JOINT COMMITTEE ON COMMUNICATIONS, ENERGY AND NATURAL RESOURCES debate -
Wednesday, 28 May 2008

Next Generation Networks and Services: Discussion with Telecommunications and Internet Federation.

Chairman

From the Telecommunications and Internet Federation, I welcome Mr. Gerry Fahy, chair of TIF Vodafone; Mr. John McKeon of Eircom, chairman of TIF Broadband and NGN industry group; Mr. Peter Evans of BT, vice chairman of TIF broadband and NGN industry group; and Mr. Tommy McCabe, director of TIF. The joint committee has invited these representatives to this meeting for a discussion on the development of next generation networks and services.

Before commencing I draw attention to the fact that members of the committee have absolute privilege but this same privilege does not apply witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Further, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House, or an official by name or in such a way as to make him or her identifiable.

Mr. Fahy's opening remarks will be followed by questions.

Mr. Gerry Fahy

I thank the Chairman and the members for the opportunity to speak to the committee today on behalf of the Telecommunications and Internet Federation within IBEC. We represent the electronic communications industry. We represent companies involved in fixed, mobile, wireless, fixed wireless, satellite and cable-based provision of services and the outsourcing and Internet service provision organisations.

IBECTIF has more than 70 members. We meet regularly as the TIF council. In addition, there are various industry groups that report to the TIF council. We have the broadband and next generation networks industry group, the cable and broadcasting group, the mobile group, the outsourcing services group, the regulatory affairs group and the telecommunications technology group. We also have several affiliated organisations, being the Irish Cellular Industry Association and the Irish Telecommunications and Security Fraud Forum. We are a fairly broad church.

We are here today to discuss a document compiled by the TIF broadband and next generation networks industry group, the chairman and vice chairman of which are here today also, Mr. John McKeon of Eircom and Mr. Peter Evans of BT, respectively. The members of the broadband and NGN working group are drawn from a wide range of companies within the industry and are named on the list of organisations provided to the committee. As the members can see, there is a broad range of organisations included in the TIF industry working groups.

By way of background, more than 12 months ago, particularly in respect of much general comment in the media on broadband, we set up a broadband working group to identify issues in respect of broadband and to generate more factual information about the true supply and nature of broadband in Ireland. Following that, the industry group set up the TIF broadband and NGN industry group to set out a goal to look beyond the current issues and difficulties to try to make a clear plan for the future of the development of NGNs in Ireland. This was a critical issue for our industry and we wanted to achieve consensus and an industry-wide approach.

Much work was done behind the scenes and it was not a quick process. The original chairperson of the group was Mr. Andy McLeod from Eircom and the vice chairman Mr. Mike Maloney of BT. They took the process forward and it was completed by Mr. John McKeon from Eircom and Mr. Peter Evans of BT. There was also a significant contribution from other members of the working group.

Our vision is of an industry that delivers functionality, value and choice to our customers, an attractive return to our investors and a 21st century network to our nation to support and drive continued economic prosperity. To deliver this vision for the development of NGN services we need the confidence and faith of the underlying public policy framework. Our principles are a number of touchstones to guide decision making, to test initiatives taken at industry, regulatory and public policy level and to act as a reference point and a decision making aid for policy makers and regulators. In the current environment, in which many policy decisions are being made for the future of industry, we felt we needed to provide useful input to the policy making process.

There are eight principles. The first three are about what we hope to achieve and they recognise consumer choice, competitive pricing and equal access, which are vitally important to the success of next generation networks. The principle of consumer choice embodies a belief that all consumers should have a range of innovative telecommunications and infotainment services, delivered by multiple competing service providers to an educated and informed residential and business market place. We believe the power of customer choice is pre-eminent and that is why it is our first principle.

The second principle is one of equal access. This means that standard services should be available to all customers and for all businesses. Baseline services should be available everywhere but standard services must be provided within reason. Our third principle is that of effective and sustainable competition leading to competitively priced standard services, targeting below the European average benchmark having regard to relevant costs and purchasing power in the Irish economy. We set aggressive targets and it is our shared ambition to be in the upper quarter of the OECD results by 2012. We have a great deal of catching up to do but believe that, with consensus at industry level and good engagement with policy makers and regulators, we can achieve this together.

The second group of three principles states the industry is willing to do its share by investing in infrastructure within the correct policy context and with the appropriate support. It should be acknowledged that the industry is investing more than €700 million per annum in infrastructure, which I am sure the committee will agree is investment on a very significant scale. The fourth principle, the second in this group, is that of corporate responsibility, which is self-explanatory. We will do our utmost to accommodate the disadvantaged and those with disabilities and ensure those who are vulnerable are protected from the negative effects of technological developments.

The fifth principle is support for a national economic strategy and states we will do everything to deliver the full range and quality of services, to be agreed between the industry and Government, necessary to support and underpin the national economic development plan. We will comply with the full suite of characteristics and capabilities defined in internationally recognised open technical standards including, but not limited to, the ITU-T and ETSI standards.

Our sixth principle is the principle of investment, innovation and research. It envisages a financially robust industry capable of and commercially incentivised to invest in innovative and leading edge infrastructure and services and to conduct appropriate local research to support its vision. We believe a strong industry is an important foundation for the development of NGN capability. To invest as an industry we need a long-term, clear Government policy and strategy because we need clarity before we can make long-term investments.

The last two principles outline how industry believes the regulator should play its part. Industry believes it should first try to solve its own difficulties and the regulator should only step in when appropriate. The principle of appropriate regulatory context states the industry should work by consensus with regulation to deliver, as appropriate, transparent and flexible wholesale processes and services, including effective switching mechanisms, suitably benchmarked wholesale prices, acceptable wholesale SLAs and appropriate returns for wholesale providers. Regulation should, where required, act as a proxy for competition where significant market power exists.

The final principle states we believe the real expertise for the future of technology industry lies within the industry and industry should lead the way. Industry is ready to step forward and take the lead and has the capability, knowledge and expertise to do so in a proper context. The principles represent a significant step because, in industry, it is unusual to find common ground among competitors with different approaches but we have striven for and achieved that. It only marks the beginning of the NGN journey and we hope this document will act as a catalyst for further discussions, policy developments and decisions on the future of our industry. We look forward to engaging with all the relevant bodies, including this committee, in seeking to apply these principles.

