JOINT COMMITTEE ON ECONOMIC REGULATORY AFFAIRS debate -
Tuesday, 9 Jun 2009

Value for Money: Discussion with Commission for Communications Regulation.

Chairman

I welcome from the Commission for Communications Regulation, Mr. John Doherty, chairman, Mr. Alex Chisholm, commissioner, Mr. Mike Byrne, commissioner, and Ms Yvonne White, director of corporate affairs. I draw attention to the fact that members of the committee enjoy absolute privilege but that same privilege does not extend to witnesses appearing before the committee. I remind committee members of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the Houses, or an official, either by name or in such a way as to make him or her identifiable.

I now propose to hear a short statement from Mr. Doherty which will be followed by questions and answers.

Mr. John Doherty

I thank the Chairman and members for the invitation to address the committee. We will outline briefly who we are, what we do and the context around the sectors we regulate. We will then look at this in terms of our effectiveness in regulating the sector, our efficiency, and our impact on the economy. Conscious of time, I will move on to the presentation proper.

Following the decision of the Houses of the Oireachtas, ComReg was established in 2002 and the Minister appointed a three-person commission. We regulate on the basis of both national and European law which sets out the framework in terms of what we have to do, the objectives and on what basis we operate. That framework is currently under review at EU level and we have been working with the Department of Communications, Energy and Natural Resources and the EU Commission in shaping the new EU regulatory framework.

Our main responsibilities in the electronic and communications and postal sectors cover the following: promoting competition and consumer choice; promoting the interests of end users and protecting and informing consumers of electronic communications services; promoting innovation and investment in the sector; promoting the efficient use of spectrum; and promoting the development of the postal sector.

ComReg has a complement of 120 people. It is made up of highly experienced and well educated individuals, including analysts, accountants, engineers, economists and lawyers. Approximately 90% of our colleagues have degrees or masters qualifications. They are mainly derived from the private sector because clearly the sectors we regulate are highly complex and highly dynamic ones. ComReg is split into four separate divisions, wholesale, retail and consumer, market framework and corporate services. ComReg is entirely industry funded and has made a significant contribution to the Exchequer every year since its establishment. ComReg has had its responsibilities extended over a period of time with no increase in its head count. This includes taking over responsibility for the emergency call answering service, ECAS, and for the .ie domain registry. We have increased our role in network integrity and security. We are shortly to take up responsibility for the regulation of premium rate services, PRS.

In terms of the sector we regulate, it is a pivotal one for the economy. It has a representative turnover between the postal and electronic communications of approximately €5 billion per annum. It employs close to 18,000 people directly. We have moved from a situation at liberalisation where we had one single provider to today where we have more than 50 active companies. In terms of investment in the sector, it is currently running at approximately €700 million per annum. Clearly this will be a challenge in the years ahead as CapEx constructions happen across the board. Many of the companies that are here are competing for investment in other locations. Vodafone has a footprint across the world. Ireland has to compete for that investment in this marketplace. Our estimate at the moment is that the overall sector will fall in revenue terms by approximately 4% to 5%. It sounds bad but when one looks at some other sectors it is quite a reasonable achievement. Clearly, however, no one quite knows what the overall impact may be if the recession continues. There is a likelihood of further consolidation in the sector judging by technology innovation, by the economic circumstances in which we operate and by convergence.

In the past five years there has been a significant increase in what we describe as multiple technology platforms. In the old days we had a simple telephone system. Today we have a range of technologies. In broadband, one can get broadband over one's fixed line, mobile, fixed wireless and cable. That is a very healthy position that the market has developed into. The development in convergence between digital platforms is a major technology trend that is under way. I think we will see much more of that. We recognise how pervasive the Internet has become and how it has become part of all our lives effectively in the past ten years. Investment in next generation networks, in fixed, mobile and cable, is one of the key future developments.

In terms of effectiveness of ComReg itself, there is a significant increase in cross-platform competition. There is certainly much more choice. There are 50 companies active in the marketplace. Prices have been falling and continue to fall. An example of that in terms of the mobile market is that the overall price basket has fallen from an average spend of approximately €53 on our surveys down to €42 over the last period of time. In broadband we now have more than 1.2 million subscribers. Informa, which is a large consultancy group, suggests that 62% of Irish homes now have broadband. In recent months ComReg has initiated a reduction in mobile termination rates which will benefit Irish consumers to the tune of approximately €100 million. Clearly that is a significant contribution in these very difficult times.

