National Broadband Plan: Discussion (Resumed)

I welcome the representatives from Eir to discuss the national broadband plan. They are Ms Carolan Lennon, chief executive officer, and Mr. Edward Storey, director of strategy and corporate communications. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by the Chairman to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity, either by name or in such a way as to make him, her or it identifiable.

Any submission or opening statement made to the committee will be published on it's website after the meeting.

Members are reminded of the long-standing parliamentary practice to the effect 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 remind delegates and members to turn off their mobile phones or switch them to flight mode as they interfere with the sound system, even when left in silent mode.

I ask Ms Lennon to make her opening statement.

Ms Carolan Lennon

I thank the joint committee for inviting Eir to attend the meeting to discuss the national broadband plan, NDP. I am joined by Mr. Edward Storey, Eir's director of strategy and corporate communications.

I do not propose to take members through a history of Eir, but I wish to outline that it is the principal provider of fixed line and mobile telecoms services in Ireland. We have approximately 2 million customers and operate the most extensive network in the country. Open Eir is the largest wholesale operator in the country, providing products and services for over 40 wholesale customers and more than 400,000 end users. We are also a major contributor to the economy, spending over €1 billion annually and employing just under 3,500 people directly.

There is often much public commentary on or speculation about Eir's investment, an issue to which I will turn shortly, but it is important that facts are not overlooked and that the committee be made aware that in the past five years Eir has invested more in its network than any other telecoms operator in Europe relative to its size. That is illustrated in the accompanying graphic.

In its investigation of the NBP the committee has heard opinions from multiple delegates about Eir's investment of €250 million in rural areas. It relates to the deployment of high speed gigabit fibre technology that has passed 300,000 rural premises with no State subsidy or taxpayer support. Today we have passed more rural premises with high speed fibre broadband than the 300,000 originally planned and expect to pass approximately 340,000 premises when we close out the programme this summer. This was and is a significant private investment in rural areas. As someone who was involved at the beginning of this investment, I am very proud of the work done by the Eir team in every county in Ireland to bring fibre to the home to rural communities. The investment in the 300,000 programme provided for premises from 885 exchanges. We have rolled out over 27,000 km of new fibre, replacing 69,000 poles along the way and installing 110,000 four-port splitters - the black box that can be seen on many poles in rural areas. Beyond that, we have had to upgrade 202 exchanges with fibre backhaul.

There are a number of myths and misrepresentations about this investment and I want to address some of them. At the time Eir was deciding the next phase of its investment, we had completed a considerable investment in fibre to the cabinet, FTTC, bringing fibre technology further out into the regions, towns and villages. Fibre to the home, FTTH, was a natural follow-on from this. To that end, we publicly announced our intention to extend fibre to the home into the rural footprint in 2015. It is often overlooked that at the time the Department asked all operators to detail their investment plans for the period ahead. We informed it about our rural fibre to the home plans. Ultimately, Eir was the only operator to enter into a commitment agreement in respect of this investment. We will have passed 340,000 premises with high speed fibre before an NBP contract is signed.

Removing the 300,000 premises from the intervention area had two impacts on the NBP subsidy. It removed the potential revenue from these customers which drove up the subsidy. It also removed the capital costs associated with passing and connecting those homes with fibre, which drove down the subsidy. The committee has heard much about the former from previous delegates, but less attention has been paid to the latter, while the question of the net impact of both on the subsidy has not been addressed at all. Helpfully, the KPMG single bidder solution assessment report answers it for us. Page 37 of the report states the budget model in April 2017 predicted a €787 million subsidy. That was after the 300,000 premises had been removed from the NBP. This is lower than the subsidy projections of up to €1 billion reported in the press as early as 2015. We believe the removal of the 300,000 premises should have led to a reduction in the overall subsidy for the NBP. This appears to have been confirmed by KPMG. Our fibre network in rural areas was built with a specific intention and at an additional cost to Eir so as to allow the eventual NBP winner to share the fibre in order to traverse the 300,000 premises region. It now appears the decision taken by the bidder not to re-use the existing fibre infrastructure but instead to duplicate and overbuild our fibre across the 300,000 premises region has driven up costs and the associated subsidy.

Appendix 1 in our submission contains a sample map demonstrating how the 300,000 fibre to the home network was rolled out. We are happy to discuss the map in detail if members believe it would be of benefit. In designing the figure of 300,000 we firmly believed we were assisting the future NBP when we took the decision to terminate the 300,000 ribbon with a more expensive termination unit that would have allowed any NBP bidder to connect to and fully utilise the asset we had deployed. It is important to note that while we were able to pass the 300,000 premises commercially, our knowledge and experience of the NBP process suggests the extra costs and complexities of the NBP contract mean that they would have required a subsidy to pass if they had remained in the intervention area.

On the issue of network access, there has been much public commentary on and debate about the potential revenues Eir might receive for the rental of its poles and ducts. Eir's prices are regulated, published and based on a modest return on the significant cost of the 1,000 plus engineers who work all year round in all weather conditions to maintain Eir's network and replace its poles. Eir's investment to support the roll-out of the NBP could be as high as €200 million in the early years and €900 million over the life of the plan. It is important to note that this is not a quick return for Eir. In the first few years of the programme Eir will be making a significant capital investment to make ready the infrastructure for National Broadband Ireland, NBI. As such, we are taking on significant risk and operating at a loss for the term of the actual roll-out phase; nor does this represent incremental revenue to our existing revenue from our copper network since this network will be decommissioned after fibre is deployed. Therefore, the rental revenue is replacement revenue to fund the cost of maintaining the poles and ducts.

We would also like to remind the committee that Eir is not a monopoly provider of network infrastructure and that the State has already made it possible for publicly owned infrastructure to be used to deploy high speed broadband. The preferred bidder has stated its intention to use ESB and other infrastructure where it makes sense for it to do so and I expect it to do so. However, as I have just stated, rural networks are very expensive to maintain; therefore, the committee should not expect the ESB to be a free option.

Finally on this topic, I point out to the committee that the only cost talked about in detail in respect of NBI’s engagement with third parties is a reported €1 billion figure attributed to the cost of accessing the Eir and ESB networks, which accounts for only 20% of the overall project costs. The other 80% of the costs to be paid to privately owned and unregulated project subcontractors have not been subject to the same scrutiny or attention as in the case of Eir, even though the access cost in respect of its network is and was always known and is independently regulated by ComReg.

The committee asked us to reflect on three themes in its correspondence ahead of the meeting. In respect of the roll-out time, we have always been of the view that deploying fibre technology across the entire intervention area is a project of such scale that it was always going to take a number of years to complete. We believe seven years is a challenging but achievable target. As the only company building fixed-fibre infrastructure in rural areas we know how long it takes and how events outside our control can delay deployment. We believe our experience from the 300,000 premises deployment has been invaluable to us and the Department. It has allowed officials to prepare for and anticipate issues that are likely to be faced by NBI in its deployment.

On the issue of value for money, I do not believe it is appropriate for Eir to make determinations on what is or is not good value for money for the taxpayer in respect of the NBP. While there may not be a commercial case for providing fibre for every home, there may well be a case for society as a whole, but that is a question for the Government. However, it is clear to us that we can build rural fibre infrastructure at a lower cost than is envisaged in the plans as outlined at the same levels of quality and service as for the 300,000 premises. There is no secret in this. Eir could complete the NBP, based on its approach to the 300,000 premises rural roll-out, for under €1 billion. At the time of Eir's departure from the bidding process my predecessor, Mr. Richard Moat, wrote to the then Minister, Deputy Naughten, outlining our reasons for leaving the process but also offering to discuss with the Department alternative ways of achieving the Government’s stated policy objectives.

To keep costs down, Eir built its rural fibre roll-out with the intention of providing access to its 300,000 premises fibre. We offered a product that would allow the preferred bidder the traverse the 300,000 premises area to reach the intervention area. The plan, as it stands, is not to use this product but instead to build fibre alongside parts of the 300,000 premises network. The logic for this is not clear to us, but it is also not a question for Eir.

Eir does not have a view on the issue of ownership as it is a matter for the Department. However, as a former bidder, ownership of the network at the end of the 25-year period would have to be factored in to the business case for any bidder.

As a private company, Eir believes strongly the private sector can deliver high quality essential services to customers at a lower price than can be delivered through the public sector. As a regulated entity, we believe this can be done in a way that opens the market to competition and delivers the lowest cost to society. While the private sector gap funding model has failed to deliver a competitive outcome for the NBP procurement process, this need not have been the case had different choices been made along the way. We believe there are other models and structures such as a universal service obligation that could have delivered high speed broadband faster and cheaper than the existing process. However, we remain ready to support the NBP with our infrastructure, if it is required, whether it be via a private sector or public sector solution.

It remains a source of regret for Eir, and for me personally, that we ultimately found ourselves in a position where we could no longer remain in the national broadband plan bid process. Having been personally very close to the process and the dedicated staff, current and former, who worked on it, I assure the committee it was not a decision taken lightly or in haste. We entered the process in good faith with one aim: to win it. We continue to be engaged with the preferred bidder and with the Department. I want to make it clear that we completely support the policy of 100% connectivity for rural Ireland.

I thank the representatives from Eir for coming before us this afternoon and for their full support for the roll-out of the national broadband plan. I acknowledge the very significant private sector investment in telecommunications over recent years. It is has been very important for the country. Eir has recognised that fibre is the best technology and that while a seven-year roll-out is challenging, it is achievable.

I listened to a podcast Ms Lennon did with the technology journalist, Adrian Weckler, about the national broadband plan. In that interview she stated that €3 billion sounded about right for the roll-out of the plan. Over the past 24 hours we have heard it stated in the media that this could be done for €1 billion. I would like to get some clarity about that figure and a breakdown of what it would mean. When the Department appeared before this committee in May, its representatives stated that it would cost approximately €1 billion to physically pass all premises. There is a distinction between physically passing premises and actually connecting them. What does Eir estimate it would cost to connect all homes? What does it estimate it would cost to maintain the network over the 25-year period? Is VAT included in that figure? Will Ms Lennon break down that figure of €1 billion?

Ms Carolan Lennon

The difference between the €3 billion I mentioned on Adrian Weckler's podcast and the €1 billion is that the €3 billion would, in our opinion, be the cost of the national broadband plan under the gap-funding model proposed by the Department. I was quite surprised by some of the headlines today because Eir and its former CEO put on record, in the letter which was released on foot of a freedom of information request, that we could have delivered the national broadband plan for a fraction of the cost. That letter was issued in January 2018. The cost of €1 billion would be achieved by building that fibre network on the same basis as the network we have almost completed for the 340,000.

