We will now move on to our engagement with representatives of Eir on broadband installation issues. We will suspend briefly to allow the witnesses to take their seats.
Broadband Service Provision: Discussion (Resumed)
Sitting suspended at 5.43 p.m. and resumed at 5.45 p.m.
I wish to draw the attention of witnesses to the fact 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 this committee. However, if they are directed by the Chairman to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to 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 asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Any submissions or opening statements made to the committee will be published on the committee's web page after this meeting.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind witnesses and members to turn off their mobile phones or put them into flight mode as they interfere with the sound system.
I welcome Ms Carolan Lennon, chief executive officer and Mr. Gary Healy, director of regulatory and public policy from Eir. I now invite Ms Lennon to give her opening statement.
Ms Carolan Lennon
I thank the committee for the invitation to attend today's meeting to discuss improvements in high-speed broadband availability across Ireland and the investment that Eir is making in its network. As the Chairman has already said, I am joined by Mr. Gary Healy who is our director of regulatory and public policy and is a member of the senior management team at Eir. Members have been provided with additional material by way of a written submission and we are happy to take questions from members on any of that material.
Members will be aware that Eir is the principal provider of fixed line and mobile telecommunications services in Ireland. The company has approximately 2 million customers and operates the most extensive network in the country providing a range of advanced voice, data, broadband and ICT services to the residential, small business, enterprise and public sector markets. Open Eir is the largest wholesale operator in Ireland, providing products and services to more than 40 wholesale customers and 400,000 end users across a range of regulated and unregulated markets. Eir is also a major contributor to the Irish economy, spending over €1 billion annually.
In April 2018, a consortium led by the NJJ group, which is owned by the French telecoms entrepreneur Xavier Niel, completed the purchase of Eir, which has led the company into a period of exciting development and innovation. The NJJ team has a wealth of international telecommunications experience, which is already proving to be of huge benefit to both Eir and its customers. The group has a proven track record of investment in telecoms infrastructure and enhanced customer propositions. My appointment as CEO was accompanied by the appointment of Mr. David McRedmond as Chairman and soon after that by the appointment of my management team and a new majority Irish board of directors. The new management team exemplifies our dynamic transformation, our focus on our network and customers and on our continued success in the Irish market. I am also delighted to say that all members of the management team, with one exception, have been promoted from within the company and we now have an equal female to male split on the team.
We invest substantially in our network and no other telecoms company in Ireland is anywhere close to matching Eir’s historical level of investment in networks right across the country. In the past five years, Eir has invested €1.5 billion of its own capital in its infrastructure across Ireland, more than any other national telecom operator in Europe relative to their revenue. To give some idea of the scale, the Irish Government has allocated €1.6 billion of capital spend to maintain and develop the national road network over a similar duration. As a result of Eir’s investment, two out of every three fixed broadband connections in the country use the Eir network and our overall fibre broadband roll-out has now passed 75% of all Irish homes and businesses. The Eir mobile network currently delivers 4G mobile coverage to 96% of the population in Ireland and is nationwide, serving all counties in Ireland.
In April 2017 Eir entered into an agreement with the Department of Communications, Climate Action and Environment to pass over 300,000 specific premises with high-speed fibre broadband, mostly fibre to the home technology, supporting broadband speeds up to 1 Gbps or 1,000 Mbps. During the national broadband plan, NBP, procurement process, the Department had written to all operators asking for any plans to roll out high-speed broadband in rural Ireland in order that it could adjust the NBP intervention area accordingly. This is in line with the rules covering state aid. The Department received roll-out plans from a number of companies but Eir was the only one which committed, by agreement with the Department, to deliver additional investment and Eir has actually delivered on that. I am pleased to inform the committee that Eir will deliver even more than that to which it committed in 2017 and will pass an additional 30,000 homes and businesses in rural Ireland, bringing the total premises to 330,000 and the total private capital investment up to €250 million. At the end of August, 180,000 or 60% of the 300,000 premises from the original agreement were passed.
An additional 21,000 premises have also now been passed. This takes the number of properties that can be connected to high-speed broadband specifically in rural areas to over 200,000. When the programme is fully complete in the middle of next year we will see 300 business parks, over 1,000 schools, over 28,000 farms and over 47,000 small businesses passed with high-speed future-proofed fibre technology.
The properties and areas included in the original investment were notified to the Department before the programme commenced and properties that were not deemed to be in an area that could be served on a commercial basis were subsequently included in the State intervention area to be served by the national broadband plan.
Eir's fibre investment, which is unmatched in scale and scope in the market, is opening up new opportunities for citizens and rural communities across the country. It is clear Eir's investment is making a difference for Ireland. Recent data from the European Court of Auditors showed that the availability of high-speed broadband in Ireland has increased from just over 30% of the population in 2011 to more than 90% in 2017, an improvement bested only by Italy in Europe and delivered almost entirely due to Eir's fibre investment. The European Commission's Digital Economy and Society Index 2018 ranks Ireland sixth in Europe, up three places from 2017. In fact, Ireland belongs to the higher performing cluster of countries. I am extremely proud of the dedication of all our staff, whose efforts have transformed the lives of the 635,000 families and businesses that now have high-speed fibre broadband.
