I thank the committee for the opportunity to make this presentation. I propose to go through the presentation at a reasonable pace, particularly in view of the fact that we will take questions from members at the end. I will try to make my way through the slides as quickly as possible.
Members will be aware of the key points relating to the telecommunications market. However, I wish to provide some background. The telecommunications market in Ireland is worth approximately €4.4 billion or 2.5% of GDP. I understand the committee was advised by a group which appeared before it previously that some 6,000 people are employed in the sector. In the interests of clarification, I must point out that some 14,000 or 15,000 workers are employed in the telecommunications sector. Some 9,500 of these are employed by Eircom and the remainder are employed by a number of the key operators. Investment in the sector is critical but it is expected that revenues will fall this year by approximately 5%. This is an indication of the challenge that lies ahead.
In the context of the need for strategic vision the development of a first-class telecommunications infrastructure, including a high-speed broadband network that serves every citizen, is critical. The current Eircom network is the foundation upon which the entire Irish telecommunications industry is built. Most other operators rely on it to some extent to provide a service. Securing the long-term viability of this network will underwrite the future of the telecommunications market here. The network is, therefore, critical to the future of broadband development here.
The development of an NGN requires two things, namely, Government support and intervention. We are not prescribing the form that intervention might take. There are several ways in which it might be structured. Critically, however, making such an intervention will require a changed regulatory environment. We are of the view that, if left to its own devices, the market will never deliver the kind of infrastructure the country needs to secure its place as a dynamic, knowledge-based economy that can compete effectively on the global stage. I will comment further on that matter but I must state that in the absence of a proper NGN, the Government's vision, as outlined in Building Ireland's Smart Economy, will never be realised.
As members have probably been informed, the development of an NGN is critical to job creation and to securing our future as a dynamic economy. Most other major developed economies are using the current crisis to develop their telecommunications infrastructures. They are availing of public support to build their NGNs. This secures current employment and creates jobs as it goes. It also ensures that a critical item of infrastructure that is recognised in the context of every key economic indicator as being of critical importance to the long-term security and efficiency of any economy is developed. Unfortunately, Ireland is falling behind its competitors in this regard.
The NGN represents the future. The recent Department of Communications, Energy and Natural Resources consultation paper acknowledged that next generation networks are critical to a knowledge society and should be at the heart of our economic and social policy, a point with which we agree completely. To underline this, Forfás recently observed that an efficient and advanced telecoms sector was strategically important because of its ability to accelerate the contribution of ICT to economic growth in all sectors, enhance social and cultural development and facilitate innovation. This is a State organisation clearly outlining the critical importance of next generation network development. To underline this further, the European Commission has described it as a critical element in assisting local communities in attracting businesses. In the current environment we know how challenging this will be for rural Ireland and will have a comment to make about the digital divide later in our presentation.
A recent UN information economy report for 2006 refers to the use of broadband and states it directly increases competitiveness and productivity and has an impact on macroeconomic growth. These statements outline the importance of this area. The same report goes on to refer to the marginalisation of economies that do not make proper investment in next generation networks. Those that are particularly susceptible are small, open economies, of which Ireland is one on the edge of the European economic block. If we do not invest in this infrastructure, we will be ceding a competitive advantage we want to have to our competitor economies.
To deal with the importance of broadband in the context of the national development plan, some €435 million was allocated in the plan to support regional economic development and address market failures in the provision of broadband. It is important to put the matter in context. This allocation for communications and broadband is not only the smallest within this part of the economic infrastructure budget, it represents less than 1%. Some €33 billion is being spent on transport, a large proportion of which is spent on roads. While roads are important, we suggest €435 million for broadband, a sum which is less than what will be spent on the Gaeltacht or marine communities, does not adequately reflect the Government's stated commitment to developing a knowledge economy with a high speed broadband network as its backbone. If we are serious about promoting a knowledge and dynamic services driven economy, the Government spend is not adequate to reflect that stated commitment.