As for what I mean by that, we would use the fibre and the connection points in place for the 300,000. We would not be overbuilding. When we designed the network for the 300,000 we were still an active bidder for the NBP. As we were hoping to win it, we spent extra on the build for the 300,000 in order that the network could be rolled out into the intervention footprint. We would use our own poles and ducts. We own them so we would use them. We would use our own access network team and our contractors to build and plan the network. We would use our own wholesale team to sell it. We would apply the same connection charge in the intervention area as we have applied for the other 300,000. The connection cost would be the same as it is in the rest of the country. We would apply the same service level agreement, SLA, and regulated pricing in the intervention area as we do in the rest of the country.

We are just about to finish rolling out broadband to 340,000 homes in rural Ireland. We are the only people who have done that and the only people who have that experience. Based on that experience, we are certain that we could roll out fibre to the rural homes within the intervention footprint for less than €1 billion. That is the model we use, but that is not the NBP model. The NBP model is a gap-funding model that requires a separate wholesale division, a better SLA than applies in the rest of the country, differentiated pricing, and cheaper connection charges. All of these requirements and the additional complexity drive up the costs.

I was asked why we decided to pull out the last time I was before the committee. In the end, we decided to pull out because we could not make a commercial case to continue in light of all those costs. The big factor for Eir is that whatever is going to happen in respect of pricing, connection charges and so on for that 20% will affect pricing for the other 80% of our business because we are regulated and not allowed to differentiate pricing for different parts of the country. That was a massive risk for us and was another factor in our decision. This is being treated like new news but it is not. Anyone looking at Mr. Richard Moat's letter would see that he said this could be done for a fraction of the cost. That is the difference.

The network being rolled out to the 340,000 homes passes the home, it does not-----

Ms Carolan Lennon

No, the homes are connected. It is all-in.

The network is being connected to the homes. Eir is going up driveways and laneways.

Ms Carolan Lennon

Yes. The €1 billion plan we are discussing would also include connection. The network passes the home and connects to it.

Eir is proposing to roll out the national broadband plan, as envisaged, with the same level of quality and service that National Broadband Ireland, NBI, is to provide. It will go up every road and through every field for less than €1 billion. It will connect to the home, as opposed to just passing it.

Ms Carolan Lennon

The proposal absolutely includes connection to the home. It is exactly the same model as used for the other 300,000, which also connects to the home. We were looking at the numbers today. Our rule for connections is that we will only do overhead connection. We will not dig underground ducts for people. If people want underground rather than overhead, they have to dig the duct themselves. If they have an underground duct which is blocked, we will not unblock it. If a duct is fine we have no problem pulling fibre through it, but it if is blocked we will ask the owner to unblock it. Applying those rules to the intervention footprint, we can connect all homes for less than €1 billion. We were checking the number of people who have refused a connection or refused to put in ducting or to unblock existing ducts. That has happened in 2% of cases when we went out to put in a connection and we have passed that information on. That is not what is envisaged in NBI's plan.

It also proposes to charge a cheaper connection fee within the intervention footprint than the regulated connection charge Eir levies for the 300,000. We charge a connection fee of €170. My understanding is that NBI proposes a charge of €100. The service level agreement NBI proposes includes repairing 90% of faults within two days. The percentage in the national SLA is in the 80s. The reality of including a goal of 90% in the SLA means that engineers will be sitting around at home in north Donegal or west Kerry waiting for a repair to be required. They just do not come in in those volumes.

Is the cost of maintaining the network over 25 years included in the €1 billion?

Ms Carolan Lennon

Yes. As we covered in our statement, we currently make revenue on our copper network in the intervention footprint in rural Ireland. We use that revenue to maintain our ducts and poles. When NBI rolls out its fibre network in the intervention footprint, our copper customers and the revenue they generate will migrate from our copper network onto NBI's network. NBI will get the revenue but we will still have to maintain the ducts and poles on which NBI is to build its network. That is where the €1 billion over 25 years for maintenance of ducts and poles comes from. If we were to build the fibre network we would still use our ducts and poles so the revenue we lose from copper customers would be recovered from fibre customers. We would use that revenue to maintain the ducts and poles as we do today.

Will Eir be keeping its copper network? Will fibre not be provided to all homes?

Ms Carolan Lennon

We would keep it but it would be taken down over time. If we were building a full fibre network, once it was complete the copper would be taken down.

Eir is saying that it could provide fibre broadband to every home, farm and business in Ireland for less than €1 billion.

Ms Carolan Lennon

We would provide fibre broadband to the rural homes in the intervention footprint and connect them to it for that cost. When we talked about the intervention footprint previously, we were talking about 540,000 homes, only 460,000 of which were actually rural. Because the number of other homes we are connecting has increased from 300,000 to 340,000, the number of rural homes has reduced to 420,000. We can pass and connect those 420,000 homes for less than €1 billion. We are absolutely certain of that. We are just finishing the 300,000. This was always the case, however. It is honestly not new news.

Does the €1 billion include VAT?

Ms Carolan Lennon

Yes.

Eir would maintain the network over 25 years and would be able to connect 100% of all homes right across the country for less than €1 billion including VAT and the quality of service would be equal to that offered by NBI.

Ms Carolan Lennon

No. The quality of service would be equal to what we provide to the other 300,000.

That is the key.

Ms Carolan Lennon

No. As I have pointed out, the differences are the higher SLA to which NBI has signed up to for rural areas, the lower connection charge, and the differentiated pricing. If we kept the machine we have used to connect the 300,000 going and kept rolling with all the same connection costs, SLAs and so forth, we could do this for less than €1 billion. That is not the procurement model in place today, however, which requires much higher SLAs, lower connection costs and lower pricing.

When all those, as well as a new wholesale team, are factored in, it drives the cost and complexity, and that is when it starts to get nearer to €3 billion.

I call Deputy Dooley.

I thank Ms Lennon for her presentation. If we were to take the last home in a ribbon development on the edge of a village, such as Mountshannon where I was born and raised, for example, what service speed would the last home on one of those roads get at the moment?

Ms Carolan Lennon

A couple of megabits.

Is that the speed they get as part of the 300,000 network?

Ms Carolan Lennon

No. On the 300,000 they would go up to a gigabit.

They will have up to a gigabit. Let us say there are another five houses between the last house that has been served in that development and the end of the road. Ms Lennon has said that for €1 billion, Eir can give all those homes in the intervention area the same service. We will now get down to the micro. The last person in the line by that box is already getting speeds of a gigabit, and the fibre is then taken to the next eight homes to the end of that road. What is the difference between the service those eight people would get versus the 20 that have come from the village out to that point, under what Ms Lennon is saying Eir could do for €1 billion?

Ms Carolan Lennon

The product is exactly the same. It is the same technology, the same four-port spinner, and the same fibre.

The same speed.

Ms Carolan Lennon

The same speed. Everything is the same, except that they would be charged €170 to connect under the 300,000 model, and €100 under the NBI model. We would charge the same regulated fibre price we charge the rest of our customers, while the NBI proposal is to cap it at €30. While fibre is great with lightning and water and so the repair levels are much lower, if repairs were needed, 85% of repairs would be done within two days on the 300,000 model, whereas that figure is 90% with the NBI model, so people would potentially get quicker repairs.

Is that the only difference?

Ms Carolan Lennon

Yes. In our case, we would use our current existing wholesale team to sell it, and our current existing access team to build and plan it. However, in the NBI model, a separate wholesale team needs to be set up, which means hiring another 80 people and all the cost and complexity associated with that.

That brings us back then to where this all started. When the State got advice from KPMG and PwC, they advised that the gap funding model was the best way forward because it would provide a competitive environment. Looking at the marketplace, they identified Eir, ESB, and others. They referred to the amount of infrastructure that was already there, and the capacity of the State to expect a competitive environment because bidders would leverage their existing infrastructure. That was the guiding principle upon which this was established. Ms Lennon has said that despite Eir's efforts to leverage that infrastructure, the NBI procurement process as it was constituted effectively prevented Eir from making savings based on its existing infrastructure.

Ms Carolan Lennon

Indeed. The intention was to have competitive tension, but in reality, the decisions ended up being about making it a level playing field. Therefore, the advantages we had in that we owned the infrastructure, were building the 300,000 network, and had a wholesale team, were negated as part of that process, and that drove extra costs and complexity for us.

In effect, what the State and its consultants did in designing this level playing field so there could be true competition, was ultimately at a cost to the taxpayer. We will have had pure competition, but purely for the sake of it, and it will cost the taxpayer €2 billion.

Ms Carolan Lennon

It will absolutely drive extra costs.

When the then CEO of Eir, Mr. Richard Moat, wrote to the Minister at the time and said it had become overly complex and onerous, he was referring to the fact that the procurement process was no longer fit for the purpose of providing broadband to 542,000 homes at the best price. All those who pitched in had a level playing field, but in the knowledge that raising that bar for everyone meant neither Eir nor the ESB could use their existing infrastructure, and so the taxpayer was effectively on the hook for an additional €2 billion.

Ms Carolan Lennon

All of that had to be built into the costing.

I am clear now on the money aspect, which was a result of the decision to try to have an effective competition, the merits of which are questionable. That is the cost side of it. What does having a procurement process that requires everyone to create a completely new infrastructure do to the roll-out period? What is the timeframe from the get-go to completion? Take the example we discussed, of that string of developments that already has Eir's 300,000 broadband. What kind of timing are we talking about, in order to overlay that again or find its way back into somebody else's back hall?

Ms Carolan Lennon

I suspect it would take the best part of 12 months to build through the 300,000, if it were to start today. Again, there is a-----

I am going to stop Ms Lennon there. For two years, the Government has been saying that we cannot interfere with the current process in any way. When both Eir and Siro pulled out, I raised concerns with the then Minister, and he said we had to keep going, because if anything was done to stall this process, we would lose two years. In essence, it is the way the procurement process is put together that loses that time because it requires whoever wins it, including Eir, to go back and build-----

Ms Carolan Lennon

It does not require it. However, our 300,000 network is what we call a passive product, and a successful bidder could use the spare fibres and connections we built in when we were building that, but the remaining bidder has decided not to do that, and to build through the 300,000 instead. That decision could be revisited, and they could decide to use that passive product, which would save some time because they would not have to build through the 300,000. However, I never felt a three-year build time for the NBP was realistic. To give an example, we are just now finishing our 340,000, which took us three years. While the NBP is not triple that, the reality is that one needs three times the amount of fibre for the intervention area we had to do, so if we multiply that it could take it up to nine years. It will not take that long because it will get some more synergies, but between five and seven years is realistic. The majority would be done in five years, but the tails and the hard-to-reach places would bring it up to seven.

Based on Ms Lennon's knowledge of what Granahan McCourt Capital is offering, though they do not exist in this area of the marketplace at the moment, how long would it take to get service providers onto its network?

Ms Carolan Lennon

It would have to set up a wholesale business. It takes us about a quarter to onboard a new operator as someone goes in and we go through that process, but we have 80 people in a wholesale team, and we have all our systems, processes, and a unified gateway which everyone connects through in place. That is going to take a while to set up, but I suppose they will set it up in parallel with the building.