All that being said, I understand the public's concern, and members' concerns, that the delivery of broadband in Ireland will not be solved until every person who needs a high-speed connection can get one. I have travelled around the country and heard directly from those who are waiting for broadband. Eir also processes on average 50 representations a week from Deputies, Senators, councillors and broadband officers in local authorities and three quarters of those queries we receive relate to those looking for high-speed broadband. I am acutely aware of the demands that are out there.
I will talk about the importance of the national broadband plan in a moment. However, members should recognise that as an open economy, and with the threat of Brexit looming over us, we need private sector investment to continue to keep Ireland competitive. That is why Eir's shareholders have a strong appetite to invest in our network. Our ambition is to be the best broadband and mobile provider in Ireland and our €1 billion capital investment plan over the next five years, we believe, will be the largest privately funded investment programme in Ireland over the period. This will bring fibre-to-the-home technology to 1.4 million homes outside of the national broadband plan State intervention area and the programme will employ 1,000 people during deployment.
I am sure that members have heard stories from their constituents and friends and examples where Eir's customer service has not been up to scratch. I have heard those stories too and I take them very seriously. I read every complaint that is sent in to me and I am determined to change fundamentally the way we interact with our customers.
Members will have seen the decision we took last week to change our customer care model from outsourced services provided by HCL to insourcing this work to Eir employees. By investing in new IT systems and by bringing customer care back in-house - with good customer contact jobs - to a new centre in Sligo as well as in Limerick and Cork, we hope to dramatically improve our customer service.
These investment programmes, in infrastructure, IT and staff, will improve significantly the lives and connectivity of the people of Ireland. It will mean more opportunities for remote working, for ehealth, for online education and for home entertainment, as well as offering increased opportunities for small businesses.
Ireland has among the most dispersed of populations and has the highest proportions of rural dwellers in Europe. Some 42% of Irish people live in rural areas compared with an EU average of 27%. This reality, coupled with the geography of our environment, poses an enormous challenge to Eir in making the business case for further fibre network investment in more remote areas where costs would be prohibitive. Eir recognises the need, therefore, for the national broadband plan, NBP.
In January this year, Eir took the difficult decision to withdraw from the bidding process for the national broadband plan. Eir had invested over €7 million in the bid and on a personal level, I can assure the committee arriving at that position was very disappointing. However, as a commercial organisation, we could no longer proceed.
Despite leaving the bidding process, Eir continues to be highly engaged in the process as a provider of pole-and-duct infrastructure access to the remaining bidder and has spent significant time and resources to help the Enet consortium. At every juncture, Eir has been an active participant and supporter of successive Governments' plans to promote broadband availability across Ireland. Eir will continue to support Government initiatives where it can and Eir is working closely with Enet to support its NBP bid.
We have made substantial progress in recent years, delivering high-speed broadband to 75% of the homes and businesses in Ireland from a standing start in 2012 and investing €1.5 billion in our network over the past five years, but the transformation of Eir is not complete. We need to continually improve the experience we deliver to our customers and continue to transform Ireland into a global leader in high-speed communications technology. Our objective is to provide the best mobile and broadband network in the country and we are embarking on a €1 billion nationwide investment programme over the next five years to make that a reality.
I thank the members for their attention. We look forward to taking their questions.
I thank Ms Lennon. I will take a number of members in a row. Ms Lennon might take note of the questions and either herself or Dr. Healy can respond. I myself might start with a few questions.
What are Eir's future plans regarding the significant issues that were self-disclosed under the regulatory governance model procedures and what will the company do to tackle them in the future? The committee is aware of the Styles report. While voluntary disclosure is good, would Ms Lennon agree there needs to be mandatory disclosure to give more confidence to the market? There are five compliance cases before the courts. We cannot talk about individual cases but all of this litigation does not instill confidence for the market or for future investment. I refer to the timeframes around that and ask Ms Lennon if she could comment in general on the impact that is having on the market.
When one compares wholesale broadband connection prices, Eir's price is several hundred per cent higher than the EU average broadband connection price. Can Ms Lennon explain why it is so high? With SIRO, for example, a connection costs €70. It costs €272 for Eir. I read in the Sunday Independent of a bespoke cost of €500 given for a service connection charge and Ms Lennon might explain that also.
In respect of ComReg, does Ms Lennon believe that it has adequate powers to regulate the market?
As for the roll-out of broadband, I hear from my constituency office in respect of a number of new estates that there seems to be a slowdown in the roll-out of broadband. In a new estate in Galway, for example, residents came in in February and I understand the broadband will not be connected until November of this year. There are many more such examples of newer estates that are being impacted due to the essential roll-out of broadband in rural areas. I will start with those.
I might bring in my colleague, Deputy Dooley, for questions.
I thank Ms Lennon for the presentation. We appreciate her being here.
Ms Lennon is principally here to give Eir's side of the story. As she will be aware, some of her customers, those who use Eir's wholesale services, were previously before the committee and they outlined for us their, as it were, gripes. Our role, as I see it anyway, is not to get involved in that level of detail - that is always understandable - but where it cascades out to our role is in terms of the value for money the citizen gets in terms of the service that is provided to him or her. Any impediment that is introduced that reduces competition forces the end price up for the user.
My concern follows on from that the Chair has identified. The representative body, the Association of Licensed Telecommunications Operators, ALTO, was before us and set out clearly its concerns about the costs. There are some questions for Eir but there are also some questions for the regulatory regime. It is highly unlikely that Ms Lennon will be looking for more regulation, which is an issue for us, but there is concern about the way Eir interfaces with the regulator. The Chairman has already asked those questions. I will not go back over those but I would be interested to hear Ms Lennon's response.