Deputy Simon Coveney

I welcome the members of the delegation from TIF and thank them for their invitation to a less formal event last Friday evening, which was very successful for the telecommunications industry. I am having difficulty remembering as it was a long weekend in Cardiff for me.

It is helpful that the delegation is present because one of the challenges of this committee will be to put pressure on the Government to prioritise this area. Telecommunications infrastructure in Ireland is not adequate at present and, while there has been a dramatic uptake of broadband, whether mobile or fixed-line, in the past 18 months, we are still a long way short of many of our competitors, when we should be ahead of them. I recognise the delegates represent a number of companies who are not of the same mind in every policy area and I welcome the fact that the organisation has eight core principles.

The Government has approximately €200 million to spend in this part of the national development plan over the next couple of years. We have already invested substantial money in the metropolitan area networks, MANs, around the country which involves getting fibre into the ground and building a backbone. While the project has not been successful in the case of all MANs, they have contributed in a positive way in many areas of the country. What is the view of TIF as to the future of MANs? Do they represent value for money? I would prefer if, in their replies, the witnesses did not focus on whether the decision to invest in MANs should have been made as I am far more interested in the future and in phase 3 of MANs. Is it a sensible way to continue to invest public money to promote next-generation broadband or do they think we could invest that money in a more sensible way?

I put my second question to Mr. Fahy, because I know he has significant knowledge on the mobile broadband area, although I welcome Vodafone's move into fixed line services also. There has been concern among consumers that the average highest speed for mobile broadband in Ireland ——

Chairman

I ask Deputy Coveney and other members to turn off their mobile phones.

Deputy Simon Coveney

There has been a dramatic uptake in mobile broadband, which is welcome because it provides a solution in the many parts of the country that do not otherwise have broadband connection, but it is not going to resolve all of our problems in terms of speed and consistency. There is a concern among consumers that mobile broadband is often advertised as 3 Mbps broadband, but is not that in reality for much of the time. Will Mr. Fahy address that issue in his response?

A recent Fine Gael next generation broadband policy document deals with the need to invest in fibre technology in a way that ensures we have competition at both wholesale and retail level. How can the State invest in fibre if we are to move away from the MANs structure? How can we do that and ensure we treat all players in the marketplace equally rather than invest in just one or two companies?

There has been no mention of international connectivity, but it is something those in the industry could speak on with one voice. There are concerns that the cost of sending data, for example from Irish cities to Amsterdam, is a lot more expensive than from most other European cities. Perhaps we should get consensus from within the industry on this as a focus for Government investment.

I am interested in hearing comment on the incentivisation of computer ownership in households. I understood IBEC had brought forward some proposals with regard to tax incentives for computer owners. Would the federation outline the details in that regard? Principle No. 7 concerned consensus in terms of regulation. I am not sure that will be possible, considering some of the members of TIF. For example, the kind of regulatory environment that Eircom is looking for is a cost plus model, in terms of what it can charge in the wholesale market in particular. Would the federation be happy with that?

Does the principle of equal access promote or suggest open access to infrastructure? For example, in terms of ducting that may be in the ownership of Eircom or a cable provider, how does the federation consider this can be opened up to other companies so they can lay fibre and so we can get more competition into the wholesale area?

Mr. Gerry Fahy

The first question related to Government spending and the national development plan. We are looking to the future and the principles are all about setting a framework for that future. In our review of broadband capability, we have identified areas where industry cannot deliver. Up to 10% of the population live in areas of low population density to which it is difficult to provide technology and where it is unlikely industry will invest. We consider this a market failure because the market has failed to address the needs of those customers. Therefore, that is where Government should bring its investment capability to bear and address the areas where market failure exists. If MANs fall into that category, we would not have an issue with investment in them, but the real issue is where market failure exists. We think the national broadband scheme, which has gone to tender, is a perfect example so that industry as a whole, as represented by TIF, is supported, because those are areas that are uneconomic for the industry players to develop at this point in time. If that is where Government applies its funds, we fully agree with that approach.

Mobile broadband is a broad issue. Technical issues underlie the speed capability of mobile broadband. Industry recognises there is an issue and we are working with ComReg and the Advertising Standards Authority for Ireland, ASAI, to come up with an approach which is more transparent for consumers. We have agreed that it is not appropriate to advertise the maximum speed because 3.6 Mb is the maximum throughput speed. We are now exploring the use of the average throughput speed with ComReg and the ASAI so as to be more transparent. This does not just apply to mobile broadband but to all broadband technologies. There is a variability in speed, depending on the number of users, the time of day and the type of usage, etc., that can impact the throughput speed of any technology. Mobile broadband is probably more sensitive to that type of impact, but all broadband technologies are similarly sensitive. We are working with ComReg and the ASAI to ensure customers get a clear read on what is being offered.

Mr. Tommy McCabe

I would like to add a comment. There was an issue in that regard and we had discussions with ComReg and the ASAI on the matter. The ASAI made a ruling on the advertising from April onwards and it will be reviewed in six months. Effectively, the ASAI wants the minimum speed to be advertised. It has gone from one end of the spectrum to the other. This is not very satisfactory from an industry point of view because what it means is that companies have, effectively, ceased advertising speeds and now talk about broadband or high-speed broadband. While we were looking for the market to operate and to encourage people to consider speeds, now, because of the ruling the industry is holding back from advertising speeds. There is an issue, but it is being teased out with the ASAI, ComReg and industry. Hopefully, we will get a resolution that will make it possible to advertise the average throughput speed as Mr. Fahy outlined.

Mr. Gerry Fahy

Deputy Coveney mentioned the Fine Gael policy paper on investment which suggested a focus on fibre. The industry has not sought to bless any particular technology. It is difficult to choose technology winners. Clearly, fibre is an important part of the future, as are other technologies. Our principles set out a framework to allow competition to work and drive investment and follow the customers needs. If customers need fibre, fibre will be delivered. However, it is not our role to decide what are the winning technologies. Our role is to create a framework to allow competition and to drive investment in appropriate technologies, be they fibre or other technologies.

