I thank the committee for inviting us to share our views on the current situation and the direction forward for Ireland.
Ireland Offline was formed on 13 May 2001 in response to the closure of an off-peak flat rate ISP service earlier that year. Since then it has evolved into a campaign group highlighting deficits in flat rate dial-up Internet access and broadband. Ireland Offline has been successful in lobbying for flat rate Internet access, and these services are due to be introduced at the end of June 2003. Ireland Offline is an independent organisation and has no affiliations with any commercial organisations.
I intend to make a simple argument. Ireland is behind in the development of broadband technologies due to the lack of appropriate supply, not demand. This lack of supply is due to lack of competition particularly at the last mile infrastructural level. To solve the problem, competition in the form of alternative last mile infrastructure needs to be introduced.
I would first like to define the term "broadband". In recent years, the term as it is commonly used internationally has come to mean the sort of high speed Internet access typically available through cable modems and DSL, digital subscriber lines, at a price affordable by homes and small businesses. Speeds offered by these means are usually a multiple from ten to 50 times of that offered by analogue modems over telephone lines. The common usage usually does not include corporate digital communications via, for example, leased lines. In Ireland, "broadband" sometimes refers to the regional fibre infrastructure. However, Ireland Offline is using the term to refer to those services as defined by the common international usage of the term as outlined. In addition, we would not class wireless LAN hotspots as broadband since these do not provide residential or small business access. Hotspots are an example of what can be achieved for a couple of hundred euros once broadband is available at a particular location. They are not considered to be a solution to the problem of providing broadband.
To give a market overview, a number of international reports have highlighted Ireland's poor performance in introducing broadband. In October 2001, the OECD ranked Ireland 27th out of 30 OECD countries in the development of broadband access. In February 2003, the World Economic Forum placed Ireland 51st behind such countries as Namibia, Nicaragua, the Dominican Republic, and Romania . Ireland is lower than halfway down on a list of 82 countries that includes some of the poorest in the world. In May 2003, the Swiss business school, IMD, ranked Ireland last of 27 comparable small economies for suitable Internet access, which includes availability, speed and cost.
In 2002, ComReg commissioned a report from the market research company MRBI to find out the level of Irish demand for broadband. Without the issue of price mentioned, they found that 46% of respondents were likely to get broadband if it was offered. The survey also found a large degree of price sensitivity in the demand for broadband. There was approximately five times more demand at €30 than at €60, and there was negligible demand at a price of €70 or above. At the time of the survey, the only broadband that was available to most people was DSL, costing in the region of €100 and above.
In the Irish market, there is significant demand once the price approaches European averages of €30 to €40. According to the MRBI survey, if this demand were met, Ireland would lead Europe in broadband take-up.
If we examine the current Irish broadband market, broadband penetration as a percentage of the population shows Ireland coming second last, with Greece last. Ireland is currently second from the bottom in a table of EU countries for broadband per head of population, with Belgium having more than 48 times the broadband penetration of Ireland.
We next consider growth in broadband per 1000 of population. The table supplied to the committee shows that not only is Ireland second from the bottom for broadband penetration, but when compared with figures for the end of June 2002, Ireland is also growing its broadband connections much more slowly than other countries. Ireland continues to fall farther and farther behind, despite modest developments. We have been in contact with our colleagues in Greece, and Greece Offline has already started, so we cannot even be complacent about being second last.
The explanation for Ireland's poor broadband performance is a lack of Infrastructure competition. The low broadband penetration and low growth in that penetration can be explained easily. Apart from cable modem Internet, covering 40,000 homes in Ireland, the vast majority of consumers in the country either had no access to broadband or, where available, broadband based on the incumbent's telephone lines and services was provided by the incumbent telephone company and re-sellers. Until recently, DSL provided by both the incumbent or one of its competitors operating under LLU, local loop unbundling, regulations was only available in limited areas, and the entry level services were priced at more than €100, well above the international norm and outside the range considered affordable by residential customers. Also, the number of exchanges enabled to provide DSL was low, and the line failure rate appeared to be high, with one user group reporting an 80% failure rate. We believe this was due to poor quality of lines and "pair gain" systems, which allow two virtual lines to operate over a single copper pair.
The reason for the high price is a lack of competition. If we look at the history of our current situation, cable TV companies in other countries have led the way in providing residential broadband. Broadband Internet via DSL was developed initially in the US in the mid-1990s as a means of combating competition from cable companies undermining revenue from dial-up Internet. It is unlikely it would have been offered otherwise. Ireland has very high cable TV penetration, but very little of this is of a standard which supports two-way communication. Historically, cable TV became popular in the late 1960s and early 1970s during a time when only one Irish terrestrial TV channel was available and the public was willing to pay for more choice. What were known as communal aerials were erected so that a large central antenna could be used to receive British terrestrial channels. The signal was then relayed to homes via coaxial cable. These local systems were subsequently amalgamated into larger cable TV companies.
Because the original appeal of cable TV in Ireland was to provide access to a few additional channels, the capacity of the systems remained low. In other countries where multiple terrestrial channels were already available, cable TV developed along different lines. Consumers already had a choice, and therefore the cable TV providers had to provide a multitude of extra specialist channels like film and sport channels in order to make the package attractive. In addition, because the cable networks were developed later, the cable companies were not burdened with legacy infrastructure. Belgium, for example, has the highest broadband take-up in Europe and also has very significant competition from cable TV, with 41% opting for cable modem Internet access.