In terms of developing broadband further, one of the areas on which we have focused has been local loop unbundling because it provides the basis for more innovation in broadband, particularly in the fixed line market. In that area we have been looking at lower prices and enhanced offering. On the mobile market we have a situation here which is almost unique across Europe where we have four network operators and an MVNO operating in the marketplace. That has already fed in to enhance competition and lower prices. We have also been working on a reduction of wholesale prices to further enhance competition because it is our belief that at the end of the day enhanced competition is the best way of protecting consumers and getting lower prices. It has been said many times in the past that cable would some day take its place. It is fair to say that cable has now become a much more significant player in both the broadband and telephony areas.

In terms of spectrum we have approximately €3 billion contribution to GDP. Directly and indirectly it supports some 30,000 jobs. It is a clear advantage that ComReg sees in terms of this market that Ireland has plenty of spectrum availability, and we do not have many of the constraints that larger countries have that are part of mainland Europe in terms of defence applications, or constriction of use because of overlapping borders. This is a real opportunity for us in trying to position Ireland as a centre for research and development in areas such as radio spectrum. In fixed mobile and wireless broadband services, an initiative by ComReg to introduce fixed wireless local access effectively moved Ireland from a situation in 2002 where it had approximately 3,000 people on broadband paying €120 a month to a situation where it now has a market of more than 1.2 million. At that stage the incumbent was very reluctant to reduce prices and very reluctant to invest. The introduction of competition through the fixed wireless initiative changed that marketplace and has been one of the catalysts for where we are today.

We have been working closely with BCI, RTE and the Department of Communications, Energy and Natural Resources to enable timely introduction of DTT. Clearly this is a very important landmark which leads on to the second point which is that there is a once in a generation opportunity for Ireland to make use of the digital dividend as we move from analogue switch-off into the new digital environment. This can provide a range of products and services, particularly broadband for rural areas. This is a real opportunity and we must ensure that we capitalise on it.

We have raised the quality of universal service for all customers of Eircom and An Post. We have set mandatory new standards for Eircom's line installations, because we were not happy that the guidance we had provided was being adhered to, so we have put compulsory targets in place. We have focussed upon raising An Post's next day delivery record to meet the 94% target. I wonder if members noticed the report in the newspapers on the welcome improvement in deliveries in the Dublin area in the recent past. One of the key challenges in implementing best practice is that the operators must know what best practice is in their dealings with customers. We have been doing this through a range of initiatives, including the format of the bills, so that they are clear and consistent and presented in a way that people expect, and we have also improved the complaint handling and compensation from postal operators. We are strong in the belief that informed consumers are the best safeguards for driving competition and innovation.

We have developed two websites, www.callcosts.ie and www.askcomreg.ie which got 600,000 hits in 2008. We have also worked with the Citizens Information Board in an outreach programme. We do not sit in Dublin and tell everybody what we do. We were down in Moyross recently providing details of how people could look at ways to get better packages and how to understand their bills. We see that as a particularly strong initiative. We also believe that telecommunications service should be for the benefit of all and we have worked closely with the National Disability Authority, NDA, around the disability forum and trying to ensure that people with disabilities and the elderly have access to communications.

In terms of efficiency ComReg has a staff of 120 people. It is industry funded and makes a significant contribution to the Exchequer. We issue about 5,000 licences a year and we renew about 18,000 licences. We issue approximately 200 public documents, of which 20 are public consultation documents. In terms of the website visits, we get approximately 1.5 million hits each year. ComReg is accountable to three Oireachtas committee and its accounts are audited by the Comptroller and Auditor General. It complies with the Department of Finance code of practice for governance of State bodies and it publishes in advance its accounts and work programme as well as its annual report.

ComReg had an income of €46 million in 2008 and an expenditure of €22 million. As members may be aware, the excess goes back to the Exchequer, so there is no burden on the Exchequer. It is interesting that the ComReg levy on the industry of 0.2% has remained unchanged since 1997. When one compares the ComReg levy with its opposite number in the UK, O.2% is approximately one third of the levy placed on its industry. Before the changes came ComReg sought a 10% reduction in its overall spend in 2008. This is highly challenging as there are items which are outside its control, including legal costs where we clearly must defend our point should cases arise. We have also undertaken a recruitment freeze, while at the same time responsibilities for regulating the premium rate service and ECAS have been put in place.

ComReg is subject to very strict budgetary controls which are driven by the work programme. It is audited by internal auditors as well as the Comptroller and Auditor General. The external evaluation of ComReg's activities is carried out in several ways, by the audit committee, which has three external members including the chair, expert groups for the electronic communications and postal sectors and peer reviews by the European Commission and other NRAs.