I will leave the international connectivity issue to my colleague from Eircom, Mr. John McKeon, who has more expertise in that area.

Mr. John McKeon

On international connectivity and pricing, I am not familiar with the pricing for the connection mentioned by the Deputy, namely, from Irish cities to Amsterdam. This has not come across my radar as something of particular concern for customers. ComReg statistics show that we benchmark well with regard to international connectivity out of Ireland. Data connectivity is an area in which we generally compare well with on international benchmark tables. One of the issues with international connectivity currently is that in many markets it has been priced way below cost. This reflects the investments which took place during the 1990s and early 2000s by companies such as 360 Networks, Dynegy, Interoute and so on.

There has been a surplus of capacity for a long time which has resulted in international connectivity prices falling to the floor. This is a difficulty for the industry at the moment. I often quote the example of international cable systems, the subsea cable systems between Ireland and the US and between Europe and Asia. In excess of 80% of traffic on those cable systems is data traffic, but 90% of the revenue comes from international voice telephone calls.

International voice telephone calls are now moving to VoIP. That revenue is diminishing. There simply is not enough revenue on the data traffic screen to pay for the renewal of the subsea fibre cable systems. That is not an immediate problem because most of them were laid only in the past ten years. I work in international networks quite lot and it is a problem the industry is aware of internationally. There simply is not enough revenue in international cables to pay for their replacement and renewal. That will become a significant issue.

Fibre cable systems which are now under the sea are fine but they will all need to be renewed in the next ten years and there is simply not enough money to pay for their renewal in the industry. In eastern Asia, the Chinese and Malaysian Governments are having significant difficulties in getting people to invest in fibre connectivity into their markets. In the traditional model international telephone companies — the old incumbents, AT&T in America, BT in Britain, Telecom Éireann-Eircom in Ireland — got together and contributed to lay the cable system. That model has fallen apart and there is nobody offering to come in with big money to invest.

It may be of interest to the committee that in Northern Ireland there is a plan to announce a competition on 16 June for international fibre connectivity into Derry. The budget for that is approximately £50 billion. It is a very significant investment. Investment of that order of magnitude is what is needed. That is a significant issue and it brings to a head the controversial issue of net neutrality. Many telecommunications companies are of the view that the companies that make big money out of Internet and data traffic are companies such as Google, YouTube, eBay and so on. They are getting their services delivered free over high-bandwidth data channels. The people who have the job of building that infrastructure are the telecommunications companies who are increasingly getting a lower return. There is an issue about how to pay for investment and whether companies such as Google, YouTube and eBay should pay more than they currently do. I am aware I am pointing out the problems and have not given many answers, but it is a very difficult area.

Chairman

That is helpful.

Mr. Gerry Fahy

I will invite Mr. Tommy McCabe to deal with the question of PC ownership.

Mr. Tommy McCabe

The telecommunications industry did its part in the important area of education in providing broadband to schools. On foot of that, my colleagues in IBEC and ICT Ireland have been looking at the possibility of providing computers specifically for schools and of incentivising the general public and businesses to update their computers and utilise the broadband that is increasingly available. While there have been discussions with the Department of Finance and the Department of the Taoiseach over the past two years, the best that has been achieved is that last year industry came up with a package whereby one could get advice on one's computer system and broadband. That was supported by the Department of the Taoiseach. However, no financial incentive has been provided by Government to date. The industry and ICT Ireland in particular have been calling for the introduction of measures to incentivise business and the public to utilise the latest technology. Broadband is only a means of utilising new applications, but if one does not have the systems, particularly in schools, one cannot do so.

It is a cause for concern that while the telecommunications industry has played its part in providing broadband to schools, the level of computerisation and the skills attached to it do not currently exist. In the broader area, we would welcome any initiative by Government to incentivise businesses to have the latest computer technology to utilise the available broadband technology.

Mr. Gerry Fahy

On the question of consensus and regulation, what is required is industry consensus. If there are deep, technical and commercial matters to be resolved, the industry experience is that it is better for industry to work through those and, in the event of failure to do so, to have appropriate intervention by the regulator whose decision is then applied. Consensus within the industry is what we are talking about. We see the role of the regulator as addressing areas in which industry cannot achieve consensus or where there is a failure to agree on critical issues. On presenting this set of principles to the regulator we got a reflection from the regulator that it has no difficulty with this concept, that effectively it sees its role as addressing areas where industry is not working to achieve results.

In regard to open access, we have not specifically singled out ducts as a particular item of technology. However, we see open access as part of the principle of liberating service delivery, of people being able to innovate in terms of services. In principle, access to all networks at all levels is important in terms of generating competition and innovation around services. As a general principle that would be true of all technologies.

Deputy Liz McManus

I welcome the delegations. I have been reading up on this, being relatively new as a spokesperson in this area. It is interesting to read statements that were made by the previous Government stating the ambition to be a leader in terms of telecommunications, infrastructure and services such as broadband. That ambition has not been realised. While there is great interest in this area overall, the fact that we have not achieved with respect to broadband in the way that we could is a matter of concern to us.

I am not sure how TIF is structured. Is it the case that any provider can become a member of the federation or do certain criteria apply?

In the context of Deputy Coveney's point regarding the digital divide, it seems there is a geographic issue which it is hoped will be addressed by the national broadband scheme. There is also an issue in that particular groups are not developing in the way they should. Good work has been done in the area of schools. However, one of the statistics that startled me was the low level of take-up by medical practitioners. Health care is an area where communications technology can be enormously useful.

Another issue, which is not quite as pressing but is certainly important in terms of quality of life, is that of older people. There is a commitment in the Government programme to include broadband in relation to free telephone schemes. Is there not the potential for industry to work with the State in developing what, to the industry, would be new customers, which would result in a win-win situation? Perhaps Mr. Fahy would comment on that. Would Mr. Fahy also comment on Eircom's ambitious Fibre Ireland proposal which was turned down by the Minister, and elaborate his point on infrastructural development?