There is a time lag associated with overbuilding Eir's network.

Ms Carolan Lennon

That option could be revisited.

That covers most things for me. However, I read an article in one of the main newspapers which indicated that people are now looking at Eir doing it for €1 billion again, but the biggest hurdle is that Eir says it does not want to re-enter the national broadband plan in any form. Is that true?

Ms Carolan Lennon

We certainly do not want to re-enter it in its current form, because none of the things that caused us to pull out, such as the separate wholesale team, SLAs, etc, have changed. We are a commercial company, and we know how to do this, so if there was another form of the plan where it was commercially sensible or viable for us to do it, of course we would be involved.

The Government has gone a long a way and it is arguable that it should have known Eir had the capacity to do it more cheaply, based on the letter from Mr. Moat.

Was there a conversation between the former Minister, Deputy Naughten, and Mr. Richard Moat after that?

Ms Carolan Lennon

Mr. Moat requested a meeting with the former Minister, they met and Mr. Moat told him of Eir's decision to pull out. They had met the previous summer because we were approaching the time when we had to submit our invitation to submit detailed solutions, ISDS, and Mr. Moat wanted to put on the record yet again, as Eir officials had been continually doing with the team, that we had some real concerns. Following that meeting, Mr. Moat wrote to the former Minister. In that communication, he was very clear about why Eir pulled out. He also put in the letter that Eir could build the service for a fraction of the cost being talked about.

If the Government decided not to proceed with the signing of a contract with Granahan McCourt and a new process was under way, would Eir get involved?

Ms Carolan Lennon

We would look at it.

Eir is saying it could do the job for under €1 billion.

Ms Carolan Lennon

It would depend on the model chosen.

If the model mirrored-----

Ms Carolan Lennon

If it modelled what we proposed for the 300,000-----

If it was a fit for the 300,000-----

Ms Carolan Lennon

Those costs all stand.

In regard to the 340,000 houses, what has been the take-up in terms of connections?

Ms Carolan Lennon

That is commercially sensitive information that we do not release but I will try to give an indication of the uptake. It is on track in terms of our business plan, so we are very happy with it. When we last released the percentage, which I think was about six or nine moths ago, it was 14%. We measure by quarter. The houses we pass in the first quarter would be more than double the overall take-up. We go into an area, there is pent-up demand, it comes on board and over time it continues to grow. The averages bring it down because every quarter we are adding new quarters into it. We are happy with the uptake and we are confident that it will continue to grow.

Eir is a wholesale network and all of the operators are on our network. When we rolled out our fibre to the cabinet network, Eir was the first on and the first to bring in customers. Vodafone came onto the network and uptake increased again and then Sky came onto it and it increased again. When there are a lot of people advertising it, awareness levels increase and, as we know, a rising tide raises all boats. Vodafone is selling fibre to the home on that network. We expect Sky to do likewise so would expect uptake to continue increasing. We are very happy with it. We have no issues with it from a business case point of view.

On pricing in this area, am I correct that there is a retail price and a wholesale access price?

Ms Carolan Lennon

Yes.

Are they regulated prices?

Ms Carolan Lennon

The wholesale prices are regulated. We have just had a market review of our pricing in that area. We operate what is called a "margin squeeze test" in retail. There needs to be a gap between the wholesale price and the retail price. It is also checked by the regulator.

What is the approximate price per month?

Ms Carolan Lennon

On wholesale, it is approximately €19 for the 150 Mbps product at entry level. It increases by approximately €7 for the 300 Mbps product and by another €14 for the Gbit. The vast majority of people are buying in at the 150 Mbps, others are buying the 300 Mbps product but not many are buying the Gbit product at the moment because most of our laptops and homes are not ready for a Gbit but we will be ready at some stage in the future.

I would like to tease out the difference between the national broadband area and this model. Is the 340,000 area any different to the other houses in the more urban areas, or is it the same?

Ms Carolan Lennon

It is different. The map we provided might be helpful to members. We have our own exchanges. When we first started building out from our exchanges, we built fibre to the cabinet. We took fibre from the exchange to the cabinet and then copper into the rest of a house. We did that for 1.6 million homes outward from the urban areas. Through the exchanges there are ribbons into the rural areas. The 340,000 area goes into those rural ribbons and Mbps continues those rural ribbons. Our fibre to the cabinet is, as I said, only fibre to the cabinet. We are in design mode in respect of over-building the fibre to the cabinet network to bring fibre to home to all cities and pretty much every town with more than 1,000 premises. We are currently designing that model and hope to have the first homes passed in January 2020.

How long will it take to pass all of those houses?

Ms Carolan Lennon

There are 1.4 million houses, so it will take five years. In terms of effort, when we are building rural we complete, on average, 30,000 per quarter. For the same effort in urban and suburban, we complete approximately 75,000. As the houses are closer together the fibre lengths are shorter and it is a more efficient build. The challenge for the intervention footprint is the distance. For example, to connect 440,000 rural premises will require approximately three times the amount of fibre required for the 340,000 area.

The more urban areas, such as where I am living, are getting fibre to the cabinet. The 340,000 area is getting a superior product-----

Ms Carolan Lennon

They will be getting the best product.

-----and without a large price differential.

Ms Carolan Lennon

Yes.

I would like to move now to the letter Mr. Moat wrote to the former Minister, Deputy Naughten, setting out the reasons Eir was pulling out of the process, including that under the National Broadband Ireland, NBI, process Eir would lose its retail business, not only in regard to broadband but in regard to copper, which it is going to lose anyway. Eir would not have the opportunity of having a retail business as well as a wholesale business. Effectively, it would have to create a new wholesale business.

Ms Carolan Lennon

It was not about retail. I was the managing director of wholesale when this project kicked off and so I led it at the start, with the ambition, as I said, to win it all. The team had engaged with the Department for 18 months as the gap funding model evolved and developed and we understood what it meant. It was not a retail issue for us: it was a wholesale issue. The Department, as part of that level playing field, did not want our established wholesale business to sell in the intervention footprint. It wanted Eir to set up a new wholesale business to sell in the intervention footprint, which would have involved new staff, new systems, etc. That was one issue. The Department also wanted us to offer better SLAs in the intervention footprint. In terms of cost and complexity, recommending that to the board was difficult. It did not make a lot of sense commercially.

The wholesale price would not have been that different.

Ms Carolan Lennon

No. It was not a wholesale pricing issue. Our pricing is regulated, so we just accept that. The issue was all of the incremental cost and complexity of managing another wholesale business. Eir is the largest wholesaler in the country in this area. We have fantastic expertise and we did not want to have to recreate all of that. We had spent 18 months raising these issues and got no traction. The summer before the ISDS was due in September Mr. Moat contacted the Minister-----

What is ISDS?

Ms Carolan Lennon

It is the invitation to submit detailed solutions, ISDS, submission, which is the technical submission we made. Mr. Moat wanted to flag those issues in advance of that submission, which he did. We then submitted the technical bid and we waited for the next version of the contract to come out, hoping that some of the commercial issues we had been highlighting had been addressed. A new version, comprising 1,400 pages, came out in January. While a few minor changes had been made, unfortunately, the commercial issues we had raised had been addressed. The next stage involved Eir submitting its commercial bid. In doing that, we had to confirm that we were accepting all of the commercial terms and conditions. We could not in good faith do that. Mr. Moat then sought a meeting with the former Minister, met him and told him that Eir was pulling out. The Minister expressed disappointment and asked him to have think about it. At the end of January, Mr. Moat wrote to the former Minister telling him that Eir would not be changing its mind. I saw some media coverage today, which suggested that the issue was the new shareholders. It had nothing to do with the new shareholders; they had not bought Eir until April. The old board made the decision. It was very close to this process because we were before it a lot explaining it to them. The view was taken that if in 18 months we had not achieved any changes we were unlikely in the month or so remaining before the final bid to get any changes that would enable us to accept the commercial terms and conditions. In the end, as we were not going to be able to secure any changes, we pulled out.

It is hard to believe the new owners would not have been contacted. I accept they did not take over until April but it was clear they were going to get the ownership.

Ms Carolan Lennon

Yes, but until they owned the business they could not make any decisions. They were not on the board. They accepted the recommendation of our board. The board made the decision because it was close to the process.

In response to questions in the Dáil today the Taoiseach said that Eir had put in a bid which was very similar to the NBI bid. Ms Lennon mentioned an indicative bid prior to the January process.

Ms Carolan Lennon

It was the ISDS. It was a technical bid - Eir's technical solution. In that bid, we included all the costings that were required, including the cost of the ducts and poles and the cost of the wholesale team. We included all of the costs as part of it, which made it an expensive bid.

We were still hoping to get those matters addressed.

The other issue was that we made some assumptions around uptake. I do not know what the assumptions of National Broadband Ireland, NBI, around uptake are but in preparation for bidding for the NBP, we did a survey of the intervention area to try to understand how many of the homes were occupied because uptake depends on people living in the properties. According to the data we got back, about 25% of the houses were not occupied but were holiday homes and so forth. We based our uptake assumptions on that figure of 75% rather than 100%. That is obviously a factor with regard to the gap funding model. That was part of the technical submission showing how we were going to do it. Getting down to the negotiation was meant to be in that final commercial bid when one signed up to the terms and conditions.

Richard Moat wrote to the Minister saying that Eir could not continue because of all these commercial arrangements and that the board-----

Ms Carolan Lennon

He also said we could do this at a fraction of the cost.

Ms Lennon said she did not hear back from the Minister.

Ms Carolan Lennon

There was no further follow-up from that. We then had our new shareholders on board and came up with our own plan to turn the machine on to a national build.

Eir must have had contact with the Department. Did the Department get back to Eir?

Ms Carolan Lennon

Not in terms of any other role or a different model. We were in touch with the Department all the time because we keep it up to date on where we are with the 300,000 properties. We also work with the remaining bidder because it looks likely that it will use our infrastructure to roll out its programme. We interact with the Department for those reasons but there was never any discussion about an alternative model or further investigation in terms of that price.

Mr. Moat's letter finished by saying that Eir could do it for a fraction of the price but Eir heard nothing back from the Minister.

Ms Carolan Lennon

No.

That is incredible. Ms Lennon intimated that in respect of its current arrangement regarding the 340,000-area zone, Eir uses overhead wires where possible. If someone wants to ducting installed, he or she must pay the additional cost. Is it Ms Lennon's understanding that the NBI scheme also involves overhead wires or is there a higher percentage of ducting involved?

Ms Carolan Lennon

I think it will go much further in terms of that connection. We set ourselves strict rules in what we do. My understanding is that NBI will be open to ducting but plans to charge €100 for it regardless of how big a person's driveway is. Our price is higher. It is a regulated price but is €170.

Why would it put in ducting given that the cost is so much higher?