Communications will continue to be a key sector in the economy. ComReg and regulation have an important role to play in advancing this digital economy. ComReg will ensure that key national assets, such as our radio spectrum will continue to be used efficiently and effectively. We see real opportunities in this area. ComReg is working with Government towards maximising the benefits of the digital dividend. We are trying to drive innovation through the spectrum test and trial licensing regime. My Commission colleague, Mr. Mike Byrne has just come back from Japan where ComReg worked with the Japanese government in trying to find an arrangement whereby we could see areas for mutual future development using spectrum and other means. Clearly investment in next generation networks, fixed mobile and cable will be a key benchmark in terms of the point to which we want to get in the future. It is very important from a ComReg perspective that it is not just a fixed line issue as it needs to include investment in the mobile and cable sectors.

The key challenges facing ComReg in 2009 is that clearly the country needs a competitive communications sector and ComReg will need additional investment in next generation networks, not just in fixed line but in dux 3 for the cable industry. We need it in LTE for the mobile industry as well as for the fixed line. ComReg will continue to work with the Government and other agencies to enable and facilitate innovation in the digital economy. There are real opportunities. Clearly we must keep consumers informed and protected in this increasingly complex world of converged products and service will be a challenge. We want to ensure the seamless transition of the new responsibilities we are given because some of these areas of responsibilities are outside our general scope of competence. Premium rate services is not an area where we have had an historic relationship, so clearly we want to make that as professional as we can. We are working with the Government, the EU and the industry in the lead up to postal liberalisation which must be in place by 2011. We are also preparing for the new EU Telecom Framework in 2010. The European Commission is constantly looking for appropriate efficiencies while we must execute our duties and responsibilities.

Deputy Seán Sherlock

I welcome the commissioners from the Commission for Communication Regulation. The language that has grown up around communications is one I do not really understand. I hear phrases such as "ensure seamless transition of the new responsibilities" but to speak in real terms, broadband provision is woefully inadequate in large tracts of rural areas. We must ask why is that still the case. Mr. Doherty mentioned Japan, where if I am not mistaken there is almost full broadband penetration and at speed in excess of the Irish average. Why is that still the situation in 2009?

Will there be another takeover of Eircom, because the "Australians" left it in a dire mess and with a severe lack of investment. Will it be in a position to carry out its public service remit in the future? Has the Commission had any contact with Eircom to discuss its future in recent months? Would the people not be better served if Eircom was re-nationalised so that one could achieve the aspirations and aims that are set out in the presentation? As long as Eircom remains as it is, the country will be at a severe disadvantage in growing the economy, achieving broadband penetration and maximising our potential in terms of new platforms.

It has been estimated and I think reported that RTE will require €70 million to roll out digital television. If we believe the reports of the cutbacks, it would appear that RTE would not be in a position to do that. Will RTE be in a position to meet its obligation to roll out digital television, and if not will it incur penalties?

My final point concerns postal services liberalisation. The last time the delegates were before thie committee, we spoke about the Bolkestein directive. What is its current position? Will we see complete liberalisation of postal services? Will An Post continue to be the sole provider of postal services or will there be a multiplicity of postal service providers? What are the permutations for the public service obligation, PSO, given that there might be a multiplicity of providers in the postal services sector? The concerns I have in this regard are based on whether one can guarantee that the service for people living in rural areas will continue into the future if there is a multiplicity of players in the market. If there is further deregulation, will the PSO continue to be maintained and protected?

Mr. John Doherty

I would like to involve my colleagues in answering some of the questions. Perhaps Mr. Chisholm might begin on the postal services issue.

Mr. Alex Chisholm

On the timeframe for implementing the postal services liberalisation directive, the Government has until the end of next year to make regulations. Obviously, regulations of this kind are extremely complex to make. I understand work is under way in the Department and the Attorney General's office. ComReg is co-operating actively in that process.

On the implications of liberalisation for deregulation and the knock-on effects to which the Deputy referred in terms of the universal service obligation, the directive provides for continuation of the universal service; in fact, it is enshrined in the directive. However, the directive gives national governments the choice of determining how the universal service should be defined; therefore, it could be decided that the service will continue to be provided by a single player, in this case An Post, or collectively by a number of companies, while still guaranteeing a universal service, including in rural areas.

Mr. Mike Byrne

I would like to deal with the question on digital terrestrial television. ComReg's role in this regard is laid out in the 2007 legislation, under which it is obliged to provide a licence for RTE directly and also the BCI on request. We have fulfilled our obligation in providing a licence for RTE which is in the process of building a transmission network for digital terrestrial television services. As the custodian of the radio spectrum in Ireland, we also have a role to co-ordinate internationally, in this case with the United Kingdom — with Great Britain in respect of the east coast of Ireland and with Northern Ireland along the land border. Again, this work is well advanced and there are no issues in terms of timings.

