National High Speed Broadband Infrastructure: Presentations.

The sub-committee, in order to help it prepare a report for the joint committee, is inviting groups with an interest in broadband and in delivering Government and business functions through the national broadband infrastructure to make presentations to it. The work of the sub-committee will add value to the process as parties to the broadband debate will have an opportunity, formally at parliamentary level in Ireland, to fully inform the debate on the issues at play in the delivery of a national broadband infrastructure, the cost to users and the potential to deliver e-Government business and commerce functions.

Today we will have presentations from the Department of Communications, Marine and Natural Resources; from MCI Global Crossing; from the telephone users group of IBEC; Mr. Jimmy Stewart of Northern Ireland on the Classroom 2000 project; Mr. William H. Melody, an economist; Forfas; Meteor and from Irish Broadband Digiweb Alto.

I wish to draw attention to the fact that members of this committee have absolute privilege but this same privilege does not apply to witnesses appearing before the committee. It is generally accepted that witnesses would have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it. Further, members are again reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House, or an official by name, in such a way as to make him or her identifiable.

I welcome Mr. Brendan Tuohy, Secretary General of the Department of Communications, Marine and Natural Resources; Mr. Niall O'Donoghue and Mr. Stephen O'Connor. I will call Mr. Tuohy to start, and ask him to keep his presentation to about ten minutes. He will be followed by Deputy Eamon Ryan, and then Senator Kenneally. I understand we must conclude within an hour. I thank everyone for arriving on time.

Mr. Brendan Tuohy

I thank the committee for the invitation. I have seen some of the previous presentations and, rather than covering old ground, I will discuss what happened in the market in recent years, our economic strategy and the telecoms sector as well as the role of Government.

In December 1998, when we liberalised the market, we were about 11 months behind most countries in Europe. A derogation was in operation but it was felt that liberalisation was the way to go. We floated Eircom the following July and the following March the markets turned quite dramatically. Around the time we floated Eircom we also sold off Cablelink to NTL, which was done by RTE and Eircom. Post MIOL was sold by An Post as well, while the ESB, which was involved through Ocean, got out also. That was a time of tremendous growth in the economy here and worldwide.

To go back to the overall economic strategy from Irish and European perspectives, the European strategy is covered by the Lisbon agenda and every March at the European Council this is debated. A key element in that is positioning Europe as the world's leading knowledge economy by 2010. That is not just for Ireland; it goes beyond this country. There is also an e-Europe strategy as well as developing the Europe agenda. Regarding the economy - the committee had our colleagues from the Department of Finance before it last week - one of the key challenges of this decade is enhancing productivity in the economy. The Americans claim much of the productivity in their economy in the past decade was brought about through using technology and this is a real challenge for us going forward. Members will have heard the ESRI report this morning and we have challenges there. In the last decade much productivity was brought about through female participation in the workforce. The challenge in this decade is how we leverage the benefits of technology to enhance that productivity.

On the other area in which broadband has an important role, I will take the example of the 19th century, which was driven by steam. Steam drove all the changes. The 20th century was driven by electricity and, in some ways, the 21st century will be driven by knowledge. When electricity was being rolled out in rural Ireland in the 1950s, I am sure many people were asking, "what will we use it for? All we want is a light, a candle." However, we are now redoing the electricity networks to make three-phased electricity available around the country. In ten years' time people will be asking why was broadband not rolled out quickly?

This is the challenge for all of us. Currently there is a global downturn, particularly in the technology and telecom sectors. There is very little capital available and there is a conflict in providing low costs and remunerating capital for industry and for shareholders. This conflict must be grappled with. The Minister believes strongly that providing Internet access and broadband at a reasonable price is what will drive demand. There is a chicken and egg situation, the industry will provide the infrastructure when the demand is there. The challenge for Government, together with the private sector, is, how to make the regulatory environment and the returns for investors such that the infrastructure will be provided in the timescale we are talking about. Europe in the Lisbon agenda, is trying to position Europe as the world's leading knowledge economy. The changes in our economic structure in the past ten to 15 years have meant moving from an agricultural economy to a modern new economy. Approximately 25% of our exports are now related to technology. Of the top ten exporting companies, excluding the pharmaceuticals, the majority are technology companies.

There is an issue as to how we continue to sustain this into the future with competition from the accession states, e astern Europe, the Far East and so on. There is a general consensus that we will not be a low cost economy, and, therefore, we must provide other added value to make that worthwhile. That sets the imperatives for investment around education, infrastructure - we can debate the cross-sectoral benefits of the different types of infrastructure - and broadband. Broadband will be as important to the new economy as grass is to agriculture.

What we have experienced in recent years is a market failure or limitations of the market. When we liberalised the markets we believed the private sector would drive investment and provide the infrastructure upfront. It has not happened because there has been a shortage of capital in the sector. What the Government and Department have tried to do is not to interfere with the market but support it. In this instance we rolled out a programme for metropolitan area networks. That is an open access programme whereby any operator can come into the market. It supports and facilitates competition. It facilitates new entrants into the market where they can compete, drive down prices and provide a range of services.

The second issue relates to the question of whether the State should invest and, if so, how does it do so. We have opted for a number of models. In the first NDP call we supported the rollout of DSL in more than 40 exchanges throughout the country. We let the private sector propose different proposals. The second time round, we found that the money was not available in many private sector companies and some of them withdrew from the NDP call. We used the local authorities where we were supporting the metropolitan area networks. Members will be familiar with the 19 towns involved. This project is being rolled out and some members will be familiar with Cork, the first project launched last year. They will be coming on board at the end of this year and we will see what happens.

The challenge is one of timing for us, in other words, rolling this out speedily. At the same time, we do not want the State to supplant what the private sector is doing. We want it to complement it and getting that mix right is a big challenge. We are not the only country facing this problem. At a meeting in Brussels in January, each of the European countries gave a presentation on what is going on and almost every government in Europe is involved in supporting the rollout of infrastructure. The Swedish Government is providing €5 billion for the rollout of broadband in rural Sweden. If people think the market itself will do this, they should bear in mind that Europe is proving this is not so and there is a need for support in this area. As a country that is becoming more and more dependent on the new economy, and the type of jobs that go with it, it is probably more important for us and other countries which have a traditional manufacturing base.

It is very refreshing not to have the full paraphernalia of technology thrown at us but to have someone speaking clearly and giving us time to ask questions.

During Question Time recently when asked to explain our strategy in regard to broadband, the Taoiseach defined the roles of the different Government Departments as follows. He said that the Department of Communications, Marine and Natural Resources was, by and large, responsible for the hardware in terms of the rollout of broadband, and his Department, under the direction of the Minister of State, Deputy Hanafin, and possibly the Minister for Enterprise, Trade and Employment, was responsible for the software in terms of how we use or promote this technology. I would be interested to know if that is an accurate summary of the role of different Government Departments. Sometimes it is difficult for someone on the outside to see who has responsibility in different areas. Can Mr. Tuohy define his Department's role as against the role of the Department of the Taoiseach and the Department of Enterprise, Trade and Employment?

It appears, and rightly so, that the Department of Communications, Marine and Natural Resources has been involved in investing in new infrastructure for the rollout of broadband. There is the example of investment in the cable network for the rollout of DSL, investment in the ESB network, investment in the CAIT project and now the investment in the metropolitan local loop networks. Playing devil's advocate, I would have to say that we seem to have been singularly unsuccessful in that the cable rollout did not lead to a take-up from the industry and we do not have the cable competition that has benefited other markets. While the ESB is approaching completion of the network - the system is due to be in place within the next six months - it has not yet signed up to a single contract. From listening to people in industry, it appears that the metropolitan loops will not necessarily provide a solution to the problem. A representative from Esat-Digifone said last week that while they would be a help, they would not have been his first priority in terms of investment.

I suppose I am playing the devil's advocate in asking Mr. Tuohy to justify what has happened. What return on our investment have we received? Will he go further and say, if we have invested, in conjunction with the ESB, in the grid network and if we have also invested in a local loop network, will we invest further in connecting that backhaul network to the metropolitan local loops? Will we go further to make sure the connections are provided from the local loop network to customers for the first mile? In other words, is there not a danger that we will end up with these various different bits of infrastructure and not connecting them up together? The ESB has said that it will have points of contact on its masts to which local operators can link. Given that it has not yet got a contract, will we be pushing the issue in providing the connections? They are both State assets. Will we go that step further if we find the take-up is not what we had hoped?

It is interesting to hear Mr. Tuohy say the Swedish Government has invested €5 billion. Adding all the projects we have done, we have invested €60 million in the local loop network; €16 million in the ESB project; €30 million in the cable rollout and a couple of million in the CAIT project. We have not invested much more than €100 million, compared with Sweden's €5 billion. We are competing with Sweden as to whether we are the top knowledge economy. Will the Department of Communications, Marine and Natural Resources be arguing with the Department of Finance for further funding and how will the various infrastructures in which we have already invested be linked?

Mr. Tuohy

I will take the role of the Departments first. In some ways it is like the mystery of the Holy Trinity. They are all in one and at the same time they are separate.

Is there not cohesion?

Mr. Tuohy

There is, of course. They are all one. They operate separately as well.

Is the Taoiseach's Department God the Father, God the Son or God the Holy Spirit?

Mr. Tuohy

Deputy Ryan may decide from where the wisdom comes.

I am surprised Mr. Tuohy did not bring a shamrock with him.

Mr. Tuohy

We do not have them in Cork.

Information and communication technology permeates everything. It differs from other areas in that it does not fall neatly into any one box. The use of technology has as big an impact on health and education as on our Department. Our job is responsibility for the basic infrastructure. That is the market. We are also involved in security, biometrics and the security side of networks including Internet, domain naming and so on. Today we are dealing with the market and the hard level of the infrastructure that goes in there.

Grass is to an agricultural economy what broadband is to the new economy. It is the basic bedrock. You cannot have the new economy if you do not have broadband. ADSL is an introductory technology. The Government objective is to hit five megabits per second. That is the trigger point for streaming video and the like. Everyone accepts that it is going to happen but the issue is how quickly we do it. We are in a chicken and egg situation. The industry will provide broadband when the demand is there but the demand will not be there until the infrastructure and services are there.

Our Department has a sectoral policy role. We interlink as part of the Government's overall economic strategy. The Department of Enterprise, Trade and Employment looks after Enterprise Ireland/IDA and the enterprise and industry side of things and we link closely with it. The Taoiseach's Department has a co-ordinating role across the issues of eGovernment, electronic services across the whole range of Government areas and some of the softer stuff across that.

The big challenges for Government today do not neatly fall into boxes. Whether one likes it or not, Government must have co-ordinating mechanisms across a range of areas from the drugs problem to the ICT area. It is naive to think an individual can be responsible. Individual Ministers and Departments will continue to have to drive this within their own sectors. The Minister of State, Deputy Hanafin, and the Taoiseach's Department effectively pull together the different agencies and Departments so that we are all singing off the same hymn sheet. The Taoiseach's Department published the document, New Connections. That is the current strategy that we are pursuing. It specifies the five megabits per second. As the Department responsible for the telecoms sector we are trying to make this happen on the ground.

The regulator's role in this is the detailed regulation. The regulator has appeared before this committee. We changed the communications regulation environment last year by allowing the appointment of a three person commission and allowing the Minister to give directions to the telecommunications regulator, ComReg. The Minister did that in the form of one on broadband and one on flat rate Internet access. That came in on 30 June and, from what I am told, there has been a big interest in that.

We have always believed in the importance of the availability of flat rate Internet access. We said this in a number of reports in 1998 and 1999. Knowing that if I pay X amount of money I will have unlimited access to the Internet is a key trigger point to switch on the Internet. If a family does not know what its Internet bill will be it will not be inclined to use it. We were head for head with the UK in Internet penetration in the late 1990s but as soon as the UK introduced flat rate Internet access they went ahead of us. I suggest that was partly due to the availability of flat rate Internet access. Those are the roles of the three Departments. Other Departments also have key roles.

There are huge productivities to be gained by the use of technology. The committee has heard some of its uses in health, education and likewise. We might come back to its uses in education later because I know that has become an issue with this committee. Our own proposals are to look at the idea of always-on broadband access to every school, library and community centre of learning in the country. We think the future will be built around the schools and education side. If Europe is to be the world's leading knowledge economy and if Ireland is to be a key player in that we must take a number of initiatives that are different from any other country. We cannot just follow if we want to be a leader. We must take a number of key initiatives. We propose that we look at the schools and education area and at providing free broadband access to all schools and libraries and see that as charged out against the sector. We will be talking to the industry about this. If the cost of doing that works out at less than €30 million and the total telecoms take last year was €3.6 billion it will be less than 1% of the total cost. The committee has seen the figures.

Is there a breakdown between voice and——

Mr. Tuohy

I do not have a breakdown on that. However, the committee has spoken to the mobile 'phone companies. We have 80% penetration there, which is twice the European average. Large numbers of young people are using mobile 'phones.

How do we grow the market while, at the same time, do the right thing for the country? Having literate young people who are used to technology will lead to inventions and innovation in the future. They must have that facility from an early age. We do not want to disadvantage our young people. We want to proactively advantage them or give them an advantage. In our view the way to do that is by providing free broadband access to all schools, libraries and centres of learning. We must take a number of initiatives that are different from other countries or all we will be doing is following.

The second issue raised is the support we have given to different initiatives up to now. We went out for calls, to the private sector in some cases, and the ESB, being a semi-State company, applied. The ESB proposal was interesting. The board was looking for two loops, one in the south and in the north and north-west. We are putting much greater funding into the BMW region because EU rules allow that. This is an alternative to the other backbones, in the main Esat and Eircom, and is providing an alternative to that. The ESB is a carrier's carrier. It does not deal directly with customers. I have full confidence that once the ESB starts marketing this it will be very aggressive and do very well on it. The board has a very good tradition on that. It was involved previously with Ocean at the start-up with BT. We have provided some funding there and one of our conditions is that the north-western loop will be rolled out at the same time as the southern one. The business case is not as strong for some of the less populated areas of the country as it is for Dublin or Cork, for example, so part of Government's role is to ensure that we support the spatial strategy. Seán Dorgan, chief executive officer of the IDA, recently spoke of the importance of infrastructure rollout to support the development of the regions outside Dublin.

We are supporting a number of private sector initiatives and, in parallel with that we are doing the metropolitan area networks. Let me explain why we are doing that. We are the most competitive in the world on international connectivity simply because we did the deal with Global Crossing. It happened that we went to a competitive tendering process. We have more international connectivity infrastructure into Ireland than we need at present at the most competitive price in the OECD. The Government stepped into that market. In the initial discussions with the private sector companies they said they did not need it and that they could respond to the demand. However, the Government felt we had to move a stage beyond this and so we created that environment. Companies such as Google have come in, against stiff competition from abroad, and they are in here because of the availability of that infrastructure. The international side is highly competitive and successful here. In regard to the national backbone, the ESB system, in competition with Eircom and Esat etc., will drive the level of and lead to effective competition.

The third level is the metropolitan network. The question is how do we connect up when we get into the local area. We had a situation where many companies maintained their own systems and would not allow other operators to use them. We had discussions with Eircom about opening up its system. Initially Eircom was not in favour of that but it has been more positive in recent months. We have had some good discussions with it about opening up its infrastructure to competition so that we do not have to relay every trench and fibre in the country. That level of change is important.

Co-location facilities are another issue. If other operators want access, particularly from the home to the local switch, they must connect to the Eircom switch. However, now there is the idea of a co-location facility, another switch that is open to other operators. The last mile is the copper wire into the home. This is happening with ADSL at the moment and regulatory work is going on in order to make this easier for competition and for the services that go with it.

In the past there was a feeling that we could have competition on infrastructure and on services. Now, much of the infrastructure is common and there is more aggressive competition on services. This is not unlike what we see in the electricity market where there is a common backbone and aggressive competition on the services.

In regard to the provision of the last mile, has the Department a view, in regions where ADSL services are not being rolled out, on how connectivity will be provided or how we will rollout broadband?

Mr Tuohy

Some of that will be done by wireless and there is increasing use of wireless technology in that area. Some presentations have been made in regard to WiFi 802.11b that, again, is in an unlicensed spectrum area. There has been increasing use of it. There are contentious issues in this area, similar to what we have on cable. The operators roll off the same bandwidth and the more there are the greater the problem. We will still need the fibre backbone in the area because it has unlimited capacity. Then we get to the last mile where some of it will be copper, some wireless and some cable.

We do not have a developed cable market here. RTE and Eircom did well and sold Cablelink for more than £500 million. Then the market turned within a few months so the capital was not there to upgrade the NTL or Cablelink network. In other European markets digital services are provided by cable in competition with the telco. We do not have that here and have to jump a generation, almost.

Has the State a role in terms of the rollout of wireless technology or is it being left to the private sector?

Mr. Tuohy

We are running a number of pilot projects and are willing to support initiatives that arise in this area. We support five wireless projects at the moment, two in Cork, one in Dundalk and two in the digital hub area. The Department, as part of an initiative, fund these. At present, wireless will not provide the same capacity as fibre. Fibre has, effectively, unlimited capacity whereas wireless will always have this contentious issue. That can be seen with the mobile phone when the network is busy. It is evolving and the technologies are improving rapidly.

I welcome Mr. Tuohy and his colleagues. We are well behind other OECD countries and are close to the bottom of the league table. Why is that and how does Mr. Tuohy see us moving up the table? We appear to be playing catch up since we got into this area. Mr. Tuohy spoke about a mix of public and private involvement in rolling out broadband infrastructure and the effort to ensure it is rolled out to all areas. Is there a danger that if we wait for the private sector to do it we will fall further behind?

Mr. Tuohy spoke about our success in regard to global connectivity. We are more or less more legal there because of the initiative taken by the Government. Does that not suggest we should take the same initiative in this area and not wait for private operators? If we wait for them we may end up staying where we are. Is the Department of Communications, Marine and Natural Resources co-ordinating this or who has the overview on it?

When will the metropolitan area networks be finished? I know there is some timescale, that the first 19 are there now and that 65 have been identified. Has a timescale been set and is somebody conducting an audit to ensure it is adhered to? The Minister for Transport, Deputy Brennan, tries to ensure that where a time limit is set in his Department, somebody examines it to try to ensure that we stay up to date. Is that being done in this regard?

When will we have 95% broadband coverage? I assume that we will have a certain level that will gradually roll up to the five megabytes about which we are talking. Is there a co-ordinated plan or a timescale laid out for this being put in place?

Sweden, which has expended a huge amount of money on connectivity, may be an extreme example. What percentage of Government input is there in other European countries as opposed to private sector investment? Are we ahead or behind that?

The cost to each household for the take up of this was mentioned. Has the Department, or anybody else, carried out any research as to the cost for households and the level of take up that can be expected?

We will take Senator Kenneally's questions and then have questions from Deputies Coveney, Brady and me.

Mr Tuohy

I will try to summarise, quickly. Our Department is responsible for co-ordinating the rollout. We also have a regulatory policy role and work with the regulator who does the detailed regulation. There is a mixture of Government direct action on the policy side and the regulator taking detailed regulatory initiatives on the ComReg side. The Government also has a role as a user of services and Mr. Jim Duffy and the Departments of the Taoiseach and Finance spoke to the committee on that.

In regard to the metropolitan area network, we have strict project management. Our website shows this information and a bulletin is issued on the site. Time charts etc. are available there but we can provide the information to the committee if required. In the main, we are on target although there has been some slippage. In some cases there were problems such as archaeological remains - the usual problems when we start digging anything. The contracts are fixed price contracts and will come in at that price as there are no caveats on them. This project is on budget and on target. Times are competitive and one can buy fibre now at a fraction of the price it was five years ago because of the glut in the market. It is a good time for rolling out infrastructure.

A question was asked about 95% coverage. There is a debate about what the cost of providing 95% coverage would be. Ballpark figures could be between €1.5 billion to €1.8 billion to provide that level of coverage. Investment is needed for that to happen, whether it is ADSL and/or moving on to fibre. In an ideal world, what would be desirable to do would be what has been done in some countries such as Singapore and Korea where fibre has been run into the home. Fibre will give unlimited capacity but it is very expensive to do that. There is a balance between those two issues and between cost and benefits. To put it in context, the flotation of Eircom and the sale of Eircom shares brought in a little over €6 billion to the Exchequer and that was put into the pension fund.