Ms Carolan Lennon

That is a question for NBI.

In her presentation, Ms Lennon indicated that the other way it could be done was through a universal service obligation. That would be a policy direction from the State with ComReg setting out the basic rules. That would not breach EU competition rules. In a sense, that would give a wholesale monopoly or a continuing or extended monopoly to Eir.

Ms Carolan Lennon

I might use the word "obligation" rather than monopoly. I do not think it would breach the rules. Universal service obligations have been used for this purpose in other countries. The funding model and rules would have to be agreed. ComReg would have to come up with the rules and it would have to be monitored in terms of what was done. However, we have a universal service obligation in place with regard to the fixed access side. I think we would all agree that broadband and fibre broadband is probably much more relevant today than the fixed access product given that many of us use mobile telephones.

This debate has been so public in the past few months and the committee has held various hearings. Ms Lennon says there is nothing new in this announcement that the plan could be rolled out for €1 billion. I do not know about other members of the committee but what we are hearing today - that this has not been more openly assessed - is remarkable given that it is a public debate.

Ms Carolan Lennon

We flagged our challenges all along. We pulled out and said we could do it for a fraction of the cost. There was no further engagement with us. We got on with our own plans. We were invited to appear before the committee and we did so and set out our stall. We were also invited to appear before the Committee of Public Accounts and told it that this could be done more cheaply. We have said that any time we have been interviewed. We are back before the committee and we have answered its questions on cost, roll-out and ownership. We are now outside the NBP process and, to some extent, paddling our own canoe in terms of what we are doing on the plans and supporting NBI in terms of access to our infrastructure. We are getting on with our job and leaving the NBP to the Department and the remaining bidder.

I thank Ms Lennon for her opening statement. What she is basically saying is that the tendering and procurement process selected by the Government has cost taxpayers an additional €2 billion.

Ms Carolan Lennon

I am speaking about the model and process they ended up with, which involved making all things equal, almost as if one was building a greenfield network and not taking into account that infrastructure is in place - in the 300,000 area - which could be leveraged. I do not understand why we want to give a better service level agreement in rural Ireland than we do in the rest of the country but those decisions have driven costs and they were always going to do that.

Based on what Ms Lennon is telling us, the monetary cost of the project is an extra €2 billion.

Ms Carolan Lennon

Yes.

This has serious implications. In terms of people's experience with Eir in terms of getting a phone call answered or a pole moved, has Ms Lennon ever tried to get a pole removed by Eir?

Ms Carolan Lennon

Obviously, I see the letters and I know there has been-----

Ms Carolan Lennon

Last October, we announced a decision to bring our contact centres back in-house, having been outsourced to external service providers for longer than I have been in Eir and to close our contact centre in Dublin where we could not retain staff because there are so many job choices. We did that and we have now set up rural hubs in Sligo, Limerick and Cork. Certainly when we were transitioning from the outsourced provider, we had extremely long call answering and waiting times. We launched the centre in Sligo, which I visited last week. Waiting times are back to 90 seconds. I apologise profusely to customers but I believe the long-term strategy of having people who look after our customers working for us is right. Unfortunately, when one closes a contact centre in Dublin, one cannot expect people to hang around until one has other centres ready to go in Sligo, Limerick and Cork. It has been really unfortunate but I believe we are back on track now and it is the right way forward.

Is Ms Lennon saying that all calls to Eir will be answered within 90 seconds?

Ms Carolan Lennon

I was looking at the numbers for yesterday and all lines were answered. Some of the calls to technical support were answered within 30 seconds so we are back on track.

It has been years of torment for people who have been trying to contact the main telecommunications company.

Ms Carolan Lennon

I agree. One of the reasons we decided to make the strategic decision to bring the service back in-house was that we felt we had to fix it because it had never been good. That was the call we made. This is the right way.

Ms Lennon will see that when Eir says it can deliver this project for less than €1 billion, people raise their eyebrows. It is the job of this committee to get to the bottom of that. One could also look at this in another way in terms of Eir pulling out of the tendering process in 2017. Did Eir not get what it wanted at that stage? It was allowed to cherry-pick the 300,000 most lucrative homes in rural Ireland. Could it not have been this that derailed the whole process?

Ms Carolan Lennon

Absolutely not. The Senator might say it was cherry-picking; I would say we picked the next most commercially viable homes because we were making a commercial investment. I remind everybody that the Department wrote to every operator in the country, told them it wanted to finalise this intervention footprint and asked them whether they had any plans to do more commercially. A number of operators submitted plans but the only operator that was willing to sign a commitment agreement and actually went ahead and delivered all those plans was Eir. That project involves €250 million of our money. If nobody goes on to the network, it is my problem. I take all the risk. If nobody connects, it costs €250 million. That has moved Eir from the provision of rural broadband up to the top percentile in Europe on the back of our investment. I take the Senator's point regarding service but if she looks at the chart we have presented, she will see that we have spent a higher percentage of our capital on investment in infrastructure in Ireland over the past number of years than all of the big telecommunications companies in the country. We are putting in the money and it is improving infrastructure in Ireland. As I say, if we were Google or Facebook, there would be a statue to us. We have history and people are sceptical but the proof of the pudding is in the eating. A total of 315,000 properties are covered but 340,000 farms, businesses and families will get access to fibre to the home on the back of Eir's investment.

I appreciate that but even people working within Eir agree that under-investment makes it difficult to get simple matters fixed, for example, wires hanging from poles or poles that have been half knocked over. The lack of investment is very visible in rural Ireland outside the 300,000 homes. How much is Eir getting for the use of the poles and ducts?

Ms Carolan Lennon

Over the 25 years of the NBP roll-out, Eir will get €1 billion. It will cost us €900 million to replace, repair and look after those ducts. In the initial seven years, we will spend about €200 million upfront to get that done.

From what I have read in the papers, that seems to be more than the equity investment of NBI. We make a regulated return. Our ducts and poles are set at prices decided by the regulator and they are cost orientated. They are based on the costs required to maintain a pole and duct network in rural Ireland. They are not set by me.

Is Eir already getting one third of the total State subsidy for using the existing network?

Ms Carolan Lennon

The subsidy is 20%. It is our infrastructure and that will have to be maintained. While rolling out to the 300,000 households we mentioned, Eir had to replace over 60,000 poles. When Storm Ophelia hit two years ago, we had to replace 2,500 poles. There is much work to get ducts and poles ready for NBI to use that network and that-----

Would Eir not have to do that work anyway?

Ms Carolan Lennon

No. If extra fibre is not being strung onto that network, fewer poles will need to be replaced. There is some confusion about this but it is not incremental revenue. We make money out of copper customers on that network today. We will lose that revenue when those copper customers migrate onto NBI's fibre network. If that happens, we will be making no money in that intervention area to maintain those poles and ducts. We will make that money through renting the poles and ducts to NBI and, over 25 years, we will get paid €1 billion and will spend €900 million, so we will make a small return.

It is hardly commercially viable going on those figures. Who is the main shareholder of Eir?

Ms Carolan Lennon

NJJ Telecom Europe is our major shareholder. I would not consider it highly commercially viable. It is actually a wash for us because the revenue we lose from losing the copper customers will be replaced by revenue we will get for maintaining ducts and poles.

Okay. In 2016, the public spending code benchmark figure for the deal we are talking about was set at €800 million and today's State subsidy stands at €2.97 billion. Is it not fair to say that the reason for the cost to the taxpayer spiralling out of control was, in fact, a consequence of the deal that Eir secured with Fine Gael in 2017 to provide services to the 300,000 households?

Ms Carolan Lennon

I know that has been put out there but I fundamentally disagree. People have taken out the revenue associated with the 300,000 households but left in the cost, whereas we have actually picked up the bill for the costs and have gone ahead and have built the network. We have actually built infrastructure to service 40,000 more households, so another 40,000 can now be taken out of the intervention footprint and there is no cost to the taxpayer because we have already done them. The KPMG report backed that up.

Ms Lennon will forgive me if I do not have ultimate confidence in KPMG, particularly when we talk about Carillion and many other organisations.

Last week, the Government's technical advisers on the national broadband plan discussed with this committee the most significant factors behind the State subsidy multiplying from €800 million to €3 billion. They gave two reasons for this. They said the remaining bidder would have no guarantee that it would be able to use Eir's infrastructure in that part of the intervention area and would therefore have to build its own network side by side that of Eir in order to reach the homes that Eir chooses to reject. That would come at a considerable capital cost.

Second, they said the remaining bidder would be prohibited from selling their products to any consumer in Eir's intervention area and therefore the State could not generate any revenue in that area even though it had to build a network through it. What sense would that make to the remaining bidder?

Ms Carolan Lennon

On the first point the Senator made, I do not understand that statement by the consultant or the bidder. I talked earlier about the passive product of the spare fibres that were built in when we were building the infrastructure to service the 300,000 households. Exactly the same rules apply to that passive product as apply to the poles and duct product that the bidder was happy to use. I do not understand why the bidder would say it did not want guarantee or rules on one product. All those products are regulated so exactly the same rules apply to poles ducts and NBI is very happy to use Eir's poles and ducts product so I do not understand that one.

For the second part, could Ms Lennon speak to what was said about Eir's intervention area?

Ms Carolan Lennon

Our understanding is that, when state aid rules apply, a subsidy cannot be applied to a model where there is already commercial investment. Since Eir has already rolled out to the 300,000, I do not think it would be reasonable to subsidise NBI to connect customers in that area. I think that applies to all state aid subsidy.

Would it not have been better not to have supplied the 300,000 in the first place as part of the-----

Ms Carolan Lennon

There are 315,000, soon to be 340,000, people on farms, in businesses and families who have access to fibre in the home today and nothing has happened on the national broadband plan. That was all at Eir's cost, which amounted to €250 million without taxpayer or State subsidy or risk to the State. All the risk is on us if nobody goes onto that network. We answered a request from the Department, made a decision, delivered what we said we would, and I am proud of the work we have done there.

The reality is that we would have built it anyway, whether we had signed a commitment agreement or not, but the Department is very keen for us to sign a commitment agreement and agree to just over 300,000 specific postcodes. If I was doing it again, I would not agree to 300,000 specific postcodes because, when one gets out to build in rural Ireland, one finds there are things which stop one going down certain roads and it can be time consuming and not as efficient as picking the most effective 300,000 households. At the time, the Department was keen for us to sign it and we did.

There are 542,000 households without connectivity and they are obviously the people about whom we are concerned today.

I thank Ms Lennon for her presentation. I am looking at Eir's map of Castlecomer. Why has Eir gone a long distance out one road? I understand that, from where Eir was supplying the broadband, it could go 2 km either way. Why has one leg gone completely down one road? I noticed that.

To be clear, Ms Lennon was saying that the way in which they are supplying the 300,000 people means the customer pays €170 whereas, under the national broadband plan, that figure will be €100.