As the Deputy is aware, the BCI is going through a process to award commercial licences. It is not for us to comment on this as it is the BCI's business and the Deputy can deal with it directly. However, as regards the role of ComReg, we have fulfilled our obligations. Our international co-ordination activities with Ofcom in the United Kingdom are well on target.

The Deputy referred to broadband provision and made a comment on the position in Japan. He is correct in so far as Japan is a world leader in broadband provision. It is clear it has established this position for a number of years in the roll-out of various platforms to meet the needs of consumers. As many of its consumers are urban-based, Japan has used optical fibre to a large degree, but it also uses wireless services to a large degree in rural and remote areas.

Mr. John Doherty

To return to broadband issues generally, when I referred to a seamless transfer, I was trying to articulate that there was regulation of premium rate services. We want to make sure this continues in a professional fashion in order that there will be no loss of service to customers or the industry. As a professional body, that is what we intend to do.

As I said during the presentation, 62% of households have broadband. We welcome and have worked with the Government in the introduction of the national broadband scheme which will target some of the residual areas for which the provision of broadband remains challenging. Some 300,000 people have mobile broadband as part of their service. As an example, there is no issue for the vast majority of businesses in broadband provision. Large companies such as Google, Intel and Microsoft are investing. There are plans to build a 200,000 sq. ft. data centre to service Europe and Africa from Ireland. Clearly, large business corporates have a service which is comparable with that available in most of the rest of Europe, both on price and in terms of the service provided.

What we are trying to do is to make sure competing platforms provide consumers with a choice. There are some areas of the country where provision will not be commercially viable and the Government has intervened to try to fill the gap through the national broadband scheme. However, on the basis of my colleagues' contributions, it is fair to say this is not Japan. In Japan 99% of the population live within 1 km of an exchange, whereas 40% of the population here live in rural or very isolated locations; therefore, the situation is not the same. As Mr. Byrne pointed out, even those countries which use fibre are also considering the use of wireless services, which is what we are doing. Our baseline is to recognise that the national broadband scheme has been set up to try to target particularly disadvantaged areas. We want to ensure, in so far as we can, competition across platforms provides consumers with the best protection.

Eircom's details have been well documented, including the level of debt. As Eircom has pointed out, it is still investing between €200 million and €300 million per annum in the Irish marketplace, so it is not as if there is no investment taking place. Our view is that it is clearly a telecom company with a long-term perspective which needs investment commensurate with this position. Our clear preference would be for investments to be made on the basis that there is a 15 or 20-year window rather than a four or five year window, as may have been the case. That is where our focus and attention lie, albeit we must manage in whatever environment we find ourselves in.

As a final personal comment on the question of nationalisation, I spent 25 years working in the IDA when Telecom Éireann was managed by the State. I spent much of my time trying to get telephone lines across the country. It is important that we recognise the market is the best way to drive choice, innovation, new investment and returns.

Deputy Seán Sherlock

With all due respect, the country went to the market in regard to privatisation. Mr. Doherty is telling us the penetration rate is 62%. There are exchanges which have not been upgraded because of a lack of investment. It is not an ideological argument at this stage but a pragmatic one that suggests if the infrastructure is brought back within its control, the State can invest the necessary resources to allow us to reach the rates of penetration we need to reach in order to compete in the manner we all want to compete, both economically and globally. The bottom line as far as the people are concerned is that Eircom has failed in its purpose. The unbundling of the local loop in accordance with European Union legislation has not been a success. There is a school of thought that the market would not go near Eircom with a bargepole such is the state it is in. I do not understand how Mr. Doherty can suggest it should be kept within the market structure. Is anybody interested in Eircom? Has anybody been in consultation with the commission in that regard?

Mr. John Doherty

There has been much commentary in the papers about possible interest and members will be aware that the owners of Eircom Holdings have set a time line within which they wish to sell their 57% share. To develop the marketplace Ireland needs not just a single solution but investment in the long-term evolution of the mobile networks and in the cable networks and that requires a predictable, constant environment in which the market drives the investment. The long-term future of Ireland depends on having various alternatives because nobody knows which of the technologies will win out. The best guarantor is the market and we have invested €700 million to that end.

This is not to say everything in the Eircom garden is rosy because a large chunk of people do not take broadband or take the flat-rate access alternative. My preference, however, is for ubiquitous broadband. The Government's decision to invest in the national broadband scheme provides us with an opportunity to fill in the gaps in supply, while allowing the market to continue to drive broadband.