With regard to the economic development plan, does the federation want the Government to have a detailed strategic approach to this whole area or does it feel the industry is developing and expanding and the State should only fill in where gaps occur? Other than that, is it just a matter of good regulation and allowing people get on with running their businesses? For example, in the area of innovation who pays for research? Is this a role taken on by the industry?

On the role of the regulator, one of the criticisms in the past has been that costs and quality have not been the brief of the regulator. I represent a largely rural constituency that has major access issues. I was surprised, however, when somebody who lives in Finglas told me she had problems too because at 6 p.m. her broadband turns off. I understand what she meant. At that time people come in from work and log on and put pressure on the system. There are general access issues like this. The Department has produced a wonderful map showing that broadband is available everywhere except in a few isolated areas. However, while it is available in many areas and may be designated as fully available, the service may be uneven.

I understand there is an abundance of wireless availability and it seems to be the coming thing. Are we, therefore, in danger of investing in the wrong area? I appreciate that the federation represents a wide range of interest groups, but it must have views on the changes taking place in a rapidly changing environment Otherwise, it will not succeed in its business.

Chairman

Before Mr. Fahy answers, I would like to be excused. I will ask the Vice Chairman to take the Chair as I have another engagement to fulfil.

Deputy Peter Kelly took the Chair.

Mr. Tommy McCabe

I thank the Chair for inviting us here today. Deputy McManus asked about TIF membership. TIF is open to all involved in the telecommunications industry and to all members of IBEC. Membership is not free, as IBEC is a membership driven organisation. The federation is subject to normal membership so that people involved in the telecoms sector can be involved in TIF. Normally, the members are TIF telecoms operators or are involved in related activities such as data centres or telecoms equipment suppliers. Most of the telecoms operators are members of IBEC. All the significant operators have been members for a number of years. Therefore, this is an interesting challenging time for seeking agreement.

Mr. Gerry Fahy

The Deputy asked about the groups that are being left out and about issues of take up of technology by different groups. As a member of the broader ICT grouping within IBEC, we have an interest in this area also. We would like to see more uptake of the technology. We see ourselves as delivering part of that. We are delivering the access part and the wireless or wired services that allow people to access the Internet.

Competition drives the marketing and the offers for lower call services or promotions such as half-price promotions that incentivise people to sign up for services. However, people also need a computer and to feel confident about using it. That is a much broader issue than our industry. Our industry is only one of the industries playing in that space. The industry that supplies the computer technology, etc., is also involved.

Mr. McCabe mentioned earlier that TIF and IBEC have a strong view as to how Government could support the adoption of technology through incentives of some form or other that would help. Different incentive structures have worked well or less well in other countries around the world. There are examples of where incentives have proved useful. We would welcome that and as an industry would benefit from it. We have done our bit. We will deliver €15 million of investment in broadband to the schools' initiative over three years, voluntarily, to stimulate the use of broadband for education purposes. This is also a self-interest issue, to try to stimulate the use of broadband and the demand for it more generally in society.

I will not respond directly on the proposal relating to Eircom on the basis that it would be inappropriate as an industry representative to comment on one company's issues. However, we have asked for clarity. As an industry we are not pressing for outcome A versus outcome B. We are saying we need clarity on the issue in order to make decisions for long-term investment. If there is a significant short-term uncertainty — significant uncertainty was created — clarity is helpful. Some members might feel one outcome was more appropriate than the other, but that is not the issue. The issue is we are seeking clarity. We want clarity so as to be able to underpin long-term investment strategies.

On the long-term economic development plan, we want more than just a benign regulatory environment. A well informed policy and regulatory environment are important because issues will arise that a regulator will need to resolve, issues that the industry cannot resolve such as technical issues, perhaps with regard to numbering schemes etc. We will always need a regulator to help out on issues such as that and spectrum allocation etc.

We want Government to recognise the importance of our industry and to prioritise it in terms of its policy development and the type of initiatives it applies in terms of supporting industry development. We are not here looking for tax breaks, but are here in order to accelerate the development we need to apply. We need policy frameworks in place for that and need a shared vision between industry and policy makers on what we want to achieve. We also need support in terms of decisions relating to issues such as spectrum or clarity on the issue mentioned earlier. If we are to accelerate development at a pace that will put Ireland into the lead in respect of other markets, the financial issues are also important. We would welcome engagement on all those issues.

Deputy McManus asked about the role of the regulator in terms of costs and quality. As an industry, we deal with the regulator every day. The broadband speed issue is an example of where we deal with both the regulator and the ASAI with regard to whether the service is delivering what consumers expect and whether it is of sufficient quality. As an observation, the remit or role of the regulator is broadening beyond the area of whether there is a sufficient supply of broadband and whether there are sufficient numbers of providers competing to supply. One of the issues for the industry is that many people represent the consumer. There are probably three or four bodies with statutory obligations to represent the consumer. Sometimes these talk at cross purposes. It would be helpful to the industry if there was some unified set of views presented rather than the views of different slices of the consumer pie, because that makes our job more difficult.

The Deputy also raised the very interesting issue of wireless broadband. This is one of the decisions the Government can make that may make a significant difference for the industry.

Deputy Liz McManus

Could Mr. Fahy explain what the Government would have to do in that regard?

Mr. Gerry Fahy

The Government could make a number of different decisions. One of the big issues at industry level is what we call the digital dividend, namely, the migration from terrestrial broadcast of television from analogue to digital services. Digitalisation of television broadcasts is more efficient. Less spectrum is required to deliver terrestrial digital television, which means we will have leftover spectrum when the analogue switch-off takes place.

What the Government anticipates will be done with the remaining spectrum is very important to the industry because there are a number of different ways in which it can be used. Technologically, it is ideal for use for terrestrial services, be they fixed or mobile. It has good propagation distance and in-building penetration. In delivering wireless broadband services, for example, it could be very significant to deploy the spectrum in this way. I am sure there are other competing demands on the spectrum and, therefore, the decision thereon could be important to liberating capability and a technological use that could be very effective in delivering greater wireless broadband capability.

Deputy Liz McManus

Fewer roads would be dug up.

Mr. Gerry Fahy

Yes. I have given an example of one of the important decisions facing the Government which could have a significant swing factor in respect of how the industry invests and how rapidly it can make progress.