Ms Carolan Lennon

That is our understanding.

So that is €70 more. Secondly, Eir is bringing it through wire. I know that and, if a person brings it by duct to where the pole is, is Ms Lennon saying that, under the national broadband plan, there was a clause that it had to be brought to within so many metres of a house, or brought right to the house in every case?

Third, for clarity, if Eir has €200 million in its back pocket, rocks up with the gear and decides to put broadband somewhere, must it go for a licence to get authority or can Eir do it of its own initiative? The reason I ask is that we sat in for 83 or 85 days of Government talks and were told categorically during those talks that Eir would not get the contract it was looking for because it would affect the overall project of the whole national broadband plan and a licence would not be issued. Can Ms Lennon clarify whether we were being misled? If I have the money and the infrastructure, can I decide what part of Ireland I want to go to and provide broadband?

At any stage over the past two years, before Eir came out of the process and when it highlighted the situation about which it was not comfortable, was there any negotiation with the Department? Was the Department willing to change or was it just stuck on this set of rules they had? If the whole scenario changed in the morning, as other Deputies have asked, how quickly could we have the likes of Eir's roll-out system put into place with guarantees of delivery? If the situation at the moment was put on pause and someone sat down with Eir or another provider, how quickly could it be put in place? Would it be another two years, looking at each other and wondering when another announcement would come?

I want to be clear about the following. Is Ms Lennon saying that, under the procurement document on which the Department was working with Eir, the company would have its business on one floor of its building and other people would have to be put up on the next floor as a separate entity, and the entities could not really talk to each other?

That would require extra staff, a new set-up and a new building away from everybody because it was the national broadband plan. While Eir has been rolling out broadband to the 340,000 homes over the past year or 18 months, how much of a problem did it have with councils in terms of licences?

We have a major problem across rural parts of Ireland. Years ago, when Telecom Éireann or the Department of Posts and Telegraphs workers came around an area, people let them put poles along their ditches, fields or whatever. I refer to GAA clubs, people who might be widening a road or somebody building a house. The first problem they face is to get someone from Eir to come out and do the work. The second problem is the prices it is charging at the moment. It is disgusting to see the way people who provided ground years ago before Eir bought the business are being treated. Councils trying to revamp towns might want to widen a bend in a road, remove ESB cables or whatever and it is costing them a phenomenal amount of money. Why has a goodwill gesture not been made to make sure those jobs can be done in communities that are struggling for funding? I ask Ms Lennon, as the CEO of Eir, to consider looking at that, especially in terms of rural areas.

If Eir was to get a contract in the morning - we live in a fantasy world - how long would it take it to roll out broadband to the 540,000 houses being talked about? Also, was Ms Lennon disappointed more with the Minister or the Department when they did not come back to Eir to try to resolve the issues that arose?

That is a lot of questions. The Deputy might take note of them to make sure they are being answered.

I will think of them.

Ms Carolan Lennon

My colleague, Mr. Storey, has kindly written them down so I will try to go through them one by one. The Deputy asked why one blue line on the map was shorter than the others. We are trying to get the roads with the most density. We had a budget of €250 million and we agreed to do 300,000 homes. It is all based on density. If the Deputy looks at the map he will see the yellow pin, which is our exchange. The yellow circle around it is our fibre to the cabinet footprint, and he will see what looks like ribbon rolls coming out of that. In every exchange, we asked what would be the maximum we could pick up across that exchange.

It was tough luck if one lived on some other road, in terms of density. Is that it?

Ms Carolan Lennon

Absolutely. The reality is that if it was not tough luck, I would have been building a 400,000 network. I would have been over my €250 million budget, and I would be delayed. Every day I get requests from people to extend it a bit but the problem is that if I extend it for one, I have to extend it for the other. In reality, we did extend it because in the end we will do 340,000 homes, but that is the reason.

The next question was on the connections. The connection charge is charged to the operator. We charge the operator €170. The operators then decide if they will pass on that connection charge to the consumer. Some operators, as part of their propositions, have a free connection. Others pass on some of the charge. Our connection charge to the operator is €170 and our understanding is that the National Broadband Ireland, NBI, connection charge to the operator is €100.

On the licence, we do not need a licence. If we decided tomorrow that we wanted to do another 100,000 connections, we need licences to open roads and for other issues. Instead of going back into urban and suburban, we decided that if we wanted to go further into rural, we could make that decision and do it.

I do not want to interrupt Ms Lennon but she might clarify one aspect. We were told at the time that Eir would not be given the licence. It came out later on that the EU forced the Irish Government to let Eir do what it said it would do for the simple reason that it would not be allowed to include it in the intervention area.

Ms Carolan Lennon

That sounds more like it rather than that we would not be given a licence. My understanding is that one cannot get state aid moneys if a commercial investment has already gone in there.

To be honest about it, we were told lies.

Ms Carolan Lennon

The Deputy asked, if the scenario were to change and we were back in it, how long it would take us to get up and running. It would take the minimum of a year to come up with another way of doing this and to get the ducks in a row to get started on it. In terms of any involvement we would have in future in rolling out in rural Ireland, we would be leveraging our 300,000 bills, the additional fibres that are in place and the additional connection points. That means we could get going from that point. In terms of going to all those exchanges, we have fibre backhauls to many of those exchanges. That can be a big chunk of work but we have done a lot of that already as part of our rural 300,000 roll-out. Unfortunately, coming up with a new model and getting people around the table does not happen as quickly as many of us would like it to happen.

On the duplication of wholesale, currently, our wholesale team sells our network throughout the country. The idea would be that we would have a separate wholesale team. We did not discuss separate buildings but having a line between them and that they would be the only people allowed to sell in the intervention footprint. For example, the IFA is a customer of ours. Its farmers are among the 300,000. A chunk of them are in the intervention footprint and there are some in the suburban areas. We offer an overall service to them with an account manager who does all of that for them. In this new model, some of them would have been looked at in the new wholesale division, which looks after the intervention area, while some of them would have been looked at as part of the 300,000. Offering that customer an all-country solution, which we do today, was going to be a challenge, never mind the cost. The other bidders did not have that. They did not have established wholesale businesses like ours so they did not have that loophole to get through.

We did have some difficulties with licences for councils. We have about 315,000 homes today. We have not delivered to some of the original 300,000 we signed off with the Department. They will be delivered over the summer, but much of that was to do with way leaves and licences. I believe we got some unreasonable requests. One council would not give us some way leaves until we finished work it wanted us to do in an urban area, even though it was about a rural piece or whatever. That is an issue. Some are better than others. Some move matters on-----

What council was that?

Ms Carolan Lennon

I will have to check. On the issue of moving the poles, I do not know the details. I will look into it.

Ms Carolan Lennon

I am not promising the Deputy he will have my answer but I will definitely look into it properly.

(Interruptions).

He will be up on the poles.

Poor old Denis.

Ms Carolan Lennon

There were two more questions, one of which was how long it would take to complete if we got the contract. I have always said that it would take five to seven years. We are building a national fibre network so we would have to increase our capacity in terms of that.

The Deputy asked if we were more disappointed with the Department or the Minister. We were disappointed with the engagement with the Department over the 18 months because we thought we were raising valid issues that should have been resolved. Our sense was that the Department never thought we would pull out. Even though it should not have been a surprise, I think it was a surprise when we did pull out. We were disappointed not to get more engagement with the Department. We spent more than €17 million on this bid. We were in the process for a very long time and we wanted to win it. We obeyed the protocol with the Minister so we did not have that much engagement with him on the subject. When we were pulling out, as a courtesy, the former CEO, Richard Moat, requested a meeting and then communicated with him.

Was there a meeting?

Ms Carolan Lennon

There was, and at that meeting he said we would pull out and then followed up with a formal letter about a week later.

I apologise for my absence, Chairman. Votes were called in the Seanad and the way this House works-----

You had to be there.

Indeed. I just wanted to explain that. I missed some of the presentations, so if I repeat what has been said, please forgive me.

I ask about the €1 billion that we have heard a lot about. Will Ms Lennon break down exactly where that figure comes from and how Eir estimates that the build-out would be €1 billion? I refer to the build-out connection. Does that include maintaining the service for 35 years, if Eir went with the contract through? Does it include VAT? Does it include all the aspects of the bid? Was that €1 billion in the tender documents that Eir submitted on day one?

Ms Carolan Lennon

First, on where the €1 billion comes from, it comes from us applying the same criteria to building in the intervention footprint for those rural homes as we have applied in the build for the 300,000. We would use the additional fibre that we built as part of our 300,000 roll-out and we would use those connection points that exist to extend out further into the intervention area. We would use all our own poles and ducts. Obviously, they are in place. We would use our access team, our build and design team, and the current contractors we have in place, and we would use our own wholesale team to sell the products. We would apply the same connection model that we use for the 300,000, that is, we would charge and operate at €170.

Our connection rules would apply. For example, if a person wants a connection in our 300,000, we will do an overhead connection for the customer. We will not build duct for the customer. We will pull fibre to an existing duct, but if it is blocked, we ask the customer to unblock it. If a customer does not want overhead and wants underground, we will ask the customer to supply his or her own duct. We would apply all of those criteria.

We would also apply the same repair service-level agreement, SLA, to the intervention footprint that we have for the 300,000 and the rest of the country, and we would apply the same regulated pricing. We are just finishing 340,000. We have a very good grip on the costs.

Was that in Eir's original tender document?

Ms Carolan Lennon

I will come to that in a second. The other question the Senator asked was whether that connects the home. Yes, it connects the home. It passes and connects the home, and VAT is included.

What has changed between the statement and Eir's tender document?

Ms Carolan Lennon

First, that invitation to submit detailed solutions, ISDS, was a technical kind of bid. The process that we were involved in with the Department was not that kind of process where we could use all the stuff that we already have, such as our ducts and poles, and our 300,000, to our advantage in the bid.

Ms Lennon stated previously that there were 1,000 technicians servicing it and somebody has to pay for them at some stage.

Ms Carolan Lennon

Agreed. However, the model that the Department had was a model where it equalised everything, and in that technical bid, we included the cost of the ducts and poles, the cost of a separate wholesale organisation, the connection cost that the Department wanted, and cheaper pricing.

What was Eir's bid?

Ms Carolan Lennon

Our bid was close to €3 billion, but that was with all those costs included in that model. We would not build it with that model. We would build it with the model we used for the 300,000. It can be done for under €1 billion, but not in the gap-funding model.

Eir's original documentation put in for €3 billion, which included rental, which Ms Lennon stated previously involved I am not sure how many workmen.

Ms Carolan Lennon

There are 1,000 guys in our repair team.

Those 1,000 workmen will have to be paid anyway.

Ms Carolan Lennon

Yes.

They will not be free because it is Eir. They will have to be paid anyway. What if a person were to take that into consideration? Did that €1 billion also include the VAT on this entire service?