Deputy Seán Sherlock

Nobody would argue against that but is Mr. Doherty saying the national broadband scheme will deliver the rates of penetration necessary to turn the white areas of the map into red areas?

Mr. John Doherty

The national broadband scheme is the Government scheme and is designed to address the needs of the 10%-15% of people who could not get broadband in certain areas. It proposes to provide speeds of a minimum of 1 megabit and, in the core of some of those areas, it could be as high as three or four megabits

Deputy Seán Sherlock

Does Mr. Doherty think that, in this day and age, one meg is adequate? The benchmark is much too low here and the policy framework for broadband, on whatever platform, is not ambitious enough to enable us to compete with countries such as Japan.

Mr. Mike Byrne

We need to divorce the question of technological advancement from that of who owns Eircom. Eircom is a private company and, as the regulator of the industry, we have no say on who buys the company. We have preferences and Mr. Doherty has expressed our view on the long-term gain to be achieved by sustaining innovation and investment in the fixed-line telecommunications infrastructure. The market has delivered continuous innovation, particularly in the mobile and wireless sector. We now have four high speed data, HSPA, networks that are capable of delivering 3.6 megabits per second, which will soon be 7.2 megabits and will evolve to 14.4 megabits per second, even though most of the applications consumers or residential office customers use do not require anything like that speed. Around the world — Japan is an example of this — the marketplace — not the State — is the best driver of innovation in technology.

Mr. John Doherty

It might appear that we think one option is the perfect answer but the vast majority of people here take between 2 megabits and 10 megabits. Five companies around the country now offer 20 megabits or above and large and medium-sized enterprises are able to get up to 1 gigabit capacity. That is the reality.

Deputy Seán Sherlock

That is not the reality for people living in rural society. Mr. Doherty is referring to conurbations or areas in which there are other platforms but the capacity is not available in certain areas of my constituency. In the context of driving the rural economy certain areas, because of topography or geography, will not be served by those speeds.

The delegates mentioned WiMax and other platforms that will evolve over time and I welcome them but when will we sort out the Eircom mess? Is it a political decision? Does ComReg have a role to play or will it be left to the vagaries of the market? If it is the latter we will have another conversation in 12 months' time on the capacity of Eircom to meet its public service obligations.

Mr. Alex Chisholm

Whether it is in the public or private sector Eircom can still be subject to economic regulation by ComReg. The Deputy may recall a discussion we had in a previous meeting on the targets we set for universal service, covering the speed with which Eircom made installations and carried out fault repairs as well as the overall quality of its network, all of which are covered by binding legal targets which apply to the company even though it is a private sector player. Whatever its ownership structure, the public interest can continue to be protected in this way.

The Deputy asked about WiMax and LTE. We are engaged in a major exercise to liberalise the spectrum currently used exclusively for GSM mobile telephones at 900 MHz. That part of the spectrum has very strong capabilities for propagation which make it very suitable for high speed broadband in rural areas and for that reason we want to liberalise it as quickly as possible. The four major networks are very keen to use the spectrum in rural areas, which will improve both coverage and speeds.

Mr. John Doherty

We are very interested in the digital dividend because the capability gained by switching from analogue to digital will provide very rich spectrum which will be very good for rural broadband. There is no one size fits all approach in the context of the Irish market. We must find innovative solutions to those problems which exist in parts of rural Ireland. In this context, the national broadband scheme, WiMax, the digital dividend and UHB products will help to address the problem. The industry is increasing the speeds as backhaul improvements continue to be made but it is a work in progress.

Even the much vaunted Japan has only 93% coverage and has been trying to close the gap for the past ten years. In places such as Korea there is still a 5% or 6% gap, even though they are much more densely populated. That is not an excuse because to the best of my recollection, even in the case of television coverage, after 50 years we only have something like 98.9% coverage. We see it very much as a work in progress for which there needs to be a range of solutions. There is no single solution to the problem because it would not work.

Deputy Peter Kelly

I welcome Mr. Doherty and his colleagues. I have met them on numerous occasions and find that overall they are doing a good job.

At times it seems there are a great many problems in the business and sometimes they are more complex than they might appear at first. Overall, ComReg has a responsibility to promote competition and consumer choice, as well as to ensure people stay in business and that consumers are not caught out by businesses going belly up. Overall, it has taken a balanced view and has been conscientious in its dealings with providers. Broadband is an issue. I should like to see a broadband service covering the whole of County Longford, whatever about any other constituency, especially rural areas of the county such as the townland of Kiltaffrey near Kenagh, for example. I am sure it will happen eventually. Perhaps ComReg might have a word and encourage people to do this.

