I thank the joint committee for inviting Eir to attend the meeting to discuss the national broadband plan, NDP. I am joined by Mr. Edward Storey, Eir's director of strategy and corporate communications.
I do not propose to take members through a history of Eir, but I wish to outline that it is the principal provider of fixed line and mobile telecoms services in Ireland. We have approximately 2 million customers and operate the most extensive network in the country. Open Eir is the largest wholesale operator in the country, providing products and services for over 40 wholesale customers and more than 400,000 end users. We are also a major contributor to the economy, spending over €1 billion annually and employing just under 3,500 people directly.
There is often much public commentary on or speculation about Eir's investment, an issue to which I will turn shortly, but it is important that facts are not overlooked and that the committee be made aware that in the past five years Eir has invested more in its network than any other telecoms operator in Europe relative to its size. That is illustrated in the accompanying graphic.
In its investigation of the NBP the committee has heard opinions from multiple delegates about Eir's investment of €250 million in rural areas. It relates to the deployment of high speed gigabit fibre technology that has passed 300,000 rural premises with no State subsidy or taxpayer support. Today we have passed more rural premises with high speed fibre broadband than the 300,000 originally planned and expect to pass approximately 340,000 premises when we close out the programme this summer. This was and is a significant private investment in rural areas. As someone who was involved at the beginning of this investment, I am very proud of the work done by the Eir team in every county in Ireland to bring fibre to the home to rural communities. The investment in the 300,000 programme provided for premises from 885 exchanges. We have rolled out over 27,000 km of new fibre, replacing 69,000 poles along the way and installing 110,000 four-port splitters - the black box that can be seen on many poles in rural areas. Beyond that, we have had to upgrade 202 exchanges with fibre backhaul.
There are a number of myths and misrepresentations about this investment and I want to address some of them. At the time Eir was deciding the next phase of its investment, we had completed a considerable investment in fibre to the cabinet, FTTC, bringing fibre technology further out into the regions, towns and villages. Fibre to the home, FTTH, was a natural follow-on from this. To that end, we publicly announced our intention to extend fibre to the home into the rural footprint in 2015. It is often overlooked that at the time the Department asked all operators to detail their investment plans for the period ahead. We informed it about our rural fibre to the home plans. Ultimately, Eir was the only operator to enter into a commitment agreement in respect of this investment. We will have passed 340,000 premises with high speed fibre before an NBP contract is signed.
Removing the 300,000 premises from the intervention area had two impacts on the NBP subsidy. It removed the potential revenue from these customers which drove up the subsidy. It also removed the capital costs associated with passing and connecting those homes with fibre, which drove down the subsidy. The committee has heard much about the former from previous delegates, but less attention has been paid to the latter, while the question of the net impact of both on the subsidy has not been addressed at all. Helpfully, the KPMG single bidder solution assessment report answers it for us. Page 37 of the report states the budget model in April 2017 predicted a €787 million subsidy. That was after the 300,000 premises had been removed from the NBP. This is lower than the subsidy projections of up to €1 billion reported in the press as early as 2015. We believe the removal of the 300,000 premises should have led to a reduction in the overall subsidy for the NBP. This appears to have been confirmed by KPMG. Our fibre network in rural areas was built with a specific intention and at an additional cost to Eir so as to allow the eventual NBP winner to share the fibre in order to traverse the 300,000 premises region. It now appears the decision taken by the bidder not to re-use the existing fibre infrastructure but instead to duplicate and overbuild our fibre across the 300,000 premises region has driven up costs and the associated subsidy.
Appendix 1 in our submission contains a sample map demonstrating how the 300,000 fibre to the home network was rolled out. We are happy to discuss the map in detail if members believe it would be of benefit. In designing the figure of 300,000 we firmly believed we were assisting the future NBP when we took the decision to terminate the 300,000 ribbon with a more expensive termination unit that would have allowed any NBP bidder to connect to and fully utilise the asset we had deployed. It is important to note that while we were able to pass the 300,000 premises commercially, our knowledge and experience of the NBP process suggests the extra costs and complexities of the NBP contract mean that they would have required a subsidy to pass if they had remained in the intervention area.