Mr. Tommy McCabe

Fibre Ireland is the result of a proposal from Eircom and I will comment on it specifically. Generally from the industry's point of view, in terms of other service providers utilising the available infrastructure, the proposal has an impact on all telecoms, not just one telecom operator as such. The Minister spoke at the TIF charity ball Deputy Coveney attended last Friday night but did not indicate that he favours supporting one platform over another. It is possible, in consultation with the industry, to establish a framework that would enable investment to take place in telecoms infrastructure. All the players in the industry are agreed that investment is needed.

In respect of the proposal in question and the broader proposal for which the principles we are discussing today set the framework, there are discussions ongoing with the Minister. We are happy to engage with the Government and the other stakeholders, such as the regulator and general users, on what is best for Ireland Inc. in terms of society and business. We need to have modern telecoms infrastructure and this requires investment. The debate on this issue is ongoing.

Mr. John McKeon

As I am with Eircom, I should say something on the matter. I will echo Mr. Fahy's point that we are here as an industry group first and foremost and not to talk about Eircom or its intentions. This is an industry session. Eircom is seeking clarity as much as any other operator.

We were asked about investment in fibre and whether a strategic approach is required. We are reaching the point where other countries, including The Netherlands and countries in the Far East, are adopting strategic approaches. The Australian Government recently adopted a very strategic approach in terms of fibre. It is approaching the time when Ireland needs a strategic approach. This is Eircom's view and it suggested one approach to the Government. It is not so vain as to believe its approach is the only one possible. We recognise that the Minister and parliamentarians must take a wider view and not just focus on one submission. Eircom is seeking clarity so it can proceed with making investment decisions, as it wants to do.

Deputy Simon Coveney

We are all looking for clarity.

Mr. John McKeon

The Minister is due to publish a consultation paper on next-generation networks and we await it with interest. It is in that context that we can move the agenda forward. Eircom would be happy to meet the committee on a bilateral basis independent of the industry because other industry colleagues might have a different perspective on what I am saying. I would not want to make statements now.

I may have said £50 billion will be required for fibre connectivity to Northern Ireland. It is £50 million, which is still a large figure.

Deputy Liz McManus

It is not that much.

Mr. John McKeon

It is difficult to count all the zeros.

Deputy Liz McManus

To clarify, the Minister said at the dinner that providing money to Eircom is not the direction in which we should be investing public money. Is that not clear? Mr. McKeon is saying it is not.

Mr. John McKeon

I was not at the dinner, I did not hear the speech and did not read the notes. I am saying we need clarification on the Government's policy, with regard to the extension of networks, for example. Technology bets will have to be made at some point. The industry is developing very fast and we would prefer not to have to make technology bets until we absolutely must do so. Other countries are beginning to make their bets now and we cannot continue to hedge ours for much longer.

I have been in the industry for 29 years and my experience suggests that, generally, when one has a choice between competing technologies where the outcome is unclear, the more expensive one will have greater capability and compete against another that is less capable but which may have development potential. One must ask whether one should stick with the copper or move to fibre or go wireless. Generally, those who succeed are the ones who take the bold steps.

Mr. John McKeon

An example of this can be derived from the mobile industry. Europe took a decision on GSM and 3G that was not taken in the United States and, as a consequence, it is now much more advanced. The take-up of mobile services and the use of mobile networks for data, among other purposes, is much more advanced than in the United States because a bold decision was taken.

After I joined the Department of Posts and Telegraphs in 1979, a decision was taken to move to digital networks. This was at a time when many were stating analogue networks would do on the grounds that one could still make and take phone calls on them. It was suggested the analogue networks would develop over time and that there was no need for the great investment of £2 billion, which in modern terms is €10 billion. A bold decision was taken to invest this money and it paid huge dividends to Ireland. Other countries are taking similarly bold decisions at present.

Drawing on our principle of investment, innovation and research, our very first supporting statement claims a clear, long-term Government policy and strategy needs to be set out. This is where clarity is required. It is not about Eircom but about public policy.

Deputy Liz McManus

That is our job.

Mr. Peter Evans

As a representative of BT, I note this debate is raging in the United Kingdom also. BT took the step on its own initiative about four or five years ago to build what we call the 21st century network. It was a matter of upgrading the backbone infrastructure. It was a commercial step taken by BT with Ofcom in respect of the functional separation of the company. However, the United Kingdom has now realised the next step, pertaining to access, has to be taken into the next generation. It requires an investment of approximately £20 billion sterling to realise the fibre-to-the-home and fibre-to-the-curb goals. At present, there is a bit of a stand-off between BT, the UK Government and Ofcom over who will pay for this. Will it be a general industry upgrade or will it concern BT in respect of the Openreach wholesale business? The United Kingdom is now at the point mentioned by Mr. McKeon in that it needs to take bold steps. It probably will do so in the next six months or so.

Deputy Joe McHugh

I welcome the gentlemen to this meeting, which is important to progressing the debate. We are somewhat stifled because every time we ask about future plans or forward vision, the Minister cannot reply and claims his hands are tied because his making a statement would influence the tender application for next-generation broadband. I refer to the Government policy and the roll-out of the national broadband scheme. What is happening is stifling and very annoying to politicians and, I have no doubt, the industry itself.

I am not totally confident that what is proposed will be the answer to all our questions on the national broadband scheme. Does the industry believe sufficient sums of money will be made available? Does it have confidence this policy offers an overall solution for industry needs?

I refer to projects that are coming down the tracks such as, for example, the dual carriageway that will be built from Derry city through east County Donegal down as far as Aughnacloy, County Tyrone. Does consultation take place between the telecommunications industry and those who propose building such roads? Is this not an opportunity to lay fibre optic cables when digging and delving the ground on a cross-Border basis? That is only one example.

I refer to the international advisory forum that has been commissioned by the Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, which met in January. Has the Telecommunications and Internet Federation been consulted and will the witnesses be making contributions from a bottom-up or Irish perspective to the report that will be forthcoming in the next few weeks?