The Department of Finance and my Department do not always agree on certain things. We would like to keep costs at a minimum. We regard telecoms as a contributor to the national economy and sometimes the view of the Department of Finance is that it would prefer to take the money up front in the form of licence fees or spectrum usage or whatever. That debate happens in every economy in the world. We would rather see it coming back in low charges and driving the economy. I am aware that the committee has taken up that issue with the Department of Finance.

There is a price to be paid and the question is where the line is to be drawn and how value is obtained. I believe a cross-sectoral benefit cost/benefit analysis comparing broadband with some of the other sectors would see broadband coming out very well. If the economy is going to be positioned as a knowledge economy, the imperative for that level of investment becomes even more important.

We have details of what other European countries are doing and we can make that information available to the committee. They all approach the issue very differently. Some are investing heavily in the third level institutes and the colleges by providing that level of infrastructure. We put a small amount of money, €3 million or €4 million, into the CAIT initiative that Deputy Ryan spoke about. That initiative was transferred to another Department after the change of Government last year. It is now in the Department of Community, Rural and Gaeltacht Affairs and we no longer deal with it. We have a key interest in dealing with social inclusion as has the Minister of State, Deputy Hanafin.

Will it be returning to your Department, Mr. Tuohy?

Mr. Tuohy

We do not have responsibility for it.

It has run into a dead end somewhere - it is not on anymore.

Mr. Tuohy

It is not on our agenda. It was positioned in another Department after the election.

Whose agenda covers it?

Mr. Tuohy

I presume it is in the Department of Community, Rural and Gaeltacht Affairs, of which Deputy Ó Cuív is Minister. I cannot answer for it because it is not my area of responsibility. We have an interest and we are supportive of it. As part of our schools' initiative, we will include not just schools and libraries but what we term community based centres of learning.

Every presentation that the committee has received from the users, both older people and students, wants and demands the reintroduction of the CAIT programme. I hope you will convey that information to your Minister and to Government.

Mr. Tuohy

We set up the programme and we are very positive about it. For a small amount of money invested, it was a very positive and successful initiative and I believe any analysis will prove that.

To answer the question about the cost of services to each house, ComReg has published a study on the subject. We believe that the introduction of flat rate Internet access and the like will have a huge impact on the use of the Internet technologies.

In the case of schools, for instance, the biggest element of the cost of buying a PC and connecting to the Internet over a five year period, is the ISP and telecom charges which are 85% of the cost. It is very important to deal with that.

There is a better understanding in the relevant Government Departments of what is required now than there has been and that is to be welcomed. The Minister has a reasonably good understanding of what is required. We are trying to find out the best method for getting there, both cost effective and speed.

Is it accepted that while it was not a mistake to sell the company, the sale of Eircom's infrastructure along with the company was a mistake and it has now frustrated the rollout of a broadband backbone infrastructure? If the State still possessed that infrastructure, many of the problems being encountered now might have been avoided.

How does the Department propose to manage the rollout of broadband to Government services and institutions such as schools, community centres and libraries? I agree with the Department in believing that is where it should start. If infrastructure is rolled out to all the Government institutions then we will have a good base infrastructure from which to work and can provide a link up to the final mile to home users and small business within the region.

I am interested to hear the Department's views on the management of the rollout. I am a strong advocate of setting up a market place to attract private investment and competition and the provision of an infrastructure by competing companies. Many Government services in the regions are located in areas that do not have a strategic interest that would encourage private companies to link up those areas unless they are paid to do so. We are in the process of selecting an independent management company for the fibre rings. Will a company be employed and paid to rollout this infrastructure from school to library to community centre? Will this be a company which may not have a retail interest but which is being paid to find the best solutions for the provision of the necessary infrastructural backbone? Will it include the leasing of lines from Eircom, using wireless technology from Esat BT or some other company? What is the estimated cost of the project?

I am pleased that there is recognition that the Government must become involved in paying for a rollout to some parts of the country where the low level of population density would not attract private investment. How does the Department propose to ensure that there is a rollout in areas such as the north-west, south-west and Connemara? These areas have a low population density but have a right to the information society just like everyone else. They have a right of access to e-Government that is being developed quite quickly.

Does the Department propose that a single entity will act as an umbrella organisation to manage the rollout? This could be a company that does not have a vested interest. Will the Department put incentives in place to encourage competition for the rollout of the infrastructure or will it pay for the infrastructural rollout and then encourage competition on the retail side or competition for both? There already have been a number of questions about the MANs. I assume it is intended to link those with each other through a backbone, which could be Eircom's.

Mr. Tuohy has probably already heard some of the discussions we have had with others appearing before the committee about the levy. There may be disagreement among this committee as to whether the proposed levy is justified in the way suggested. I have some concerns about the simplistic approach of asking the telecom companies to pay €30 million in the form of a levy. Perhaps Mr. Tuohy could confirm whether there is truth in the rumour that the Minister was going to Cabinet to seek approval for the levy either last week or this week.

While that may be jumping the gun, there seems to have been no consultation with the telecom companies involved. Some of them seem to be in a position to pay while others do not. Why are we choosing the telecom companies and not the broader IT industry? Why should we ask Meteor to pay a levy and not ask Microsoft when both companies may well benefit from Ireland becoming a more IT friendly nation? Representatives of the industry have clearly indicated to us they are willing to make a significant contribution towards linking schools. However, they feel at an absolute minimum they should be consulted but they have not yet been consulted by letter or phone, which is extraordinary.

While I do not know whether this is true, this is what we have been told. I am concerned that because we may be finding it difficult to get money from the Department of Finance we are taking a simplistic approach of letting the industry pay for it. This represents a stealth tax and ultimately the user will be charged, as companies will not take the hit without passing the cost on to the customer. Our purpose is to reduce the end user cost.

I ask Mr. Tuohy to expand on the relationship the Department of Communications, Marine and Natural Resources has with the Department of Finance. We received strong indications that the Department of Finance recognises that if Ireland is to remain competitive, it needs to play its role in releasing necessary funds to complete the rollout of broadband quickly. In the build up to the Estimates debate, what are the key factors and how successful is the Department in prising money from a very tight source?

I welcome Mr. Tuohy and thank him for a very refreshingly uncomplicated presentation. He mentioned he had discussions with Eircom about competition. It continually makes representations to members of this committee that it is being forced to provide services and lease lines below cost price. It makes the point that doing that would act as a disincentive for investment by other operators, which would wait for Eircom to supply the service and piggyback on that. Those operators would cherry pick, as they would have little interest in providing service to remote areas. What are Mr. Tuohy's views on this matter, which I am sure was raised in his discussions with Eircom?

Mr. Tuohy

I wish to return to Deputy Coveney's initial questions on the sale of Eircom and the infrastructure. What we did there was exactly what happened all over the world. The OECD, EU and everybody were pushing the liberalisation of markets by selling off the incumbent under the private sector drive development. The subsequent downturn in the markets, and the removal of capital from those markets, made it very difficult for the shareholders in these companies to invest going forward. So there is this conflict where governments traditionally intervene in the market where there is a market failure. There would have been no rollout of electricity or the initial telecommunications in any country unless governments took the long-term view and made it happen.

One of the issues with broadband is that everybody will say: "when the demand is sufficient we will rollout infrastructure, because then we will get a return". However, some of the returns people are looking for are three-year or four-year returns. In many of these cases seven or ten years are required before getting that level of return. Some of the shareholders may not be prepared to wait that long.

In some cases there will never be a viable return especially if it is a sparsely populated area.

Mr. Tuohy

What will happen in some of these is that some of the technology will change. I see some of the wireless or satellite technologies becoming cheaper. They are not there at the moment. At the moment there are limitations. As the Deputy knows, with DSL there is a limit of, I think, 3 km to the local exchange. There is a limitation on the number of users, contention rates, etc. That is becoming an issue in Scotland and other places.

I should like to return to the philosophical issue of whether the Government should be involved in owning infrastructure. Our Minister made it clear recently that in a parallel area on the energy side he is not at this point in time disposed to selling off the infrastructure, whatever about the services in some of the other areas. He made it clear in a discussion recently that sometimes we should not just blindly follow the ideology in the sense that everybody was locked into the belief that the private sector would do this, but the downturn in the market has not helped this.

Does this mean the answer to the question is "yes"?

Mr. Tuohy

The answer is that we did what everybody else was doing.

Is Mr. Tuohy saying we should not have sold the infrastructure even though we sold Eircom?

Mr. Tuohy

I did not say that. I am saying there are limitations in the liberal market model and we are only now finding what those limitations are. We are not the only ones; this is true across the world.

Mr. Tuohy should tell the Minister for Transport.

Mr. Tuohy

I am not going to debate other areas. This is not a black and white issue. If we did not have the downturn we had, there would have been the capital investment to go in. However it did not happen that way.

Deputy Coveney spoke about the rollout of broadband to the institutions, including schools, etc. We can consider this along with the levy issue. I am not at liberty to say what is going before Government, as the Deputy will appreciate. If matters go before Government they will come out. There have been discussions with the industry. When we get Government approval to discuss some of the specific issues around this, we then go back and start discussions with the industry. We flagged the fact that we were considering this but did not engage in serious discussions with them.

I can circulate a chart we prepared last night to give a feel for the breakdown. While this is subject to correction we did it to give some indication about the breakdown of the costs over five years, for example, for a school with one PC. This does not reflect the fact that multiple PCs could be connected. It gives some idea of the breakdown of the costs. It is not the PC that is the majorcost.

If we can drive the usage of the Internet and technology from an educational perspective that will drive the demand at home and in the economy generally and at the same time make our young people more literate in this area. So there is a belief in that. I believe all Members here would be committed to positioning Ireland as a leader internationally. For that to happen, we have to be prepared to take initiatives that do not just copy somebody else.

The chart shows the total cost of linking up schools. It shows €100 for communications and €150 for——

Mr. Tuohy

That is just for setting up the PC, etc. The Deputy is talking about the operating cost. This includes the cost of the ISP, the telecoms, etc.

Does it include the power cost?

Mr. Tuohy

Yes. Members should not hold me to the detailed accuracy of this. These are just ballpark figures from some quick work we did overnight. It is probably worth looking at this matter from the point of view of finding out what are the issues. One could put considerable effort into one of these areas and get little benefit. The real issue is whether we can bring down the cost for schools. This would drive demand in the economy.

Everyone agrees that broadband needs to be rolled out to schools. The question is how we would pay for it.

Mr. Tuohy

Schools would not be the only beneficiaries. One needs to consider the issue from the point of view of creating a bigger market. The same principle applied when we did the Global Crossing deal. Let us not fight about market share but talk instead of expanding the market. The way to do this nationally is to encourage other companies, particularly large users, to enter the market. The issue of scale must also be considered. The greater the scale, the more dramatic will be the decline in marginal costings. If one has a significant scale in demand, one will be able to roll out broadband much more cheaply. Eircom's success with pan-European call centres, which drove down costs and made it difficult for competitors to compete with it, is a good example of this.

I would like to tease out this issue a little.

We do not have time. I ask Mr. Tuohy to answer the other questions.

Mr. Tuohy

The Deputy may comment at any stage. The management services entity was mentioned. We have a management services entity which is out to tender. Initially, the group of 19 towns will be connected into the other backbone networks. We will evaluate progress as we proceed. The debate will be on whether the private sector will continue to roll out infrastructure in other towns identified in the national spatial strategy or whether further Government intervention will be needed. The matter is open for discussion because the infrastructure is still being put in. Many people believe there is a need for continued intervention which will mean the Department will have to fight for resources against other areas such as health and education. Any form of cross-sectoral cost benefit analysis would show that broadband investment is good value for money. All the work we have done in this area would prove this.

The respective roles of the private sector and Government were mentioned. We see the role of Government as being one of facilitating the legal and regulatory environment, including working with the regulator. The Minister has already issued directions. We do not have a book we can follow on this issue as we are on new ground. The Swedes have already done some of what we are doing in terms of the management services entity and we look to them in some areas and break new ground in others, including regulation. We will have to assess progress on an ongoing basis. I cannot write the script because we are not following anybody else.

How do the Swedes connect to households from their equivalent of the MAN? I have in mind Galway where my cousin's bed and breakfast in Salthill is 100 yards from the where the MAN will be. How will she connect to it? Could we follow the Swedish model?

Mr. Tuohy

This must be viewed as part of the overall package. Unbundling the local loop will also give one the last mile. Other operators will then be able to go down to the local switch or co-location facility. They have MANs going into the high areas and must then go into the last mile. Part of the regulatory regime established by the regulator will effectively allow this to happen.

When Mr. Tuohy stated the Department was making considerable progress in discussions with Eircom, was he referring to the company's 200,000 kilometres of backbone network or the last mile and the unbundling of the local loop?

Mr. Tuohy

Around 18 months ago, when we introduced the concept of the MANs, we talked to Eircom about the use of its ducting. At that point, the company did not favour this approach but in recent months it has been much more positive about making infrastructure available. We do not want to reinvent the wheel. If infrastructure of the required standard is available, whether it belongs to Eircom, Esat or another company, we will incorporate it into the MAN. We have said this from day one and would like to be in a position to do it on condition that it is open to all operators. Its use cannot be constrained and we are not in the business of allowing it to be. The idea is to take infrastructure and build it out anew.

Has Eircom accepted the Department's position?

Mr. Tuohy

It has been accepted.

Is it accepted by all the telecoms companies which own the fibre in the ground, including Esat which has 1,300 kilometres of fibre in the ground.

Mr. Tuohy

Much of Esat's fibre is backbone. The company owns much of the backbone network in the ground and will be a user of some of the MANs, as will cable companies, some of which have expressed an interest.

Has the Department expressed an interest in using the Esat backbone, the 1,300 kilometres of fibre, most of which runs along the railway lines? The company informed the committee last week that it has 48 pairs of fibres and only uses one of them.

Mr. Tuohy

The management service entity will carry out the negotiations when it is up and running. The Department does not get involved in such matters. We want to be a facilitator of the process not a telecommunications company.

Mr. Tuohy is saying the local loop unbundling will be the key development in terms of connectivity. Do the Swedes use a different model?

Mr. Tuohy

No, they also use unbundling. Many of the local authorities in Sweden own the infrastructure. The local authorities here own roads and water systems but traditionally have not owned the telecommunications infrastructure. In Sweden the local authorities provided this utility service.

Will Mr. Tuohy complete his reply to the earlier questions?

Mr. Tuohy

On the educational levy, we have an ongoing liaison with the industry and also with ICT Ireland, which is the telecoms side of IBEC. Once the draft Bill is published, we will proceed to talk to industry about the detail.

The decision has been made.

Mr. Tuohy

No, the publication of the Bill is only the first phase. The Bill will have a facilitative role and the committee and others will be involved in that process. The Bill will refer to the levy, the detail of which will have to be worked out. We do not have a blueprint for how we will do this but it is important that an initiative is taken to highlight the issue of education, which will be critical for the country. It is vital that industry drives demand.

We have a good relationship with our colleagues in the Department of Finance from whom we are always seeking increased funding. Mr. Doyle's acceptance of the importance of the provision of infrastructure, particularly broadband, is welcome. The real question is who will pay for it. We do not want to rule out the private sector doing much of the work, we want to facilitate this. Our interventions must be such that we maintain the principle of the market doing the work, while the Government intervenes in a way that is supportive of the market but does not displace it.

Deputy Brady commented on the use of ducts, which I addressed from the point of view of the discussions with Eircom. With regard to the issue of the disincentive to investment, it was felt in the past that one could have competition on services and infrastructure. There is now a growing feeling in many of the network industries that competition is focused more on services than infrastructure and one can share infrastructure, whether mobile phone masts or whatever, and have aggressive competition on services.

This is an evolving issue. Nobody on our side is prepared to come down on one side or the other. We are learning as we go along. As a small, open island economy, rolling out competing infrastructures simultaneously presents many difficulties. One should make sure that what is put in the ground is available to other operators at the right price. This involves scale in that as people get more usage from infrastructures, such as fibre, the price falls. However, the up front cost of developing infrastructure of this nature is expensive. Somebody has to pay for it and the return per shareholder. As our thinking on some of these issues is evolving, I cannot give a definitive answer at this stage.

While we do not have time to tease out the issue now, I ask Mr. Tuohy to provide us with more data on the graph.

Mr. Tuohy

We will do so. We drew up our presentation on the basis of the committee's discussions last week. This issue was raised and we said we would try to do something. These are rough figures to which the committee should not hold us. More than anything else, I wanted to give members a feel for the orders of magnitude.

The figures are helpful and it appears we will have an opportunity to tease out the issue when the legislation is introduced.

Does Mr. Tuohy agree with the statement that ICT is now an integral part of our society both at home and in the workplace so young people must be afforded every opportunity to avail of the latest technology to prepare them for life out of school? Does Mr. Tuohy subscribe to that view?

Mr. Tuohy

I totally agree with that.

That quote is from Martin McGuinness, former Minister for Education in the Northern Ireland Assembly. Later today Mr. Jimmy Stewart will make a presentation to the committee; he is responsible for the Classroom 2000 initiative in Northern Ireland, the focus of which is the development of IT and the connectivity of broadband to every school in Northern Ireland. Is Mr. Tuohy aware of the C2k service programme that has a committed budget in the region of £500 million sterling? The first rollout will cost in the order of £60 million sterling. A high level of commitment is apparent in Northern Ireland compared to the Republic. This programme is committed to 2 MB always-on connection for every school in the region. Perhaps one of the departmental officials might be able to attend this afternoon's session to listen to Mr. Stewart's presentation. Northern Ireland seems to be moving at a rapid rate because they see the value, as I accept does Mr. Tuohy, of the rollout and connectivity to every school. As Deputy Coveney said, while we might have different political views in relation to a number of items, I have no doubt that the committee will reach a consensus when it delivers its report. Am I correct in saying that Mr. Tuohy sees broadband as the new utility?

Mr. Tuohy

There is no question about it. In my view, broadband, education and research and development will be the three bedrocks of the new economy. The Minister for Communications, Marine and Natural Resources is involved in a global e-schools initiative that will be launched by Kofi Annan in December at the world summit of information society. The Irish and Swedish Governments are driving that initiative. It is important to look to the future in a global context. We must accept that education itself is becoming a huge industry. We have a good reputation internationally in regard to technology, on which we need to build. We need to focus on education and schools and make that one of our strengths.

Last week I was in Northern Ireland with my colleague and we had a long discussion about some initiatives. We are working on a digital island project with our northern colleagues, which is important in the context of the island of Ireland. Much good work is going on in that regard. I admire the great work that is happening in the North in terms of education.

Is Mr. Tuohy saying that they are a step ahead of us at the moment?

Mr. Tuohy

We have a national centre for technology in education that is most effective. I think its director, Jerome Morrissey, was in before the committee. It has received a tremendous response from teachers since it was introduced.

The Department's input will be in the area of Internet access availability and the cost of that. If we can do something in that regard it will be up to the education side to look after things such as teacher training in PC usage.

To return to the first question from Deputy Ryan, this is an issue that spans the whole of Government. We are focusing on the areas in which we can make an impact as part of our contribution. We look forward to the committee's support when the Bill is published. We can discuss the modus operandi but at the same time as we are growing the market we must do the right thing for young people to give them the skills base and access to services. That is a win-win situation.

It is a small amount of money in the context of the total revenue stream from the telecom industry last year. I saw a recent figure of €3.6 billion, which puts it in perspective. I am sure that text messaging alone was a significant element of that. We need to give something back and provide for the future. The amount involved is small and comes to less than 1% of the total revenue stream for the sector.

When Mr. Tuohy says that we need to give something back, is he referring to the telecom companies?

Mr. Tuohy

We can broaden it. I do not just mean them; I accept that it will involve others as well. From the point of view of providing something for the education system, we will provide free, always-on broadband access to every school, library and community-based centre of learning. This will be a powerful step forward.

Ireland is now a knowledge-based economy. I think Mr. Tuohy referred to Mr. Dorgan from the IDA. Mr. Flinter from Enterprise Ireland expressed serious concern to the committee about the lack of infrastructure for companies. Mr. Tuohy will accept that we must have infrastructure in place if we are to attract the type of technology-based industry that we require, the high added-value companies.

ComReg also appeared before the committee. An alarming statistic which emerged from an MRBI survey was that some 60% of people were more or less indifferent to broadband and the Internet. A high percentage of people are not switched on to this debate. What is Mr. Tuohy's view in that regard and what must we do in response to it?

