Tuesday, 21 May 2019

Questions (56)

Timmy Dooley


56. Deputy Timmy Dooley asked the Minister for Communications, Climate Action and Environment the cost-benefit analyses conducted by his Department or on behalf of his Department with regard to each alternative option considered for the national broadband plan; the cost of each of the options considered; the state aid considerations and the meetings and-or communications with the Department of Public Expenditure and Reform on these options; and if he will make a statement on the matter. [21776/19]

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Oral answers (6 contributions) (Question to Communications)

The question concerns the Department of Communications, Climate Action and Environment's consideration of alternatives to the national broadband plan in 2018 and earlier this year. Costings were made but this information was not released. Will the Minister outline the indicative cost of each of the options considered by the Department?

The purpose of the national broadband plan is to ensure that more than 1.1 million of our citizens in rural Ireland have the same opportunity to participate in the digital society as citizens living in urban areas. The availability of ubiquitous high-speed broadband will bring significant benefits in areas such as e-health, e-education, smart farming, regional development and tourism.

As I outlined in my response to an earlier question from Deputy Stanley, my Department commissioned a comprehensive cost-benefit analysis on the national broadband plan, which is a mandatory requirement under the public spending code. In stress testing a number of alternative options, it is not expected for a full cost-benefit analysis of each to be carried out. Rather, the approach is to evaluate the salient changes that other options would bring and evaluate them in the context of the general framework of benefits and costs. Some options sought to reduce the area covered, to alter the technology, to delay the roll-out or to alter the model underpinning the tender. All of this involved an examination of costs, potential changes, state aid requirements etc.

In developing alternative options, my Department and the Department of Public Expenditure and Reform were in regular and ongoing engagement. Publication of the initial costings of the analysis of alternative interventions in advance of a revised strategy could impact on the State’s ability to get value for money in a procurement process, which is why these costings have not been made public.

I find that hard to understand. Earlier I heard the Taoiseach respond to a question about the ultimate value of the contract. There has been an effort by the Minister and the Taoiseach to suggest that after 25 years the only value that will accrue for this massive State investment will be the value of the fibre optic cable. That fails to recognise the tremendous amount of money that will be spent in marketing, connecting and building a customer base that is projected to comprise 400,000 customers after the 25-year period. The asset in question here is the value of that connection and monopoly access to that pool of customers and its revenue-generating capacity. As the Minister has indicated in this House, each of those customers will pay €30 per month. It does not take a mathematician to work out the value of that. I do not see any true recognition of what might be referred to as the soft asset, that is, the customer pool, in any of the communications of the Department, the Minister or the Taoiseach.

I can see the rationale for not publishing the costings and I hope the Deputy can understand it. The individual tenderer which has now been successful has to conclude deals with subcontractors. If we publish the tentative costings, it will undermine the ability of that tenderer to get value. Similarly, if we priced those alternatives and published those costings, we would undermine our ability to get value for money for the taxpayer if in the end it does not go ahead and we have to go back to the market. That is the reason for the redaction.

The development of the customer base is crucial to the success of this company. However, the company carries that risk entirely. One of the oft-cited critiques by the Department of Public Expenditure and Reform concerned what will happen if this company does not get sufficient take-up. In that eventuality the company is at risk, not the State. That is included in the terms.

Regarding whether this is going to be a huge and lucrative company, I pointed out that this is an entirely regulated price. There is a fixed price which is currently set in the contract and in the future will be set by ComReg. It is comparable to the price in urban areas. There is not some super-price to be charged in rural areas. It is the same price. The projected turnover on the take-up the Deputy refers to is €150 million. Some €220 million of investment will be made in equity and working capital. That gives an idea of the scale of the company. It is very important that we develop the take-up and that is why we are doing it, to give those people a chance to access the network.

The Minister knows full well what will happen if the take-up does not meet this company's projections. The company will walk away. The Minister has already provided for that. He has indicated that the State will step in and take the stranded asset. It will then be left with the burden of completing it to protect the investment and the customers to whom the Government has already rolled out the service.

We must pick this deal apart bit by bit, look at all the risks and move way from the falsehood employed by the Taoiseach to the effect that the contractor will somehow be on the hook for €2.4 billion. It is clear that it will not be. If the company is not able to recover its capital investment, it will walk away. The Minister has already provided for that. The State will be left to pick up the tab. When one looks at it in the round, it is an exceptionally bad deal and there is potential for further delays. If at some inflection point the contractor walks away, it will take the Minister some time to pick up the pieces and start the roll-out again. None of this seems to have been factored in. This undertaking was entirely based on the belief that this was the only option. The Government has been taking that approach for four years. The fundamentals have changed on so many occasions and the Government has simply proceeded with the same approach, hoping for some other outcome. When one gets into the detail, it beggars belief. It is to be hoped we will able to do that at committee in the next few days and shine some more light on a project that is doomed to failure.

There has been much talk about the projected take-up. As the Deputy knows, it is projected that 80% of those passed will take up the service by the end of this project. Existing information says that where it is available on a fixed line, the take-up of high-speed broadband is already at 65%. We have no reason to believe that take-up in rural Ireland will be lower. Our cost-benefit analysis assumes that farmers would take it up at a rate of just 20%. That is quite unrealistic.

If it turns out to be less than projected, it will be solely the contractor's equity which is at risk. If those targets are exceeded, the State will recoup 60% of the extra profits. This model is designed to ensure that the State shares in the benefits and carries a capped risk. This approach has been worked out as the best way of protecting the State while creating an incentive for the operator to continue to invest, upgrade and future-proof the network. That evaluation was made at the very start of the project. The Deputy can see why that advice came to the Government. When he reads and scrutinises it in the committee, he will see that it is robust.