As for the emphasis Mr. McKeon has placed on a bold step, such a step is needed when countries such as Slovenia and Slovakia are considerably ahead in respect of broadband access in rural communities. I am a public representative from County Donegal, where metropolitan area networks, MANs, are in operation in places such as Carndonagh and Letterkenny. While a review is under way on their efficiency, such products constitute solutions to urban needs. However, are the witnesses confident in respect of people who live in rural areas? I refer to those who live outside Eircom exchange areas and to availability in smaller towns in County Donegal.

To take up Deputy McManus's point, is there not a danger the Government may draw a map and state there is radio broadband availability in the rural areas of, for example, 1 Mbps? Is there not a danger this will become a solution? Bandwidths of 1 Mbps or 2 Mbps, which Vodafone will apply on the fixed line, is not a solution for next-generation broadband in respect of competitiveness and business solutions. My confidence is low and I am annoyed the debate in this regard has been somewhat stifled. I acknowledge this has nothing to do with the witnesses. However, my question pertains to their confidence as to whether sufficient information exists regarding next-generation broadband in terms of policy and moneys. How confident are they in respect of a mechanism or solution for rural areas?

Mr. Gerry Fahy

Perhaps I will comment generally, as I am not as familiar with the details of the rural broadband scheme as perhaps are my colleagues, both of whom represent tendering organisations. They may be better briefed in this regard. However, as a general comment, as an industry we called for investment by the Government in rural areas, that is, areas in which we considered the industry would not find the economic capability to so do. We sought a scheme that would be technology neutral and which would offer competitive opportunity and the scheme has been approached in such a manner.

A competition has been set up and any organisation can bid for and deliver the required capability with Government funding. Consequently, as a general comment we are satisfied with the general scope and direction of that initiative. Clearly it has become somewhat bogged down at present and we hope to see it freed up shortly because it needs to move ahead. I will ask my colleagues to comment in greater detail in terms of the specifics of the funding and the clarity of the process.

Mr. John McKeon

The national broadband scheme is something we support, as I am sure Mr. Evans will agree. We consider that the Government has done the right thing. There are constraints in what I can say because I represent one of the bidders. There has been some negative publicity about the rate of 1 Mbps and whether that is adequate. For clarity, 1 Mbps has been specified as the minimum requirement. While it is up to bidders to assert what they intend to deliver, 1 Mbs is the minimum. We support this scheme and hope it will bring solutions to locations in the north west, the south west or anywhere west of the Shannon. I hope it will bring solutions to many areas that do not have broadband at present.

One issue is that the national broadband scheme is intended to help those areas that do not have broadband access to catch up. Some of the Deputy's earlier comments pertained to bringing the network a step further ahead. Areas should be allowed to catch up and should be supported in this regard. It is important they are not left behind again if next-generation networks are rolled out and both the digital dividend and the Fibre Ireland proposal might play a part in that regard. The long-term interest is to ensure the national broadband scheme is the first, rather than the last step for those areas. This, however, is an issue of public policy.

The Deputy also raised the issue of road planning and whether consideration is given to ducting and so on. In general, we spend much time rearranging our ducting network and consulting the authorities, including both the National Roads Authority and local councils, with regard to putting facilities where roads are being built. While I cannot comment in detail on the particular case raised by the Deputy, I would be very surprised if this has not been considered in such a major roadwork.

Mr. Peter Evans

To echo Mr. McKeon's points, as a representative of both the Telecommunications and Internet Federation and BT, I commend the Government on the national broadband scheme. The Deputy is correct to state that while 1 Mbps might be okay today, it certainly does not represent the next-generation network of the future. However, it is much better than what is available to people today, which effectively is dial-up with maximum speeds of 56 kbps.

It is clear that in such areas, the demographics of Ireland ensure a multitude of different technologies with wireless probably being the prominent technology in rural areas. As mentioned earlier, Ireland is uniquely suited to wireless technologies, both in respect of people's rural location and because the available statistics show that approximately 15% of the broadband connections in Ireland today are through fixed wireless access. This is significantly higher than anywhere else in Europe. In the United Kingdom the equivalent figure is a fraction of 1%. Ireland is suited to this type of technology. At present, this technology can deliver 4 Mbps. This will rise to 8 Mbps and beyond in the future as the technology is evolving all the time.

As Mr. McKeon mentioned, 1 Mbps is the minimum requirement but the technology deployed will be capable of going significantly further than that. As a result of the national broadband scheme, some rural locations will have a much better broadband infrastructure on day one than that enjoyed in some urban locations.

Deputy Joe McHugh

I appreciate the sensitivities involved given that both Eircom and BT are involved in the tendering process. The danger for rural areas lies in the 1 Mbps requirement. Studies from rural parts of Germany indicate there has been a real advance in terms of supporting SMEs in such locations. The danger is that rural areas will be left with speeds of 1 Mbps through radio broadband. That is my concern at present because the solution is to try to provide advanced radio broadband solutions in rural areas.

At a wider level, this country's problems arise from the location of the majority of its population on the east coast. I refer to problems of congestion and house price inflation whereby the further one goes towards the population conglomerations, the more expensive it becomes to live. Moreover, people have a poorer quality of life in respect of travelling to work. The overall solution at a wider level will be to induce people to establish micro-industries in rural areas. However, my concern in respect of this tendering process is that it will satisfy the criteria by rolling out 1 Mbps broadband in rural areas.

Mr. Gerry Fahy

The Deputy asked a question on the next-generation networks forum established by the Department and whether we have been consulted. While we have not been consulted at this point, we hope to engage with the Department in respect of the paper it intends to produce on foot of its review. Consequently, we consider consultation with the industry to be a highly important part of achieving the correct outcome with regard to policy. Our paper on principles was designed to inform that process. We provided the Department with an advance copy of our paper and we hope it was considered in that committee. We seek detailed engagement with the report this year.

Senator Jim Walsh

I concur with the comments and interesting contributions of the representatives of the Telecommunications and Internet Federation, TIF. Due to time constraints I will confine myself to some fairly specific questions.

The principle of competitive price and quality is very attractive for consumers and mention was made of value to customers. I note the delegates' target is below the EU average, though the qualification is that this will be benchmarked on purchasing power and relative costs in the Irish economy. Do the delegates have a slide showing the strategies to achieve this principle or is it an aspiration?

