He will fall between the horses.
To promote competitive pricing in the telecom market, ComReg is empowered under statute to implement a price cap in respect of a basket of telecommunications services where it believes there is no competition in the market or where the provider of these services holds a dominant position.
On the last line rental increase, ComReg undertook extensive consultation on pricing within the telecoms sector in 2002. ComReg indicated to the committee that it was disappointed with the response to the consultation - it would be interesting to hear who participated in it - and it decided to impose a price cap of CPI -0% on Eircom for a three year period beginning February 2003. During this period, Eircom can increase the price of the basket of services by the increase in the rate of inflation. Under this price cap, Eircom has discretion in the increased supply to individual items within the basket of services, provided that the overall increase is no greater than the rate of inflation. Eircom has no leeway in this and ComReg is obliged to take remedial action if increases in the overall basket move ahead of the rate of inflation.
I have responsibility for overall telecom policy. Since entering office, my main goal has been to implement telecom policy in a coherent way using the tools available to me to improve the range and quality of services available to business and personal consumers by facilitating the introduction of more innovation and competition in the sector.
Irish macro-economic competitiveness requires us to move up the international league table for broadband roll-out. Achieving this will not be possible unless choice in the marketplace is increased. Long-term dominance of the Irish market by the privately owned operator is not in the interest of the consumer, the market or the dominant market player itself. It took the introduction of a second player in the mobile market to bring Ireland up the average European penetration rates for mobile use. Eircom did well out of competition in the mobile market until it decided of its own volition to exit that market, a decision that, with the passage of time, is not easy to understand. It is clear, however, that Ireland needs Eircom to be strong and to retain secure employment for many years to come and that will invest in its product and its network. We need that and I ask those outside to understand that.
The passage of time has not made it any easier to comprehend the extraordinary conservatism of this company in failing to appreciate the lifeline offered by broadband revenues to the fixed line service, which is slowly but surely being cannibalised by mobile communications. Some of the decisions made in recent times surprise me. Increasing line rental will allow people to migrate from the fixed line to mobile networks, something Eircom will ultimately have to address. I hope it will address involvement in the mobile market. It has publicly acknowledged this and it may happen in the near future. New services were introduced late by European standards and there were rows with the regulator over wholesale margins, astonishingly high prices and slow roll out to the regions. Even Eircom now probably regrets the fact that competition in the market did not force it to move earlier on broadband.
My message is simple - the more people who are offering telecom services, whether they are basic or broadband services, the better for everyone in the long term. There is, however, a paradox here. Low prices and, in particular, below cost selling may impede competition in the market. Prices which cover costs and margins which allow for competition to develop in a smaller market than the European norm are important for competition. I intend to address this issue in my policy directions.
Additionally, for real competition to be introduced to the local market, it is vital that the public accepts and uses new technology platforms. Wireless technologies offer major possibilities for Ireland into the future. There have been major challenges on the planning side in certain locations over the years. While I have no doubt that industry itself has much to do to improve its planning and communications strategy, this is not the end of the story. Anti-phone mast campaigns do not sit well with policy positions which support economic development and employment generation outside urban areas, the roll-out of broadband infrastructure in the regions and the development of a competitive alternative to the incumbent in the market. When I was Minister for Social, Community and Family Affairs I remember receiving a deputation from a peripheral area that was annoyed jobs were not coming to the area. I had to ask when its members made their submission why people in the area continuously oppose mobile phone masts. How can we expect any self-respecting business person to go to an area when he cannot get a mobile phone to work?
The telecoms market has experienced highs and lows unlike any other industry in the past ten years. It has moved from the staid and musty image of the plain old telecom service to the personal communication revolution of mobile technology. It crashed from the euphoria of the dot.com bubble to the idiocy of the licence fees paid for 3G; over €100 billion has been paid in Europe alone for 3G with little or no return today. More recently, broadband has become the new hope for the industry.
For Ireland, the major lessons of the period have yet to be digested in full. There is one that is predominant in my mind. Compared to major markets in the centre of Europe, we lack scale and critical mass. For Ireland to offset scale and positioning disadvantages, it must adapt and modify policies which were originally built for more mainstream European markets. Broadband roll-out and competition are obvious areas. For this reason I have obtained Government approval for significant Exchequer investment in the infrastructure, something that was vehemently criticised by some of the shareholder interests in Eircom in recent times.