While the CWU is very much aware of financial challenges facing the Government, we must be wary of competing economies and what they are spending. The United Kingdom recently announced that BT would spend £1.5 billion on upgrading its copper network to deliver high speed broadband to 20 million homes. In the United Stated, in which there is already a highly evolved and competitive broadband market, $8 billion will be spent. This is what we are up against as a small, open economy.
I am conscious the committee has heard from other groups on the digital divide. The perspective of the CWU is that Ireland is experiencing its own international digital divide on the basis that we are falling behind competing economies. We need a national high speed broadband scheme and a vision that is genuinely national. High speed broadband must be treated as a utility such as electricity or water, which is how seriously we have to take this challenge. We know Ireland has a substantial and highly dispersed rural population which, at 40%, is well above the average for Western developed economies which is at 5% to 10%. We acknowledge that this is a significant obstacle to achieving a modest return on investments, as was acknowledged in the recent Department of Communications, Energy and Natural Resources consultation paper which observed that the bulk of current investment targeted urban areas where the greatest commercial return would accrue. This is why Government intervention is critical.
The European Parliament has made observations in this regard and considered a resolution on 19 June 2007 which stated general access to broadband was an essential prerequisite for social development and improved public services and that public authorities should make every effort to ensure all citizens had access to broadband, thereby enabling its benefits to extend to every section of the population, particularly in the less developed areas of the European Union. We hear from the Parliament that this is critical to social cohesion and the development of an equal society.
The irony is that rural areas, which stand to benefit most from high speed broadband, are least likely to develop their potential as the digital divide grows. The committee has had representatives from Irish Rural Link before it recently and we have done some work with them in the past. They outlined the challenges that rural-based small and medium enterprises have in terms of broadband access. As other competing economies develop their national infrastructure and as we lag behind them more and more, it becomes more difficult for small and medium enterprises to access those markets.
That group made a very compelling case for the challenges facing rural businesses that need access to broadband to be able to access the multiple markets in particular across the UK and European Union. We are all versed in the challenges in that regard. The remedy to this is State intervention and even organisations like the OECD have highlighted that in certain circumstances, government intervention is justified, particularly when connecting under-served areas and promoting efficient markets.
A recent UN information economy report stated that broadband access is critical to the competitive advantage of businesses. With a large rural population like we have in Ireland, that challenge is enhanced and pronounced. It was stated that the service should be treated as a utility such as water or electricity, and we support that view. The report observed that e-government and services in broadband applications would help organise the public sector more efficiently. I am sure the committee is aware of the potential to deliver e-medicine, e-health, rural government and various public services via a well developed broadband network, which would provide such services on a more equitable basis across the island.
We acknowledge that the national broadband scheme is up and running and has a role to play. We are concerned about its ability to deliver what is required to the areas it aims to serve. We would argue that the platform being used — mobile broadband — has a role to play but the OECD and other organisations have described this kind of technology as complementary to wired broadband or a fibre optic network. It should work in conjunction with such systems rather than replace them, which is the current position in rural Ireland.
Our fear is that the digital divide has become solidified by the introduction of the national broadband scheme and if we develop a fibre network, the digital divide will grow over time. Since 2004, connection speeds in rural Ireland have fallen by a factor of 36 versus urban speeds, so one can expect speeds up to 36 times faster if one lives in an urban area versus a rural area, which is a major disadvantage.
Moving to regulatory issues, a change in the regulatory regime must take place and there must be a review of how the investment required in fibre optic and high-speed broadband networks is managed by ComReg. To put this in context vis-à-vis where we are at now, we have seen an asymmetric regulation approach being taken with the unbundling of local loops at a price to facilitate competition. That has not been without cost to the general benefit of the market.
As Eli Noam, a professor at Columbia University has observed, European regulatory regimes are more committed to unbundling at low prices but there is a trade-off because it lowers investment in infrastructure, which is what we have seen in Ireland and across the European Union. It is no coincidence that since the liberalisation of the telecoms market in Ireland and the introduction of the regulatory regime that we have, we have begun to lag behind our international peers when it comes to investment in infrastructure. We are all well versed in the reasons for that but we must accept it as the position we are in.
