of the poles?

Mr. Fergal Mulligan

Again, for the fibre provider who has a contract with us, it is required to comply with our requirements and fix it as soon as possible and there are requirements within that. It will have its contract backed off with a contract with Eircom.

Deputy Kate O'Connell

This is the provider's own personal business, a bit like the rental paid to MANs.

Mr. Fergal Mulligan

We will punish our company if it does not meet the requirements but it will have this backed off with the regulated company, which is Eircom. In the event of a storm, Eircom would be required under regulation to fix the copper cable in any event. If there is no copper and only fibre, our contract will require all of that standard fibre to be fixed.

Deputy Kate O'Connell

For my information regarding circuits, if the cable is running through Portarlington and going to Kilkenny, for example, are there closed circuits on it such that if a cable blows down somewhere in the middle of Ireland, the signal will then continue in some other way?

Mr. Fergal Mulligan

There is a resilience. There are rings in how networks are-----

Deputy Kate O'Connell

I am just being a nerd here as I was wondering what would happen.

Mr. Fergal Mulligan

In those towns and cities, this is called a core network. With all core networks, like those of Eircom and BT and Enet, they have this resilience built into them so that traffic can go somewhere else.

Deputy Kate O'Connell

It can be diverted. If a multinational has decided to build on the side of a mountain, a storm in Portarlington will not mean it will be abandoned for a week.

Mr. Fergal Mulligan

Exactly.

Deputy Kate O'Connell

Returning to the contract, which is for 25 years, earlier this morning it was noted that the company has not been formed yet, which is normal enough. It will be an Irish-domiciled company subject to Irish corporate rules. The Comptroller and Auditor General referenced that the value in this new company obviously will be the State contract.

We definitely are protected as to the sell-off of that company. It has been mentioned that it is very sensitive and one cannot list out the people who are totally unsuitable, but I assume there are very strict rules there.

Mr. Fergal Mulligan

There is a whole clause in the contract, with which I will not bore the Deputy, but there is a great deal of material in that.

Deputy Kate O'Connell

It is covered, in any event.

Mr. Fergal Mulligan

Yes.

Deputy Kate O'Connell

On the issue of wireless, it is not as secure as other methods. Can wireless data be intercepted? Is there an element of that?

Mr. Fergal Mulligan

I will defer to Mr. Neary and the question.

Deputy Kate O'Connell

Mr. Neary is, no doubt, dreaming of the private sector.

Mr. Patrick Neary

That is a tricky one, as data are encrypted on wireless, but every system is open to attack.

Deputy Kate O'Connell

Would Mr. Neary agree it is more open to attack done than high-speed fibre?

Mr. Patrick Neary

On the optical cable, one would have to intercept the actual physical cable.

Deputy Kate O'Connell

One would be obliged to cut it and put it in somewhere else. Technically, can satellites intercept wireless?

Mr. Patrick Neary

I cannot really comment on that, to be honest.

Deputy Kate O'Connell

Maybe we can have another meeting on that.

My final question is to Mr. Griffin. I refer to the idea of the industry having the expertise and the Department not having it. No offence is intended to anybody in saying that, as all of the witnesses clearly know what they are talking about. On the telecoms agency idea Mr. Griffin mentioned, the image of a HSE part two occurred briefly. We are not in that space, are we?

Mr. Mark Griffin

No, it will be a very small entity. One wants a dedicated team of people whose sole job is management of the national broadband plan, the metropolitan area networks, the emergency call answer centre, and the Galway-Mayo duct that we run as well. There also is a lot of telecoms infrastructure in other bodies like the OPW, for example, where, for the purpose of maximising the value to the State, one would look to bundling that in under one agency. This would be a small and tight group of people but with all of the skills and the capacity to face off commercial entities, and that can spend money in buying in the best and brightest. We need to be in a position in the State to ensure that the people who are managing the contract have the necessary skills and it will be a full-time job for them.

Deputy Kate O'Connell

Mr. Griffin is only really suggesting a small unit.

Mr. Mark Griffin

Absolutely.

Deputy Kate O'Connell

We will not hear things such as one group being in charge of policy and another being in charge of delivery.

Mr. Mark Griffin

No.

Deputy Kate O'Connell

I thank Mr. Griffin.

Chairman

I think that concludes questions. I will draw the meeting to a close, which I am sure people will be happy to hear, since we have been here since about 11 a.m., including a lunch break. I thank Mr. Griffin, the staff from his Department and from the Department of Public Expenditure and Reform, who got off lightly today with no serious questions. I thank the Comptroller and Auditor General and his staff. We will now adjourn until 4 April, when we will meet the Department of Justice and Equality about Vote 24 - Justice and Equality.

The witnesses withdrew.

The committee adjourned at 4.50 p.m. until 9 a.m. on Thursday, 4 April 2019.