Thank you, chairman. I come to you today as a director of a research centre that has been studying the problems of telecommunication reform and electronic economy development around the world for many years. I hope to share with you some of the experience from our research and activities. I do not bring any special expertise about the Irish economy. We have not done detailed studies of Ireland but I have been a regular visitor to Ireland for the past 20 years, tracing my roots among other things. I know a little bit about Ireland and I have been involved, from time to time, with universities and others here.
I want to put the issue in the larger picture. What will be the characteristics of 21st century economies? They will be driven by the services sectors. We might say the 20th century was driven by the manufacturing sector, the previous century by the agricultural sector and we already know, in statistics of Irish economic development, that it is your services sectors that are providing the new employment. This, in turn, is founded on information communication networks, which we know today as the Internet and the electronic economy and that, in turn, is dependent on effective reforms in the telecom sector, which you are discussing here as broadband infrastructure. This, of course, is strengthening links among local, national, regional and international networks and markets that are extending the limits of markets. The development of the European market is simply one step in that category.
The stages of the telecom reform that is so essential to this process are first, a programme of telecom liberalisation, which is essentially participation and competition, allowing others to participate and implementing universal access so that all citizens can get access. The second step, which we are now in the midst of, is expanding the network capacity to a broadband capacity of this network. The third stage is the preparation for a network foundation for new services. The committee has heard testimony relating to some of those developments this morning. It is not only having a physical capacity, one must have the services on network as well. Finally, there is the development of new services applications everywhere.
Before the lunch break the committee heard a presentation about an application in the educational sector. It is applying services productively throughout the whole economy that provides the economic growth and the benefits in the new economy. Telecom reform and regulation is the key driver to implementing the policy reforms for the entire economy.
I have illustrated on the chart all of the sectors involved. Let me explain briefly. At the bottom of the chart we have the major technologies driving the process, coming out of computing information technologies and telecommunication equipment manufacturing. Those technologies are now part of telecommunications facilities networks. What we are now looking at is a broadband super-highway.
As a result of policy and regulatory changes there are now increasing separations between the facility network and the services provided over the network. The whole variety of electronic services is indicated here. I have indicated that the very nature of communication itself is changing with the digitalisation of all kinds of content and much greater control over interactivity.
If we stopped there in this development we would say this is all a very important set of industries. The benefits to the economy come when we look at the top of the diagram, when these services are applied to restructure entire sectors. I was very happy to hear the presentation by the Northern Ireland education guest this morning about the restructuring of the education sector they are trying to implement there. It is that restructuring of every sector in the economy that will bring about economic growth and increased productivity.
If one examines the telecom sector value chain, which is providing the foundation for this development, one sees three sector components: the equipment supply component; the telecom infrastructure and the network services development on that infrastructure. As a result of the changes made with respect to the restructuring of telecommunication the biggest benefit we have seen so far is the competition that has developed in the equipment supply industry. It used to be that telecom equipment, computer hardware, software and consumer electronics were all different industries. They are not now, as a result of the liberalisation in the telecommunication infrastructure. They can all compete with one another and they can sell their equipment not only to telephone companies but also to users. As a result of an unbundling of services from the telecommunications facilities network we have seen the independent development of services. The best known of these is the Internet but it covers a whole variety of other value-added services, databases and network management. The chart illustrates active competition in the equipment supply side and in service development. The sticking point has been the restructuring of the telecom infrastructure.
The significance of these changes relates to a common principle that has been applied throughout. It is a simple one of network unbundling, that is, allowing participants to provide either part of the network, part of the equipment market or part of the services market. We have seen an unbundling of industry sectors, equipment, operator networks and services. The addition of mobile was brought in as an unbundled service and on basic network layers. The telecommunications system used to be one facility with one service voice. Now we have four very distinct layers and competitive markets in each one: raw facility capacity; network operating support services and management, that is the management of live communication networks; specific communication services that specialise to meet service needs; and content, which we can see on the Internet.
I have indicated the importance of the four layers. The unbundling of the layers means that a firm or an industry can specialise at any level and many of the debates this committee has been considering with regard to developments in telecommunications have related to this unbundling of layers, that is, allowing others to participate in the provision of information services, value-added services, network services and infrastructure. If one looks at this from the standpoint of traditional telecom operators, they are retail providers of service when they are supplying all of these and wholesale providers of service when they are providing the infrastructure or just the network services.