The Chairman has already talked about the size and scale of the connection charges, particularly in that area where Eir agreed with the Government that arrangement about the roll-out to 300,000, which is now 330,000. The Chairman identified the connection prices that Open Eir will charge its competitors to get on there and it seems to be out of kilter considerably with the way other markets deal with it. The knock-on effect of anything that limits the capacity of those companies to invest is that the least good service gets to the consumer at the end of the day at too high a price. Obviously, we want to try and get to the bottom of that. It is very much about price and encouraging competition. It is accepted now that it is highly unlikely that the arrangement Eir had with the Government, while presented as a commercially viable entity, would be commercially viable were it not for the fact that there will be a national broadband plan.
Eir spotted an opportunity and it invested the money, which is fantastic, but it will reap significant returns. Eir is working with Enet now. This might be news to them but a few hours ago, the Minster confirmed in the Dáil that Enet is no longer the bidder. Its partner, Granahan McCourt Capital, is one of the bidders while John Laing PLC has pulled out. There have been more developments in that sordid affair and we will see how that progresses. Regardless, it is fair to say that the arrangement that Eir reached with the Government to roll broadband out to 300,000 premises has taken out much of the competition. Eir decided to pull out of the national broadband plan and SIRO pulled out because it looked like Eir would have such coverage that no one else could see a financial return for themselves. That puts more pressure on the Open Eir part of the business to be open and transparent about how it does business so that we, on behalf of the people who put us here, can be assured that there is good, open competition. However, there cannot be because Eir has the infrastructure and, therefore, competition must be generated through the regulatory regime. We will listen to Eir's views on this. We may not take these views at face value, understanding the commercial realities that exist, but it is a concern. The less investment that other companies make, ultimately, the less the consumer will benefit.
I welcome Ms Lennon and Mr. Healy. I spoke to Ms Lennon outside. As mayor, I welcomed her to Naas some years ago when she was rolling out Eir products in the area. It was good to have her down. Dr. Healy is a Kildare man and we will give him credit for that.
Ms Carolan Lennon
I did go to places apart from Naas.
Ms Lennon did not need to.
I have questions on the maintenance of the network, its roll-out and developments in the properties within Eir's domain. I realise it is no longer in the tender but it is trying to service properties.
Regarding the roll-out, Naas is one of many places in the light blue area on the tender maps where Eir proposed to tackle commercially rather than being part of the tender. I am familiar with some properties that come up as being light blue but when one follows up on them, they are not connected. While this does not happen overnight, what percentage of properties have been connected? Is there a completion date? Is Eir confident that 99% of properties will be complete by February 2019 or whatever the date is? I am keen to get those dates and that status.
Eir is no longer involved in the tender. However, it seems that the amber areas of the map, which were in the intervention area, are standing still. I have constituents in those areas. I do not hold Eir responsible for the tender which is a different ball game now. However, not only is the tender not happening any time soon, but these people do not have access to much maintenance. They are not getting the bog standard service enhancements and offers or basic maintenance that might bring them from 2GB to 4GB or 5GB. They are not at 30GB or 100GB yet, but they might have 1GB or 2GB, or have different solutions in place. What level of maintenance is Eir engaged in for the rural network in intervention areas where it has existing customers? They might be wholesale customers with a different product. Has Eir walked away from the amber areas altogether or is it servicing those customers and trying to do some upgrades along the way?
My final question relates to the points made by Deputy Dooley and the Chairman. I have observed the relationship between Eir and the other telecom companies and ComReg in recent times. It appears that Eir has a somewhat more litigious attitude or approach than the others. This is typified by article 19 of the access directive. ComReg made a decision to impose administrative sanctions and Eir's corporate approach was to counter sue and bring it through the courts. My understanding is that the legal argument was that the State did not properly transpose the directive. That may be so and it is costing the State money. I understand that a commercial company must make its own decisions but while that may be the letter of the law, it is not the spirit of the law. I am questioning the thinking there and those kinds of challenges. Eir must also take a bet that the costs will be less than the €10 million by the time it comes out or it will have lost money through the challenge.
Ms Carolan Lennon
I will begin with the questions asked by Deputy Dooley and the Chairman on ALTO and the connection charges. ALTO has a number of members. If one looks at what is said by the various groups, the companies that invest in infrastructure such as SIRO and Virgin have a similar view to Eir's, which is that to invest in infrastructure and to commit to spending €1.5 billion as we have over the past five years and a further €1 billion over the next five years requires a certain degree of regulatory predictability and certainty. For private investors to put that kind of money into any country, they need to generate a certain level of return. ComReg has two main roles. One is to promote investment in infrastructure, because everyone wants to be able to connect to these networks, and the other is to drive competition. The companies which spend money on infrastructure want an environment for infrastructure investment to be created, and those who do not spend on infrastructure talk about competition. It is not a case of one size fits all for ALTO, however. I know that when its representatives appeared before the committee, many of the messages that emerged related to competition.