The cost of electricity is going up all the time. Given the open market which now encompasses the ESB and Bord Gáis, sources say the cost of electricity to industry is too high. I do not hear too many complaints as regards domestic consumption, but perhaps ComReg might look at this issue. Factories tell me the cost of electricity is far too high, even though I do not know what might be done about it. They have no complaints about the service provided. The staff who work for the providers are excellent, but they seem to regard electricity as very costly. Whether it is true or false, we read all the time in the media about the high cost of electricity. In this day and age, given the way the economy is going, we need to be as competitive as possible. All elements of the cost of production in Ireland have to be brought to a lower level.

Chairman

I do not believe we should go through each area in rural Ireland townland by townland, but certainly it is an important issue.

Mr. John Doherty

I thank Deputy Kelly for his kind words. Clearly, we support the overall concept that the marketplace should be as competitive as possible. We shall look at the townland mentioned by the Deputy to see what we can do.

Deputy Joe Behan

I join the Chairman and other members of the committee in welcoming the ComReg representatives whom I thank for their informative presentation.

Selling the fixed line infrastructure was one of the greatest mistakes ever made by a Government because it effectively handed control of a precious national asset to the vagaries of the private sector. It is obvious that the actions we can take are limited as regards how we may ensure the fixed line infrastructure can be upgraded to meet our needs in the current era. However, that was a policy decision at the time and I am sure a decision will have to be made in the future to buy it back. I do not know whether the representatives can comment on whether this would be a good idea. They are probably prevented from talking about policy matters, but if they do have a view, I would certainly like to hear it.

I would also like to hear their comments, if possible, on the dominance of Sky Television in the digital television market, particularly in the light of the news in the last few days that Setanta, the other quasi-Irish provider of digital television channels, may be facing some difficulties. Effectively, Rupert Murdoch now controls the television channels most people in this country receive on a daily basis. I wonder whether in the development of broadband the issuing of a licence to RTE or the BCI will ever lead to a situation where realistically there will be some control by Irish television channel providers. Will this actually happen or will we continually have a diet decided by Rupert Murdoch?

Perhaps ComReg might elaborate further on other points covered in the presentation. On the question of it taking control of the regulation of premium rate services, what priorities would it have in mind in that event? What difficulties does it see and what challenges does it anticipate in the regulation of that sector?

Another interesting figure relates to reductions of up to €100 million negotiated by ComReg in the MTRs. Perhaps it might elaborate further on this. What savings were effected in previous years and what is the evidence that these savings have been made?

Mr. John Doherty

Perhaps I might start with the last question. In effect, mobile termination rates are what one operator pays to another for a call taken off net. The average price is in or around 12 cent. We have initiated a process to move this down to 5 cent for all operators across the board. The flowthrough will result in lower fixed mobile costs per operator, which is where the figure of €100 million comes from. This is the industry's assessment of the current charges and the savings to be made for Irish consumers. This is not a one-day phenomenon because year on year we have been pushing operators to lower mobile termination rates. This is the most significant benchmark achieved and will bring Irish rates to the lower end of European average rates, which is very welcome.

On the policy issues raised by the Deputy, clearly that is not a matter for ComReg. We have to operate within the market in which we find ourselves. One point is often missed. Sometimes people get a worse press than that to which they might be entitled. In the last three years or so Eircom has committed to investing in the order of €1 billion in its fixed and mobile operations. That is not an insignificant amount of money. On average, it will be investing around €300 million per annum. It makes up almost 50% of the investment in the total Irish marketplace. The decisions on separation, renationalistion, etc. are not ones for ComReg, as the Deputy will be aware.

I shall make one last comment on content. We do not regulate that side of the industry. These are matters for the BCI rather than ComReg; therefore, issues about Sky Television content need to be addressed to the Broadcasting Commission of Ireland.

Mr. Alex Chisholm

In relation to premium rate services, the Minister for Communications, Energy and Natural Resources announced in the House that he was proposing to transfer responsibility to ComReg, but that decision has not yet taken effect. We understand legislation is in preparation to transfer it to us, but we cannot move into the driving seat until we have been given that responsibility. By way of preparation, we have been informing ourselves of how this market operates and looking at best practice in regulation by examining what is happening in other countries which are regarded as good models for the industry. It will be a challenge to deal with it as there has been public disquiet about the industry. There is scope for the abuse of consumers, including vulnerable persons such as young children. Understandably, this will be a significant new responsibility for us. For this reason we have asked for the appropriate powers to deal with it in order that we will be able to come down very hard on the bad apples in the industry, of which there are said to be a number.