What we have seen emerge from the European Union is a change in this asymmetric regulatory approach whereby an existing incumbent must unbundle or make its network available to competition at a price. At EU level there is an acceptance that fibre optic — the future of telecommunications — is riskier and more expensive, therefore, incentives for investment and regulatory certainty are required. Major telecommunications companies which are prepared to invest in fibre must be given an opportunity to realise a fair return on that investment. It remains to be seen what model emerges from the European Union but it would represent a shift from the current approach, to which ComReg has been a party.
Germany has been an advocate of this approach and Chancellor Merkel recently said that if policy was only directed towards keeping costs low for consumers, it would never lead to those who lived far from the big centres being able to benefit. As of now, Eircom offers its services and network at a price but is denied the opportunity to invest and develop the network we all deserve. This state of affairs has been reflected in the United Kingdom where Ofcom has put in place a plan to stimulate high speed broadband development. BT has agreed to spend €1.5 billion to upgrade its copper network but has only done so on the basis that Ofcom will allow it to set its wholesale price. By setting the price at which it makes its network available to its competitors, BT knows it can make a return on its investment. This is a major shift in the regulatory position and one that must be adopted in Ireland. Ofcom believes superfast broadband represents one of the most important developments in modern telecommunications markets for decades and this policy illustrates how seriously it treats the matter.
People talk about the development of a next generation network but that is only half the story. The challenge is next generation network access. There is already a fibre optic network of sorts on this island as Eircom has a significant amount. The joint committee will have heard from other groups on this subject such as ALTO which attended a recent meeting as a representative of a number of alternative operators. These operators have various chunks of fibre network, as do the ESB, Bord Gáis and the NRA but they are the backhaul network and represent only one half of the story. It is vital to develop the network into a key piece of national infrastructure but the challenge is how to get it into people's homes. To that end, we need to look at the existing Eircom infrastructure. All too often we hear that Eircom is part of the problem but we argue that it is part of the solution. To supply high speed broadband to people's homes, their kerbs and doorsteps, we need a national infrastructure which we have in the form of Eircom's network. If it is built in the right way, the existing network can deliver high speed broadband access to a huge part of the country. Some sections will have to access high speed broadband via alternative methods for various physical, geographical reasons but it would be a travesty to ignore the existing network.
We need a clear strategic view from the Government of how it will realise a true, next generation network that will leave nobody behind and help secure the economic and social future of the country by treating high speed broadband as a utility. The Department issued a consultation paper last year and we await the next stage in the consultation process, as does the rest of the industry. In its absence we have no vision and no strategic approach. There needs to be a realisation on the part of the Government that leaving the provision of a next generation network solely to the private sector will not be enough to deliver the vision, given our dispersed rural population. State intervention will be required and the nature and extent of that intervention will provide clarity for the marketplace in order that Eircom and other operators can weigh in behind it and structure their investment plans around it.
As stated, a revised regulatory approach to NGNs is required. Such an approach must recognise that this phase of the evolution of the telecommunications market is based on a new business model. It must also facilitate sustainable competition in the long term because this will allow companies to make a return on their investment that is fair. The latter is a key aspect. Unfortunately, the telecommunications market is not in a position to create sustainable investment in respect of its future. As a result, any new regulatory regime must allow for this. If, as has been suggested, an open-access approach is pursued, we suggest it is vital that the same principle of a fair price should encourage future investment. The asymmetric model is not suited to the early stages of developing a high speed broadband network. As stated, the digital divide must be embraced as a critical obstacle to a fair and balanced development of the economy and society. The digital divide as outlined is a serious impediment to job creation, SME development and the creation of a balanced society in which people have equal access to services. I am sure I am preaching to the converted when I say this. However, it is a very real challenge when one considers the geography of the country in which we live.
It is important to note that studies have identified a significant correlation between a nation's broadband quality and its advancement as a knowledge economy. That is what we are claiming to be — a dynamic knowledge economy. Any failure in Government policy to deal with the challenge of the digital divide would send a message to those citizens affected that they cannot participate in the knowledge economy. In our view, it would also represent a damning betrayal of the principle that nobody should be left behind.
I thank members for their time and patience and look forward to answering their questions.