On the connection charge, ALTO did not compare apples with apples. They compared urban connection charges with rural connection charges. In the UK, the cost to connect a rural house to BT is between £500 and £550. There are competitors, one of which charges £250. In urban areas, the vast majority of connections are standard. When technicians go to a house, they experience the same level of drop, they will be going into a duct and the process is predictable and standard. Unfortunately, in rural areas, connections are not standard. What we now find is that the first time a technician visits a house it is almost like a recce of what has to be done. Do we need to put a pole in? Do trees need to be trimmed? What will we have to do about cable? The cost of connecting a rural house, on average, is €450, because almost every connection is unique. The cost of a pole is €600. Many rural connections require the erection of a pole. That is the reality. Comparing the SIRO connection charge in urban and semi-urban areas with a connection in rural Ireland is not fair. Our connection cost is €450 whereas we charge €270. The connection charge reply did not compare apples with apples and it certainly did not compare like for like. Building networks in rural Ireland is expensive. The technology is not difficult. Splicing fibre and putting two pieces of fibre together is not difficult but being in 100 different parts of the country every day, making sure that the route is prepped, the traffic is managed, the trees are trimmed and that it is not bird nesting season, and everything works is what makes it difficult and slow. When it comes to connecting a property, that is what makes it expensive. I defend our position on our connection charges because they are considerably less than it costs us to connect customers.
What is Eir's amortization period for connection costs?
Ms Carolan Lennon
We charge €270 upfront and probably amortize the remaining cost over ten years.
Dr. Gary Healy
It is over 20 years.
Over 20 years?
Dr. Gary Healy
Yes, it is over 20 years.
All these costs have been discussed with ComReg. ComReg allows a certain amount upfront and then a certain amount on the rental across the costs. It is normally for a period of 20 years. As we mentioned before in regard to connection charges, it is the additional cost that is required for a rural compared to an urban connection.
Deputy Dooley mentioned SIRO's charges. SIRO is rolling out in urban or regional areas where there is not the same level of complexity as in rural areas. That is what drives the costs up.
Ms Carolan Lennon
On the question of cost and value for money, the vast majority of our prices are regulated and the driver behind that regulated price is most usually cost orientation, in other words, they take the costs into account in setting the price. The cost we charge for a pole or for access to a duct is built up from a model that sets out the cost to maintain a duct and pole network in rural Ireland. Our pricing model applies across the entire country, so one is averaging the cost. It is more expensive in rural Ireland but we have a bigger overhead network in rural areas compared to in urban areas.
In terms of ComReg's powers of governance, Eir voluntarily signed up to a voluntary regulatory governance model and as part of that we agreed to a review of every product we had no matter how old or how few customers were on it and we would check it for equivalence, that is where we treat wholesale customers exactly the same as retail customers and for non-discrimination and we would review all the customers and we would share with ComReg the output of that review and then we would generate a report and share it with industry. We signed up to do that and we hired some consultants to help us and we spent a great deal of money and time and effort to get this done and as we finished a product, we sent all our reports into ComReg. ComReg was well aware of the progress we were making and what we were finding. Once we had it all done, we did find discrepancies but these did not arise because people deliberately decided to discriminate one against another. Let me give a good example, we found a discrepancy that some retail faults were being repaired quicker than wholesale faults. We were looking to see what was driving that and what we discovered was the retail business had decided to extend the opening hours of their contact centre, which meant that a retail customer would report it for a longer period. All the communications go into the same hopper in the morning but because they were being taken in later they were first into the hopper. It was not a case of somebody waking up and deciding to discriminate against wholesale customers, but doing something that he or she thought was for the benefit of customers and not thinking through the process and possible knock-on effects.
We found there were changes in processes in this period. Many issues related to older products. We reported them in the Stiles report, as mentioned, and the reaction of industry was astonishing. Industry did not acknowledge that we were being transparent and that we fixed all the issues raised and there were additional issues to be fixed. Instead industry said that it was disgraceful and this set off the review of our regulatory governance model. We have been working with ComReg in the past 12 months, in particular in the past three to four months to understand those requirements, to document what we do and make changes where we need to. For example, the Open Eir team is incentivised only on Open Eir deliverables and not on anything to do with the retail or group side of the business. We are moving buildings in the next month or so and the Open Eir team will be in different buildings. Before reaching the final agreement with ComReg we are starting to implement those changes. Eir made a voluntary decision to engage in the process and to be transparent. I remember talking to the industry at the time and saying that we were always going to find something, some of these products have been there for years and some have a small number of customers on them. Things have changed over time. Nobody is deliberately trying to discriminate but there are definitely going to be idiosyncrasies or changes and what we vow is that we will find them, that we will be transparent, we will report them and we will fix them. That is pretty much what we did.
Deputy Dooley in particular asked about the 300,000. I hate to be reminding people of the background, the Department approached every operator at the time, stating that it wished to finalise a map and wanted to know if they had any plans to do more building in rural Ireland. A number of operators, including ourselves, came forward and outlined their plans, but the reality is that the only operator that spent its own money, some €250 million to reach 330,000 homes, businesses and farms in rural Ireland was Eir. To say that is the cause of other people dropping out is something that I challenge. SSE became a partner in the Enet consortium well after the 300,000 was already gone and left the consortium. It is easy to say that people left because of the 300,000 but the reality is that-----
The question is whether Eir would be doing the 300,000 if there was no national broadband plan.