On the issue of network access, there has been much public commentary on and debate about the potential revenues Eir might receive for the rental of its poles and ducts. Eir's prices are regulated, published and based on a modest return on the significant cost of the 1,000 plus engineers who work all year round in all weather conditions to maintain Eir's network and replace its poles. Eir's investment to support the roll-out of the NBP could be as high as €200 million in the early years and €900 million over the life of the plan. It is important to note that this is not a quick return for Eir. In the first few years of the programme Eir will be making a significant capital investment to make ready the infrastructure for National Broadband Ireland, NBI. As such, we are taking on significant risk and operating at a loss for the term of the actual roll-out phase; nor does this represent incremental revenue to our existing revenue from our copper network since this network will be decommissioned after fibre is deployed. Therefore, the rental revenue is replacement revenue to fund the cost of maintaining the poles and ducts.
We would also like to remind the committee that Eir is not a monopoly provider of network infrastructure and that the State has already made it possible for publicly owned infrastructure to be used to deploy high speed broadband. The preferred bidder has stated its intention to use ESB and other infrastructure where it makes sense for it to do so and I expect it to do so. However, as I have just stated, rural networks are very expensive to maintain; therefore, the committee should not expect the ESB to be a free option.
Finally on this topic, I point out to the committee that the only cost talked about in detail in respect of NBI’s engagement with third parties is a reported €1 billion figure attributed to the cost of accessing the Eir and ESB networks, which accounts for only 20% of the overall project costs. The other 80% of the costs to be paid to privately owned and unregulated project subcontractors have not been subject to the same scrutiny or attention as in the case of Eir, even though the access cost in respect of its network is and was always known and is independently regulated by ComReg.
The committee asked us to reflect on three themes in its correspondence ahead of the meeting. In respect of the roll-out time, we have always been of the view that deploying fibre technology across the entire intervention area is a project of such scale that it was always going to take a number of years to complete. We believe seven years is a challenging but achievable target. As the only company building fixed-fibre infrastructure in rural areas we know how long it takes and how events outside our control can delay deployment. We believe our experience from the 300,000 premises deployment has been invaluable to us and the Department. It has allowed officials to prepare for and anticipate issues that are likely to be faced by NBI in its deployment.
On the issue of value for money, I do not believe it is appropriate for Eir to make determinations on what is or is not good value for money for the taxpayer in respect of the NBP. While there may not be a commercial case for providing fibre for every home, there may well be a case for society as a whole, but that is a question for the Government. However, it is clear to us that we can build rural fibre infrastructure at a lower cost than is envisaged in the plans as outlined at the same levels of quality and service as for the 300,000 premises. There is no secret in this. Eir could complete the NBP, based on its approach to the 300,000 premises rural roll-out, for under €1 billion. At the time of Eir's departure from the bidding process my predecessor, Mr. Richard Moat, wrote to the then Minister, Deputy Naughten, outlining our reasons for leaving the process but also offering to discuss with the Department alternative ways of achieving the Government’s stated policy objectives.
To keep costs down, Eir built its rural fibre roll-out with the intention of providing access to its 300,000 premises fibre. We offered a product that would allow the preferred bidder the traverse the 300,000 premises area to reach the intervention area. The plan, as it stands, is not to use this product but instead to build fibre alongside parts of the 300,000 premises network. The logic for this is not clear to us, but it is also not a question for Eir.
Eir does not have a view on the issue of ownership as it is a matter for the Department. However, as a former bidder, ownership of the network at the end of the 25-year period would have to be factored in to the business case for any bidder.
As a private company, Eir believes strongly the private sector can deliver high quality essential services to customers at a lower price than can be delivered through the public sector. As a regulated entity, we believe this can be done in a way that opens the market to competition and delivers the lowest cost to society. While the private sector gap funding model has failed to deliver a competitive outcome for the NBP procurement process, this need not have been the case had different choices been made along the way. We believe there are other models and structures such as a universal service obligation that could have delivered high speed broadband faster and cheaper than the existing process. However, we remain ready to support the NBP with our infrastructure, if it is required, whether it be via a private sector or public sector solution.
It remains a source of regret for Eir, and for me personally, that we ultimately found ourselves in a position where we could no longer remain in the national broadband plan bid process. Having been personally very close to the process and the dedicated staff, current and former, who worked on it, I assure the committee it was not a decision taken lightly or in haste. We entered the process in good faith with one aim: to win it. We continue to be engaged with the preferred bidder and with the Department. I want to make it clear that we completely support the policy of 100% connectivity for rural Ireland.