Ms Carolan Lennon

VAT is included. That bid or technical submission was trying to be compliant with the procurement model with which the Department wants us to be compliant. If the Senator gave me €1 billion to build fibre to the home in rural Ireland tomorrow, I would do it but on the criteria with which I built the 300,000. Those are not the same criteria that the Department wanted for the procurement process. The SLAs are not as good.

I will ask about the original contract for the 300,000 houses.

Ms Carolan Lennon

It was 340,000.

How big was that contract? How many pages? Was it 50 or 200?

Ms Carolan Lennon

Forty-two.

This is a considerable sum of money.

Ms Carolan Lennon

The last one was 1,400 pages, the one that came in, the January one.

We are talking about a very different machine. We are talking about having large sums of Government money, our money, going into something and making sure it would be tied up. It is a different machine. Was it appropriate that we should have the solutions that have been talked about, in other words, a comprehensive solution, tied into that legal document or would Ms Lennon have preferred a shorter document?

Ms Carolan Lennon

For me, it is not about the size of the document. The gap-funding model was picked at the start because the view was that would give the best competitive tension and outcome. In reality, because it created a level playing field, advantages that someone like Eir has because we own infrastructure - we have it there today to use - were taken away. That is okay. The Senator might say that is fine, it is fair or whatever, but that drives the costs. It is not for me to decide whether that is right or wrong, but that is what happened. In reality, I would be certain that if I had a €1 billion cheque tomorrow, I could build and connect those homes because we are just coming to the end of having done it for 340,000.

Would Ms Lennon prefer the national broadband company would be set up to run that or for the Open Eir company to run it?

Ms Carolan Lennon

We are talking about two different things. We pulled out of the national broadband plan because the process was not working for us in terms of the complexity, the cost, the overhead and the risk into the rest of our business. As long as that process still exists, we will not be part of that and will focus on our national build. I refer to the question we were asked by the committee. We were asked to comment on the cost of doing this, how long it will take and the ownership, and we have done that. When we pulled out, Mr. Richard Moat wrote to the Minister and told him that we could do this for a fraction of the costs that were talked about at the time but the Department decided to continue with that process because that is the process it wanted to use. That is for the Department to decide. It is not for me to decide. I am only telling the Senator, based on my experience of building in rural Ireland, that if I apply exactly the same rules - I accept that they are not the same rules that are in the NBP process - I can pass and connect those homes for less than €1 billion.

That is probably the issue. We are on about a totally different proposal. The 350,000 homes would mainly be, as Ms Lennon stated, urban homes-----

Ms Carolan Lennon

No, they are rural.

-----in a rural setting, in other words, clusters of houses.

Ms Carolan Lennon

No.

Urban in a rural setting? What are you saying?

It is clusters of houses.

Ms Carolan Lennon

They are not clusters.

Is a two-storey more expensive to connect than a bungalow?

Let Senator Lombard finish his questioning.

My point was that the 300,000 homes, in particular in my area, were made up of settlements and large tracts of one-off housing which, meaning no offence, came about due to bad planning in the 1970s and 1980s. If we are honest about the issue, that is mainly what was connected. For example, the constituency I would service is 130 or 140 miles long. It extends to Castletownbere and beyond it into Allihies, and I start at Kinsale. We are talking about a considerable geographical area. When it comes to houses not connected, my area is the most peripheral of them all. Looking at what is being proposed here for vast areas of country and population, and Ms Lennon spoke about 350,000 houses, the area that has been connected in my part of the world cannot be compared with the area that has not been connected.

Ms Carolan Lennon

I would make a couple of points. It is not all clustered. We have strung 27,000 km of fibre. If they were all grouped in clusters, we would not have needed 27,000 km. This is rural, and it is down those rural ribbons. I agree with the Senator, however, that in the next tranche, the intervention footprint, the distribution is much more scarce. It is the point I made earlier. We will have to string three times the amount of fibre as before to cover those homes. That gives a sense of how much more dispersed and spread out they are. Of course, that drives the costs and it drives the time to do it. It will drive some harder connections as well because some of them will be much more remote.

I would hate people to think that the 300,000 were urban. They were not. They were quite rural.

Ms Carolan Lennon

However, they were not as rural as-----

Ms Carolan Lennon

There is fibre at Allihies, though, because it won one of our competitions for fibre.

Exactly. However, I refer to places, such as Mizen Head, which are very remote. To give Ms Lennon an idea of what we are dealing with geographically, it takes me three hours to drive the constituency. There is a slight difference here. Are we on target for the 350,000-plus houses to be delivered?

Ms Carolan Lennon

What we agreed with the Department was just over 300,000 and that was due to be finished by June. We have delivered 315,000 but some of the original Eircode postcodes that we agreed with the Department have not been delivered yet because we have had some way leave and access problems.

We have done all the civil engineering work, the poles and all that, and we just have to splice. By the end of August we will have 340,000 done, and that will be everything that was in the original agreement with the Department, plus close to another 39,000. That will all be done by the summer. To be honest, we have spent all our money now. The splicing is the cheapest part. As we only make money if we get people connected to the network, it is in our interest to get it finished now and we are also doing the design work for our national build, with the first homes being passed on a national build in January.

What would happen if we were to retender the entire process? KPMG came before the committee three weeks ago. If I am wrong about that the Chair can correct me. I am open to clarification, but the spokesperson informed us that in her opinion, if we were to start the retendering process and to go through the entire process it would take five years from start to finish. Based on the timeline we were told about at the hearings, would Eir retender?

Ms Carolan Lennon

Yes, if there was a retender under a new model that made commercial sense to us, we would retender. Five years seems a very long time.

I will follow on from Senator Lombard's question. In terms of the retendering, the gap-funding model was the issue from the start, and if there were to be a retendering it would have to be under a totally different set-up.

Ms Carolan Lennon

Yes, if that made sense.

Let us say it was five years, as per the view from the KPMG witness. If the project was parked and restarted with a different funding model that was suitable to Eir's requirements as a company, what would prevent Eir's parent company from saying, three years into the process, that it should forget it? Eir was bought in April and its new French owner commented that its focus is on urban development. As a company, it is possible that perhaps based on what has happened in this committee that the project could be retendered but who is to say that some time into the project, Eir could walk away? Is that not fair to say?

Ms Carolan Lennon

If we signed a contract to deliver something then we would be committed to doing it. There is no reason to say that. Our new owners have bought us and want to hold us in perpetuity.

Yes, but technically speaking, as a private company, the trajectory of the company could change.

Ms Carolan Lennon

We are not different to any other private company that might change its mind, but if we signed a contract we would be committed to it.

Yes, but that would be as the main wholesale company. There was a requirement that there would be a separate entity to deliver the broadband.

Ms Carolan Lennon

No, it was to sell.

Yes, to sell the broadband. Would the virtual new model have to have got rid of that point?

Ms Carolan Lennon

We certainly would not sign up to a model where we had a separate wholesale team. It would not make any sense for us.

Okay. In terms of the €1 billion cost that is in the newspapers today versus the €3 billion, perhaps I misheard Ms Lennon, but did she say at some point today that it would take €900 million to upgrade the poles and the ducts?

Ms Carolan Lennon

Yes, over the 25 years of the contract.

The company would have a cheque for €1 billion in its back pocket and €900 million would go to upgrade the poles and ducts over 25 years. According to my sums, we would have €100 million left to do upgrades and pay the VAT. That sum cannot be correct.

Ms Carolan Lennon

No, that is right. If we were doing it, those ducts and poles are ours. We own them.

Has Eir attributed a value to the existing poles in the €1 billion figure?

Ms Carolan Lennon

No, because we get revenue off them. Today, we make money on the customers on our copper network and those ducts and poles. That revenue pays for the maintenance of our ducts and poles. The prices are regulated. The regulator sets them based on cost. If tomorrow, we were to build the network, rather than someone else, we would migrate those copper customers onto the new fibre network and the revenue we would get for them on the fibre network would pay for the maintenance of the ducts and poles.

Yes, but the copper network is providing a certain amount of service.

Ms Carolan Lennon

Yes, because when one rolls out a fibre network, one could get rid of the copper because one does not want to maintain two networks and fibre is much more resilient than copper. It is better with lightning and water so it will offer a much better experience. We would migrate those copper customers onto the fibre network and we would have that revenue and use it.

Ms Lennon has not attributed any cost in the €1 billion for the use of those poles?

Ms Carolan Lennon

No, because they are our poles. We have applied exactly the same model that we applied for the 300,000 if we wanted to build the national broadband plan. In a world where NBI is successful and goes on to build the network, it would migrate our copper customers onto a fibre network. We would lose that revenue as we would no longer have it to maintain our ducts and poles but we would get rental revenue from NBI and that is what would cover it. We would lose revenue in terms of copper rental but we gain revenue from renting our ducts and poles, again, all at regulated prices.

But there is no figure included in the €1 billion for their use, because Eir is using them already.

Ms Carolan Lennon

No, because they are ours.

I suppose that is assuming the company would not be split from the wholesale element.

Ms Carolan Lennon

There are no plans to do anything like that.

So really it does not fit with the Government's requirement because it is specifically set out that the interest is only to be in the provision of broadband. What Ms Lennon is saying could not technically happen.

Ms Carolan Lennon

I am sorry, but I do not understand the question.

Perhaps I am not explaining it properly. The NBI's sole interest must be in the delivery. There would be no competition in the sense that it would not be a larger company with other interests.

Ms Carolan Lennon

The criteria the Government set for us are that, should we be successful, it wanted a part of our organisation to be only focused on selling in the national broadband intervention area. Because we offer a cross-country service to some of our customers, that did not make any sense to us, and it also did not make any sense to replicate the team, the systems and all the rest of it.

Yes, but to be separate was a criterion.

Ms Carolan Lennon

Yes, it was. Absolutely.

So based on the criteria, Eir could not do what it was proposing to do.

Ms Carolan Lennon

Exactly.

So it is really not relevant in terms of the sum here, that the €1 billion figure is assuming that the rules at the start would be changed.

Ms Carolan Lennon

Yes, but I suppose the question we were asked by the committee was what would it cost to roll this out. We are telling the committee that under very clear criteria that we have, which I accept are not the NBP criteria-----

It is a completely new model. It is almost cherry-picking aspects of the previous model and saying it could be done for X amount, but that is not what we asked for.

Ms Carolan Lennon

I think what was sought was to bring fibre to the home to rural Ireland. This delivers that under a different model. If it is not the model the Department wants, that is fine, but we were asked the question.

But it is not comparable in terms of like with like.

Ms Carolan Lennon

I think the output is comparable, but perhaps the process is not.

Ms Lennon said that Eir was applying the same variables to the 339,000-----

Ms Carolan Lennon

It will be 340,000 when we are finished. We are picking up new ones every day.