Ms Carolan Lennon
We actually would. I answered that question very honestly. If one looks at where we were at the time, we had kicked off our own fibre to the cabinet roll-out. At the time, we thought we would have the budget to pass a million homes. We were faster and at the end it was cheaper than we had thought because when we got to do it, our ducts were in better shape than we thought and we went further with the money we had. We were coming to the end of that and had to decide where to go next. Because we had been involved in mechanical, electrical and process design, MEP, we were looking at solutions for rural Ireland; we had it broken down into commercial opportunities, and there was a commercial opportunity in the next 100,000 and so on. We had all that work done. When the Department asked us, we had a machine that was able to build networks, so we were not going to disband that machine, we were going to keep going and when that request came in, we strongly believed there was a commercial return to do another 300,000 homes and businesses at a cost of €250 million. One will not be talking to me this time next year if there is no commercial return on it because we are a private company. It is Eir's money that is being spent. Absolutely, we would have done it.
Dr. Gary Healy
I will address the issue around ComReg's powers and the Article 19 case, that Deputy Lawless mentioned. We are a company that is the most regulated of all the companies in the sector. Much of our focus is on trying to avoid situations where we are having to go to court. I do not think that either ComReg or our company wants to go to court. In our situation we are happy that ComReg has powers and needs to enforce those powers and use them but we would like to have a situation where we are not actually in court. In a lot of cases, we find that we can resolve the issues among ourselves without going to court. Having said that, what ComReg is looking at is around civil powers and having the power to set a fine itself without having to go to the courts and looking for a judge to do that. We have some concerns around that because in terms of the cases that have been brought to us and which we have been brought to the High Court for, we believe that we have resolved those issues. We brought them to the attention of ComReg in a number of cases and we resolved them very quickly. The harm to the industry was very limited yet the level of fines that ComReg wanted to impose - and it would have gone through studies in trying to assess that - was very high. We felt that was not the intention of the powers that ComReg had, and that is why the Article 19 case was brought. I do not want to go into any more detail on that, because it has been discussed. It was not the intention of Eir to find ourselves in court. We want to have a well resourced regulator who is able to bring sanctions against operators who are not abiding by the rules. We feel that needs to be a very transparent process for ComReg in talking to operators and trying to get an amicable solution and resolve the issue before it goes to the High Court. That has worked well in most cases to the benefit of both Eir and ComReg.
Ms Carolan Lennon
There was a specific question about Kildare. In terms of the 300,000 customers roll-out in Kildare, we have completed 93% and there is 7% remaining. We will have 330,000 houses and businesses will be done by June 2019, so we will sweep the rest of it up between now and then. What has happened in some places is that when we go out to build it, there is a reason we cannot build it, there is a wayleave or something else in the way. We do not stop, we just keep going and then we go back around and we pull all those back in at the end. We will be finished by June 2019 because our plan is to move the same machine that had originally done fibre to cabinet on to our fibre to the home urban roll-out.
I thank the witnesses for that. I am not sure if the witnesses answered a question about the rural network in the amber areas, where it is not engaged in the tender, but what is going on there?
Ms Carolan Lennon
As part of the regulation by ComReg, we have to sign up to repair targets - the number of lines that have repairs and the speed of repair - and we have a national target and sub-national, regional targets.
We looked at the repair numbers across the entire network this morning and there are 2,500 repairs. A percentage of Eir's capital expenditure goes into maintenance because it is rightly held accountable by the regulator on those repairs.
I welcome the witnesses here this afternoon. I have a number of questions on the presentation the witnesses have given. It appears from the committee's meetings with different stakeholders that the industry is looking for more regulation. Do the witnesses feel there is something wrong with the State's regulatory system if the stakeholders are looking for more regulation?
There does not seem to be a separation between Eir's supply and wholesale businesses. Ms Lennon should indicate whether the company has a plan to separate those businesses.
The witnesses have answered questions about the costs of the representative body, ALTO, although that may need to be revisited. I recall that Eir had a profit margin of 40%. Could Ms Lennon confirm that?
Ms Carolan Lennon
Eir is allowed to have an 8% regulated return across regulated products. The Deputy is looking at the whole business.
Did the company as a whole have a 40% profit margin?
Dr. Gary Healy
It did have a 40% profit margin.
Ms Carolan Lennon
Yes.
Dr. Gary Healy
I apologise for cutting across the Deputy but there is an important point about where that money is spent. It is important in regulation that Eir has a pro-investment policy. Much of that additional investment that we have been talking about was needed and came from profit margins.
Ms Carolan Lennon
There is an important point there.
I will come back to that but the company does have a 40% profit margin.
Ms Carolan Lennon
There is an important point there. That profit margin is before capital expenditure. The €200 million spent in Ireland last year on capital expenditure comes off that profit margin.
On looking at the blue and amber maps for the network in areas that I am familiar with across the midlands, it is clear why Eir picked certain groups of houses. The areas could be serviced commercially, it made sense from a commercial point of view because there was profit to be made. Can Ms Lennon see the situation that leaves? There are another 440,000 premises or households that need to be serviced and it is becoming increasingly precarious as to who will service them. Does Ms Lennon believe that will require an even larger subsidy because 300,000 households have been removed and serviced? There are 300,000 households that are commercially viable to service, as Eir is proving and that is the business it is in. Will servicing the other 540,000 households and premises significantly increase the subsidy from the State or from the Exchequer?