My second question is related to cost and may be more relevant to Eircom than the TIF representatives. What is the fixed line rental charge for? I anticipate that the answer will be "the line" but what segment of the line does it relate to? This is very unusual in industry; it is like taking delivery of oil and being charged separately for the truck that delivers it. It is normal for capital costs to be incorporated into the unit price people pay.

I was going to ask about the area of service deficiencies and the 10% of the population that is not covered, but Deputy McHugh has covered this reasonably well. Is there a template to ensure that there can be a return for the State on the investment it has made or that, at least, the investment is not a subsidy for suppliers?

There has been a lot of emphasis on the clarity required to underpin investment strategies. There are many quangos and much comment has been made on the desirability and effectiveness, or otherwise, of the strategy that has been adopted over many years by successive Governments. Is the TIF in a position to comment on separate regulatory authorities? Often these authorities consist of people from within the system and within Departments who take on a separate function and perhaps this is the desirability of this function being undertaken by Departments. As we now have a separate regulatory authority and a Department that maintains responsibility, does policy formulation fall between two stools as a consequence?

Mr. Gerry Fahy

I will refer to the Eircom line rental question and my colleagues, Mr. McKeon and Mr. Evans, may also have comments to make. We were asked whether there is a strategy behind our principle of competitive price and quality. At this point we are at the level of principles and we seek to establish a debate around how to achieve these outcomes. The strategy will be an outcome of that debate. We are setting a challenging target and we want to get together with stakeholders to figure out what needs to be done to reach the target. What can industry, Government and the regulator do to reach the target? This is our proposal and the first question is to identify the alternative proposal. One could say this is just an aspiration but it is much more than that. It is a question——

Senator Jim Walsh

If it is a strategy, it comes across as aspirational. It is the kind of thing any industry will come up with to give a favourable impression. I thought there would be specific points behind it. This cannot be passed on to the Government because the industry has a specific role in this.

Mr. Gerry Fahy

The Senator asks a fair question. This is an iterative process and we have set out the principles we believe should guide the discussion on what can be achieved and how it can be achieved. As we outlined in our responses to the questions, there are many different ways to do this. The outcome of this engagement will be a strategy that all stakeholders should seek to sign up to and that industry should deliver on. The strategy will be an important outcome but a strategy without input from the Government and other stakeholders would be hollow.

Regarding the regulatory process and the benefits of a separate regulator, various studies by the Department of the Taoiseach have investigated whether a super regulator might be a better approach than having regulators of individual sectors. There are pros and cons to the argument; all regulators require economic input, economic policy and experts to analyse complex economic questions. The same expertise is required by all regulators to support decisions. On the other hand, some specific sectoral issues exist that longitudinal dealings in the industry make more comprehensible and manageable. Such experience also helps in making hard decisions.

As an industry, we do not have a firm view on whether having the regulators coalesce into a single super regulator is a better or worse approach. We feel that having a regulator separate from the Department is important in separating policy from the implementation of policy.

Senator Jim Walsh

Does it have any effect on the formulation of policy?

Mr. Gerry Fahy

Is the Senator referring to how regulation is executed at the moment? Undoubtedly there is a degree of engagement between the Department and the regulator because the regulator has gathered expertise on the industry through dealing with it day in, day out. The Department has a broader remit relating to communications, energy and natural resources and is not in the trenches on a day-to-day basis.

Mr. John McKeon

The line rental charge covers the cost of providing the service from the terminating unit in the customer's premises to the line card in the telephone exchange. It includes the cable, the duct, the roadside cabinets and so on.

Senator Jim Walsh

That is a fixed cost and, effectively, a capital investment.

Mr. John McKeon

There are many operational costs associated with this because the network must be maintained and faults must be repaired.

Senator Jim Walsh

Surely that is reflected in what people are charged for their telephone calls. In most cases where a person pays a rental charge he or she should be able to buy it out with a capital sum. The unit cost facing people is significant and it was introduced at a time when competition was opened up for whatever reason. It makes up a high proportion of the cost to people who do not use the fixed line often.

Mr. John McKeon

The two questions are somewhat separate. One relates to the proportion of costs covered by line rental. It covers the proportion of costs mentioned. The second issue relates to whether the best way to recover those costs from customers is through a rental charge, a usage fee or a capital sum. The model that has emerged since the 1920s suggests a rental fee is the best way to do this. This has become embedded in the industry because it is what customers seem to prefer.

From a regulatory perspective, much competition is based on competitive supply where competitive supply is based on the resale of network components. Eircom can provide the line between the customer's premises and the telephone exchange but it is not guaranteed to get the call traffic from that line, so it cannot bill for that in a usage fee. The regulatory regime that has developed in Ireland and nearly every other jurisdiction in the world is based on the line rental fee, charged on a monthly basis, and usage fees which are charged separately. That is the model and I do not see it changing.

Deputy Simon Coveney

The national broadband scheme, when it was originally envisaged, was not really about next-generation broadband but about providing access to basic broadband services in rural parts of the country — about 15% of the footprint of the country, although we could argue the toss on that. My concern is that we are raising expectations in places such as Donegal, west Cork, Kerry, Clare and mountainous areas in the midlands that everyone who cannot get broadband by 1 July will be able to get it through the national broadband scheme. The regulator does not agree that we will have 100% coverage through the scheme. Its representatives are on the record as having said that to us. They said that up to 95% of the country will probably be provided with broadband but there will still be some areas that are, from the point of view of technology, very hard to access. Does the industry have a concern about raising expectations that cannot necessarily be fulfilled?

There is another issue, perhaps more important, with regard to the national broadband scheme, which may be of concern to the members of the industry group. Let us say, for example, that BT were to win the tendering process for the national broadband scheme. It would then be asked to provide broadband to certain regions, probably through a wireless system of sorts. The way in which wireless broadband works is that the signal is picked up within a certain radius around a central mast. It will be almost impossible to distinguish grey areas that lie between areas that have broadband and those that do not.

For example, I live in Carrigaline, which has a population of 14,000. We can get broadband. Another member of my family lives three miles away but cannot get broadband. If a mast were placed on a hill to provide broadband for the area that does not currently have it, there would be an impact on the market in the town.