Eir is layering on the sum from the 339,000 onto the 540,000. I met Ms Lennon at the Committee of Public Accounts previously. Was the point not continuously made that the 300,000 are the low-hanging fruit with easy access? I keep hearing that term. That has distorted the project and the conversation around it. It is disingenuous to apply the same cost per house from the 330,000 to the 540,000?

Ms Carolan Lennon

We are not applying the same cost.

I thought Ms Lennon said Eir was applying the same cost.

Ms Carolan Lennon

We are applying the same rules, but it is not the same costs. The 300,000 we picked absolutely were the next most commercially viable. We have never apologised for that. We were asked by the Department where we were going to roll it out commercially and we told everybody. That is absolutely the case. As for whether the Department took revenue out of the NBP business case, yes, but it should also have taken cost out. The revenue was taken out but the cost was not. We are not saying it will cost us the same to pass a home in the intervention footprint, what we are saying is we will do all the things the same that we did in the 300,000. We will charge the same connection charge. We will charge the same connection criteria, overhead rather than underground. We will use the poles and ducts

Ms Carolan Lennon

We will have the SLA and all of that. The homes passed cost for the 300,000 is just under €800. That would be in excess of €1,000, so it would not be the same cost but all the same criteria will apply.

So they will be getting the same standard.

Ms Carolan Lennon

The same product.

But it is not the same standard. It is a different standard.

Ms Carolan Lennon

No, it is not. They will not be getting as good an SLA.

To go back to the apples and oranges again, it is different.

Ms Carolan Lennon

Absolutely.

When Ms Lennon was before the Committee of Public Accounts, the Chairman, Deputy Fleming, asked about getting the cable to the door.

Ms Lennon said that it was a 50 m drop and Eir's plan was to bring the cable from the pole outside a house to the eaves of the house.

Ms Carolan Lennon

Yes.

From that meeting, my understanding was that Eir was running a cable down the road and it or another provider - Virgin, for example - would charge the people in the house for the connection from the road to their house.

Ms Carolan Lennon

No. We carry out the connection and charge the operator, be it Vodafone, Eir Retail, Sky or IFA Telecom, a connection charge. The operator decides whether it wants to pass that on as part of its proposition.

It is usually €170.

Ms Carolan Lennon

Yes, although an operator might just charge €50.

Or waive the charge.

Ms Carolan Lennon

With our connections, we go overhead. We will not dig connections.

The difficulty in getting to hard to reach places has been well voiced at this and other committee meetings. In that light, how does the business model of €170 work? Does Eir apply that rate to even the most difficult to reach places?

Ms Carolan Lennon

Yes. It has to do with how our prices are regulated. It can cost us much more than €170, which is the average. That figure is set by the regulator and we charge it to everyone as long as they are willing to have an overhead connection.

The overbuild, duplication or whatever people want to call it was mentioned last week. Regarding the 300,000 premises, there are cables already and Eir is using those. There was a conversation last week, one I am sure Ms Lennon was too busy to look in on, about whether NBI would plug into either end of Eir's 300,000 roll-out. I am assuming those premises are not all in a row.

Ms Carolan Lennon

Definitely not. That would be too easy.

At the genesis of this process, did SIRO or NBI ask Eir to upgrade what was running along the 300,000 premises?

Ms Carolan Lennon

When we designed the 300,000 roll-out, we were in the NBP process and hoping to win. We designed our 300,000 roll-out with extra fibres and more expensive connection points so that, if we or someone else was successful, we could use them to continue into the intervention area and extend the footprint. We offered a passive product to the remaining bidder so that it could do that instead of overbuilding in the NBP. However, it decided to overbuild rather than use that product.

What are Eir's speeds in that product?

Ms Carolan Lennon

It is the same fibre that we run. We just have extra fibres. There was no speed issue. Someone referred to the bidder not being sure about the criteria or how long it would have the product for, for example, 25 years, but exactly the same rules apply to that regulated product as apply to our poles and ducts regulated product. The bidder is happy to use the latter, so I do not understand why it would not have been happy to use the passive product.

Which witnesses appeared before the committee last week?

University of Limerick academics and economists.

Yes. There was commentary last week about the standard of the cable. I do not want to attribute these comments to the wrong person, and I may have heard this on a show, but it was stated that the cable running along the poles in respect of the 300,000 premises was not next generation standard.

Ms Carolan Lennon

Not true.

Is the cable sitting on those poles of the same quality, future proofing and next generation standard as that which the emerging preferred bidder would use?

Ms Carolan Lennon

Absolutely.

There is no difference.

Ms Carolan Lennon

No, and there are spare fibres and connections.

The capacity and speed in the 300,000 roll-out are equal to-----

Ms Carolan Lennon

Yes.

There is no quality issue.

Ms Carolan Lennon

No.

Ms Lennon is telling us that the €1 billion would cover the design, build and roll-out of broadband to the 540,000 premises despite the complexities of the intervention area, that it would be connected to people's doors-----

Ms Carolan Lennon

Based on our-----

-----over the ground, after which they could duct it or do whatever they wanted themselves, and that it would be operated and maintained as per the proposal for 25 years. Ms Lennon is saying that will cost €1 billion. An obvious factor is that Eir owns the poles, which would add €900,000 to the figure were there a level playing field.

Ms Carolan Lennon

We would have the revenue over the 25 years. That is what would subsidise the cost of maintenance. When someone else has the network and we lose the copper customers, we lose the revenue.

But the €1 billion all comes from having different terms of reference starting out and a different service level agreement, SLA, in respect of customers and, theoretically, from re-entering the procurement process, which could take three or five years. Eir or other companies could pull out in that time, leaving us with no broadband.

Ms Carolan Lennon

In theory, but we are answering the question we were asked.

The sum is €1 billion plus €900,000 if one considers-----

Ms Carolan Lennon

No. They are our poles and ducts and we would not be charging because we would have the revenue.

It is in the bigger company, which would not be allowed anyway because Eir is not allowed under the rule-----

Ms Carolan Lennon

I do not know why that was the rule, but it never made sense to me. It did not apply to the other companies.

Ms Carolan Lennon

No. This has to do with a level playing field. Since we were the largest wholesaler, this was required of us to try to negate that. It never made sense and was always going to drive extra costs.

My understanding from the other meetings is that the reason for the difference had to do with the fact that, while the roll-out to 300,000 premises was based on the 32-page document, the €3 billion to be spent on rolling broadband out to the remainder needed oversight and governance, as it was a large amount of taxpayers' money and a large company providing wholesale telecommunications could have another arm investing in something other than communications. Theoretically and logically, the State money could be siphoned from one arm of the company to another. Eir is a private company, but Ms Lennon is also a citizen of Ireland. Would she not view it as a serious issue if any amount of taxpayers' money given to a large company over a long period went into other parts of the company where we did not have oversight of it?

Ms Carolan Lennon

In that scenario, the lowest risk would be to give that money to Eir. We are completely regulated. Every year, we produce regulated accounts that are scrutinised. Neither NBI nor any of the other bidders do. I would have thought that the State would have maximum visibility over our costs and accounts, and much more so than with the other operators.

There would be a risk in terms of the bigger company.

Ms Carolan Lennon

Certainly no larger than the risk with other bidders.

How much money has come out of Eir in dividends in the past 20 years?

Ms Carolan Lennon

I cannot comment on the past 20 years, as I have only been CEO for 14 months, but investors invest to make a return. They could put their money into other countries, but they have put €250 million into improving broadband infrastructure in rural Ireland. That is something that we should be happy about.

I am happy about investment,-----

Ms Carolan Lennon

There is still a-----

-----but I am more concerned about taxpayers' money. The point of having a newly formed company under the terms of reference was to protect taxpayers and provide oversight. Had that change not been made, would it not have been possible for taxpayers' money to be channelled elsewhere through a company and not to reach-----

Ms Carolan Lennon

I will come back to the point on regulation and oversight of Eir. We are the least risky of all those. The other option was the universal service obligation, USO, model. There would have been regulatory oversight under that as well, but that model was not picked. If the concern is for taxpayers' money, there are other models. I would not consider us to be any riskier than the others.

In terms of the USO and what is already on the table, what would Ms Lennon remove from the broadband plan? What is overkill?

Ms Carolan Lennon

A couple of elements. I would remove the 40,000 premises in rural areas that we have already handled. That would save €40 million. I would not focus on the urban infills. Commercially, they will be delivered over time. Some of them have probably been delivered already. As part of our national build, we will pick some of them up. I would focus on the rural homes that are left. If we narrowed the process down in that way, it would be more achievable in the timeline in question. I see no need for a rural SLA that is better than the national SLA. It is inefficient and I do not know anyone running a network who would recommend it. I see no reason to have a smaller connection charge in the intervention footprint than in the roll-out to the 300,000 premises or the rest of the country.

I see no reason for the bidder not to use the passive product to get to the target of 300,000 premises. If all of those changes were made, a decent amount of money would be saved and the people receiving the service would not really be any worse off than they are.

What is the technical difference for the person selling their goods in Skibbereen between not being worse off and not really being worse off?

Ms Carolan Lennon

An SLA figure of 90% and an SLA figure of 85%, with speed of repair, are very similar. It makes little difference, except that it is completely inefficient. There are people such as engineers who are sitting around waiting for requests to carry out repairs to come in. It makes no sense. No one running a network would agree to this and it is not particularly beneficial to consumers either. I would strip it all back because if I was living in rural Ireland, I would want to have a fibre connection. I would be happy enough with a €170 connection charge, as applies in the rest of the country, and I with an 85% SLA figure, as applies in the rest of the country. That would save some money.

I appreciate the Chairman giving me a few minutes to speak because I am not a member of the committee. As somebody who comes from rural Ireland, I am enthused by Ms Lennon's presentation. We have had three or four public announcements on broadband going back over seven years. In rural Ireland, in particular, people are sick, tired, angry, annoyed and fed up with the past two Governments, in particular. I do not want to politicise the issue, but they are upset because in many areas they have been left without any service. Ms Lennon has fielded every question. She has had difficult questions asked of her and it is every member's right to ask such questions. In my constituency of Roscommon-Galway people will be watching these proceedings and will pick up on them in news programmes later this evening. They will be enthused by what Ms Lennon is saying. I get the feeling that Eir wants to become involved, that it wants to bring the product into rural Ireland and that it wants to deliver it to people. At one stage in recent years people involved in import and export businesses such as Westward Scania in my home town of Strokestown where Eir is active in installing broadband had to take it that material had to be sent quickly to Scania in Sweden in order that it could be sent the town of Mullingar without delay. These are the problems with which we have had to deal. It is an absolute scandal that we have allowed this situation to continue year after year. I know of another case where somebody had to switch their business from north-east Roscommon to Longford.