We have already spoken about the CAIT programme that is only one part of it. The schools programme is important because if they do not have speedy access at all times and at affordable prices, we will never reach the desired result.

Mr. Tuohy

The most recent figure I saw on Internet usage is over 50%. One of the expected outcomes of flat rate Internet access and DSL availability will be an increase in the take-up of PC usage and Internet access.

The third element in driving forward this area is education. This will have a huge impact in a short time. We are also doing some work with HEAnet. As members are probably aware, this relates to third level institutes. The objective is to have a Gigabit to the desktops in universities, the idea being that anybody going into university should be in a position to get exposure to a high level of connectivity in order to collaborate internationally as if one was next door. That must be introduced, not only at third level but at second level and primary level.

There is no point in just connecting up to the Internet; there are broader issues surrounding it. The pedagogy of teaching could become much more student-centred due to the use of technology. The development of wide-area networks on college campuses will allow students to plug in their PC or laptop anywhere. They will not need to connect into a system, as they will be using wireless technologies. The Office of Public Works has proposed a wireless hotspot at the request of the Minister for Communications, Marine and Natural Resources for the Oireachtas that will be in place in time for the Presidency.

I thank Mr. Tuohy, Mr. O'Donoghue and Mr. O'Connor for appearing before the committee. I thank them for their work to date and wish them success in their work in the future. I hope that our report, when completed, will be of assistance to their Department.

Mr. Tuohy

Thank you, Chairman. We are most supportive of the work that the committee has done to date and we are more than willing to give additional information if that is required.

We would like a breakdown of information in regard to telecoms. Last week we were told by a company that it had spent €5 billion since 1997 on improvements and infrastructure and I am keen to get a breakdown on that.

Mr. Tuohy

We will come back to the committee on that.

We will suspend for two or three minutes to allow the next group to prepare.

Sitting suspended at 11.09 a.m. and resumed at 11.14 a.m.

I welcome the chairman of the Telecommunications User Group, Mr. Paul McSweeney, and his colleagues, Ms Siobhan Masterson and Mr. Brian Carolan. Perhaps they will confine their presentation to five minutes because we are behind schedule. I know Deputy Ryan has some questions for them.

Members of this committee have absolute privilege but this same privilege does not apply to witnesses appearing before it. It is generally accepted that witnesses would have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it.

Mr. Paul McSweeney

I thank the committee for inviting us. I am aware that two groups from IBEC have already made presentations to the committee. Neither of them represents business users but they represent the providers of telecommunications services. We have a different slant and represent other IBEC members. We are effectively the customers of those companies. Our mandate is to represent the views of business in respect of telecommunications. We have thriving branches not only in Dublin but also in Limerick and the northwest.

On broadband availability, it is quite obvious to most people in Ireland that the market system telecommunications companies are not providing broadband connectivity where there is a low population or low business density. Effectively, if one wants broadband one can get it only in the cities and some towns. We feel that there should be universal access to broadband, the benefits of which I will outline later. Although some telecommunications companies would lead one to believe that DSL is now universally available, it is anything but that. Even by the end of this year, we will only have 100 DSL-enabled exchanges.

Let us take as an example a small drapery in County Donegal that gets 80% of its revenue from the United States and the rest from Europe. Previously, it only had a 56K modem with which to dial up its Web server. It has moved over to ISDN but if the manager wants to conduct business on-line he has to pay by the minute because the cost is metered. It is very slow and he has great difficulty in gaining access to his Web server and his customers. He needs to be able to respond very quickly to his customers and, in order for him to expand his business and compete with people in Northern Ireland, Britain and elsewhere, he needs access to new technologies such as broadband. It would save the company much time and money.

Even though the price of DSL in Ireland has dropped, it is still very expensive. ComReg research demonstrates that most of the trigger points for people taking up DSL seem to be between €30 and €40. We are still way off the mark in terms of its price.

Let us consider another SME, which is located in Derrybeg, Gweedore, County Donegal. For the manager to expand his business he needs to have at least a 2 megabyte leased line. This will cost him €50,000 per annum, which is a huge amount of money for a small business. He just cannot afford this. He should be paying about half of this sum and have about 50 megabits per second of speed available to his business. His business, located in the Donegal Gaeltacht, is conducted with the United States. He could create more jobs if only he had access to cheaper broadband but this is not possible.

Broadband needs to be "always on". It is a utility and one needs to be able to use it as one would use electricity or water. In Ireland, unfortunately, there is a limit imposed in terms of the download for DSL and if one exceeds it one is penalised. Elsewhere in the EU it is always on and one has free and unfettered access.

If one has a business with a mission-critical reliance on connectivity, DSL will not be good enough. A little-known point is that ones telecommunications company does not monitor DSL. If something happens to one's connection, one will know this before the telecommunications company and it will find out only when one calls it to complain.

However, leased lines have equipment on the customer's premises with which to monitor the service. Leased lines cost 10%, 20% or 30% more than DSL. It is a cash cow for telcos, therefore, it is not a business they wish to emasculate. Even though Eircom said that by September 2004 all exchanges with 2,000 or more lines will be DSL-enabled, it is not widely advertising the fact because it is looking for the leased line business. A company came to us looking for impartial advice and we told them that DSL would become available to them.

However, the telcos themselves are not necessarily motivated to push it because they fear it might emasculate the leased line business. Another example of this is the case of a sole trader in Dublin who was getting poor service and approached the Director of Consumer Affairs, IBEC and myself. I ended up having to call the chief executive of Eircom to try to get this person's problem fixed. The time taken to respond to customer's issues is too long.

Broadband does not just mean DSL - there are many different ways of gaining access to it. Most people seem to think that DSL is the panacea, but it is only an introductory technology and we have a long way to go. The market in Dublin is competitive. As a corporate, I can get whatever I want wherever I want and many different companies will bid for the business. I can go through a process of a request for proposals and get a very good price. However, outside Dublin there is effectively only one operator - with a token presence from another - and I must accept what I am given. If we had more competition there would be greater availability and we would have lower prices. We would also have the choice of the different technologies to which I have referred and there would be a higher quality of service.

Broadband would have a positive impact on rural communities. The Telecommunications Users Group will facilitate a meeting of various State agencies in the next two weeks that might bring broadband connectivity to every single blade of grass in a 2,000 square mile area. We are actively looking for solutions such as fixed wireless access. If we can get broadband into areas which are not currently well-serviced, bank holiday weekends will not see mothers and fathers saying goodbye to their adult children as they head to Dublin and their jobs, denuding the area of its young population. Other benefits include business, jobs and long-term GDP growth. Studies in the US have shown that having ubiquitous broadband would increase GDP by $500 billion. One of the pillars of this would be that one could do business anywhere - although there are other infrastructural issues which need to be addressed - and it would also benefit the State by way of the increase in business activity and the tax base.

I will not refer to all of the challenges. However, there is a gap in the market and the Telecommunications Users Group believes there is a latent demand for broadband services. Telcos do not believe this and the gap needs to be addressed. Even if people had broadband access at their homes and places of work, how would they access it? They need a device to do so and, most likely, that will involve something like a PC.

We recommend that members of the committee recognise the benefits of broadband, promote competitively-priced broadband in their constituencies and create awareness of it. People do not understand the benefits of broadband and an awareness campaign, which targets residential, small and medium enterprise people, is required. We must also use local communities because they will benefit and the telcos must be part of it since they will be competing for those customers. Members need to lobby for broadband in their constituencies.

We further recommend that people work with user groups as well as solution providers. There is a number of groups like the Telecommunication Users Group in Ireland but we are not consulted as much as we could be and we could bring the view of business users to bear. We need affordable broadband for all - no matter where a business is or what size it is. We also ask the committee that, when it publishes its report, its recommendations are actioned.

I thank Mr. McSweeney. He need not worry about lobbying since it is part of our stock in trade. I am glad he appreciates the work we are doing on this committee because we have been engaged in this work since January when we visited San Francisco, Grant County and Washington State. This meeting is our last public session. Mr. McSweeney's presentation has been very helpful to the committee.

My heart sank when I saw that IBEC was coming before us for a third time. I asked myself what would be different given that on previous occasions we were told that everything was all right, that the costs in the area were not a big issue and that businesses were thrilled with the way broadband was developing. It has been refreshing to hear something different from IBEC this time, which is closer to my perception of what the business community is experiencing in regard to the rollout of broadband. In that context, I wonder what level of consultation has taken place within IBEC as compared with some of the other groups which have been before the committee, including those representing some of the industry players as opposed to the users. I welcome the IBEC presentation and the delegation for its frankness in regard to the real situation for business users.

We had been told previously by IBEC that cost was not a big issue in this area. However, when one hears that a leased line in Derrybeg is €50,000 - twice the price of Dublin - one's jaw drops. For any company a €25,000 difference is massive. Is there existing fibre to Derrybeg and, if so, how are the telcos costing that provision? If an area does not have existing fibre, the company might have to lay it over the Donegal mountains, in which case I could understand the cost. If there is existing fibre, when was it laid?

In Northern Ireland the cost of a leased line is €15,000. Why is that so much lower than Dublin where there is a competitive market for leased lines? Is that a universal figure across Northern Ireland? Will Mr. McSweeney tease out his comments regarding the download limits of DSL because I was not aware of it?

Grass has featured heavily today. The Secretary General of the Department told us that broadband would be to industry what grass was to agriculture. Mr. McSweeney states in his presentation that he is looking for a solution that will cover every blade of grass within 2,000 square miles. Does he have any examples from around the world where such solutions are coming to the fore? I presume this is particularly relevant to rural areas but are there specific examples? I know the organisation is seeking solutions but does Mr. McSweeney have any inkling as to where the answer lies?

Mr. McSweeney

I am aware that there has been increased investment by the incumbent operator in Donegal. In regard to the specific SME which we illustrated, I do not know what network topography exists in that part of County Donegal. In an area like Donegal, there is only one choice and, if one has to do business, one will take whatever price is quoted. In regard to costs, one can make one and one add up to be whatever one wants it to. As there is zero competition in that local market, therefore, one can charge what one wants. If competition were introduced there would be a rapid decrease in prices. Companies will charge what they can get and what the market will bear. With an online business such as the example we gave, the customer has no choice but to take it at that price.

Costs are lower in Northern Ireland because the country is piggy-backing off the rest of the UK. One company, BT, has an enormous amount of revenue and a huge user base. Effectively, mainland UK subsidises Northern Ireland. It is true that there is a download limit on DSL. Unlike in other countries, once one goes above 5 gigabytes of download a penalty is added for each megabyte downloaded thereafter. Our nearest neighbours, however, can download whatever they want whenever they want. We do not have full always-on DSL in Ireland just yet. When competing technologies are introduced this will change, but until there is increased competition we will have to live with that.

The Telecommunications User Group is a member of the forward-looking panel that advises Comreg on medium to long-term competition and technology issues. One of the members of that panel was the director of the UK Cabinet office on e-commerce and it was in conversation with him and on the Internet that we stumbled across this potential solution. We travelled to the UK to see the successful company, as we wanted to see the solution for ourselves. Successful trials have been carried out and the company has won awards from the DTI in the UK. Apparently there is some difference of opinion in the UK between the regional authorities and central Government about who should be funding this.

We suggested to the company that it prototype the system in Ireland. With a view to this we have invited a number of State agencies to a meeting, at which we will ask this company to present its solution, its business case and how it would go to market. I cannot tell what will happen after that, but it is to be hoped that it will pique some interest because we think this will bring affordable broadband to the most remote areas. Effectively, the solution is a cross between a mast or a tower and a satellite. It is something in between.

The south west regional authority now has a satellite system operating in Caherciveen in County Kerry. Am I correct in saying that the system has about 800 users? It costs €30 per month for the always-on service. A new system is being launched in Bantry on Friday week, so perhaps the regional authority in the north-west should be considering that. Mr. McSweeney should tell his colleague in Donegal that help is on the way because the metropolitan area network is in the planning stage for Letterkenny and Gweedore. It is to be hoped that link will be in place by the end of 2004.

Mr. McSweeney

I am delighted to hear about developments in the south-west.

I thank the delegation for their presence. They have given a presentation but we have not asked many questions because I do not think the committee disagrees with many of their views.

These presentations have confirmed much of what has been said by users already. However, it is very helpful to get confirmation of this from IBEC.

I thank Mr. McSweeney, Ms Masterson and Mr. Carolan for the presentation. My colleague, Deputy Ryan, hit the nail on the head; it is refreshing to have another view from IBEC to present to the committee. We appreciate it and I hope that the user group will be pleased with the results of the report that results from these public sessions, which are to finish today. I hope that the relevant Government Departments will take action shortly.

Mr. McSweeney

I thank the Chairman and the members of the committee.

I now invite Mr. Bernard Keogh from Global Crossing and Messrs. Ronan Lupton and Eamon Walsh of MCI to join us. Will we have two presentations?

Mr. Bernard Keogh

It was intended to have two presentations, but because of the time pressure and in light of Deputy Ryan's comments I will be brief so that we can concentrate on questions and answers. My presentation largely consists of facts and figures about Global Crossing.

I thank the representatives of Global Crossing and MCI for joining us today.

Mr. Keogh

I thank the Chairman and members of the committee for the invitation to attend. It is to be hoped that we can help with the committee's deliberations. Global Crossing was founded in 1997. It is the owner of the world's largest proprietary IP-based fibre-optic network. It spans almost every continent, connecting 200 cities, including Dublin. It is to be hoped that in the future Cork, Limerick and Galway will be included in our network. Our target market is principally carriers, Internet service providers and larger multinational companies. That is the perspective we bring to today's meeting.

Our presence here is largely driven by the public private partnership into which we entered with what is now the Department of Communications, Marine and Natural Resources in July 1999. We also offer services in our own right. How does this relate to the terms of reference of the committee? Standing as an international operator with our back to the world looking inwards towards Ireland, we see behind us unparalleled international connectivity and in front of us tremendous access problems, particularly outside the Dublin region. That is a point that has been made by various speakers so I do not need to go into too much detail.

I will give an example that is related to comments made by the Telecommunications User Group. We would sell a circuit between Dublin and Tokyo for a fraction of the price we would expect to pay to deliver that circuit between Dublin and Cork. We will connect Dublin to Tokyo for less than we will be charged to deliver the service from Dublin to Cork. This is not a problem that only exists in Ireland but it is particularly acute here. For business users, particularly in the regions, somewhere between 50% and 90% of what they pay will cover less than 5% of the distance travelled by the circuit they have purchased. This is not good for business users because they end up paying what we believe are hugely inflated costs. There are many possible ways of addressing this problem through policy implementation. It is worth noting that there is a huge reservoir of telecommunications infrastructure already in the ownership of the State, between the Department itself and the metropolitan network it is building, the semi-State companies and the local authorities. That presents the opportunity for Ireland as a State to make a moving start. I was encouraged to hear Mr. Tuohy say that co-ordination between the Departments and other agencies of State is an increasing focus. Everyone is doing their own thing at the moment and more co-ordination would deliver major results.

Two years ago we went to build a duct across a bridge in Dublin and the relevant local authority gave us permission to do that on the basis that we built two ducts and we sold the second duct to them at cost price. We were happy to do that but disappointed to see that duct then offered on the market at five times cost price. From a financial point of view, it was a great deal for the local authority but from an ICT deployment point of view it was not so encouraging. Those are the policy issues we need to confront in looking at how we will deploy deeper broadband access, particularly outside the Dublin region.

Mr. Eamon Walsh

I thank the committee for giving MCI the opportunity to make a presentation. We have broken the presentation up into four distinct categories - giving users a voice, potential value of broadband to Ireland, current positioning and broadband delivery.

Giving users a voice is akin to giving users a choice. We see it as incumbent on the Government to continue to attract foreign direct investment, to stimulate an e-enabled society and to sustain an educated workforce. In the business community growth entities have to show value for money and a return on investment. Broadband can deliver this and can offer cost effective means to get to market quickly and effectively. Broadband will retain our reputation as a highly competitive market and enhance our socio-economic values. Importantly, our perception internationally will continue to be that of a leading State in technology and Government and public welfare initiatives will increase and benefit more citizens. Broadband will create and entice content providers to locate here.

The technology sector has seen a shake out. There has been a reduction in the labour forces, as we have seen in Ireland and across Europe.

I am a little confused. Could we have a short description of MCI? I am familiar with Global Crossing but not MCI.

Mr. Walsh

MCI is a US entity with locations in Europe and four in Ireland - Dublin, Cork, Limerick and Galway. It is a service provider that provides voice data Internet to the business community. It has a wholesale arm that services the residential market but we are slightly removed from that market through the wholesale arrangements we have. MCI currently employs 111 people in Ireland and offers exactly the same services that it offers in the US. Services that Intel would get in the US would be identical here with the same service level agreement and the same expectations.

What about pricing?

Mr. Walsh

Pricing is influenced by our local access to get to the last mile. Port pricing and voice pricing would be very competitive and close to what people could expect in the US.

The prevailing uncertainty in the market is keeping technology markets and our industry in a state of flux. Firms continue to seek a reduction in costs by either relocating or looking at their capital expenditure with any questionable projects being put on hold. In 1999, there was an explosion in this market, followed by a consolidation, leading to new entrants restructuring and now incumbents are beginning to dominateagain.

What is the impact of the incumbent dominance - that of Eircom or France Telecom? They will increase their overall stranglehold on the market, drive new entrants away and make operating conditions difficult for those committed to remain in the market. The downside of this incumbent dominance is a lack of broadband, motions away from mandated USO and further subsidisation of incumbents by new entrants.

We are seeing an increase in the live register and the cost of living. Global markets are affecting the industry in Ireland and firms see the State as less competitive and are looking towards the accession states. Certain potential remains, however, for the creation of incentives and content providers and broadband can deliver this.

The role of the Government in broadband delivery is to foster long-term investments through financial regulations, tax incentives and strong regulatory policy. At a minimum, we would like to promote fixed resale facilities, encourage the development and deployment of new loop technologies, and promote loss of incumbent share by strong regulatory regimes and ship market share by fiat.

We also see a role for the European regulatory framework in light of most member states' desire to privatise and we see a role for a neutral European Commission to minimise politicisation at a local or national level. We would like to see a remedy structure for full structural separation and price squeezing being tackled. Mobile markets should also be regulated and reviewed and spectrum resold. If this remedy fails, the EU should adopt legislation to create a pan-European regulatory network with sweeping regulations.

We see clever investment and partnership strategies working with a strong regulatory presence to react quickly to bottlenecks and regulatory constraints and balance competition. We disagree with a tendering process that favours one operator.

I am glad we were able to see the MCI presentation, there was much of value in it. I will deal with Global Crossing first. It is not the first time I have heard it said that it is cheaper to link Dublin and Tokyo than Dublin and Cork, and that fascinates me. Microsoft has often said so and it and other companies have often said they would like to expand beyond Dublin but cannot do so for practical reasons of telecommunications infrastructure. I am anxious to hear the delegation expand on their plans to link Cork, Limerick, Galway and Waterford directly to the Global Crossing fast lane. There is great frustration among the members of Cork Chamber of Commerce that Dublin has this direct international link and then there is a loop around the country that everyone else must link to. It must be equally frustrating for the chambers of commerce in Waterford, Galway and so on.

Time constraints did not permit the delegation to expand on Global Crossing filing for Chapter 11 protection in the US. Its representative stated here that day-to-day operations will continue and customers will be unaffected but if this goes to the next step beyond Chapter 11, what will the result be for Global Crossing's stability internationally? What is the company's relationship with the Government and the Department of Communications, Marine and Natural Resources? What is the situation regarding the infrastructure which links Ireland to the international marketplace? Who controls it? Does the Department still intend leasing that from Global Crossing? Is Global Crossing managing it? If Global Crossing went into liquidation, what would be the consequences for Ireland's international link-up capability? The infrastructure is there but if the nightmare scenario occurred and Global Crossing ceased to exist, who would own or manage the infrastructure it has provided for Ireland? The Department confirmed earlier that that has made Ireland probably the most competitive country in the world from the international link-up point of view. I was surprised but pleased to hear that.