Logistically, the ESB has a pole at every house but Eir has not. On more and more houses that I see going up there is an ESB pole and an electricity cable but no phone cable going in. Some of the pole network is in bad shape. Is it Eir's intention to charge so much per pole to whoever the supplier is to rent that pole annually? Would the fee be charged annually or on a ten-year basis? The Minister confirmed earlier, in answer to my question in the Dáil, that a final tender document was supplied today by what is left of a consortium. It would be great if the witnesses could reveal if a figure has been agreed with that company. I would be interested to hear that because that is going to predicate the cost of servicing those 540,000 households.
Eir has control of the network. Nobody can hang a cable on an Eir pole unless it is sanctioned by the Eir board at an agreed price. The regulator will want to get involved but Eir holds the trump card. Has that been sorted and roughly what type of figure are we talking about, if the witnesses cannot give the exact figure?
Some people in the industry and some of the providers that I have met over the past two years tell me that providing fibre to homes could be challenging. The programme for Government states that is going to happen by 2020, which is 15 months from now. That is obviously not going to happen unless a major miracle - never mind a minor one - is performed by someone. That cannot be done. Do the witnesses believe that fibre can be provided to every home? Is that the most effective, and cost effective, way of delivering broadband to remote rural areas?
My last question is a parochial one about the roll-out of services in Laois and Offaly. Several of my constituents have the service but there are others who are still in the amber area even though they are only 50 metres away. They are understandably asking why that is. I have had many complaints about that, some of which I have fed in to Eir, where there is a group of houses not far from the blue mark. There might be another group within 600 m, 700 m or 800 m that can be commercially serviced. I understand that, wherever you stop, there are always going to be people outside that net. What percentage of households has Eir serviced so far in Laois and Offaly?
The witnesses might answer those questions. There were a lot of questions there.
Ms Carolan Lennon
I will answer the question about Laois first because it is probably the easiest to answer this evening. There is 53% of the 300,000 that Eir said it will do in Laois completed and the rest will be done by the time we finish in June.
Is that 53% across the State?
Ms Carolan Lennon
That is 53% of County Laois. In Offaly, the figure is 46%.
So the figure is 53% in Laois.
Ms Carolan Lennon
Yes, and 46% in Offaly. That will be done by June.
I will answer the question about poles. Eir maintains its poles. They are tested and replaced. As part of Eir's support of Enet for the national broadband plan, NBP, it will need to replace a number of poles up front so Enet can hang fibre on our network. There is a regulated price for those poles. That is based on the cost of replacing and maintaining poles. As far as Eir is concerned, that is the price that Enet will be charged for the poles and the duct network.
How much is that price?
Ms Carolan Lennon
It is €20 for a pole if there is one company on it and it is half that if there are two companies using the pole.
To clarify, is it €20 per annum per pole for each home to service with the cable going on that pole?
Ms Carolan Lennon
For each pole that someone has hung some cable on.
If there are ten poles going to my house, does Eir charge the service provider €200 per annum?
Ms Carolan Lennon
Yes.
Dr. Gary Healy
Is the charge €20 per pole regardless of how many cables are on the pole?
Ms Carolan Lennon
The cost diminishes if there are more cables on a pole. If a service provider has a pole to itself, it costs €20. If there are two service providers on a pole, the cost is €10 each.
The Deputy is quite right in making the point that there is not a pole connecting every house. Many people have gone to mobile and never had a telecoms connection into their house which is not the case for the ESB because every house has electricity.
We raised the point numerous times during the minimum viable product, MVP, process that we should be using all infrastructure to get the best. Why would we put up a pole when there is already a pole in the driveway that brings electricity in? That is a question worth answering. There is other infrastructure and it is not just Eir's infrastructure. We should use whatever infrastructure is available to get the best service to customers and the best price for the State, so I agree.
On whether we need more regulation, it goes back to what I said earlier. We feel that the regulator is focused on the competition side of regulation and not as focused on creating an environment for investment. For example, most of our products, as I said, are regulated based on cost orientation, that is, the cost to maintain or build that product. In most countries when rolling out fibre to the cabinet, cost orientation was introduced seven years afterwards because that is the kind of time that would be needed to roll out these networks and get a return on them. In Ireland we went to cost orientation in four years. When we had started our roll-out we never thought for a second we might be at cost orientation. Again, when rolling out networks, it takes a while to understand what the actual costs are as one sees different set-ups, different connections and so on. We feel we need to look more actively at regulation on the infrastructure side, create that environment for our infrastructure and be less focused on the competition. One need only look at what has happened to market share over the past number of years. This is the point that Gary made earlier about the damage to competitors. It is ALTO's members who have grown their market share over the past number of years, not Eir retail. That is the reality. Sky was relatively new to the market three years ago and it has taken a decent amount of market share. That says to me that on the competitive side it is working. To be in cost orientation, however, four years after spending significant millions on a network feels too soon, and it is potentially a barrier to people investing in the country.
On the separation of wholesale, the committee probably knows the answer to this before I say it. There is one country where there has been forced separation of wholesale and retail, and that is the UK. That does not seem to have worked in terms of fibre penetration, or certainly rural fibre penetration. We say we are sub-scale in Ireland to have a completely separate business. If that is done, the cost of separate IT systems and so on will lead to higher prices because all of those costs will feed into our cost-orientated prices, which will impact on the consumer. The things we are doing, such as separate incentives for the open-air team, separate buildings, green regulatory governance processes, reporting and so forth, are adequate. Right across Europe there is no other example that I know of where wholesale has been successfully separated.
I asked three questions about fibre in the home and how realistic it is.