Let us deal with the facts of what people have had to suffer during the years. People living in rural Ireland and involved in businesses are saying they want broadband. One interesting point that arose in the recent local elections campaign, in which I canvassed with various candidates, was that in many cases high speed broadband was not needed. That is what people were saying on the doorstep. They were saying they wanted reliable broadband. As one person said to me, he or she did not want the broadband service to break down when making a passport application online. In the case of a person who employs five people where their wages are being paid electronically, he or she does not want the service to break down on a Thursday evening. That is what people want. From where Ms Lennon is coming, she is giving some us hope and enthusiasm. In fairness to Deputy Dooley, I know that he has been talking for some time about Eir or a company like it delivering such a service.

Where Eir has reached the edge of towns and villages and there are more than 300 houses if one moves a quarter of a mile in any direction, can Eir do anything to connect them? I am talking about many parts of east Galway and Roscommon. There are cases where there are quite a number of houses and broadband is provided to the edge of a village or town and no further, which is a disaster. Can Eir continue the connection to bring some hope to those who want to be connected to broadband? By the way, the broadband connection is horrific in parts of east Galway and Roscommon. Some of the people affected are involved in businesses, but they also include many ordinary householders who are looking for a service. As things stand, can Eir give me any hope or do anything for the people concerned?

Ms Carolan Lennon

I am afraid I cannot give the Deputy any hope. I know that is not the answer he wants. People write to me and contact me about this issue every day because we are closing out our rural builds. By the end of the summer we will have the 340,000 premises done and will start our national build. We could just keep on going, although it would be into the intervention footprint, which would cause more problems. In that scenario, the figure would not be 340,000 but 400,000 and I would be over budget and behind in the national build. I know that is not the answer the Deputy wants, but I would rather be honest with him than give false hope. We are involved in some fixed wireless trials in rural areas to see what the opportunities are. We have built the technology in four areas and will make it available to some customers. Depending on how it works, there might be an opportunity in that regard, but in the case of fibre broadband our focus will turn to the national build once we finish the 340,000 premises at the end of the summer.

I know that there are broadband officers attached to most local authorities. I presume Eir has a working arrangement with them and is well aware of the areas where they are having difficulties.

Ms Carolan Lennon

They channel into us. As I said, the original number was just over 300,000 premises. Part of the additional 40,000 came on the back of requests from broadband officers. We have also attended a number of events with them and get some feedback from them. In some areas where they are particularly proactive it is much easier for us to get licences and some of the things we need to do done. When things works with the broadband officers, they work well.

The bottom line is that Eir would be interested in a retendering process and that if it got the tender, it would be able to deliver to many parts of rural Ireland.

Ms Carolan Lennon

If it made commercial sense for us, we would. We know how to do it because we have just finished 340,000 premises.

I have a minor supplementary question. I was looking at what the Taoiseach said in the Dáil today. He said:

It seems that the €1 billion bid about which Eir is talking would involve passing homes but not connecting any of them and does not cover maintenance costs for 25 years. Therefore, it would be pretty useless to anyone.

I would like to hear Eir's response for the purpose of having absolute clarity.

Ms Carolan Lennon

For the purpose of having absolute clarity, that is not true. The €1 billion bid includes passing and connecting homes. Because we would be keeping those customers in our network and migrating them to the fibre network, the revenue generated would allow us to maintain the infrastructure in the same way as the revenue we make on the copper network does.

The quality of the service that would be available to the 542,000 premises would be the same as what is available to the 300,000 premises.

Ms Carolan Lennon

It would.

The €1 billion bid includes passing and connecting homes and there would be no difference in quality.

Ms Carolan Lennon

Yes, versus the 300,000 premises, but as the Deputy established, things are different from what is included in the tender process.

Therefore, it would be for the same level of service as available to the 300,000 premises. That is what the €1 billion would be for. There is then the figure of €900 million for the upgrading and maintenance of poles, but it is still a cost to the business.

Ms Carolan Lennon

It is, but we have the revenue to cover that cost. That is the difference.

It is from where Eir gets money, but it is still a cost. On upgrading and keeping ahead in the network, does Eir have any figure for that cost? Is it included in the €1 billion?

Ms Carolan Lennon

If we were to replace our rural network with an all-fibre network, it would be a massive upgrade. After that, it would just be the annual replacement of poles, but that is all part of our maintenance capital expenditure, capex.

Does Ms Lennon have a figure for it?

Ms Carolan Lennon

We have to do it anyway. We all know that there are 1.2 million poles which we will continue to maintain as long as somebody is using them, whether it is us or them.

What about upgrading them for next generation technology?

Ms Carolan Lennon

Over the 25 years of the project, the cost of maintaining and upgrading poles and ducts is the €900 million about which we talked.

How can Eir put a figure on it?

Ms Carolan Lennon

We can do so because our prices are regulated based on cost orientation. A pole costs €600. There is an annual replacement cycle for same. The cost of upgrading subducts and ducts-----

That is the guts of €1 billion and covers all maintenance and upgrade costs. Is it based on Eir's current staffing costs?

Ms Carolan Lennon

Yes, it is cost-orientated based on pole and duct pricing.

All that is left is VAT.

Ms Carolan Lennon

Yes. It is included.

The figure of €1.9 billion which includes €900 million for the cost of upgrading - I understand Eir's point-----

Ms Carolan Lennon

I know that members want to include that part, but the €900 million-----

It is as if I was to say I will just use the car I already have in the future and not include it in my company's costs.

That is just not how one does things. If there is a €900 million cost and one is doing it anyway, it is still a cost in undertaking the project.

Mr. Edward Storey

But it would not be a cost to the State.

Ms Carolan Lennon

It would be to us.

Mr. Edward Storey

There is talk of a cost base of €5 billion which includes the cost of maintenance over 25 years and all other associated costs. From what we have heard, there is a subsidy of €3 billion to the taxpayer. We contend that instead of there being a subsidy of €3 billion, a subsidy of €1 billion would be the residual sum. Between maintenance and revenue the bit that is missing is €1 billion. It is true to say there would be further costs over the life of the project, but they would be recovered from the revenue we would receive through the plan.

It is a different business model entirely. I thought the point was that the national broadband plan would cost €1 billion to implement. However, Mr. Storey is saying the cost to the taxpayer would be €1 billion.

Ms Carolan Lennon

Yes.

They are two totally different questions.

Mr. Edward Storey

The answer actually ends up being the same. Our costs to roll out-----

Once the same thing is delivered at the end.

Mr. Edward Storey

Based on the information we have available, our roll-out costs would be less than €1 billion. As it happens, when one factors in maintenance costs and all of the other elements, they would probably end up being €1 billion, but there is also-----

It would be €1 billion to roll it out, with €900 million for the upgrade that was mentioned-----

Mr. Edward Storey

There would be other costs. There would be the wholesale costs incurred in running a wholesale organisation. The total figure would be less than €5 billion.

It would be less than €5 billion.

Mr. Edward Storey

Yes. Because there would no longer be a residual subsidy of €3 billion, the figure would be €1 billion.

My point is because Eir would be using stuff and ingredients it already has they are not comparable.

Ms Carolan Lennon

No. We would not be charging the taxpayer for them.

The figures coming out today are not for what we asked for in the first place, nor is it the same service level agreement. Not only is it a case of apples and oranges, at this stage it is potatoes and oranges. It is a totally different project.

I appreciate that time is running out and that we are aiming to finish at 7.30 p.m. Reference was made to an interesting proposal for a universal service obligation. How does Eir think it would work in the case of broadband?

Ms Carolan Lennon

We would need to sit down with the regulator who would need to design it. There is a model whereby a body could be designated with a USO to provide broadband. Costs and models could be agreed to as part of it. As it was delivered the provider would get the costs back from the State. I do not know how long it would take to do it, but, obviously, there would be rules and absolute clarity on costs, what would be spent and how it would be spent. There is a USO to provide broadband in other countries. That offers a model.

What would be the minimum speeds? Would they be comparable?

Ms Carolan Lennon

The regulator would design and define the product to be provided by way of a USO. That would all have to be defined and agreed to.

There is a USO in place to provide voice services. A broadband provider might follow the same template.

Ms Carolan Lennon

The USO to provide voice services covers telephone books, telephone boxes and so on. One would need to start again and ask what product was wanted. If it was fibre to the home, for example, the USO would be based on this. Costs and how the provider would gets its money back would all need to be agreed to with the regulator.

Is Ms Lennon happy with the original voice services proposal or-----

Ms Carolan Lennon

We are challenging the regulator on it. While we are very happy with the idea that we would provide the service all over the State at no extra cost, we just do not believe we should pay the entire bill. It costs Eir €10 million per year to provide the service and some of the people for whom it is provided are not our customers-----

Eir is challenging the regulator.

Ms Carolan Lennon

Yes, we are challenging the USO.

Will Ms Lennon, please, explain the reasons again? I am sorry if I was not present for that part of her presentation.

Ms Carolan Lennon

We are challenging it on the basis on fairness. Eir is regulated to provide a telephone service, regardless of where in the State people are. It is also regulated to provide telephone books and telephone boxes. We believe that is right and fine, but Eir pays the entire bill which is €10 million per year, even though in many cases the service is provided for people who are not its customers. We are happy to pay the percentage of the bill for Eir's customers, but the other operators that benefit from the USO should pay the percentage of the bill for their customers. We have, therefore, challenged the regulator on the basis of fairness, as €10 million per year is a lot of money. We have no issue with the USO. Eir will pay its fair share, but other operators should also pay theirs.

If Eir had a USO to provide broadband, would it be looking at the same anomaly? Would it only pay its share of the bill for its customers?

Ms Carolan Lennon

I have not sat down with the regulator to discuss the USO model. It would all have to be worked out. The USO was designed when Eir was the only provider. It made sense then. Over time, however, other companies have taken a market share, while Eir continues to provide the service and pay the bill for everybody. We have told the regulator that we do not believe this is reasonable.

I ask Ms Lennon not to take me up wrong - I missed some of her presentation - but I heard that she was in favour of the USO. Now she is challenging it when it comes to voice services.

Ms Carolan Lennon

It is disingenuous to say that, as they are completely different things.

Perhaps they are. I apologise-----

Please allow Ms Lennon to finish.

Ms Carolan Lennon

On the USO to provide voice services, it is an historical service that has been available in the market for years. It was set up, probably during the era of Telecom Éireann, when it had a monopoly. To be quite honest, I believe it is ridiculous in this day and age to spend money to provide telephone books and telephone boxes. It costs us €10 million per year to provide them. If the State wishes to keep the USO to provide voice services, it must be remembered that ours is the only utility to which it applies. If a person wants to have an electricity supply in a remote location, he or she must pay the bill. We have told the regulator that the USO is fine but that Eir will pay the bill for its market share - 50% - and that other operators, the customers of which benefit from the service, should pay their share. I believe that is completely reasonable.

We have to leave it there. I thank the delegates for coming before the committee.

The joint committee adjourned at 7.30 p.m. until 5 p.m. on Wednesday, 26 June 2019.