I am sorry I am not more familiar with MCI and, perhaps, I should be. Can we hear more about MCI's difficulties with accessing and unbundling the local loops in order to access the last mile into small and large businesses? What is MCI's relationship with Eircom? As has been said, once one moves out of Dublin, the incumbent, to use a politically correct term, seems to control the network, even though other systems are being used through the ESB and so on. From MCI's point of view, the price, and level of service to some extent, offered to customers is based on the wholesale access it can get from the incumbent. Is that the case or is MCI providing the cabling itself and essentially bypassing Eircom?

The diagram used was described in worrying terms as moving back to a situation where the incumbent is dominant. The purpose of this committees report is to suggest a strategy be put in place to reverse that. We have set ourselves three goals: to promote competition, to provide choice for customers and to reduce price. We will be frustrated in reaching those goals if the marketplace continues along the lines predicted here.

The final worrying comment which was passed over quickly was that based on MCIs experience as an international company, firms seem to be viewing Ireland as less competitive and are looking to EU accession states as more attractive for investment. That would be a disaster for Ireland, particularly coming from America, where Ireland is seen as a springboard into Europe. We speak English, our workforce is educated and US companies moving east into the European market have seen us as competitive. If we are no longer seen as competitive and if we are passed over in favour of other countries it would be devastating for foreign investment here. Mr. Keogh might expand on the measures he suggests we can take to reverse that.

Mr. Keogh

I will take Deputy Coveney's questions in reverse order and begin with the Chapter 11 situation. There are some bullet points on that in the slides the members should have seen. The case began in January 2002 as part of a restructuring exercise. It is still on track, though somewhat behind schedule. We expect to emerge from Chapter 11 in the next couple of months, as we are down to the final regulatory approvals and court procedures that have to be satisfied in order to exit. We will emerge intact and every inch of the network we owned when we filed for Chapter 11 is still in our ownership. It still operates and has never ceased to operate. Our operating parameters are better now due to internal reorganising. From a user's point of view, the experience is better now than it was two years ago.

In 2002, shortly after we filed, we met the Department of Communications, Marine and Natural Resources to deal with concerns about a potential global liquidation of Global Crossing and what would happen to the infrastructure in Ireland. That infrastructure is owned by Global Crossing and the Department and the IDA have rights to use a certain volume of capacity of the infrastructure or to lease or sell parts of it on to other parties if they choose.

In June 2002 we signed an agreement with the Department that gave them an option to purchase the asset if Global Crossing went into liquidation. That was to act as a kind of fail-safe so that even if the company was liquidated it could buy the asset and ensure services continued. That asset includes two telehouses in Dublin and a link to Cornwall, so it includes the terrestrial links in Ireland and the two sub-sea links from Wexford to Cornwall.

What is the situation with the British Government, given there are links to Cornwall?

Mr. Keogh

The reason we chose to do it that way was that more or less all the telecommunications cables that land in the UK do so in Cornwall. It is the richest area in which to try to find others. Obviously, those buying capacity through Global Crossing are not buying to go to Cornwall but to go somewhere else. The idea was to find a place with the maximum density of alternative providers who would then take one on to complete the journey. That was the deal done last year. Global Crossing is not buying to go to Cornwall but to somewhere else. The idea was to find the place at which there was the maximum density of alternative providers who could then take the passenger on to complete his or her journey. The deal was done last year, in the hope that it was never going to be deployed and we are increasingly confident that it will not be deployed. That should secure the infrastructure that is there for the benefit of the State.

We have a commitment to work with the Department to look at deploying telehouses in Cork, Galway and Limerick. The stumbling block is the question of connecting or extending the network from Dublin to those cities. It is expensive and we would not envisage doing it now. We are waiting to see what happens with the ESB, Aurora and other companies that are considering building backbone networks between Dublin and the other cities. We hope to do this. The asset is there and available to anyone with whom we can connect or meet at the moment. The closer we can get to our customers the better the proposition we can deliver to them.

I may be incorrect but recently money was transferred from the Department of Enterprise, Trade and Employment to the Department of Education and Science, to be put into disadvantaged education. The rumour was that it came from money that was earmarked for the Global Crossing contract with the Government and it was no longer needed for that purpose. Is Mr. Keogh familiar with this?

Mr. Keogh

I am familiar with it because I heard the rumours but they are not accurate.

It is important to clarify what happened.

Mr. Keogh

The deal we signed with the Department in 1999 envisaged that staged payments would be made to Global Crossing between 1999 and 2002. The Department made the last of those payments in December 2002, on schedule. I am not aware of any further moneys being due to Global Crossing as part of that deal.

They were not moneys due for linking up other cities such as Cork, Limerick and Galway?

Mr. Keogh

We have not been party to any discussions with that in mind.

Mr. Walsh

I will answer Deputy Coveney's questions. MCI has been in operation for 28 years and we have a long relationship with Eircom because invariably we use Eircom for the third party last mile. We offer a service level agreement to our customers. That is mirrored by service level agreements in France, Germany and the US on which we pay penalties if our circuit is down, irrespective of where the fault lies. The end customer is at no disadvantage. We have to admire the work that the regulator has taken on in the last year or year and a half in driving stringent SLAs for operators like us with Eircom. The industry has benefited from these. We do not yet have a wholesale agreement for these clients. We have a retail version minus a certain percentage. We hope to see private partial circuits being introduced soon and that will strengthen our bargaining power and our service level agreements. We offer a universal service level agreement to our customers so they are at no great disadvantage if the last mile is with a third party.

Without giving away confidential or contractual details, what percentage of our international capacity is lit up? When it comes to negotiating or using alternative backhaul operations of the ESB or Aurora or others, will MCI be at a disadvantage in not having a last mile connection? Maybe the MANs are part of a new backhaul structure. Is the last mile the crucial one in the negotiating position because the operator that has the last mile in the access network can price the backhaul network lower than any alternative? Or is there a valuable role in having an alternative backhaul network and using local loop and bundling or different technologies to make that last mile connection? Which is the difficult negotiating position for MCI, the local access or the backhaul?

Is Global Crossing based at the Clonshaugh facility?

Mr. Keogh

No.

Some of my questions were not answered.

Mr. Walsh

We see incumbent dominance as a danger and it is of concern to us. The incumbents have a greater manpower and workforce than ours, they own the valuable last mile, the copper in the ground. Effective regulation is the first remedy. It needs to continue, to be monitored and changed and adapted as we move forward. The second remedy is divestiture. If they are not playing fairly some of that infrastructure should be divested elsewhere.

I will hand over to Ronal Lupton in a moment to deal with the point about fewer competitors. Some of the companies that we serve internationally have demands for services in places such as India as a call centre environment. Instead of providing a service to parts of Ireland now the circuit needs to go to India.

Mr. Ronal Lupton

There is restructuring in our industry now and new competitors are in effect re-shaping it. Global Crossing is going through that procedure to come back to the market place as a competitive operator. Ireland's pricing has gone up, and other aspects of our service offering are now making it expensive for people to retain business operations here. Mr. Walsh mentioned circuitry orders to destinations such as Bangalore where there is an educated workforce, cheap operating costs, and a cheap infrastructure. A company that is restructuring and trying to reduce its costs moves part of the operation away from the expensive country and relocates where it is cheap to operate.

The EU accession states, apart from the telecommunications business, will be attractive locations for operators and incumbents to base their operations. The downside for Ireland is that in the past three years the prices have gone up, both for the workforce and the infrastructure. These are active issues but there is a macro and a micro view and the two are index linked. The trend is to get a cheap operating environment and move there. That is the harsh reality. What it boils down to is Deputy Eamon Ryan's correct remark, if an incumbent owns the last mile, he gets to price it at a more efficient factor for his customer. That is where regulatory intervention comes in. We have a good regulator through the ODTR and now through ComReg that was established by the Minister last year. There is more pressure and impetus by fiat from the Government - to keep Ireland Inc. in good condition. There are many issue but they can be dealt with by regulation. A company that is dominant in the marketplace, should incur cost and pricing controls to allow competitors to come in and serve the customer in ubiquitous fashion.

Broadband is a good thing. What the Secretary General, Mr. Tuohy said is true but the conditions are changing in a downward pattern, negating what we require to remain competitive as operators in the market economy and as Ireland Inc.

Is Deputy Eamon Ryan satisfied with that answer?

I take the last comment as an answer. My first question was, how much are we lighting up?

Mr Keogh

The brief answer to that is that by the end of this year we expect to have 50% of the capacity to be fully lit and in use. It is a little under that at the moment. From the basis of usage projections from the People Code of Alliance members who have bought capacity through the PPP, we expect 50% lit by the end of this year.

With regard to the last mile, it is true that the closer one gets to their customer, the greater the hostage effect that the person controlling the last bit can take. However, the local loop unbundling initiative, if it is successfully implemented - that is a subject of litigation at the moment - can only help. The charges here are so ludicrous that any reduction has to be a good thing.

I thank Mr. Keogh from Global Crossing, Mr. Walsh and Mr. Lupton from MCI for their presentations. If the sub-committee requires any additional information, I hope we will be able to obtain it before we complete our report.

Sitting suspended at 12.23 p.m. and resumed at 12.26 p.m.

I invite Mr. Jimmy Stewart from the Northern Ireland Department of Education - Classroom 2000 C2K - to join us. I welcome Mr. Stewart to the sub-committee. I understand he had to make a long journey here and his presence is deeply appreciated by the sub-committee. I must draw attention to the fact that members of the sub-committee have absolute privilege but this same privilege does not apply to witnesses before the sub-committee. It is generally accepted that witnesses will have qualified privilege. The sub-committee cannot guarantee any level of privilege to witnesses appearing before it.

Before I ask Mr. Stewart to give his presentation, I must apologise to him, as I will have to leave the meeting for a business trip. Deputy Brady will take the Chair in my absence.

Mr. Jimmy Stewart

I thank the sub-committee for the invitation to attend. The motorway network meant that I arrived in Dublin quicker than I expected.

I should like to give a brief introduction as to what C2K is about in Northern Ireland and then focus on our particular issues in respect of connectivity solution for our schools. C2K is an organisation that acts under the umbrella of the Western Education and Library Board. It acts on behalf of all five boards, plus the Department of Education, to provide an infrastructure solution for all our schools. It aspires to put Northern Ireland in the lead in terms of its educational service. There is a recognition at departmental and ministerial level that ICT is central in many ways to the development of our education system and a successful economy. It is part of an overall strategy in providing educational technology across all of our schools. That strategy has been in place since 1998 and has addressed key elements of development over the past five years. It has taken forward the issues of teacher education through new opportunities for training for all 20,000 teachers in Northern Ireland; has raised their levels of competence in the use of ICT and has also taken forward curriculum reform to provide a 21st century curriculum into our schools, moving the emphasis away from a subject-based one to a skills one. It places ICT skills central to that programme. The C2K project's responsibility has been to deliver the WAN and LAN infrastructures that support those developments.

The aim of the service is to change classroom practice and experience from the perspective of young people. There was recognition that widely distributed access to an infrastructure that was supporting rich curriculum resources was central to the programme. It was also recognised that it was not a short-term programme and there was a need for sustained support over a period. The aim is to move away from an emphasis on infrastructure in the classroom to one that takes it and the services for granted and move the thinking towards leadership, curriculum change and overall inclusion.

If one looks at how ICT has been deployed in schools over the past 25 years, one will see it has moved from a situation whereby we had the single computer in the classroom to networks in computer rooms. Those networks were then linked to the outside world through the Internet. We are now at the stage where we are moving towards breaking the constraints of the walls of those computer suites and the computers are in all classrooms. They are connected to a network that links them not just to the Internet but also across the country. We have a facility, therefore, that will provide access both inside and beyond the classroom through the resources being made available.

Do you plan to have computers on every desk?

Mr. Stewart

No. Our plan is to have computers on a ratio of approximately one PC per ten children. Potentially every classroom should have two or three PCs but our aspiration is to move to a situation where we are ready to accommodate the future, which will involve a wireless enabled environment, and away from the link to the physical network.

Our programme is a ten-year one to provide infrastructure across all schools. The committed budget for the project from the Department is somewhere in the region of £500 million. It is a project on which there is collaboration with private sector partners, through managed service contracts, and with the other public service stakeholders such as the Examinations Council, the support authorities, boards and so on. The concept of partnership is central to the developments taking place.

On the scale of the service, there are approximately 1,200 primary and post-primary schools across Northern Ireland and we have awarded four contracts to facilitate the delivery of infrastructure into those schools. As I said, the contracts are based on a ratio of about 1:10, although the emphasis is on getting a distributed network into all schools so that the wireless connectivity connected to that network can be exploited in the years to come. In the 1,200 schools, we have a 60,000 desktop network and up to 375,000 core users of that network, including the pupils and teachers.

The provision being made in the schools is at a ratio of approximately 1:10. Within those networks we are providing quite a rich infrastructure. The networks are connected to the Internet. In terms of the curriculum resources being provided in those LANs, we have approximately 200 curriculum titles licensed regionally - about 80 in the primary sector and approaching 120 in the post-primary sector - with some for special schools also. We found that the best way to license those was to work with the individual software companies on the basis of them providing that solution into all schools thereby making it available not just in the C2K infrastructure but also in the solutions that already existed in schools, and also making it available in teacher education authorities, the homes of teachers and the support services. Virtually all our software is licensed for use within the country.

The way in which the infrastructure is being deployed in schools is reasonably flexible. Schools have a choice about where they position the kit and they have the opportunity to incorporate their existing infrastructure into the service. In 1998, when the strategy evolved, the indication was that schools spent somewhere in the region of £6 million per annum on ICT out of their delegated budgets. There is still the expectation that schools will continue to contribute, even though this substantial central funding is being provided. There is an expectation, therefore, that schools will expand the infrastructure beyond the 1:10 ratio. With the current deployments in the primary and post-primary schools, the average ratios are probably about 1:7.

The key element that moves the service forward in terms of its educational benefits is the wide area service. Effectively, we are connecting all our schools into a single, wide area network and within that network the schools are being provided with a wide and rich mix of curriculum and management tools which give them the ability to collaborate. Effectively, we are pulling together the management information and curriculum systems to try to create a fully integrated learning environment from which teachers and children can take advantage over the next few years. The benefits of that environment will be that access to the services will be available beyond the classroom. Teachers will be able to collaborate much more effectively than was the case in the past and schools will have an opportunity to work in collaborative rather than competitive environments.

Effectively, we are aiming to try to create a single, secure wide area network for all schools in Northern Ireland. Schools and libraries will be connected within that network through the broadband connectivity we are providing, and homes will be able to access the network through normal Internet connections. Our expectation will be that as time goes on, and with our current partners, there will be commercial opportunities to extend the network into the home. Using the Wi-Fi type connectivity it may be possible for schools to serve their own local areas to provide connectivity into the home for those educational services.

On the way the network is extended throughout the province, every school will be served with a two megabit learning streamline. However, not all schools will have that as an uncontested line. In the primary sector, therefore, the smallest schools will start with a minimum of a 500K uncontested access increasing to two megabits for some of the larger primary schools. All the post-primary schools will have a minimum of two megabits; some will have ten and some up to 100 on the core, depending on where they are located. Effectively, 14 core schools provide services into the data centre and about 100 aggregator schools throughout the province, all linked to the smallest schools at the edges of the region with the two megabit learning stream solution. It is very much a scaleable provision and our anticipation would be that demand for bandwidth will increase over time but we will be able to enhance that within the cost of the project on the basis that as the bandwidth costs decrease and the demand rises, we will be able to balance the two.

To give an indication of the type of costs within this element of the service, the overall contract with HP for this element of service is somewhere in the region of £60 million over five years, and the connectivity element of that is approximately £5 million or £6 million per annum. We are talking, therefore, of a figure somewhere in the region of £5,000 per site for its connectivity into that network. That is based on a two-megabit solution. It is an "always on" solution and therefore the possibility exists to make some more use of that outside school time. There will be encouragement to create opportunities for schools to open their doors beyond the normal 9 a.m. to 3.30 p.m. period to take full advantage of the service. There are commercial options that could use the infrastructure, along with Wi-Fi type solutions that could provide the service to the community areas around the schools.

In many ways the central concept to all of this has been the way in which the service in Northern Ireland has tried to partner with both its public sector partners, in terms of the support and curriculum services, but also with a range of different private sector organisations ranging from the global companies like HP to the local companies like Sx3, all of which deliver specific elements of the service to us. We have even tried to enter into partnerships of some form or another with the companies we are not prime contracting with, and we have a number of memorandums of understanding with companies like Microsoft, Granada, Channel 4 and so on to take forward the potential of their services.

In many ways what we are trying to do in the province is to create an environment that will promote and support new patterns of learning across the schools. As we move into the 21st century, we need to focus more on the individual. The technology allows us to do that as will "breaking down the walls" of the classroom. In addition, providing the kind of tools that the C2K service is doing will encourage teachers to work more effectively with children at the individual level. The connectivity links we are putting in place will also provide us with the opportunity to try to establish much more effective links between the school, the home and the local community.

With regard to the delivery of the service, it will be in place in total by March 2004. At present, there is an infrastructure in terms of local areas network provided to all of our 900 primary schools. We will be rolling out the networks to the post-primary schools in the autumn and spring terms. Connectivity at two megabytes is already in place to all the post-primary schools, but we will be moving to this new service during the next six to nine months, so that by March 2004, the full infrastructure will be in place and hopefully will start to make changes in classroom practice and experience for the young people in the schools. That is what we are doing in terms of the C2K project. I will be happy to answer questions.

Thank you for your presentation. You have presented much information on which we may require further expansion in terms of the memorandum you have completed. I hope you will share that information with us. I propose that Deputy Brady take the Chair. Is that agreed? Agreed. I again apologise for having to leave early. I thank the members for their interest in the work of the committee.

Deputy Brady took the Chair.

I call Senator Kenneally.

I welcome Mr. Stewart and thank him for his attendance. I congratulate him on how well things are progressing in Northern Ireland and how far ahead of us they are in this area. Mr. Stewart, you referred to teacher education. This was raised at a previous meeting when students from Dundalk attended the committee to speak about a project. Their IT teacher, who accompanied them, referred to the problem in their school, namely, that if others wanted to use the facilities available, she must be in attendance. How many teachers have you been training? Is it all teachers or a percentage? I presume all teachers are involved because you refer to changing the classroom infrastructure and the patterns of teaching. Has there been any resistance to this because it appears to constitute a fundamental change in the way teachers are expected to perform their duties? Are they resisting these changes or were you required to hold prior consultation with their union representatives? Is there a willingness by teachers to participate in what you are doing?

Do you see a situation where, eventually, paperless classrooms will become the norm? You indicated that the ratio of computers to classrooms is 1:10, but, in reality, because of the funding provided by the schools themselves, it is more like 1:7. What percentage of schools are at this level and how far do you see it progressing? Who is paying for the computers? Is funding taken from the £500 million budget to which you referred or are some local telecommunications companies engaged in sponsorship? There is a spin-off for them because if students are able to use the Internet in schools they will want access at home.

Mr. Stewart mentioned a ten-year programme that commenced in 1998, yet the completion date appears to be set at March 2004. Perhaps you might clarify that aspect. Is the £500 million budget dedicated to putting schools and libraries on-line and bringing them up to date? Reference was made to the use of facilities in the schools. Given that they close at 3 p.m. or 3.30 p.m. will they be made available to the wider community? Is that an aspiration or are such arrangements already in place?

Mr. Stewart said they were seeking to ensure that all schools would have access to two megabyte facilities. We have been told by a number of witnesses at previous hearings that we should strive for five megabytes. Perhaps Mr. Stewart will comment on that aspect?

Is there a problem with remote schools? We have been told of great difficulties encountered by schools and other facilities in remote areas. For example, there are difficulties in areas in County Donegal in getting connectivity to broadband. Given that the programme is so much ahead of ours, do you see that, with the agreement of the two Governments, perhaps your services could be extended to County Donegal and other Border areas? There has been much cross-Border co-operation in tourism and is there a possibility that it may be extended to this area?

Mr. Stewart

The teacher training programme started in 1998 with an initial emphasis on what we call teacher leaders in schools. They were provided with basic training and encouraged to support other teachers within the schools in terms of developing their skills. We then commenced an £11 million programme of training that was supported by UK national lottery funding. It was aimed at providing every teacher with a programme that would give him or her a level of basic competence in ICT. We have trained 108% of our teachers, which is not a bad statistic, although some have not completed the programme. However, the percentage indicates that those in temporary employment who are substitute teachers and so on have completed it.