Ms Carolan Lennon
Fibre to the home is absolutely the best longer-term solution. It involves 450,000 homes but it is across 90% of the geography, and one does not want to do it twice. Fibre to the home provides a long-term solution. Even though most of us do not have laptops today that can take a gigabyte, in the future we will, and once one has that connection one can take advantage of it. The ambition of the Department is right but it will probably be too difficult in the last 10% or 15%, based on where the premises are. Much progress may be made quickly on the 90% but the other 10% will be difficult and expensive. It might be an opportunity to see if there are other solutions that might work to deliver it there.
Could wireless be used in those places?
Ms Carolan Lennon
Yes, we will test some fixed wireless solutions later this year to see how they compare with fixed broadband. We will also do some trials of 5G in the second half of 2019. We are not looking at voice or handsets yet rather what can be done with data and what the equivalent is. The challenge with mobile and wireless is that it is not a direct connection into the home. If a number of homes are using it, therefore, there is some contagion at the edge but for the outer rim, the last 10% or 15%, it might make much more sense. The speed will certainly be quicker. As I said, we have led the hard way to the 300,000, but it takes time to get out there and to roll out those networks.
Following on from Deputy Stanley's point, we hear from representatives all the time where there is a roll-out going in a light blue area and all of a sudden there happens to be a boreen with a school 100 yd up the road or a golf club, or whatever it is, and the calls come in asking, "They are on the road. Can we just get one more?" Is it a "no" in all cases? Are there criteria if it is a not-for-profit or a school?
Ms Carolan Lennon
It is not always a "no". We started with 300,000 and we will end up with 330,000, so there were a few "yeses" in there somewhere. I get those requests every day and everyone says, "It is not logical. Why did you stop here?" The problem is if I did not stop there I would be doing a 400,000 roll-out and I would be over my €250 million budget. In the first place, the way we have been doing it is by bringing core fibre out into the country in advance of this in order that we can connect back to it. We planned from where we had core fibre out. We could have made a decision to do much more of Munster or all of Connacht but we said we would do it from core fibre out. Back in the office we did a high level design and when we got out on the ground we did our low level design. While doing that, when it made sense we scooped more people in, or we looked at requests and said it really is close so we will do it, but people often say that is just 50 m or a mile and a half. I know it is terrible and we do not like saying "no" to people but we have to do it because otherwise it would not be due in 2019 and it would not be €250 million. That is the challenge, but I sympathise if one is on the other side of it. I have been around the country a lot, including those early days in Naas. Now that some people have it and some people do not have it, the desire for it is bigger, and I feel that when I am out there.
I thank Ms Lennon and Mr. Healy. Ms Lennon was frank in recognising the obvious, which is that in the most rural areas it does not make sense on a public policy basis to have two poles. Whatever is happening on the national broadband scheme, one would have thought that if logic in any way applies we would use the ESB poles, given that they are everywhere. Would that then allow Eir take down the existing poles, or would it be obliged under the universal service obligation, USO, in terms of fixed-line services and so on? What are Eir's plans with those? How many poles are there for that?
Ms Carolan Lennon
We have approximately 1.5 million altogether, 1.2 million of which are in that intervention space.
What would be done with the 1.2 million poles?
Ms Carolan Lennon
In the short term we would not do anything. We are having exactly the same conversation that we have when we talk about our urban build of 1.4 million. When fibre is in everyone's home, and we can deliver a voice service over fibre, one does not necessarily need the copper, for example. Should that be taken down? When should it be taken down? Should it be taken down when the last person comes off copper or should there be a migration? All of that would have to be agreed on. Industry would have to agree with the regulator, and timing would also have to be agreed. It would be exactly the same with the rural areas. Will we have a USO in the future or will Enet, which is presumably the successful bidder, take that USO? Would we not have to repair poles and just take them down, and get rid of the copper? That would all have to be agreed over what would probably be a long period of time.
That is where we are going, clearly.
Ms Carolan Lennon
Absolutely. For Ireland that would be much better. Copper is terrible in that lightning loves it and is attracted to it, so we get awful trouble with lightning storms. It is terrible with water, and we get a lot of water in Ireland. From a repair point of view, it would be much better in the long term to have a lightweight fibre network on the poles which does not attract lightning and is better with water. We need to get there but it will take a bit of planning.
On the rest of the network, am I right that there are approximately 900,000 houses which Eir passes with fibre broadband?
Ms Carolan Lennon
We have 635,000 people connected to our fibre network and approximately 900,000 pass it.
Are there 635,000 that would be with a triple play contract, typically?
Ms Carolan Lennon
They may not be because that is a combination of wholesale and retail. Some of those have a service from our other operators. On the Eir retail side, we went last year from 24% to 28% of people taking triple play and corporate pay bundles.
Of those 635, 23% are on triple play Eir.
Ms Carolan Lennon
Twenty two per cent of the Eir retail customer base.
Some will be fixed line, some Sky-----
Ms Carolan Lennon
Some will be Vodafone, some will be IFA, some will be pure telecom.
This is very useful. What does Eir define as high speed broadband?
Ms Carolan Lennon
From 30 Mb and above is our definition.
In the advertisements it is given as 100 Mb. Is that fibre to the cabinet?
Ms Carolan Lennon
That is fibre to the cabinet. It is up to 100 Mb.
Does Eir ever think of going fibre to the home?