As long as the market functions reasonably well and without these abuses, we have no wish to put these people out of business. It is a legitimate area of the market and the sector turns over approximately €100 million per year. We must strike the right balance in moving into this role between being fair, even-handed and dealing very quickly and promptly with abuses, but at the same time not being too heavy-handed in going after everybody and everything. That is the challenge for us.

Deputy Seán Ardagh

I apologise for being late as I had another item to deal with, but I read through the PowerPoint presentation and listened to the questions and discussion here. Mr. Doherty said he would like to see ubiquitous broadband throughout the country. Is there a target speed he would like to see within certain time periods based on the greatest technical advancements in the world generally? Mr. Doherty said five companies offer 20 megabits or more and the market is the best driver, and I agree with that. Is ComReg in a position to incentivise companies to improve their standards and the quality of service they provide? Can ComReg act as a persuader to try to get the companies to up their game, taking into account that it is a market-driven situation?

One of ComReg's raisons d’être is to promote innovation and investment in the sector and I wonder if it could do more on that. It has an income of €46 million and expenditure of €22 million. I am delighted to see there was a reduction of 10% since 2008, although I would like to see more reductions to members or services rather than money being given back to the State. Is ComReg examining the possibility of promoting innovation and investment in the sector and developing a mini-Silicon Valley where new graduates from technical colleges and young scientists such as Mr. Collison are incentivised, motivated, helped and guided along to try to promote more investment in the sector in Ireland from indigenous resources?

My next question is on the function of the budget and the management and operations of same. Does ComReg operate to the very highest international standards? There is peer review by other regulators on key areas. What are those key areas? If ComReg wants a new standard put in place, is the length of time it takes for it to have the necessary consultations, do all the paperwork and get the legislation or regulations such as statutory instruments up to the standard required? Is it up to the competition in other countries which are trying to take from us companies such as Microsoft, with its vast investment?

How is the recruitment freeze affecting ComReg? Does a recruitment freeze apply to ComReg? Does that mean everybody is working harder because there is more work to do, which is understandable? How is ComReg dealing with that? Is it having a very detrimental effect or is ComReg coping well with it? Is ComReg being proactive in this industry and being a leader rather than just a regulator?

Mr. John Doherty

I will separate the questions out and ask fellow commissioner, Mr. Byrne, to address the innovation issue first.

Mr. Mike Byrne

I am just back from Japan, where the focus of our work was around supporting innovation in Ireland. I will answer with my colleague, Mr. Chisholm. We have a unique opportunity in this country to use a national asset, our radio spectrum, to support and promote innovation. That has a direct impact on driving competition as more spectrum is released. We have built up a very strong industry in the country over the last 40 or 50 years in the use of radio-based systems. The Deputy is familiar with this.

One of the key drivers is being able to provide the ability for international companies such as those based in Japan which may be interested in providing products, services or applications in the European market to trial them in Ireland. In Japan there are world-leading companies in this area which do not operate in Europe, such as NTT DoCoMo. Part of our role under legislation is to promote innovation. We have an opportunity to do this and the commission is very pleased to see the Minister for Communications, Energy and Natural Resources, Deputy Ryan, has put this at the heart of his policy for next generation broadband. We are also pleased that it is mentioned in the Government's Building Ireland's Smart Economy document and the programme for Government.

There is a realisation that we have a significant opportunity and that more can be done. As an example, all the handsets Ericsson provides into the European and other markets are trialed in Ireland. Most people would not be aware of that. Trials were conducted in recent years on the application side such as mobile television. O2 trialed consumer experience of mobile television in the greater Dublin area. Many opportunities can be realised as a result of this. ComReg is conscious of its role in providing radio spectrum for the businesses that want to gain access to this. In recent years we have been trying to internationalise this as best we can. We have received visits from Korea, Japan, Singapore and other countries interested in what we have to offer. We are conscious of the role we have to play and are stepping up to the plate to do that.

Mr. Alex Chisholm

To address the other half of the question on investment, we are very conscious that it is not just a question of bringing in new technologies and ideas, but of keeping the flow of investment going in the communications industry. As Mr. Doherty mentioned, the rate of that in recent years has been approximately €700 million per year, more than half of that coming from the non-Eircom sector. We are very conscious, as the regulator, that we need to provide very considerable stability and predictability in our decisions because although the market invests, it takes place within a framework which is described by policy and regulation. We need to ensure we are very even-handed in our view of the different parts of the industry. It is not smart for us to try to pick winners and say we are obsessed with one particular technology or we prefer one firm over another. We have to be very even-handed and technologically neutral.