To support the programme and the teacher leaders in schools, we have provided laptops at the ratio of two to every three teachers. This means that we have provided approximately 14,000 laptops to the schools over the past three to four years and have provided them as a school rather than an individual teacher resource. The schools can then deploy them across the teaching force to support the training as it proceeds through the full cohort of teachers. We are now at the stage where that training is virtually complete - this coming year will see the end of it. The focus this year has been largely on special education. Some, but very few, special education teachers have yet to complete the programme.

On the question of teacher resistance, it is early days in terms of highlighting the potential revolution this can have in the classroom. Teachers are coming to terms with the technology and are becoming more confident about using it. When one talks to and surveys teachers about their comfort with the services they are being offered through C2K and their acceptance of the services being offered, there is a very high level of satisfaction in terms of accessibility to ICT resources. What they have not come to terms with yet is the potential that particularly the wide area services may offer for teachers to collaborate. At present the way solutions tend to be providing, they have now access to resources in their classrooms and they can use them in traditional ways. They are electronic resources and they are used much like other resources within the classroom.

Where the change will come will be as learning moves outside the classroom and in those circumstances there will have to be a review, first, of conditions of service within which teachers work and, second, collaboration with their trade unions to ensure that the teaching force as a whole welcomes the opportunities the solutions offer. We are at present in the process of consulting and discussing with trade unions what the potential of these services may be and the Department itself will be looking at the potential to change the contracts within which teachers might work to allow them to work more flexibly.

Moving to the concept of the paperless classroom and the ubiquitous provision of access to solutions, clearly we are not in a world where we see children using computers 100% of their time. There will still need to be the formal and informal interactions with other children and with teachers. The concept of getting to a one-to-one ratio where there is one PC for every child is not a target that we would be setting ourselves. In many ways I suppose what one sees is that technology of this type is likely to become more affordable and more available as something which children themselves will bring to schools. In terms of our next evolution of services around C2K, we will be focusing on ensuring that there is universal access to the solution within the schools so that we will be promoting the development of wireless capability within all schools with a view to ensuring that an access device a person brings in can have access to the resources available. The focus of infrastructure provision in the future may well have to be on ensuring that there is an equitable service so that children who cannot afford to have their own access devices in the years to come will have the ability to have those provided by the state.

In terms of moving forward, the aspiration would be to get to a situation where the services are available when they are needed, and the step we have taken to put them into individual classes moves us towards that provision but has not taken us completely there. There certainly are a small number of schools in the province that are aspiring to move to that position, but the concept of C2K is really to provide the core jumping off point which will allow schools to move down that route at the rate at which they feel most comfortable.

The £500 million programme does provide this core provision of infrastructure. It provides the PCs; it provides the peripherals around those like printers, switches, routers, etc.; it provides the software running within that infrastructure, and it provides the connectivity and the wide area services. The £500 million effectively provides the range of services for which C2K is responsible.

The £500 million budget really started to be used in earnest from about 2001 and therefore the programme has been in place from 2001 and will go through to about 2011, although in the normal process of CSR bidding we will be bidding for additional resources, probably in the next three years, to look at enhancements to the service beyond that which has already been committed.

The committee raised the issue of longer opening of schools and providing access, particularly to the connectivity services beyond the 9 a.m. to 3.30 p.m. period. Another project that has been promoted and deployed within Northern Ireland is the electronic library project. Effectively all our libraries are connected by broadband and have a small suite of Internet access PCs within each one of them. The C2K service is also connected directly into that infrastructure. Effectively the 130 libraries and 1,200 schools are all working on two networks that are closely linked.

Many schools, particularly in the post-primary sector, already provide access for all sorts of community activities beyond the 3.30 p.m. normal closure. It is already common practice within schools to make their facilities available beyond the normal school day but I think we will see that growing over time because of the investment that has taken place in providing this wide area connectivity. The fact that it is available will put pressure on the service to open up that facility and make it more of a community facility in the future.

Two megabits is our minimum provision. The experience over the past 18 months has been that having provided two megabits to all our post-primary schools to run on their existing curricular networks, there has been quite a significant growth of bandwidth usage over time. Some schools - at particular times, usually outside school hours, at lunchtime, immediately after school or in the morning - are already starting to peak at that two-megabit limit. Our expectation is that whatever bandwidth you give them, it is not enough. If we are going to move into a world where video conferencing and video streaming becomes part and parcel of normal practice within the classroom, then clearly two megabits will not be a satisfactory ceiling for the connectivity. However, the solution is quite scaleable, in two megabit chunks, and certainly it would be our aspiration to have a plan in place to move that forward. Our expectation would be that the price of that two-megabit solution will drop over time and therefore we will be able to enhance it within the existing budget.

On the remote schools, we have done some pilot activity to explore the potential of getting to the furthest and most remote areas of the province. We have deployed a number of wireless technology solutions under which we have got line of sight two-megabit links into a number of schools where it had been too costly to put the fibre in the ground to get to them directly. Those have worked very effectively and our expectation, according to BT, the service provider, is that about 40 or 50 schools will probably need such a wireless solution to deliver the service to all 1,200 sites. Obviously, we have a contract in place that puts the risk of that into the hands of the service provider. They are contracting to provide those two-megabit links to all schools within the price of the solution and therefore the risk of how many of those wireless connections they need effectively lies with them.

I was asked about extending into the regions beyond the Border use. In practical terms I see no physical reasons that could not be possible. Obviously, there are different telecommunications regulatory arrangements between the North and the South. That is something those who already work in the all-Ireland environment find complicated, but there would be no practical difficulty in terms of servicing areas, particularly close to the Border, with solutions which would extend from the hub sites we have within Northern Ireland.

Is Mr. Stewart aware if any talks have taken place between our Department of Education and Science and his Department on this issue?

Mr. Stewart

No, I do not think so. I do not think there have been any discussions at that level at this stage.

Our colleague has covered many of the key areas. I welcome Mr. Stewart and congratulate him on this amazing and far-sighted initiative by the Department of Education in Northern Ireland. Is this part of a general programme in other areas of the British administration? We have compared ourselves with the United Kingdom in terms of developments in e-government and so on. Is this project something in which the North would be very innovative compared with other regions of the British administration or is it in tandem with them?

Is it the case that the primary school system has been to the forefront and that it is only now that the roll-out has taken place to second level schools? Would Mr. Stewart foresee this having a dramatic impact on second level? That is the feeling we would have from previous discussions in committee. In terms of standards of education nationally in Britain, is much work being done in testing and measuring the ability of students?

I represent the Labour Party and one of the key issues about which we would be concerned is the exclusion of some children. My colleague referred to remote areas and we would be concerned about the exclusion of children in disadvantaged urban and rural areas. Is that something that has informed the Department's decisions in the past three to four years? Has it allocated additional resources to schools that were classified as disadvantaged?

Has any work been done on the home-school liaison scenario given the development of information technology? We have only recently re-established the education welfare system in this part of the island. Previously we had no way of checking the attendance of children at school. The system had broken down over the past ten years. Many believe there is a link between children getting into trouble and dropping out of school. Has any work been done in this regard in Northern Ireland?

Mr. Stewart referred to local content that appears to be one of the most interesting aspects of the initiative in terms of schools working together. Would that cross the Nationalist-Unionist divide and would all schools co-operate in an area? Mr. Stewart referred to 200 titles throughout the communities.

Regarding the cost, Hewlett Packard appears to have a core role in the provision of the system. Obviously, the Department does not envisage the levy on telecommunications operators that our Minister has suggested, or is this on the agenda? Ongoing maintenance will clearly be a significant part of school budgets in future and will not be a one-off, especially as the system develops. How does Mr. Stewart see that being facilitated?

The project is fascinating - we have read reports of Mr. Stewart's work in the media - and I warmly congratulate him on it.

Mr. Stewart is welcome. His contribution was among the most valuable we have heard so far. It is interesting to note that the Department of rducation in Northern Ireland appears to be taking charge of e-learning and the provision of infrastructure to schools as well as supporting teachers and providing content. Our difficulty is that we have three Departments fulfilling their respective roles. The Department of Communications, Marine and Natural Resources is apparently responsible for the rollout of the infrastructure; the Department of Education and Science is responsible for teacher training, content and linking that with the curriculum, and a Minister of State at the Department of the Taoiseach is responsible for e-government. The danger is that it does not appear to be as co-ordinated an approach as in Northern Ireland.

Has the Department of Education in Northern Ireland hired C2K, outlined to it what it wants to achieve and paid it to make it happen? Is that what is happening in simple terms? If so, how is it being financed? Does money come from the Department of Education's budget or is there any suggestion of a levy on telecommunications operators to make the industry pay?

One of the most positive aspects of the presentation is the reference to partnerships. There appears to be a co-ordinated approach between the IT industry, the service providers, training and the software provision. Mr. Stewart's organisation appears to be bringing them all together and making it happen. From our viewpoint, we need to examine the type of model that ensures that one umbrella company takes charge of pulling all the other strands together. We can see from Mr. Stewart's presentation that the simplistic approach of raising a levy to install broadband in schools is only one third of the solution. The other parts of teacher training and content also need to happen.

The question as to whether this is UK policy or if it is confined to Northern Ireland has already been asked. Is a similar company providing these solutions in England, Wales and Scotland or are Northern Ireland and C2K pioneering the developments?

Mr. Stewart

C2K is effectively a Government project. The Western Education and Library Board is our employer and we effectively act as a channel for Government funding for the service that comes from central government. It is not part of a general UK programme and it is unlikely that the rest of the UK would go the same route as Northern Ireland. The situation is quite different from that in the rest of the UK in terms of the way in which schools are funded. The fact that we have almost no private element in the education service in Northern Ireland and that all our schools are effectively state funded means there was the opportunity to provide an equitable solution through a central "top sliced" service rather than through a devolved solution. It is most unlikely that England, Wales and Scotland, where there is a substantial private sector in the educational environment, would go down a route that would attempt to provide state schools with some form of central service in the same way we do in Northern Ireland. They will continue to offer solutions that are based on individual schools or maybe consortia of schools coming together to enter into arrangements with suppliers of services rather than doing so on a national basis. It is very much that national basis that attracts the ICT industry; it almost does not seem to matter how big or small that country is. Providing a solution for a small country is a very attractive position to be in for the private sector as it can be used as a showcase for different parts of the world.

We in Northern Ireland are in a different position from the rest of the UK and it is unlikely the UK will progress along a similar route. We hope we are learning lessons in Northern Ireland that will be valuable in other educational services.

The reason we put primary schools up front in the solution was pragmatic and I will deal in a moment with how the contractual area works. We kicked this off in 1998 and tried to go to a single provider in the private sector through a PFI-type approach. We spent a long time negotiating with organisations that were considering providing a single prime contractor solution for all the services we required. We ended up not being able to do that deal and by December 2000 we found there was not a deal to be done in terms of a single provider delivering this solution to all of Northern Ireland's schools. We had to back away from that process and we looked at how we would move this forward in a strategic way that would meet the needs of our schools in a reasonable timescale.

Hindsight is wonderful and one could say it was right to do the primary schools first but we did so to get a straightforward solution into them quickly. The contractor providing the service into the schools directly was Viglund, which already had framework contracts in place in the UK. We were able to build on those framework contracts to deliver a managed service for all our primary schools and to negotiate it and have it in place within six months. The negotiation of that contract took a very short time and we were able to start delivering services to our primary schools before the end of 2001.

The reason we went down the primary route was that those were greenfield sites and did not have any distributed infrastructure. Few of them had a network of PCs in a single room so this was quite a step forward for them. In reality one could have rolled out a cloned solution into every primary school in the province without them feeling a solution was being imposed on them. The primary schools got the service first in pragmatic terms because it suited the contractual arrangements but in reality they were the best to give it to first and they were the ones most in need. They have shown huge enthusiasm for the solution since it was first delivered.

Primary schools will embrace this solution quickly and have done so in terms of the local infrastructure. Many primary teachers are already collaborating with their colleagues to produce good practice around the curriculum titles we have distributed in the primary sector. There is a lot of collaborative activity taking place between schools to share both teaching plans and the way in which those resources are used. The reality is that in post-primary schools, where there is such a wide curriculum being delivered, and as there are so many small post-primary schools in the province, much as in Ireland itself, it is difficult for them to offer the full range of curricular services right up to the end of schooling. The ability of schools to collaborate effectively could change patterns of education in the next four or five years. We will see the biggest changes in the way children interact in the post-primary sector, as social interaction in the primary sector is absolutely essential. It is in primary schools that children are embarking on learning and one does not do so with a computer but with teachers and other children.

Going hand in hand with the technology there is a recognition in Northern Ireland that we should look closely at the way we assess children and the way we take on board their experiences through their educational lifetime so that we create a profile of the child that is not just a matter of taking snapshots of the child as he or she does exams to see how their work progresses over time. The technology we are deploying will allow us to do that. Our collaboration with the curriculum and assessment council in Northern Ireland means there is a will to break away from the standard UK GCSE-A level type model over a period of time and to look at a more holistic model for assessing the abilities of children. We have already done that to some extent with key stages, Nos. 1, 2 and 3, in that we do not now produce league tables as happens in the rest of the UK and we do not provide the same testing at those levels. There is already a will to break away. The technology we are deploying will encourage us to be more creative in our work with children, particularly at post-primary level.

We do not have a proposal to levy in the context of seeking to find funding from our partners for the solution. Funding is being made available to the Department through normal taxation. HP is an absolutely essential part of our programme and is a key partner but the expectation is that the core of C2K will be funded through the normal departmental funding for the lifetime of the service and beyond and schools will enhance it by using their own delegated funding.

The ethos and philosophy behind C2K is to take technology issues away from schools and the partners we have, HP and SX3, are providing a managed solution for the length of the contract, so we are not in the situation of wondering what technology to buy next. We do not own any of this technology; none of it is owned by the service. It is all a managed service, so we are buying access to resources at the desk within the classroom. I do not care if it is PCA or PCB or whether it is a PC at all. What we want is access to the services and that is what we are buying through these contracts. The £500 million is not buying a kit but a solution, though that is jargon. We are not buying a PC. The technology, the bandwidth and so on, are still in the hands of the managed service providers. If it does not deliver what we require in the classroom - if it does not deliver the video conferencing - then it is their job to enhance the technology and the bandwidth to match that. The payment is for access to resources. The risk of not getting that right lies with HP, SX3 and the other companies that have contracted with us.

I thank Mr. Stewart. The Clerk will be in contact with him if we need more information.

Sitting suspended at 1.15 p.m. and resumed at 2.30 p.m.

I welcome Professor William H. Melody, managing director of the Centre for Tele-Information, Technical University of Denmark. Professor Melody, I draw your attention to the fact that members of this committee have absolute privilege but this privilege does not apply to witnesses appearing before the committee. It is generally accepted that witnesses have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice to the effect that 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.

Professor William Melody

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.

This is our fifth day of presentations and there have been representations from across the board. It is beginning to come together and the professor's experience is interesting.

There was an interesting comment this morning during a presentation from MCI to the effect that a characteristic of the telecommunications market in the European area is that incumbents are coming back and becoming possibly more dominant. The representative cited the example of Ireland and also France Telecom, the Dutch telecommunications company and others. Is that the professor's experience also and what is the reason if that is occurring?

Presentations last week included a presentation from Eircom. At those presentations the argument was made that in the British market the regulator was quite advanced and the regulatory process was quite detailed. It also stated that the Irish regulatory market was quite well advanced even though we arrived late to the deregulation process. It was pointed out that in many other European countries the regulatory process was not that strong and had not developed as much as one would have thought, given the length of time since the opening up process. Is that true?

In regard to local loop unbundling, I understand from the professor's presentation that the unbundling required is actually the unbundling of the services that can be provided. My understanding was that the key to any unbundling was the regulator issuing price or service entrance or openness requirements to the particular incumbent. I understood this was the key and that the setting of the wholesale price that would allow other people access was the defining characteristic of local loop unbundling. Is that the case? Has the professor any experience as to how we can actually achieve that? I know that is a difficult question because it is in the courts. Is it a common experience that courts have to adjudicate on this? What guidelines are there for a regulator? Can Professor Melody give the committee any good examples of where a regulator carried out local unbundling well?

My last question relates to his last point and it follows on from a presentation made to the committee by the Department this morning. I do not think the Department would have liked his last comment in regard to construction of an alternative backhaul or other broadband network not being necessarily the role of Government. That is something in which we have invested but possibly not as much as other countries. We are developing metropolitan area networks. The State, in the form of the electricity utility, has developed an alternative backhaul network. There are other areas where finance has been provided for the provision of alternative capacity systems. I was interested in his comment that it may not be the best way and that the best way might be to stimulate demand and try to introduce competitiveness. Can the professor give the committee any good examples of how demand could be stimulated other than a general conversation about how a regulator works? How can competition be encouraged and how can the Government introduce such competition?

I apologise for missing the earlier part of the presentation. Professor Melody has a very interesting CV and he has made a contribution to the thinking behind communications technology and its regulation. What would he consider to be an ideal regulatory environment? The single regulator has been reformed into ComReg. There were criticisms that the UK regulator had a more defined role regarding the delivery of competition whereas we have a separate competition authority and there are some overlapping functions in our system.

Professor Melody

I thank the members for some very good questions. The last question has a relation to one of the earlier questions in terms of the role of a regulator in Europe and the ideal regulator. The quality of regulators in different countries varies dramatically from very good to very bad. There are criteria used by independent observers in assessing regulation. They can range from the processes by which regulation is applied, to the resources devoted to it and to the end result, which is what we prefer to use. The end result is whether network development is delivered.

The best regulation, I believe, is in the Nordic countries because the Nordic countries lead almost all the indicators of progress. They have the best network rollout of voice service, broadband service and mobile service. They have the lowest prices and the best quality.

The Nordic regulators are not that big by European comparisons in terms of their staff size. Much of their success can be explained in terms of the culture and the way their Governments work. They have the advantage of being fairly small countries. They tend to delegate authority to administrative tribunals of all kinds and run them transparently with accountability and they all seem to run well.

The UK and Oftel has gone through a very interesting experience. When Oftel was at the same age as ComReg is now, BT was not saying nice things about it. BT suggested Oftel should be dismissed and was taking it to court. It suggested that it be left to the competition authority that was not in Oftel at that time. Experience is needed by all parties in order for them to come to accept a fundamental institutional change. My observation is that as a regulator created fairly late in the European game, ComReg has come quite rapidly up to the European standards.

The ultimate and brutal test will be whether it will be able to stimulate rollout and the policy objectives. That will be a difficult task because part of that involves helping Eircom move from a monopoly view of the world and its services to a competitive view. That can take years in the case of an incumbent monopolist. Often it only happens with a significant change in staff.

In Denmark, it was almost eight years after the start of the reform process before the incumbent, Tele Danmark, changed its chief executive officer and brought in someone from the food industry, primarily because he was a former Minister for Finance. He walked into the company and talked to everyone. One of his first observations was: "Why do we treat our wholesale customers so badly?" That was the moment of change in the company's thinking. Prior to that, wholesale customers had been the enemy and the competitors. He came in from the food industry where most of the money is made in the wholesale business. He noted that all these competitors give the company 50% to 70% of their revenues to obtain access to customers. He suggested that they be treated as customers and that brought about the change. I would rank Ireland as among the middle group of regulators below the Nordic countries and the UK and higher than a significant number of countries that I would prefer not to name since we train their staff. We are trying to improve them.

I regard the Danish regulator as a good regulator because the Danish regulator has been able to achieve the objectives of regulation. Denmark has access to broadband for the whole country. Denmark still has the concerns that Ireland has in terms of stimulating enough demand to use that effectively. In many countries, incumbents are becoming more dominant because of the general collapse of the dotcom economy and the telecommunications sector. The capital markets are not providing new capital for investment. Whereas the incumbent operators still have enormous revenue flows from their voice business and can continue investing, the new operators require continuous infusions of new capital from the capital markets and in this depressed environment, they are not getting it. This means that the incumbent share of the market increases. This is a temporary, cyclical phenomenon. The solution for competitors is to focus more on the services. There may not be capital available to build another physical network but capital is certainly available to develop a new service. We must remember that telephone companies did not invent the Internet. Telephone companies resisted the Internet. Computer people developed it when they got access to the telecommunication system and had the opportunity to supply services.