I have brought together the essence of convergence, bringing together content, computing and telecom. This requires convergence with respect to industry supply and we are seeing industries being restructured today and major restructuring of demand, policies and regulation. Finally, I have illustrated the fact that it is the applications that count. That is the pay-off the committee is headed for.
With Ireland's convergence contradiction as background I now focus my attention on Ireland. Ireland has been a convergence contradiction for a number of years. It is the IT Celtic tiger of Europe and the EU leader. Most of the benefits go to the IT sector and that is what makes the Irish economy strong. However, when it comes to telecommunications reform and broadband development Ireland has been slow. It has been an EU follower in this regard and that has delayed benefits to the economy and society. How can an economy be a leader on one part of the ICT equation and a follower on the other?
The first key element of telecommunications reform is the establishment of an independent telecommunications regulator. Ireland has that in ComReg. The second element is the privatisation of the incumbent telecommunications operator, Eircom in this instance. Ireland has gone part of the way towards that. The third element is the introduction of effective competition to the incumbent operator and steps have been taken in that direction. The fourth element is the minimisation of barriers to participation of new ICT network services suppliers and Ireland is in the process of doing that.
What progress has Ireland made in regard to telecommunications reform? The most significant factor is that Ireland had a delayed start. The reform process started here in 1996, compared to the EU where it began in 1987 and the UK where it began in 1984. It began even earlier in the Nordic countries, the European leaders in the area. Ireland has had difficulty in working through some of the major required institutional changes. It has uneven performance with slow Internet and broadband development but is a leader in mobile penetration, despite relatively high prices by EU standards.
In regard to Ireland's EU status on the implementation of telecommunications reforms, the independent regulator has been established and is functioning effectively as a member of the European regulators group. The full privatisation process for Eircom is not yet complete. By the normal standards of privatisation Ireland is not simply moving the incumbent out of the Government but moving it out of the Government into a private corporation with public shareholders. Ireland is part of the way through that process. The surplus Eircom employment problem has not yet been solved. Every country has had to solve the problem of the surplus employment problem. Only limited competition has developed so far. These are the factors that stand out when one compares Ireland to other countries.
Other factors that stand out are that there has been limited development of wholesale markets for network services. This restricts opportunities for new services development. One of the reasons the educational sector in Northern Ireland is able to pursue the imaginative programme that it presented here is that British Telecom has now recognised that it makes more money from its wholesale markets than it does from its retail markets. It is happy to lease the capacity on its networks to other firms who will then supply the services, such as those the educational services needed.
Ireland still has relatively high prices for most network services in EU country comparisons and Eircom is still actively resisting implementation of EU and Ireland pro-competitive and pro-participatory policies. There is a history to the experience of incumbent monopolies in all countries. Their behaviour is pretty much the same in all countries. They begin by resisting everything, then modify their resistance and finally come to accept that their future lies in developing new services in a future market. It is not evident that has happened here yet.
What needs to be done to speed up broadband network development in Ireland? I emphasise that what I say in this regard is based on considerations of experience in other countries and what is happening with the technology in industries worldwide. Ireland must ensure that the regulator has the resources and support to drive the telecommunications reform process forward. The regulator is the institution established to do this. One can relate the effectiveness of regulation with the effectiveness of telecommunications reform. Ireland must facilitate completion of the structural adjustments required of Eircom in its transition from a monopoly protecting the existing services in order for it to become the leading player in a competitive market developing new services. Wherever possible it must lower the barriers to participation in new services developments and applications. This is especially important because network management for new services in a broadband environment is migrating to the edges of the network in leading countries. That means it is being managed by the users at the end of the system and not those on the system.
Ireland must build the essential human capital required and support and establish multi-disciplinary education, training and research on IT issues of supply, demand, applications, policy and regulation. One of the factors I notice in my field - I work with university based research centres engaged in multi-disciplinary research on ICT issues - is that we have no centre here with which to work but only have selected individuals at various universities with whom we can work.
The country must facilitate Government institutions becoming leading edge users applying international best practices. This is a way of stimulating demand for services which is much more effective than supply. It must enhance awareness and diffusion of best practices among SMEs and encourage experimentation in the development and application of new network services. Successes are almost never picked in advance.
Ireland must ensure there is sufficient spectrum allocated for wireless applications that are likely to be significant components of future broadband networks. It must be careful with direct Government subsidies for broadband network construction. Experience suggests there are limited benefits and that it can create uncertainty in capital markets and reduces private investment. Steps to stimulate demand and promote competitive conditions for supply are generally more effective policy players. Those are the benefits I would draw from international experience that may be helpful here.