Furthermore, we need to look at the impact of our own decisions on investment incentives, particularly to next generation broadband which will be a significant investment requirement. It is a risky set of investments for all players and a step change facing the entire communications infrastructure in this country. Whether it will be an investment in fibre, wireless or cable solutions, in each case it represents major amounts of money, hundreds of millions of euro. We will shortly be publishing a paper on this subject, next generation broadband, which looks at all the different drivers in process, including the economics of the different channels. It turns the spotlight on ourselves to see how our regulations impact on this and the effect it has on incentives, the impact of pricing decisions, rules on access and other aspects of regulation, as well as the influence of departmental policy on this and the role of the Government as a user in some Government assets. Therefore, it is quite a broad-based paper specifically on that question of how to maximise timely investment in next generation broadband in Ireland.

Mr. John Doherty

I will finish on what we have described as the organisational one. From a ComReg perspective, we want to be the best regulators in Europe. We are involved in a myriad of different regulatory groups across Europe. We try to influence EU policy and want it regulated in the direction it should go. In areas like spectrum, ComReg is considered to be in the vanguard in Europe in terms of its thinking, implementation, flexibility and creativity. Mr. Mike Byrne is leading the digital dividend group across Europe, which is a recognition of ComReg as an organisation for its competent activities. We started from a post-liberalisation situation where we literally had a pile of catch-up things to do. We had to tick boxes just to catch up with the rest of Europe. However, in most of the areas we are talking about here today — whether it is next generation access or LTE — there is no other example one can look at.

ComReg is basically pushing the envelope out at the same speed as the best in Europe. We look at it as a business, candidly. We outsource where it is appropriate to do so; for instance, we have outsourced our payroll for years. We also outsource our customer care. As each eventuality comes up and it makes sense we look to outsource it. Our budgets are driven by our work programme. We develop the work programme and then develop the budget around it. We have made reductions in budgets which have been challenging. While it is easy enough to say "Reduce your consultancy budget by X", the challenge for an organisation like ComReg is that the consultancy budget may have produced multiples of the amounts had the consultancy been undertaken. In other words, if we wanted to do a complex spectrum auction, we could well save €300,000 in the context of not doing that, but alternatively it may well have generated €10 million which would in effect fly through to the State.

These are difficult challenges. As LTE, convergence, IP and next generation access all come home, we will need to have people who are sufficiently skilled and up to speed with the rest of the sector in these areas. That will always be challenging. Clearly, where one is not able to recruit, it poses a serious challenge for us in terms of being able to ensure that the communications sector in Ireland is as good as the regulatory system can make it. That is something that we monitor closely. In so far as they can, our staff need to be at the leading edge with the industry because these are the people we are dealing with. They need to be confident, understand the sector and make decisions on a par with the private sector context. That clearly is a challenge. We are doing quite well on that particular front but we never rest on our laurels. We are always striving to do better. If one looks at the awards we win and the flavour of how ComReg operates, it is all very positive. The commission has a lot to build on and we are determined to continue to build on that for the good of the economy and the country.

Deputy Seán Ardagh

May I ask one question on the consultancy? As regards the €300,000 that ComReg cannot spend, which is then a foregone cost to the Exchequer of €10 million, is the halt on the use of consultants so rigid or black and white that ComReg could not argue for the use of it.

Mr. John Doherty

The answer to that is that it is not. Obviously, however, when one is making challenging decisions one must weigh up the various pros and cons. We have the flexibility to make those choices.

Mr. Alex Chisholm

Let me add one point. As well as making these budget reductions and economies, we have been conscious of the overall cost of regulation to the industry at a time when it is suffering difficulties. As the committee saw from the figures, the levy in this country is about 0.2% of qualifying telecoms revenue, which is quite low by European standards. Nevertheless, we do realise that represents a significant cost. As well as trying to reduce that cost we are also trying to minimise the administrative burden because that is the other way in which industry is affected. The committee saw from the presentation that we issue about 5,000 licences a year and renew a further 13,000 a year. That in itself is a huge amount of paperwork for the companies affected, so we have invested in a project to make it easier for companies to renew their licences electronically, which will reduce the administrative burden of complying with the licensing regimes.

Deputy Seán Ardagh

Therefore, it is all done on-line now, there is no more paper.

Mr. Alex Chisholm

It is moving on-line, yes.

Mr. John Doherty

Including payments and all those elements as well.

Chairman

On behalf of the committee, I thank Mr. Doherty, Ms White, Mr. Byrne and Mr. Chisholm for their attendance.

The joint committee adjourned at 5.20 p.m. until 4 p.m. on Tuesday, 23 June 2009.