When one thinks of the future, the future of services here is in what goes on the telecommunication system, not on building physical infrastructure. The analogy I would use here is that in the late 1960s there was no such thing as computer software; there were only computers. Then IBM was forced to unbundle its hardware and software. Within 18 years computer software had passed hardware as a growth market and now it is about 20 times larger. This is despite the fact that computer hardware has been growing steadily throughout. The future of the telecommunication network is with the value of the services on the network being ten or 20 times the value of a physically growing plant.

On the topic of unbundling, my discussion related to services. Services are a generic concept. How this is achieved can be done in a number of ways. Unbundling the local loop is one way - not the only way. The reason unbundling a local loop is such a controversial issue is that whereas for many of the services the provider of the service must go to the company that provides the local exchange and request delivery of the service to the customer, under unbundling the local loop the provider of the service gets the customer. A service provider is saying to the company that provides the local exchange: "I would like to use your local connection to get to the customer and you don't have to have anything to do with the customer at all." Part of the issue is a debate as to who will get to own the customer for the service that will be provided.

Construction is not necessarily the best way to go. Any subsidy should be given with the view that it will be the most efficient investment of public funds possible. Close attention must be paid to that efficiency equation. The difficulty with funding facility construction is that it often provides public money to fund facility construction where there is not sufficient demand, which ends up being a very inefficient investment. This is why I encourage members to pay attention first and foremost to getting a competitive supply market so competition will build the market out.

Secondly, demand should be stimulated in the public sector. In Denmark, the country with which I am most familiar, it is the Government's policy that Government agencies in a number of different fields will be ahead of the private sector. In order to deal with the Government in many fields, industry must use the latest technologies for simple things like filing a contract. The Government has provided some subsidies for local municipalities to make use of modern electronic services as a way of both making Government more efficient and of stimulating demand for the rollout of services.

Finally, members will note I recommended being careful about that. This is the area where experience has shown there can be failures and not much result for money invested. Experience has shown that if a competitive bidding process can be used for all public construction money that a government decides to spend, that is likely to be much more effective than not doing so. Members are probably aware that in the US in many localities in outlying small villages and rural areas, the Government is getting involved through local co-operatives. That is a method that has worked extremely well in the extension of basic telephone electricity service in a number of cases.

Recently Chile has achieved universal service in telephones and a pretty good service in broadband by establishing public subsidies but then encouraging competitive bidding for those subsidies. They discovered that in one third of the cases, the lowest bids asked for no subsidies. In about one third of the cases, the lowest bids asked for subsidies far smaller than anyone ever expected. In about one third, they asked for greater subsidies in the really high cost areas. There is an efficient method of allocating the subsidies.

This morning I heard it suggested that perhaps a tax on the telephone operators would be a way to provide funding. As an economic matter that is not a good idea. We want the cost to be as low as possible. Whatever taxes they incur will simply go into the cost of providing service and end up with the customers. The bigger concern is that this could well distort the investment incentives in both the financial markets and the operator markets. If those who invest the money wonder what games the Government might get up to next in terms of providing subsidies, which will provide benefits that will hurt their competitive market, they will be much more cautious about investing and the cost of capital will be higher. The Government should be very careful about going down that path. I think that addresses the questions.

Professor Melody has answered many of the questions I had intended asking. I am glad he addressed the issue of the levy. I had the benefit of a brief discussion with Professor Melody about the rollout of a broadband service in the regions where the required cluster of development that would attract private investment does not exist at present. How can that problem be best addressed?

I know Professor Melody believes we should be doing what we can to encourage the private sector to rollout as far as is viable for it and then consider the best solutions to deal with what is left over through offering incentives or the State taking a hands-on approach to dealing with the issue. Can the two be done at the same time rather than waiting to see whether 5%, 10% or 15% of the country will not be covered by the private sector? As we discussed earlier, we are trying to avoid having people in certain regions living on the wrong side of a digital divide. How can we strike a balance between the State taking a hands-on approach and ensuring the marketplace provides the infrastructure, the wholesale price and the retail services?

Professor Melody

That is a tough question. Ideally the market should rollout as far as it will go and then the Government will know how far that is, knowing that any action it takes on the subsidy front will affect and probably limit the market. As soon as the market knows the Government is in the subsidy game, it will not rollout as far as it otherwise would. How should the Government try to achieve the best of both worlds? In the countries that have developed subsidies in telecommunication - if we use that as an example - the US and Canada had the experience that the private market pretty well ran its limit and then the public sector took over from there.

The practice that is now being used in an increasing number of countries follows the Chilean model, which I mentioned briefly. About ten years ago the Chilean Government decided that its economy had to get a decent telecommunications system and it did not even have a decent voice system outside Santiago and a few other cities. It decided to carve up the country into a number of regions on the basis that they had to make sense in terms of coherence of economic activity. It then offered new licences to serve these regions. Bids were invited for the licences and the winner was to be the bidder with the lowest bid for subsidy.

In addition, certain commitments were obtained from regional governments with regard to usage. The regulator established interconnection rates and conditions in advance. It is essential for bidders to know these for building a business case. A pricing structure was also fashioned where the higher costs in certain regions were built into the services for people calling them. This specific structure enabled a rapid rollout to take place.

The Chilean model is the best model of a system already applied. It worked and is now being copied elsewhere, primarily to stimulate the rollout of basic digital services, not necessarily broadband, in a number of developing countries. A number of eastern European countries are also considering the model, the principles of which are its most relevant feature. At each stage, real competition is stimulated to get what one wants done.

In the model that has been successful in Chile, does the Government retain ownership of the infrastructure rolled out or does the company that provides it own it? In other words, are the companies involved management companies for undertaking the rollout of State owned infrastructure into houses and businesses or does the tender invite companies to put in place infrastructure in a region, which it will then own? There is a difference.

Professor Melody

In most cases, the latter is the position. It is similar to the process of awarding a licence to the highest bidder. In this case, one offers a licence with a subsidy and the lowest subsidy claimant receives the licence.

The regulator then decides on wholesale prices, usage of the infrastructure and so forth?

Professor Melody

The regulator sets the interconnection price based on costs, which is always a problem with the incumbent. The regulator makes this decision that ensures that the company in the region receives reasonable interconnection prices.

Another model, of which members of the committee may be aware, is one in which co-operatives based in the region in question can bid for a licence. This is how the United States achieved telephone and electricity development. The model was a little different in that the Government established a body known as the rural electrification authority - electricity preceded telephones. This body was a federal agency that provided technical and accounting and management advice while the Government provided low interest loans to local groups in communities that were not yet served by electricity. This practice, which started in the 1940s, still exists and was used to rollout cable. We are now having a major debate on whether it should also be used to rollout broadband.

The process involved people in local communities receiving support in terms of technical assistance and low interest loans to develop the services themselves. The experience has been a great success. Not only was universal service achieved but, to my knowledge, there has not been a case of non-payment of the interest or the loans in the history of the programme. I attribute its success to the fact that the people making the bid had a powerful vested interest in ensuring the system developed. Government support was aimed at ensuring projects had a sensible case and were viable under the terms laid down for the programme. A version of this model is in the process of being implemented in South Africa to develop the country's telecommunications system in regions not yet served.

I presume the licences to which Professor Melody refers date back to the era of Franklin Roosevelt. Are the licences subject to continuous competition? In other words, would a co-operative still hold a licence decades later? I noted while reading the Professor's impressive curriculum vitae that he was involved in AT&T. We have all heard or read about companies such as Baby Bells. On the macro-level, how competitive is the United States in terms of infrastructure? It is noticeable that in the media, certain sectors of the economy and other areas, the US tends to have a bipolar system in which a couple of major companies are dominant. Is this an inevitable consequence of deregulation and liberalisation?

We are running 23 minutes over time. In fairness to other groups who are waiting, I ask members to be brief.

I have a final question on deregulation. In areas such as the postal service, the European Union plans eventually to get rid of universal service. Are similar moves under way in terms of telecommunications provision? What approach is the EU taking in this area? One universal service provider for local access network and telecommunications appears to be a requirement. Is the EU pushing this issue? For example, are directives in the pipeline which will affect competition?

Professor Melody

The EU continues to pay attention to the universal service requirement and acknowledges it will grow in time. For a while ISDN was included in universal service. Imposing a requirement to offer everyone an opportunity to purchase ISDN at cost did this. This differs from offering a universal service at a uniform nation-wide price. While companies had to offer the service, it had to be at a price based on the cost of providing the service, which shows the concept of universal service is being refined.

There is one level of universal access - digital access to the Internet - which was achieved by a number of EU countries a long time ago. We might say this is a current standard of universal service. Given the concerns about the digital divide worldwide, I do not envisage that universal service will go away. Perhaps, however, a harder nosed examination of it and its implications will take place and we will have different definitions for different kinds of services. It was learned in the United States that about 25% of the beneficiaries of the universal service were wealthy people with second homes in mountains and various other places. It was not intended that such people would receive significant subsidies. As a result, therefore, the concept is refined.

Finally, the return to the monopoly question is currently being debated in the literature. Future technology in markets will determine whether we return to monopoly. The lesson we should learn from the past is that barriers should not be erected to the entry of new participants, technologies and suppliers. The current EU view of the world is that where there is monopoly, it should be regulated. It is now encouraging national regulators to use competitive standards to regulate the monopolies; to look for the nodes of monopoly and regulate those, rather than the more traditional comprehensive regulation of companies.

As someone who has been part of this process since the earliest days in many countries, I have no faith that the market will solve all the problems. There will be a need for continuing regulation and for some form of government subsidy to make sure that everyone has access to participation in these services. In fashioning that approach, my recommendation is to make the supply side of the market as competitive as possible, stimulate demand as much as possible and then consider the subsidy on the supply side, but be very careful.

I thank Professor Melody for appearing before the committee and for his excellent presentation. The Clerk will be in touch with him if any further information is required.

I welcome Mr. Martin Cronin and Mr. Adrian Devitt from Forfás. I draw their attention to the fact that members of this committee have absolute privilege but this same privilege does not apply to witnesses appearing before the committee. It is generally accepted that witnesses would have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it. Further, members are again reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House, or an official by name, in such a way as to make him or her identifiable. I invite Mr. Cronin to make his presentation.

Mr. Martin Cronin

Thank you Chairman. Good afternoon Deputies and Senator. It is a pleasure to have a chance to speak to you about a topic that is very close to our hearts in Forfás.

Forfás is a policy research organisation that principally advises the Department of Enterprise, Trade and Employment on enterprise and science and technology policy. My expertise in the telecom industry is not at the level of the previous speaker and I will speak from the perspective of enterprise development and economic development and competitiveness.

My first slide relates to the importance of broadband and there are a few things to say under that heading. Broadband communications helps companies to compete; that is a fundamental fact of life for us. To give a couple of simple examples, if a company is making a product and it needs to buy raw materials or components at a lower price, it may have to buy them overseas. A company can interact with overseas suppliers far more effectively and efficiently using broadband telecommunications. Conversely, if you have an Irish company that is extremely good at designing products, for example, it can do so for overseas customers and interact very easily with them. Thousands of people are employed here designing semi-conductors, most of which are made in Holland, Taiwan, Singapore or the United States. Broadband communications allows such companies to interact with their customers.

The main route to growing the Irish economy for more than 20 years has been to access fast growing new sectors, most of which are heavily dependent on telecommunications, the software industry being a good example. Employment in this area quadrupled here over the past 12 years. Internet-based services are extremely important and can be provided throughout the world from Ireland if we have the right telecommunications. We are sometimes a bit sceptical about broadband telecoms because of the dotcom collapse but even in the year following that collapse, Internet traffic around the world grew by 50%. So while the share price collapsed the business activities are still growing rapidly.

Communications enables the growth of business in remote activities. These could be shared financial services or IT-based or marketing-based enterprises. Employment in services in Ireland has doubled since 1997 in a period when manufacturing employment in most countries is static. We are doing quite well relative to other countries, which are experiencing declines in manufacturing employment. An interesting example of this kind of remote operation is an Irish company called E-Training International which has just been awarded a contract by the Department of Foreign Affairs to work on its website ahead of the Irish Presidency. This company employs about 240 people, almost all of them in other countries because it does translation work, yet its headquarters is in east Clare.

That illustrates the last point I wish to make about the importance of broadband for economic development, that it is fundamental to achieving a decent regional spread of economic activity around the country. A clothing company in Belmullet closed a few years ago and as it is a physically remote location the prospects of getting another manufacturing company to locate there was also very remote. The formula we pursued was an attractive deal on a premises and attractive access to telecoms. Within 18 months a service company had set up an operation that works 24 hours a day, all of which is made possible by access to telecoms. I should qualify that by saying that the company pays a high price for telecoms at present but the initial impact of that was softened by the development agencies in the hope that competitive costs would arrive in a reasonable time. There are many other examples of what telecoms has made possible around the country. MBNA employs 450 people in Carrick-on-Shannon and that is making a huge impact on the area. There were huge declines in employment in the clothing industry in Donegal but now with the help of telecoms, companies like PacifiCare and Prudential are doing software and insurance processing internationally out of Letterkenny.

We recognise that telecoms is also important to the development of society in general. In the area of health care, if one has a complex problem good broadband access can allow x-rays and CAT scans to be sent to a leading world specialist and an opinion can be received back in an hour or two. That is just not possible without broadband. Remote access to education will go a long way towards transforming the education landscape. Institutions can become more specialised while at the same time accessing a big market that is globally dispersed.

Broadband also allows people to work from home. The culture and entertainment impact will be quite profound. On a lighter note, when Telecom Eireann decided to make Ennis a digital town and gave everybody a PC, an elderly gentleman approached the co-ordination office with a request for a faster modem, which he got. He came back a few weeks later saying that he really needed an ISDN line, which made people curious and they started asking questions. It turned out that each evening he went to the pub with his friends during which they picked horses to bet on for the following day and it was his job to place the bets electronically at night which was taking him far too long. As soon as you have an initial facility to use this material, the demand immediately begins to emerge for more.

I will turn now to the telecom infrastructure. I would like to give a brief picture of our view of where we stand. The telecom infrastructure breaks down broadly into three chunks and we need to examine each of those separately to form a composite view of where Ireland stands. Our position on the international network is extremely strong. There are many different networks connecting Ireland internationally, some of which belong to what are known as carriers' carriers. These are companies that hire out their capacity to any telecommunications company, with no barriers whatsoever to entry. It is interesting to consider how this happened. It happened because Microsoft said it would no longer be able to operate out of Ireland without major broadband capacity. The development agencies approached the Government and it put up a substantial sum of money to attract Global Crossing to bring its carrier's carrier network into Ireland. This resulted in our being hooked up to a major international network.

The extent of the dotcom bubble was such that another carrier's carrier called 360 networks hooked us up to its network two or three years later at no cost to Ireland. Its network cost hundreds of millions. Following the collapse of the dotcom bubble, it sold that network for a few tens of millions. No company would install a network like that today unless we gave it many hundreds of millions and, therefore, we were very fortunate that the Government intervened at the correct time and Ireland got hooked up to some networks of very high capacity. This brought in its wake major data centres that can host Internet networks. Dublin is extremely well equipped with these. The impact of this is that Ireland can offer the lowest leased line cost of those offered by any of our major competitor countries. Therefore, no issues arise in respect of international connectivity.

One result of this is that Google, a major Internet search engine company, has decided to set up its major European headquarters in Dublin. The impact of this project alone, when fully in operation, will be to double the Internet traffic in and out of Ireland. Therefore, we can see what can be made happen when we are well placed.

We also have a strong position in respect of the backbone or national trunk routes around Ireland. There are several of them, owned by different companies, and they compete with each other. The ESB network will be a carrier's carrier network and it will be open to any telecom company to buy space on it. The only qualification is that there are still areas of the country that cannot gain access to the backbone easily or can only access one of the networks, and therefore there is no competition at backbone level in those areas.

Ireland is seventh in terms of cost comparisons - one of the best after the Nordic countries. This is an extremely good position to be in for a country with a very low population density and in which the cost per capita of providing the facilities is quite high.

The main issue arises when we consider the local access networks. We face a very big challenge to deliver cost-competitive local access. It is like a weak link in a chain and it greatly restricts access to both the backbone and to international advantages that are available to us. This prompted the Government's decision to invest in some metropolitan rings that would effectively serve as an alternative infrastructure to Eircom's infrastructure and challenge the monopoly position it occupies at present. It is worth noting that international experience to date suggests very strongly that regulators have had little success in delivering effective access to monopoly networks around the world. One reason for this is because it is an extremely fast-moving business in which the technology reduces prices all the time. Each time the regulator sets a new limit there tends to be a lot of court action and litigation, and by the time this is sorted out the game has moved on and it is too late for the technology in question.

The next slide shows the results in terms of price comparisons. Prices for broadband that depends on the local loop in Ireland are extremely high relative to the tariffs in other competing locations.

Forfás has recognised the importance of advanced telecoms since 1996 and has been promoting very actively the provision of broadband ahead of demand. I take the point made by the previous speaker that if the Government looks like a soft touch, other investors will hold back. However, circumstances in Ireland are very different to those in the United States, for example, which has a huge economy and lots of demand which investors will follow to the extent that it makes sense. Our position is like that of a small, relatively remote town without a decent road going thereto. The private sector will not build a road until there is demand, but one will not have demand unless there is a road. Therefore, we have to take a somewhat different view and intervene selectively and as cleverly as we can to provide facilities ahead of demand. This allows the development agencies to build up the demand.

Nobody has to come to Ireland - it is so small that the rest of the world can completely ignore it. However, nobody can ignore the United States and therefore we have to have attractions that will help us pull ourselves up by our bootstraps. One key task that needs to be completed in the shorter term is the establishment of competition at the level of the local loop, whether through investment in the Metro networks or the promotion of alternative technologies, such as radio technology. It is possible to have competition between technologies. It is fine to have a monopoly provider representing each technology as long as they are competing with each other.

We need to try to promote the continued development of the backbone network to minimise the number of locations that are truly disadvantaged. Ironically, the more remote a location is, the more it will depend on telecom-intensive activities. Promoting awareness in respect of the take-up of broadband is extremely important to minimise that valley-of-death period after one establishes the infrastructure and during which one does not have enough demand to remunerate one's investment.

I remind members that we have to vacate the room before 5 p.m. and we have to hear presentations from two more groups. Therefore, I ask members to keep their questions as brief as possible.

I thank Mr. Cronin for a very interesting presentation. Forfás has performed a very important role for the nation over the past six or seven years and it has informed the members of the committee through reports such as Shaping our Future and Broadband Investment in Ireland. I compliment Mr. Cronin in this respect. What kind of an input has Forfás had into the recommendation in 2002 in respect of the Government's broadband strategy? Obviously, the committee is producing a major report on it and it will represent the culmination of five or six all-day hearings. Has Forfás made a fundamental input into the shape of the national strategy of the Minister, Deputy Dermot Ahern?

Forfás's various reports concerning demand allude to the key issue of the last mile on the local loop. Has the Government done enough to stimulate demand in respect of the areas in its remit, such as e-government? Could it have been a major player in the encouragement of rollout?

Mr. Cronin cited an example of a road into a small town. He also mentioned MBNA in Carrick-on-Shannon, E-Training International and many fine successes of Forfás's component company, the IDA. Are we up to speed in terms of industrial estates and other projects developed by Forfás, given that we have been so successful in attracting the kinds of industries mentioned?

I am aware of the time constraint so I will be very brief. My first question is linked to a certain extent with that of Deputy Broughan. The delegates spoke about the successes of bringing various companies to these remote areas and that they are the only companies which will locate there in the long-term. There are problems with rural areas. We are told that, of the 20 companies that the IDA introduced, 13 located in Dublin and Cork and it appears as if they do not want to go anywhere else. Will it be the case that, no matter what we do, we cannot attract such companies to such places and that the examples cited are the exception rather than the rule? When Mr. Dan Flinter from Enterprise Ireland was before the committee he said that, in his experience, most of the software companies want to locate as close as possible to the centre of Dublin.

The delegates pointed out that all the local networks are owned by Eircom. Do they have a view on how we could change that? They also mentioned that the regulator has had little success in access to a monopoly network, which begs the question how competitive is it and how much Government input there should be to open it up?

Mr. Cronin

Forfás has done some work in this area and the input we have made to the Government is broadly along the lines of the presentation. The Senator has a clear picture of what we have been saying to the Government. In regard to the Government stimulating demand, I am aware that a great deal of work has been done in developing e-government facilities. Anything more the Government could do to stimulate demand would be positive and welcome. The Government is in a unique position to do so as one of the biggest users of telecommunications.