There is the potential for major problems in terms of legal challenges in areas in which there is currently a functioning market for broadband — where people are paying for a service — while right next door broadband is being provided through the national broadband scheme. Does the industry have concerns in this regard? I ask the representatives to be blunt and honest about this as I do not see how we can get over this problem. It is easy enough to talk about providing broadband to the Aran Islands or Cape Clear, because they are isolated areas that require a specific technology for broadband provision, whether it is satellite, wireless or something else. However, I can foresee problems on the edges of currently functioning markets.

How do the representatives envisage the cost of the national broadband scheme in terms of what is paid by consumers, households or businesses for the service? How will we calculate the price? Would it be €30 per month, €40 per month or €15 per month? I presume there will be an average cost, but it is hard to average the cost when the service is a lot cheaper in Dublin, for example, than in Bandon. If broadband is being provided too cheaply in certain rural areas, this will have an impact on the functioning markets in those regions.

My final question may be one which should wait until representatives of Eircom are present. It concerns the functional separation experience of BT in the UK versus the structural separation proposal from Eircom. Does the industry as a whole have a view on the most appropriate way to separate a piece of infrastructure and provide that infrastructure wholesale to other users in order to provide retail competition, and the actual provision of retail competition? Clearly there needs to be a separation between retail and wholesale in Eircom. If the representatives cannot answer that question it is fine, as it is a complex question. However, it is something we need to consider, particularly in the context of how the State invests money. I do not have a problem with the State investing money in rolling out infrastructure and, if required, investing public money in Eircom, as long as that infrastructure is then open for everyone to use. This is in the context of what the Minister said last Friday night.

Mr. Gerry Fahy

I will refer some of the Deputy's questions about the specifics of the national broadband scheme to my colleagues. The Deputy is correct in stating that the scheme was not intended to be a next-generation network but to address a lack of basic broadband connectivity in those areas. It would be wrong to characterise it as an NGN solution. However, being last to the party sometimes brings benefits. One can access the latest technology and innovations. Where there is competitive tendering, people seem to put their best foot forward. We could end up with a situation in which people in rural areas on the national broadband scheme benefit from leading-edge technologies while others do not. That is a possible outcome of a competitive tendering process.

I will refer to my colleagues for more detail, but my understanding is that whatever company wins the broadband scheme will have to provide wholesale access to third parties at a certain price. Part of the tendering criteria is a proposal for providing wholesale access. My understanding is that retail pricing must reflect pricing elsewhere, but I will allow my colleagues to speak about that.

Overlap between the subsidised broadband scheme and areas in which commercial activity is taking place is clearly undesirable. The Deputy described a situation regarding radio services. There are plenty of technologies that allow radio coverage to be shaped very carefully. Antennae can have very complex technologies beneath the standard design which allow shaping of beams to cover one area but not another. This is a solvable issue. Whether it will be solvable in 100% of situations is unclear. It probably will not be. There may be an element of overlap at peripheral areas. A lot can be done to minimise that and there are plenty of technologies available.

I will ask my colleagues to speak about the way the tender is constructed.

Mr. Peter Evans

Deputy Coveney asked whether false expectations were being set and whether people in rural areas are thinking they will get a 100 Mbps broadband service. This is an issue of concern because, as the Deputy rightly said, the scheme is intended to bring broadband to these areas rather than to be a next-generation network. The only things limiting speeds in these areas are the laws of physics. Lobby groups have been speaking about France having 30 Mbps or 100 Mbps broadband services. Rural areas in France do not have services such as these, although there may be such speeds in Paris or Lyon, as there are in areas of Dublin and Cork. The laws of physics prevent the use of higher speeds in certain areas, although the technology is improving all the time.

One of the principles of the NBS is that the areas served will not be at a price disadvantage compared with the market-leading packages available in the rest of the country. The intention is that the price for the service in a rural area of Donegal or Kerry be the same under the NBS as the price in Dublin or Cork. The difference in the cost of provision is made up by the subsidy that is provided as part of the NBS.

In keeping with EU state aid principles, straying into areas in which there are competitive services would not be a desirable outcome. It is clear funding will only be provided for customers in the areas served under the national broadband scheme. If an operator provides or can provide services outside these areas, it will not be subsidised. A reverse payments scheme is envisaged as part of the national broadband scheme in that moneys will be recovered by the Department where funds are not spent.

Deputy Simon Coveney

If an operator provides for a market as a result of having received funding to erect a mast to facilitate another area, there will be a clawback.

Mr. Peter Evans

Yes. The operator will not be given funding to provide services for customers outside the national broadband scheme area. Determining how the mechanics and finances of this system will operate will be the subject of detailed work.

Mr. John McKeon

Everyone recognises these are complex issues but it is not beyond the wit of man to solve them and it is imperative that we do. The Department and its advisers face a challenge in framing the final tender which has yet to issue. We have engaged in dialogue and must formulate the contract. We will respond to that challenge.

A question on functional separation was asked. Without taking refuge in the fact that we are present as an industry group, functional separation is a complex issue which is on the European Commission's agenda as a potential remedy to be made available to regulators but there is a long way to go in figuring out how to apply it. The United Kingdom is more advanced than most other countries but states such as New Zealand and the countries of Scandinavia are considering it as a solution. However, it has many associated problems and the chairman of ComReg is on record as stating it is a little like Humpty Dumpty in that, once separated, it is difficult to put it back together. If there is to be separation, it is important that it be done in the right way. Eircom has made known to the Government its concerns and proposals on how to proceed but we would not be so vain as to assume ours is the right way. In many respects, there is no right answer. At some stage, however, an answer must be found. We await the outcome of such decisions.

Mr. Gerry Fahy

From the point of view of the general industry, whatever the decision, there must be the appropriate regulatory context to ensure no advantages or bottlenecks are created. If access is required, there must be transparency and appropriate regulation. A decision must be taken in the context of the outcomes created and the solutions that must be implemented to ensure the outcomes are better for market activity.

Vice Chairman (Deputy Peter Kelly)

I thank Mr. Fahy, Mr. McKeon, Mr. Evans and Mr. McCabe for attending and replying to the many questions of members.