The first initiative in this area, which is well under way, is the metropolitan area network which will bring broadband networks to 19 towns by the middle of this year at a cost of €64 million. While this represents a good start, I soon realised that this would not deliver ubiquitous broadband nationwide. This is why I persuaded the Government in recent times to invest a further €140 million between now and 2007 to connect over 80 towns with a population of 1,500 or more to broadband networks.
While this investment will provide most towns in the regions with broadband, it will not solve connectivity issues in rural communities and I have no interest in perpetuating the rural digital divide. To address this issue, I intend to introduce the new group broadband scheme where local communities can pool their demands and obtain high speed connection with assistance from Government funding.
All in the communications market welcomed the announcement before Christmas of the provision of regional high speed broadband connectivity deals on the ESB telecom fibre optic network and on the Esat BT network. This will facilitate the provision of competitively priced back-haul connectivity to the regions. In addition to direct Government investment, I have also actively used legislation to drive the competitiveness agenda. To discharge its remit effectively ComReg needs to have enforcement powers with real teeth and I intend to bring forward legislation to introduce tougher fines on companies in breach of telecom laws.
The power under section 13 of the Communications Regulation Act 2002 to give policy directions to ComReg was a very useful tool to develop the market. For example, last year I used this power to introduce FRIACO, flat rate Internet access, and according to latest ComReg figures 50,000 people have availed of this service. No one believed me when I said we could introduce flat rate Internet access. Those involved and ComReg disputed whether it could be delivered. People said it would not catch on and even those who said it would not work now accept that it has worked and will continue to do so. The figures speak for themselves. Everyone now accepts, even those who were against me at the time, that FRIACO is an outstanding success. It showed that there was a significant demand for Internet access. I am working on new policy directions which will focus on the industry and will aim to address key constraints and complement the work programmes of my Department and ComReg. Additional Government funded broadband will come on stream in 2004 along with improved back-haul connectivity from private operators whose involvement I welcome. For the first time in several years a framework exists for ComReg to use regulatory and enforcement tools to drive the introduction of real competition in the telecoms sector. The most important policy direction will focus on competition and innovation as a key objective for 2004. I will mandate ComReg to incentivise the development of platform and service based competition. This will support the entry of new players and lead to new product offering from existing and new suppliers at attractive prices. In addition to the general direction on competition, I also propose to introduce directions to ComReg on broadband local loop, bundling, interconnection and mobile market. While these markets are at different stages of development and contain different competition issues, my overall aim is to set clear goals for ComReg on market development and to require it to report to me on progress.
While it would be easy and politically attractive for me to announce today that I am taking line rental out of the price basket and going to direct ComReg to introduce a new sub-cap, I have rejected this route primarily because alone it is not the most effective one. I will take a more radical approach, designed to cut line rental prices to Irish consumers by allowing telcom companies to compete against Eircom for line rental. It is designed to cut line rental prices by giving telcom companies the potential to undercut the Eircom price and will give Eircom the incentive to keep prices down. It is designed to build jobs and lower phone prices for Irish consumers which, in turn, will lead to lower inflation.
I will direct ComReg to introduce specifically by Wednesday, 31 March 2004, a wholesale line rental product for voice and data services and to insist that the margin between wholesale and retail is wide enough to drive competion. I will also direct it to insist that the product is accessible, affordable and available for telcom operators. If this product is not in place by 31 March 2004 and if it is not delivering verifiable competition and lower prices by 30 June this year, I will direct ComReg to take line rental out of the present price cap and to set a specific rental cap no greater than CPI. I expect to go to consultation on these proposed policy directions within the next week. While the development of the telecoms market depends on the input of the players, private and public, the significant investment by Government and my policy directions will signal clearly that I intend to ensure competition develops and no operator can operate non-competitive pricing strategies in any market segment. Business and residential consumers must go elsewhere if they are not satisfied with the range of services or the prices offered by individual operators.