Ms Carolan Lennon
That is what we announced recently. The rural build, the 300,000, is fibre to the home. Due to the way we have built our towns in Ireland so many cabinets would be needed that it is more economical to bring a direct connection to the home. If I am going to pass four homes on a four mile road and have a cabinet there I might as well go straight down and connect people directly.
What we have done up to now in urban areas and cities is fibre to the cabinet but we have recently announced that we are going to bring fibre to the home in those cities and urban areas, that is 1.4 million homes. That is our future-proof strategy.
Over how many years?
Ms Carolan Lennon
It is going to take us five years.
When I looked at the Eir map I saw that the service in south Dublin, my constituency, is pretty poor.
Ms Carolan Lennon
That is the case for some people, depending how far they are from the cabinet and what product they have. In the future they will have access to a fibre to the home product.
That will be 1,000 Mb.
Ms Carolan Lennon
A gigabit.
Of the 180,000 that have passed in one test how many have taken up the product?
Ms Carolan Lennon
Penetration is just over 20%.
Ms Lennon said that Sky has become a major player. How much of its growth is on Eir's network?
Ms Carolan Lennon
It is all on our network.
If it is charging €58 a month for typical triple play on a standard service what is Eir's wholesale rate?
Ms Carolan Lennon
It varies depending on the product customers buy. We have standalone broadband products which cost approximately €22. If they buy a copper line as well------
What if it is triple play, phone, video and broadband?
Ms Carolan Lennon
We will be selling them a copper line and broadband which is approximately €35. They add whatever they want.
Their basic cost is approximately €35. What if it is a gigabit connection?
Ms Carolan Lennon
They only just came on to fibre and at the moment it is all fibre to the cabinet.
They are not among the 180,000.
Ms Carolan Lennon
No, they have only just started to consider fibre to the home.
What would the wholesale price be for Sky on that new network?
Ms Carolan Lennon
I think it is approximately €8 for the 300 Mb and up again for a gigabit. There is a differential of maybe €8 for the first step up and then another €8 for the next.
It would be €40 something.
Ms Carolan Lennon
Yes.
It was before the committee and was concerned that it is not getting a good enough deal. I am always slightly concerned from the viewpoint of the public. Virgin, Vodafone, Sky and Eir are in effect competitors but they are all in the same price bracket. Virgin has a lower price for the first 12 months but the second 12 months is €80 something versus €49. How come everyone offers the same price if we are in a competitive market?
Ms Carolan Lennon
On the retail side they do not have the same price. We are about €10 more expensive than Sky. However, we offer Eirsport for free in our package. We bundle different things.
Eir is approximately €55 euros a month for the standard triple play package. I apologise, I was looking at my phone, the way one does in committees. I read it on bonkers.ie. Sky is €58, Vodafone is €54, Virgin is cheap at €49 but averaging it out after the second year it is €55. Everyone is charging the same price. How do we know that as consumers we are not being scammed, that there is no competition in the market? How come there is no price difference?
Ms Carolan Lennon
I cannot comment. I think the packages are all quite different. The Deputy has picked out the triple play and they seem similar in price. I know our other products were €10 more expensive in some areas than Sky. We bundle in sport. We offer different things to differentiate ourselves on the retail side.
Dr. Gary Healy
There is quite a bit of competition. There are many promotions and the packages vary, also in terms of speed for mobile. It is quite a competitive retail market. The underlying cost for us is regulated by ComReg. That is based on our costs within a minimal return.
I am always nervous that we have three or four large mobile operators all charging the same price. There are three or four large triple play packages all at the same price.
Ms Carolan Lennon
It would be important to examine what is in there, for example, we are the only one that has a mobile fixed network. Our standard product is €39 but the customer can add postpaid for €10. What the customer gets on our triple play may be different. I do not believe their content is all exactly the same but I will investigate and come back with an answer.
How many staff does Eir have now?
Ms Carolan Lennon
We had 2,300 before we lost our voluntary redundancy scheme. We have approximately 2,700 now and we have got more people to exit. We recently announced a change of strategy, and we are bringing customer-facing staff who have up to now been with outsourced service providers back in house. We want people dealing with our customers to work for Eir. That will change the number over the next little while.
Does Eir use the metropolitan area networks, MANs?
Ms Carolan Lennon
No because we have infrastructure everywhere there are MANs.
Would Eir use them in the future if it had to make an investment choice whether to use them or put in its own new ducting and fibre?
Ms Carolan Lennon
I have looked at that overlap. There is nowhere in the country where there is a MAN that we do not have any infrastructure.
How many towns is Eir in? There are MANs in 120 towns.
Ms Carolan Lennon
There is no town that we are not in.
How much money did Eir spend?
Ms Carolan Lennon
We have spent €1.5 billion over the past five years and we are going to spend €1 billion over the next four years.
Is it on a point of principle that Eir will not use the MANs?
Ms Carolan Lennon
No, I think the question is why did we build MANs if Eir already had infrastructure. Why did we not use that because we were there first?
It was to try to bring in some competition.
I thank Deputy Ryan.
I thank Mr. Healy and Ms Lennon for coming before us today. There was very good engagement with our committee members. It is proposed that the committee will publish the opening statement and submissions received on our website. Is that agreed? Agreed.
The joint committee adjourned at 6.47 p.m. until 2.30 p.m. on Tuesday, 2 October 2018.