The Government gave itself a deadline of 2005 in regard to rolling out e-government but it looks like it is slipping behind that deadline.

Mr. Cronin

I do not know the detail of that, therefore, I cannot comment on it. Most new high-tech projects in both public and private sectors slip because of evolving technology. However, anything the Government can do to stimulate demand in the right place will be helpful.

In regard to being up to speed, there are two contrasting views. One is that the glass is half full and the other that it is half empty. There have been many successes; therefore, one could say everything is all right. However, all the companies wish to locate in Dublin and Cork. The reality is that if we do not intervene at all, most people will want to be in the big centres. However, if we intervene intelligently and well we can achieve a great deal of dispersion. The big centres have obvious advantages in that they have third level education, facilities and ease of physical access.

However, other centres have a big advantages too. It is a well-established fact that as people move on in their careers and raise families, they prefer to live in smaller communities. There are quality of life advantages in smaller communities that cannot be matched. The service ethic also tends to be better in smaller communities and many of these businesses are service businesses, particularly those that are not as technology intensive as software. In the areas of sales, customer support and back office processing, the service ethic in smaller centres can often give a superb advantage. There are swings and roundabouts and it will never be easy. However, we can make a lot of progress and the MBNAs of this world demonstrate that point.

The question in regard to local networks is a tough one and one in which my expertise in telecoms is limited. I would not wish to be prescriptive in that regard. It is for people like me to say this is an issue that must be addressed - which it can - and it is for the experts to set about doing it the right way.

Mr. Adrian Devitt

The information from other countries in regard to local networks has shown that only two countries have been successful in this area. We have already heard about Denmark and Japan, both of which have been successful for different reasons. From our perspective, the reason Denmark has been successful is that the Government took the view that telcos should engage with the wholesale market and the incumbent telco saw that this as a key opportunity. In Japan, the Government was able to enforce stringent conditions on telcos ^ something that is probably not possible in the EU. OECD studies have shown that competitions within technologies have not generally been successful and regulators have not been successful in unbundling the local loop. Even in places such as the US, where they have been at it for much longer than we have, most competition that has resulted has been between technologies. For example, competition between cable and DSL has boosted the rollout of both infrastructures in other countries and competition between broadband and wireless technologies has been successful.

Unfortunately, cable in Ireland has not been rolled out extensively. Therefore, there was no incentive for the telcos to rollout new infrastructure and services. They were making a lot of money with old services such as dial-up and ISDN and rolling out new services would just cannibalise those revenues. This is a problem we face and it is more likely that we will be successful in generating competition between wireless, cable and DSL, rather than trying to develop competition within any of those sectors.

I thank the delegation for their interesting presentation.

There is one area in the telecoms market where there is no lack of competition, and that is in providing advice to the Government on how it should rollout its broadband strategy. The IBEC group is meeting with the Department at the same time as we are preparing our reports. I note that the delegation is in the same business itself in that Mr. Magaziner has provided a report to the Department.

I do not know if we can swap information in this competitive process or if it is possible for us to get a copy of the report. However, it would be useful for us to swap notes between the delegation's report and the one we will have to draft.

Mr. Cronin

I would be happy to make it available if I can.

I disagree with the delegation that there is competition on the national backbone network. Judging from earlier comments, it appears that is not the case outside Dublin. While Esat has a network, in a presentation to the committee last week the company said that it only serves its own clients and is not used as a service by anyone else and that, furthermore, it does not link into the Eircom network. The ESB was before the committee two weeks ago and it said it had not issued contracts for the use of carriers on its service. I am not as familiar with the Aurora network, but a presentation we had from the IBEC users group today indicated that the experience for businesses around the country is that they are effectively dealing with one provider and that, as a result, the price is decided by that provider without any real competition. I do not think we can say we have a competitive national backbone. Does the delegation agree?

Mr. Devitt

The prices are not out of line with other OECD countries. The ESBi network is still being completed on the northern ring. Once that is complete, we should see further competition. Once one goes from international access down to local access, the levels of competition are continuously falling.

There is no connection from the ESB network into anything. It is providing connection points along its own grid but it is not saying it will connect on into any other network. Would Forfás advocate further investment by the Government to connect the ESB network to the MANS network?

Mr. Devitt

Certainly, yes. We have been careful to design the MANS network to ensure it is close to the ESBi, Eircom and Esat stations - which are, typically, located at railway stations. When the MANS network is complete, it should rollout close to the backbones of all the networks that come into any town. When the MANS and ESBi networks are complete, we should see a more integrated network.

I appreciate the offer to show the committee the other report. It will be most useful.

Mr. Cronin

Certainly. It is consistent with what I have been saying here. Therefore, it should not have any surprises.

Perhaps the report could be supplied to the Clerk. Is that the procedure?

Any information that is required can be forwarded to the Clerk. I thank Mr. Devitt and Mr. Cronin for their presentation and for appearing before the committee.

I call Mr. Ruairi Jennings of Irish Broadband, Mr. Colm Piercy of Digiweb and Mr. Iarla Flynn of ALTO. I draw the attention of the witnesses to the fact that members of this committee have absolute privilege but this privilege does not apply to witnesses appearing before the committee. It is generally accepted that witnesses have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it. Members are reminded of long-standing parliamentary practice to the effect that 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. I welcome the witnesses and thank them for attending.

Mr. Iarla Flynn

I am chairman of the Association of Licensed Telecoms Operators, ALTO, which is an industry group representing new telecoms operators. I believe a number of members of ALTO have already made individual presentations to the committee. I thank the committee for the opportunity of appearing here.

There have been many presentations about the state of the market in Ireland. Our view is that the telecoms market here is not competitive and that we have a long way to go before we achieve that. The supply of broadband is uncompetitive; we have only recently seen the introduction of broadband technology, in the form of DSL, on a widespread basis. Customer numbers are well behind those of our EU or OECD competitors and DSL prices, from figures I have seen from ComReg recently, are among the highest in the EU.

We have a long way to go; consumers in Ireland are stuck with legacy technologies such as ISDN and leased lines, which are very expensive. In terms of demand, the key point is that SMEs and residential users are not having their needs met. They need a choice of services at low prices - prices are still too high. The late liberalisation of the market in Ireland contributed to this; also, the fact that the telecoms regulator in Ireland, the ODTR as originally set up, did not have a clear mission, had some resource issues and did not have the powers necessary to tackle the problems in the sector. Many of those issues have now been resolved with the establishment of the new regulator but for a crucial period the office of the regulator was not as effective as it could have been. The market power of the three dominant players shows that the market is uncompetitive today. In the fixed market, for example, Eircom has 80% market share, which remains quite steady. Competition is not making the inroads it should be.

Looking to the future, a competitive market is the best means of delivering broadband services. We need new entrants to come into the market and we need existing players to invest, and for that to happen operators must have confidence that the market provides them with a fair opportunity. If we have that competitive dynamic, new services will be introduced and prices will be brought down, which is what we all want to see.

I echo Professor Melody's comments about the vital role of Eircom in the market. Eircom is the only network that can actually deliver broadband throughout the country on a relatively cheap basis and it is somewhat disappointing that the company does not have a positive outlook on broadband. There needs to be a change in mindset. That is crucial, because as long as people are negative about it and do not see the potential, everything will be held back. A change in outlook is absolutely vital. Professor Melody also mentioned the cost base in Eircom. The company is providing a platform for other players and if it is passing on high costs in terms of high charges, that results in high charges for consumers. Clearly that is not the way to create a more competitive market.

The regulator needs to focus on key issues, one of which is promoting competition. We also think it needs to ease off in the regulating of other operators or provide a clearer, more simple regulatory approach. Today we will hear from two wireless broadband operators who have some regulatory issues, particularly that of licensing for the services they provide. It is important that the regulator provides clarity on these issues to new entrants so they can establish their business on a firmer footing.

The two key areas for Government are legislation and its position as a consumer of services. We support efforts to give ComReg extra powers, which should be happening through the transposition of some new EU directives. We also favour the Government issuing guidelines to local authorities how they should deal with operators who want to build infrastructure; the system needs to be made much smoother. The Government should also consider giving policy directions to ComReg. When ComReg was set up the Minister for Communications, Marine and Natural Resources, Deputy Ahern, issued a policy direction one of the elements of which was a requirement for flat-rate Internet access to be introduced. Six months later we have flat-rate Internet services on the market, so clearly the policy direction had an impact. The Minister should consider policy directions in other areas such as the pricing of DSL services.

The Government is the largest consumer of services in Ireland. It spends something like €125 million every year on fixed-line services. More than 96% of that business goes to one company - Eircom. New entrants have struggled to win business from the Government. They have managed to win 20% of the general market but only 5% from Government. There is an opportunity here for the Government to save itself money by opening up tendering processes and it will also allow new entrants to become firmly established in different parts of the country. If this happens they will invest more and provide services in different areas. It is a win-win situation for the Government in terms of saving money and promoting competition.

Mr. Colm Piercy

I represent Digiweb, a satellite and wireless broadband provider. As a very new entrant to the market we are very pleased to be asked to talk about our experiences, the opportunities we have seen and the challenges we have faced. Digiweb has been a service provider for about six years and has been delivering services across the country. We are unique in that we are now delivering both satellite and fixed wireless broadband solutions. Over the past year we have been involved in a number of innovative pilot programmes with the Department of Communications, Marine and Natural Resources. We have been involved in wireless land trials that involved rolling out a broadband network across County Louth and providing services to a large proportion of that county. We are also starting a broadband rollout into Cavan as an extension of the other project. Both use fixed wireless technology. We have also been running commercial trials of a number of new systems for delivering centrally managed broadband access to educational organisations.

We can deliver to a customer anywhere in the country a direct two-way broadband connection, via satellite, which delivers a high-speed, always-on link. Newer satellite technologies have enabled us to deliver high-reliability services, faster connections and greater flexibility in their introduction. There are two factors which mark satellite out from other technologies under consideration: a short install lead time and complete independence of any other infrastructure existing within a region or within the country. The technology itself is currently scaleable up to 52 Mbps but speeds tend to be lower at present. We provide services to customers across the spectrum from small to large businesses. We are seeing a very strong take-up among the teleworking community - changes in lifestyle and so on are leading people to work from home, which requires a broadband connection. The services we are delivering are typically in the half megabit down link, bursting to one megabit, with rates from €84 per month upwards. These are flat rate services across the country.

The previous speaker from Forfás referred to the case history of a company in Belmullet with which it was working. He identified the remoteness and cost of telecommunications delivery to that area. We also have a case study for Belmullet, which is a small Irish indigenous business, employing 72 staff, with 95% exports. They were using ISDN which they described as slow, expensive and sometimes inaccessible, particularly in the west. On moving to the satellite broadband connection, they experienced a number of very obvious results. One was an immediate cost saving of up to €2,000 per month, a reduction in the need to travel and improved communication between their offices. Although they are based in Belmullet, they are also operating from offices in Galway and the UK. Their experience to date with moving to broadband, and in this case moving to a satellite connection, has been that they are extremely satisfied. They feel this form of connection has brought them into the broadband era.

The second technology with which we are working is fixed wireless broadband. The most important point to emphasise is that wireless delivers the most cost-effective, flexible and rapid deployment of any broadband technology. We are focusing on a regional rollout strategy. We are currently focusing on counties Louth, Cavan, Monaghan and Meath. We are building a wholly wireless infrastructure. We have decided to move away from taking services from other operators because we simply cannot work with thecosts. We are building our own infrastructure to Dublin and Belfast to give us the connectivity we need.

Pricing is equivalent to or lower than DSL. We are delivering between 0.5 megabit and 10 megabit services to customers. The slide shows the current Louth wireless land project centred around six key towns in County Louth. It is expanding out from these towns, using these as a stimulus to bring the infrastructure into play and to extend it into rural areas. We are also interconnecting through to Dublin. At this point we cannot find an alternative wholesale carrier to take our traffic across their network at a cost that will allow us to deliver services to our customers. We are also extending services into Cavan and, initially, into Virginia. This is a very small town with a population of approximately 2,200. It has been omitted from all the broadband lists compiled by various parties. The BMW regional assembly has been able to bring services into play. Both of these projects are funded by public-private partnerships or whatever. This has been a key stimulus in bringing these projects into play. It has allowed us to extend very quickly.

Now that this infrastructure is in place, we are in a position to rollout the services rapidly. We are talking about a number of months rather than years.

Is the blue line going through the main backbone infrastructure?

Mr. Piercy

That is a wireless backbone infrastructure we are putting in place. Initially it will travel from Dublin through to Collon and Dundalk.

Are the broken blue lines intended future backbone options?

Mr. Piercy

Yes. These are connections we can provide. Once one gets a capacity connection into an area, one can branch off from that using wireless technology. The blue line currently gives up to 72 megabit capacity, and it is scaled in multiples of that.

How do you physically provide that?

Mr. Piercy

There is a multitude of connectivity options available inside the M50 ring. If we can get our infrastructure as far as there we have any number of providers to choose from. As a result, we can get very competitive pricing. We could not get connectivity at the level we would require if we wanted it directly in this region. I am aware from speaking to other operators that this is a common problem among new entrant operators operating anywhere outside the Dublin region.

I wish to remind members that we must vacate this room by 5 p.m. and another group is waiting to make a presentation. There is no problem if Mr. Piercy wishes to conclude the presentation.

Mr. Piercy

As a new entrant, we have seen a strong demand in the market across the country. In some areas the need exists and does not have to be cultivated. However, in other areas it does. There is a growing frustration, particularly in the case of lead times of three years and five years. It is important to feel that anything that might come out of these considerations and deliberations would have a short-term effect. In some cases, NGs need to have hands-on experience of broadband systems to see what kind of benefits it will deliver. It is not just about a faster connection. Many previous speakers covered the advantages that can be brought to bear.

There is confusion among many NGs in relation to various announcements in the media about different technologies, different things that are happening and different infrastructure projects. Often NGs are led to believe that they will wake up tomorrow and there will be a fibre connection to their door. This confusion must be addressed.

We feel that our regionally focused actions have been more effective than national or larger scale projects and that, despite the investment in fibre by the State and private companies, the last mile issue still remains. From our perspective, we simply could not achieve cost-effective wholesale interconnection outside Dublin. We need to get our connection as far as Dublin before we can interconnect with other providers.

There are four key areas we would like to put forward including the establishment of education information, action to promote a clear understanding of broadband and its benefits to business education in the home through stimulation demonstrations and best practice case studies. Incentives and subsidies have been mentioned, particularly in the case of rural areas. Whatever format it might take is something that needs to be considered. Some form of subsidy or tax incentive should be put in place to enable companies outside of mass rollouts and mass technology to avail of broadband technologies. This would apply to satellite that will give full countrywide coverage. On regional quality, once one moves outside Dublin it is very difficult to access these networks. There are various projects going on. Previous speakers referred to the ESB and various other projects. These are very interesting but we have yet to see how that turns out in terms of providing competitive interconnectivity.

We would like the wireless spectrum continuing to be managed in such a way as to encourage new entrants such as ourselves to deliver innovative services, and the focus to be on the delivery of these services rather than on gaining maximum licence revenues. We believe that wireless and satellite technologies are the quickest and most cost-effective way to deliver national broadband coverage. Very rapid and cost-effective deployment is the only realistic solution. It can be delivered at a fraction of fibre costs and provides a scale of ability for future demand.

Mr. Ruarí Jennings

I work for Irish Broadband, which was established in May last year. It is a subsidiary of NTR plc. We are focused on delivering service to data services in both the residential and the business market. To do that we use wireless technology and by doing so we can innovate our product, cut costs independently of incumbent or existing operators and provide a competitive and compelling offer to our customers.

I wish to focus on what we are doing with product offerings and give some idea of the potential of wireless technology. We have three levels of product, the first of which is a rip-wave product, a modem that is plugged into a user's PC. It is a wireless product that does not require a line at site and we are currently carrying out commercial trials of this product in south Dublin. It would sit on my kitchen table in Stillorgan and connect to the mounting four kilometres away. I can use it in my kitchen, living room or upstairs office and it has a range of up to six kilometres. That is the residential, low end offering that we will introduce at €30 per month.

There is a second service called Breeze Access. It allows us to get up to 1 megabit per second contended bandwidth and is focused on small business customers, starting at a price of €135 per month. It is a comparable price point to DSL but it is symmetrical and companies have a fixed IT that allows them to run servers and run their own websites from their office. That cannot be done with DSL. Finally, there is a third tier of service, called IP Link, which is uncontended bandwidth up to 34 MB per second for larger clients. Clients such as KPMG and FM104 use that service.

I have distributed tables to give an idea of residential and business products. The price points we are delivering range from an install of €120 and €30 a month for a 512 kilobit per second broadband service up to a €50 per month for enhanced home service in the residential section. The difference in terms of quality is the symmetry of the service - the user getting the same speed down to the computer as up - and service quality revolving around contention and the number of other users sharing the connection. Some customers are more sensitive to these issues than others. On the business side, we have the Breeze SOHO - small office, home office - service from €75 a month ranging up to bespoke services for high capacity links.

Our network is currently only focused on the Dublin region and our Dublin rollout is organic. As we add a node to the network, we connect new nodes using wireless connections, a critical element of reducing costs. Because we use our own network infrastructure, we are not relying on incumbent players passing on their costs to our network. We invest and believe we will generate a return on it, as opposed to taking costs downstream from other providers. We are currently adding to this network in Dublin and anticipate that, by the end of the year, we will have full coverage in the Dublin metropolitan area.

Our typical Breeze installation is an external antenna installed on the customer's premises and, for consumers, we have the rip-wave modem for direct service. The second option has cost benefits for us. We can lower our installation charges to the customer because we can post this device or courier it to the customer who installs it himself or herself. With the other services we need to send out a technician to install an antenna.

We have recently awarded a contract for the installation of a 311-megabit per second wireless FDH ring around Dublin. There are plenty of fibre options in Dublin but there are practical difficulties with accessing those networks for a wireless provider. We need to connect into fibre networks using wireless links and, often, the access to the fibre makes it impossible to install a wireless link at the fibre point of presence. In addition, it is cheaper for us to install our own wireless network than to lease it from an incumbent such as ESB FibreCo, Eircom or Esat.

A commercial trial of this new product is under way and we are connecting the first customers to it this week and committing to the price points I outlined. We also have some interesting projects under way in Northern Ireland. We have a service launch scheduled for August in Derry, supported by the Department with responsibility for Enterprise and Trade, and projects in Lisburn and Strabane also supported by the Department. We have created a local subsidiary and appointed a managing director in the North.

The key challenges for Irish Broadband are the rolling out of service and proposition throughout Ireland and the overcoming of any barriers to doing that. Affordable backhaul from regions is a key issue. In Dublin we connect our own wireless network into the data centre. We have a choice of data centres and we use one called Interaction at Park West. We can choose carriers in that data centre and can get wholesale bandwidth rates for between €200 and €250 per megabit per second per month. The effective cost of getting that same bandwidth, even in Cork, is double when I include the cost of the tail from ESB FibreCo. The cost of our going outside Dublin is significantly higher in terms of bandwidth that we must feed back into our Dublin data centre.

At present we operate using unsecure, licence exempt spectrum in the 2.4 and 5.8 GigaHertz bands. Positively, I commend ComReg for releasing that spectrum. We are ahead of the posse in that regard - in Britain, they still have not released the 5.8 GigaHertz spectrum that operators like Digiweb and ourselves can use to serve our customers. We would like to see the 3.5 GigaHertz licensed band released but that process is already under way.

There is a customer awareness issue in the consumer market. Consumers must see the benefits of broadband to appreciate it and put a value on it and we feel there is more work to be done in that area.

I am sorry I missed the first of the three presentations. Unfortunately, when there are all-day sessions of the committee, there are other things happening that cannot be ignored.

When is Irish Broadband coming to Cork? It is encouraging to see the private sector take the initiative and bypass the frustration of accessing the existing infrastructure by setting up its own wireless infrastructure. Does the need to be within four kilometres of the node limit the possibilities outside Dublin? Does a more powerful transmitter that can extend that range to 12 or 15 kilometres with rip-wave have to be within four kilometres in Dublin?

Mr. Jennings

That is right.

Can that technology be expanded so that if one is living in Connemara one can link up with a central node maybe 15 kilometres away?