Looking at recent developments, basic broadband has come down in price from €107 to between €50 and €56. This has been made possible by the addition of a new bitstream service at €27. Though that is still expensive by European standards, we expect penetration to increase somewhat. Unfortunately, prices are unlikely to come down further due to the still high bitstream wholesale rate of €27. Excluding Ireland, bitstream ranges from €13.3 in Belgium to €25.4 in Austria, making Ireland's bitstream the most expensive in Europe. We believe this reduction in price by 50% was largely due to the imminent introduction of flat-rate Internet packages at the end of June 2003 as predicted by the Analysis Consulting report for Forfás in 2002.
There are plans for 150 exchanges to be ADSL-enabled by 2004, but none for the remaining 950 exchanges, those being outside large urban areas. In addition to those developments, there has been an increase in competition from wireless operators in the Dublin area. Two companies now operate from Three Rock Mountain, offering residential broadband in the €50 region. One is conducting trials of a €30 service in the Tallaght area of Dublin. Also, the companies Net1 and Digiweb have begun offering wireless services in Louth, and Amocom in Cork.
Apart from those welcome exceptions, one company controls most of the market, with several others reselling aspects thereof. The illusion of competition is maintained by the requirement of that company to provide appropriate wholesale services for each of its retail services. Although this allows competitor companies to make money, the services provided depend on innovation by the incumbent telephone company.
ComReg's MRBI demand survey shows that calling for demand-side initiatives, as has been done, is a smoke screen for inaction and high cost. Ireland has as much demand for broadband as other countries. Current measures to solve the problem include metropolitan area networks. Those solve the problem at a local but not last mile level. However, they will be essential for providing cheap back-haul for wireless broadband operators. Unfortunately, current plans seem to be slipping. The original plan outlined on 7 March 2002 was that 123 towns with populations of more than 1,500 would be completed. Sixty seven towns would be provided with fibre rings by the end of 2003. However, more recent announcements seem to indicate that only 19 of them will be completed by this year. That casts doubt on whether the full project will be completed within five years.
In addition, there has been Government funding for wireless projects. Notable among those are Digiweb and Amocom, providing services in Cork and Louth respectively, but there has also been funding for hotspots in hotels and harbours, which we do not regard as a solution to the broadband problem. In addition, it was announced yesterday that the BMW assembly with funding help from the EU, has provided grants totalling €250,000 for wireless projects providing broadband in Counties Roscommon, Mayo and Cavan.
Taking into account the lack of last mile competition and consequent lack of innovation, the solution will require developing alternative last mile solutions. Let us look at the alternatives currently available. Wireless has no ultimate bandwidth limitation, since one is essentially dealing with the radio waves and frequencies. There is no single ownership of the broadcast medium, since individual operators hold or share spectrum allocations. There is plenty of empty spectrum for future development. The only downside is the line-of-sight problems of a few technologies.
A second possibility is upgrading the cable system, but that is regarded as prohibitively expensive, and even when upgraded would have bandwidth limitations. There is also the issue of the ownership of the infrastructure. Another possibility mentioned is power line where broadband access is delivered over the electricity cable. More bandwidth is possible with that system, but it will ultimately hit limitations based on delivering broadband over copper. There is also the issue of one company owning the last mile infrastructure. The last and most expensive scenario is fibre optic to the home, with no upper limit to bandwidth. Once again, the problem is with ownership of the infrastructure.
The time for trials is past. Immediate action is necessary, and a proven alternative last mile technology already exists. If one of those solutions is to be pursued exclusively, we believe it should be wireless, because it provides the most scope for competition and innovation, not only between wireless providers and "wired" providers, but between wireless providers themselves. Wireless is not one single technology but a family of technologies.
Wireless is currently the focus of major technological innovation for the delivery of broadband over the last mile regarding range, bandwidth and cost. If the Government committed itself to the roll-out of a nation-wide competing wireless infrastructure, we would stand to benefit directly from that innovation. By pursuing the strategy, Ireland would become not only the equal of, but better than its peers for availability, cost and speed of Internet access. That is because, with a national wireless infrastructure in place, the continued technological innovation in wireless would have an immediate impact on innovation in services and, as a consequence, the other providers of broadband would have to innovate continually to compete, something which would not happen in countries where cable is the competing broadband medium.
We have three recommendations. The first is to support and fund local initiatives. Up to a fifth of households in Ireland not connected to a public water supply are served by group water schemes, with subsidies provided for infrastructure and training. In a similar manner, local co-operatives should be supported for the provision of local connectivity needs. As a footnote to the Irishwan presentation, we have been in talks with DublinWan, which intends to set up a co-operative to do just that. As well as funding for community initiatives, there should be increased funding for commercial ones, particularly outside large conurbations. In this respect, Government funding for Digiweb and Amocom is to be praised and encouraged. However, significantly more needs to be done in that regard.
Our second recommendation is an increase in the availability of affordable back-haul. The Government's metropolitan area networks programme should be accelerated to reach its original target of 123 towns by 2007. The ESB should be instructed to increase the number of points of presence for connecting to back-haul and sell capacity in smaller chunks. Currently the minimum available from the ESB network is 155 megabits per second, whereas chunks of two megabits per second are more reasonable for local service providers and communities.
Our last proposal is that we raise public awareness of alternative technologies. We should highlight alternative platforms for broadband delivery. That will help combat any consumer inertia that may be present with regard to switching from established platforms. Consumers should be made aware that DSL and cable modems are not the only possible means of getting broadband. Although there are no known health issues with wireless broadband, consumers may be wary of adopting such technologies.