Deputy Coveney, we have 30 minutes left. Put the questions please and they can be answered at the end.

All right. Can Irish Broadband's initiative in Dublin be extended to rural areas where there will be difficulty if wireless and satellite solutions are not used? The satellite costs for Digiweb seem to be reasonable for a large business customer. For houses, does Digiweb see a satellite solution bringing capacity into a central node and then using wireless capacity to extend a web across the countryside, rather as the South West Regional Authority is doing at present? Does Digiweb have any plans to extend across the country in that way?

Digiweb and Irish Broadband obviously believe that they can compete head to head with cable operators or with operators that already have a physical infrastructure. What will the €30 per month product, which they offer to households in Dublin, cost for households in Cork, Galway or Limerick? They mentioned that it would be more expensive there. Does the cost of bringing the network back to an affordable interconnector in Dublin vary depending on geographical location? Is it more expensive to do that coming from Donegal? In other words, does it depend on physical distance or does it vary from region to region?

Could Irish Broadband expand on the point that legislation needs to be put in place to give extra powers to ComReg? If Government Departments, paying €125 million for six lines each year, could save money by shopping around and using some of the other available technologies, why are they not doing that? In the present climate I would have thought that every opportunity to save money would be used. Is it lack of awareness or lack of appetite to make the necessary changes?

I agree with Digiweb that €84 per month is a reasonable cost for a business that has any sort of usage. What has the take-up been in the region covered? It seems to be an interesting product; perhaps users do not know about it. Digiweb is building its own infrastructure and there has been much talk about Eircom not opening up its infrastructure to other players. Does Digiweb think that Eircom will pay for this at the end of the day because it will force other companies to do something else, leaving it behind with useless technology?

I am intrigued by Irish Broadband's Ripwave product. While technology is advancing rapidly it seems to be passing us out since this sub-committee began its work. I have never heard of this before but it sounds interesting, particularly for €30. When will it be available? To follow up on Deputy Coveney's questions, is it possible for the nodes to go in a straight line from one end of the country to another or are base stations necessary along the line?

Can the products described here today carry voice? I was disappointed to see that the satellite upload is only 128K as against a downlink of 512K. Does that not restrict the connection to 128K because the Internet has a two-way flow? Is it necessary to have a certain number of customers initially to make the provision of service to an area such as Belmullet economic? Is there a capacity limit that has to be reached to provide take-up before it is economically possible to provide a service?

Mr. Jennings

The range for the Ripwave product can be extended up to ten kilometres with the addition of external antennae that can be removed. An external antenna is connected by suction onto a window to extend the range but there is a limit of about ten kilometres. Other wireless technologies beamed from a hilltop will achieve ranges of up to 20 kilometres and more. We are using licence-exempt spectrum that is regulated to limit the amount of power that we can legally transmit. Using licensed spectrum, such as the 3.5 GigaHertz band, will enable higher power levels and thereby an extended range and better performance. It is a key strategy of our company to compete head to head with DSL in Dublin and in that way we can build out from Dublin using a strong revenue platform which is critical to build any business of scale. That is a key battleground for us, to compete successfully with DSL, and we are doing so. Even in the Sandyford industrial estate in Dublin where we are located there are companies that have failed DSL line tests. One would imagine that DSL is ubiquitous in an industrial estate butit is not because of the quality of the copperlines.

Backhaul is a recurring theme and our strategy is to have a national price. We are in advanced commercial discussions with the ESB fibre code to gain access to the ESB backbone but it does add an extra cost that we will try to absorb. Regional data centres with the same kind of bandwidth pricing as we can get in Dublin would open the market up, with the wholesale Internet bandwidth prices we can get in Dublin. We plan to go live with Ripwave commercially by the end of August. We are quite happy with products. Our current trials are simply to bed down operational processes. We will be selling this product in south Dublin from September. At present, our company is focused on the data market because we believe that is where the greatest potential is. So, rather than replicate existing infrastructure and services, we focused on the data market. As wireless technology evolves, it will be possible to do voice-over on it. Voice-over IT is an ever-developing technology.

Mr. Piercy

On the point of coverage from base stations and the various limits, much of this is to do with power levels. If the regulator is in a position to increase those power levels, then in most cases the ranges can be extended. A wireless network by definition is organic, to steal one of the Deputy's words, and will grow and cover the areas of demand.

There is no line of sight issue?

Mr. Piercy

It depends on the technology. Some will give non-line of sight coverage while others will give clear line of sight. With regard to cost of satellite, we have found that businesses find it an attractive replacement for their current connectivity. It is not really intended for a home service but, as was mentioned, projects such as the South West Regional Authority project are interesting. We are starting our commercial trials on similar lines of combining wireless and satellite technology.

Competing head to head with the larger operators, we are taking business from them in the region we are covering. I believe it is the same for Irish Broadband. The larger operators tend to be quite comfortable. They have fixed-price points and they cannot move as quickly or deliver a service that some customers will want.

With regard to the physical distance, is it just a question for outside of Dublin or is it a question of how far one is in getting cost effective interconnects? There is a two tier pricing structure anywhere inside the M50 ring and outside it. That is one issue that is present. There is distance-based pricing but it tends not to be the big issue because there are dotted around various points of presence. There is a total difference between Dublin and outside Dublin prices.

With regard to trigger levels and satellite, we can deliver satellite connection to any individual location anywhere on the island of Ireland. It does not matter even if it is in the middle of a field. For wireless services, currently we have a low trigger level set. We have 40 residential and 20 business customers that are even below trigger levels that are used for DSL in other countries. That is assuming they are within striking distance of our existing network that is continuing to grow. Regarding the disparity in uplink and downlink speeds and satellite, in a satellite connection the most significant cost is the actual transport of the traffic through the satellite. This is what has to be optimised. For most people using the Internet, they are pulling down web pages, e-mail and large attachments themselves. The way this service is configured is to deliver a faster connection down and then the return back. It is worth noting that the return back at 128 kbps is equivalent to a dual ISDN line that is the highest option open to the majority of users. The satellite system is geared towards the fast download speed. In terms of take-up of the service, it is moving quickly mainly with small businesses and teleworkers. People need to be aware that these options are available to them.

There was a question as to whether Eircom will be left behind because we are all building our own infrastructures. I believe that probably the new entrants to the market would rather not have to build their own infrastructures but it is a situation we find ourselves in. There are many assets in place by private and State operators. If we can get access to them at a cost that makes sense, then we will all do that because it will allow us to roll out our networks much more quickly. It is a competitive market and each of us is making our decisions based on how we can deliver best value to our customers. If Eircom, Esat or other network owners cannot give us competitive access, then we have to do our own thing. The downside of that is that one ends up with multiple networks strewn all across the State. This is not the ideal way to approach it.

Mr. Flynn

The regulator has the power to fine a company up to 10% of its revenue. However, that will only happen after a criminal prosecution and that is setting the bar high for the regulator to jump over. It is a power that would never be used. It will lapse when new EU regulations are introduced in the next two or three months. What we are saying is that a new enforcement power needs to be included as part of the package when the EU law is brought in. The regulator, as has been said before, needs to carry a big stick in order to be taken seriously by a large operator. If the regulator does not have this ultimate power, then his or her ability to get the job done is somewhat constrained.

In terms of Government spend, having being locked into a contract, the Department of Finance has locked State organisations into a contract with Eircom and Vodafone. That lasts three years, so we are half way through it at this stage. I do not believe that this is going to be breached but when it is up for renewal there needs to be a joined-up thinking in Government. The Department of Communications, Marine and Natural Resources and ComReg are trying to promote competition but yet we have the Department of Finance sticking with the old monopoly mindset giving all thebusiness to one company. The Government could save money by opening up the tendering. Typically with a new entrant there aresavings of 20% of what was being paid to Eircom. Using quick maths, that is a saving of €25 million for the Government. The Minister for Finance, Deputy McCreevy, would be glad of that.

Mr. Flynn will be glad to hear we raised that issue with the Department of Finance officials when they attended last week.

I thank Messrs. Flynn, Piercy and Jennings for their presentations. If we require further information from them, the Clerk of the sub-committee will make contact with them.

I now call on the delegation from Meteor: Mr. John McMahon, Mr. Liam Hamilton and Mr. Andrew Kelly.

I must draw attention to the fact that members of the sub-committee have absolute privilege but this same privilege does not apply to witnesses before the sub-committee. It is generally accepted that witnesses will have qualified privilege. The sub-committee cannot guarantee any level of privilege to witnesses appearing before it.

We are a mobile operator and attended with the other mobile operators last week. That presentation was about putting forward the notion that mobile has more to offer broadband than is generally understood. Broadband is regarded as being something that is delivered through DSL or satellite while mobile companies offer services to handsets through 3G technology. The reason we sought permission to make this presentation is that there is an existing infrastructure that does not need to be rolled out. It is in Cork and every other part of the State. That is the current GSM 2G to 2.5G mobile technology. It can be used to deliver broadband not to the handset but to a laptop computer or PC. We are looking at a technology that currently exists to bring broadband at speeds from 256 to 2-meg. That exists today and is part of a consultation by ComReg that ends next week because it would require a licence amendment. That technology, which is used by all three mobile phone operators, could be used to bring broadband to all parts of the State quickly.

Mr. John McMahon

I will give members a brief outline of the background to the concept itself and a little information about the technology because while it is not new, it is new to Ireland. Members are aware of the market conditions but they will obviously want to know what makes us different from anybody else. We will conclude our presentation by summarising the current positionvis-à-vis the consultation.

Meteor, being part of the telecoms family like everyone else, is well aware of what is happening currently and apart from our core business, which is mobile, we are aware that there is a broadband deficit in the country. We are aware that there is a technology in the United States that can deliver broadband in our current spectrum and it is now in Asia also. We have a 900 and 1800 spectrum of which I am sure members are aware, for our GSM licence. We were confident we could deliver this and we had the capacity in that spectrum to do so.

Following a meeting with ComReg, or the ODTR, as it was then, last October we submitted on 25 October a formal proposal to bring broadband to the market using 1800 spectrum. That is new to this market. In fact, the technology would be new not only to this market but it would also be the first in western Europe if that were to happen.

The concept itself is not altogether different from what members would have heard from a number of the other speakers and broadband providers. It is an "always on" high speed Internet access which would be paid for on a flat monthly fee basis. We are thinking in the region of €40 per month but in terms of our current plan, that is not fixed. As the market matures and competition heats up, that figure will more than likely decrease rather than increase but at the current rates it is quite a competitive price. What makes ours a little different, apart from the technology, is that it is delivered via a card in the laptop, which makes it portable. In other words, wherever we have coverage, one can walk around that coverage area with one's laptop and have totally wireless connection.

On the technology, members will be aware from their travels in America that in its mobile world it uses code division multiple access, CDMA, technology. A company, Qualcomm, which started in the mid-1980s in San Diego and is now hugely successful, pioneered that. On this side of the world we use GSM technology.

The concept we are putting forward would be similar to the DSL product. It can deliver a 2.4 megabits per second throughput. It has not been deployed in Western Europe to date. The product we are talking about would be delivered via a PCMCIA card or an appropriate modem. The card is not much more than the size of a matchbox. It is similar to what Mr. Hamilton is displaying, it slips into the side of a laptop, making it totally portable. There is no wire involved and no problem with moving about within the coverage area.

This technology is currently provided not only in the United States but also very successfully in the Far East, particularly in Korea. Both of the main mobile operators in Korea now use it. At the end of the first quarter of this year, there were one million subscribers on the network there and they expect that to increase to about four million by the end of the year. In the CDMA world, their 3G version is what they call CDMA 1x2000. There is a derivative of that for data only, which is, in technological parlance, a CDMA 1x2000 evolution data only. We call it EVDO, which is the evolution data only part. We propose to deploy this EVDO technology for high-speed data only access, which is an absolute first not only in Ireland but also in Europe.

What makes this technology different from what the committee has heard over recent weeks? It is totally wireless technology. Each cell covers a large area and in that sense it is similar to what would be used in the GSM world where there is a base station providing coverage in, for example, Dublin city centre or an urban area of approximately 1 square kilometre. This technology can be used anywhere in that coverage area. If we have a base station in Leinster House, conceivably one can have the card in one's laptop and have coverage not only here but also in St. Stephen's Green and as far as O'Connell Street. Walking around one would have total coverage all the time. No external antenna is required.

The previous presentation referred to fixed antenna at the location that is receiving the signal or having to extend the signal if an extra antenna is needed on the building. That is not a requirement here. It is totally wireless. It can be sold over the counter. It is very much a plug in and play technology. The person buys the packet, goes home and self-installs. It is so easy to install it covers the idiot's guide to self-installation. There is no problem with doing it because there is a step-by-step guide on how to install it. Once the person plugs it in and makes the first connection, they are up and running. I emphasise that there is no other technology in the country that has that versatility. An aspect, which is very important in the context in which we are speaking today, is that it can be done using the current bandwidth Meteor has in its 1800 spectrum and its GSM licence.

I am sure members are well aware of the market conditions. There is a lack of broadband in the country. The basic competitors currently are Eircom and Esat BT. Esat BT recently announced a product at €40.90. Obviously there is considerable pressure from Government agencies and from the Minister to try to develop and rollout broadband. Ireland is ranked fairly low in world rankings, and indeed in European rankings. There is a pent-up demand in the market and everybody involved in this business will agree that is the case.

The current position on the consultation with ComReg is that we submitted our original proposal in October. That went out to consultation last February. The response to that consultation was submitted in March and the result of that response was further consultation, which took place on 11 June this year. The response to that consultation is due on Friday of this week, 11 July. We expect that the final decision of ComReg will come through in late August of this year but in the meantime, those of us in Meteor are planning ahead. We are assuming we will get a positive response. We have people in place. As Mr. Kelly mentioned, we have the infrastructure. Other operators spoke about the lack of backhaul and sites, and difficulty in getting access to infrastructure already in place. We do not have that problem. We have invested hundreds of millions of euro in the infrastructure now in place. We have the capacity and we have sites. We are in Cork and many rural areas and once we get the green light from the regulator, we will go ahead. If we get the green light we expect to roll-out initially in quarter one of next year and we will have completed our roll-out by the end of next year.

We are introducing a unique proposal. It delivers broadband through a technology that has not been introduced in Ireland previously. It can be deployed rapidly simply because we already have the infrastructure and the more difficult and expensive parts in place. It will be a first in Europe and will obviously meet a market demand. It also meets the objectives set by ComReg, the Minister and the Government.

Last, but not least, it makes efficient use of the spectrum. We in Meteor have the same amount of spectrum as Vodafone and O2. In our case, in the 1800 part, we have some capacity. We saw a gap in the market for broadband in which we could use our spectrum more efficiently. We have made our proposal and we consider it to be a good one. It will be competitive and it is unique in that it is totally wireless. It can deliver broadband to areas that cannot be reached by other technologies. It will also fill a serious gap in the market.

Thank you for your presentation. What is your present level of coverage on this licensed spectrum and will it all be available for use by this technology? Would the service be limited, for example, are there certain times where the use of capacity of mobile phones would take up a significant amount of your capacity? If so, would capacity be variable or are you confident you have sufficient capacity to meet any projected peaks and troughs?

Am I correct in saying you do not have a 3G licence? Would the available technology for roll-out broadband on this spectrum also be available for roll-out on a 3G licence, which would provide very high capacity or is that a much narrower area in which a service can be provided? Even though you are on a price comparative basis between your technology and the DSL technology, is it correct that voice services can be used on the DSL technology whereas that is not possible in the case of the technology at your disposal, where customers could faced separate voice or mobile phone bills? Would you require new technology to use laptops in a different way?

Meteor's mobile phone coverage continues to be a small proportion of the mobile phone market by comparison with the market share held by its two competitors. Are you changing the goalposts in that having secured a licence, you are trying to create a totally separate market? Why would the regulator not acknowledge it to be a good idea but call for competitive tendering and licensing?

There is nothing to stop O2 and Vodafone applying for the same privilege. Presumably they will plan on doing so, but there is no indication of a move in this direction.

We have sought permission from ComReg for anybody holding this spectrum to be able to use it in this fashion, and not just Meteor. The coverage issue is not related to us only. If ComReg agrees to the proposal, O2 and Vodafone will also be granted permission.

Is it the case that, in simple terms, we are using the existing network infrastructure for broadband as well as telephone access?

Presumably, laptops contain a port that will enable connectivity with the devise in question? Will it be contained within the laptop or will it be an addendum to be connected to it? You said you wish to commence roll-out immediately but that you already have the infrastructure in place. What do you have to do? For example, do you have to expand a mast distribution that currently only covers part of the country, and which you may have been expanding in any event to provide for you mobile phone technology?

Mr. Hamilton

There may be some misunderstanding about whether we are using all of our existing equipment. We would be using much of our existing infrastructure. Mr. McMahon said we do not have a problem with a slow roll-out in terms of having to acquire sites and backhaul. We had that problem and we sympathise with the previous witnesses in that regard. It took us a long time to acquire and build sites and a backhaul network. The average planning permission lead-time was nine months for each site. We are still in the process of building the network. We have 550 sites on air and plan to have another few hundred before we are finished. We will continue to rollout our GSM network in parallel with this. It does not intrude or interfere with the GSM network. It is an additional service on top of it and an additional piece of equipment in our base station site. Our advantage is that we have the sites and the backhaul. We would still have to install the additional equipment to provide the service.

Voice does not have to be excluded, but the issue here is that we do not have a 3G licence. We do not want to offer a 3G service. If we were to offer voice, portability and all of the other things that the 3G licence holders would like to offer, we would then be competing directly with them, which is not what we are trying to propose. We are trying to propose a niche product for broadband access using wireless services. It is equivalent to wireless LAN, except that it covers a wider area. We have deliberately excluded voice from the capability. It is part of the ongoing consultation with ComReg, which has asked if we think voice should be excluded. It is open to the other operators to also answer that question.

With regard to capacity, the proposal by ComReg in its first round of consultation was to limit it to 20% of our existing spectrum. We are not using anything like 80% - we are not even using 20% - of our 1800 spectrum. The same spectrum exists here as exists in the south of England, the Paris region and the Ruhr valley. Huge populations are using the same spectrum as is used by four million people in Ireland. With the small exception of the centre of Dublin, there are no capacity constraints. We consider it would make efficient and effective use of an existing resource by adding this to it.

The PCMCIA card fits in a laptop. The bit sticking out is an antenna. For those who want to use it on a normal PC rather than a laptop, we will sell a box that will plug into the PC and the card will plug into the box. We do not want to sell it as a voice terminal or a handset, again, because it would be considered to be a 3G service, which we are not trying to provide.

Our coverage extends to approximately 87% or 88% of the population. There are bigger holes geographically than there are in terms of the population. If ComReg gives the go-ahead for this it does so for all of the networks. The other networks have capacity in rural areas where we lack it, so capacity should not be an issue at any stage, nor is coverage.

The suggestion at present is that if this ComReg proposal goes through, all licences of the three mobile operators will be amended simultaneously. Therefore, they will automatically have the option if they want to take it. It is obviously not for me to say, but Mr. Kelly will be aware that Vodafone and O2, because of their high subscriber base, have capacity issues on their current networks. Therefore it would be difficult to see them freeing up capacity for this type of service. However, that is their decision. There is nothing to stop them doing so.

Reference was made to Qualcomm in California. There are precedents in the United States. This has been very successful in some states.

Mr. Hamilton

It is particularly successful in Korea. It has been rolled out in the past year or so. It is quite a new technology. It has been rolled out in the United States, in Washington and San Diego, and in a couple of the mid-western states recently, but Korea and some South American countries have been quite successful in implementing it.

Mr. McMahon

This project represents an investment of just under €100 million over two and a half years. It is quite a significant investment. It is not a small, localised, niche investment.

Competition is very important. Deputy Coveney stated last week that there were some rural areas where broadband might only be delivered by satellite and then the last mile by wireless. This is connecting existing infrastructure to that technology.

Is the existing Vodafone laptop plug-in set an analogue service?

Mr. Hamilton

That is called GPRS, the 2.5G service.

It is not 3G. It is the same as GSM.

Mr. Hamilton

It is using a GSM code.

I thank Mr. McMahon, Mr. Kelly and Mr. Hamilton for their presentation. If they require further information, the Clerk will be in touch. I thank the members of the committee for their co-operation.

The sub-committee adjourned at 5.15 p.m. sine die.