National High Speed Broadband Infrastructure: Presentations.

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

Today we will hear presentations from the Telecommunications and Internet Federation of IBEC, Esat, Eircom, NTL and Chorus, mobile phone operators with the Telecommunications and Internet Federation of IBEC, the ESB, the Department of Finance and the information society policy unit.

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

I welcome Mr. George Young, Mr. David Healey and Mr. Tommy McCabe of the Telecommunications and Internet Federation of IBEC. Perhaps Mr. Young would like to begin the presentation. The normal procedure is that we have a ten or 15 minute presentation. We have approximately three quarters of an hour for this session, following which members can ask questions.

Mr. George Young

Thank you, Chairman. We will try to accommodate your time request. We would like to congratulate you and your colleagues for the interest shown in this sector, which is one of critical importance for Ireland going forward.

In the Telecommunications and Internet Federation of IBEC we have over 60 member companies. That would include telecommunications service providers, users and equipment manufacturers, which is a broad industry community within the Telecommunications and Internet Federation. We are affiliated to ICT Ireland, which is the broad representative body for the information communications technology sector within IBEC. We have a remit for telecommunications policy within IBEC and the specialist groups we have within the Telecommunications and Internet Federation are focused on issues in the regulatory area, the wireless and wired areas, the Internet service providers, the host of services and the cable and broadcasting area. We seek to provide representation to members across almost all swathes of the telecommunications industry.

The telecommunications industry employs 14,700 at the last count and approximates to 3% of GDP. It is a global industry recovering from retrenchment, which has been felt to some extent in Ireland although not to the same extent as in other countries. There have been recent positives in the Irish context. The reduction in the DSL price and having a number of competitors operating in that area is welcome. The idea of open advertising of broadband by operators is very welcome. That is something that happened previously in other countries but it is good to see it coming to Ireland. The FRIACO product being introduced is attractive in terms of conditioning people to the expectations of "always on" Internet and what it can do. The initial 3G mobile network trials are good news. New wireless operators coming into the market are also good news and entities competing on the national routes as well as the access networks, such as ESB and Aurora, are welcome in that context also.

I would like to comment briefly on Ireland's telecoms infrastructure before moving on to maps. I want to apologise about some of the delivery mechanisms. A floppy disk stands between us and having a full audio-visual presentation, but we will go as far as we can with more traditional technology. On the telecoms infrastructure, as the committee will be aware, it provides a critical item of business infrastructure and it is probably unique in terms of the main infrastructure areas in that it receives little or no subvention. It is a net contributor to the Exchequer in terms of licence fees and regulatory charges and the amount of Government involvement in it is very modest. If any national development plans in which telecoms infrastructure features are being examined, the vast majority of that infrastructure is put in place by private sector operators.

All commentators would judge that Ireland is equipped with fairly good basic infrastructure. The fixed line has near universal coverage. The national mobile coverage density in 2G and 2.5G is probably on a par with all developed countries and good connectivity, both nationally and internationally, is in place. One comment is that there has been a lack of platform competition, as we call it, in the access network. Cable modems have not developed to the extent that might have been the case in the United Kingdom where, in that context, it initially had a playing field tilted towards cable for a number of years. Competing technologies to the access network have been somewhat slow to develop and there is perhaps an undue reliance here on the copper access network, which is particularly important. We will come to that later in this presentation. There is a perceived shortfall in broadband uptake and whether that is a matter of supply or demand, we will discuss later.

David Healey would like to come in now in the context of the maps, which are the next four slides.

Mr. David Healey

In an effort to illustrate Mr. Young's point about the infrastructure in Ireland, we had hoped to have a presentation that would show the build-up of infrastructure and the different layers that exist in Ireland's telecoms infrastructure but, unfortunately, we will have to make do with more traditional methods. The three maps we present today are basically an aggregate of the information the members of TIF and their networks have provided to us. It does not represent the network of any one company but an aggregate of all our members. The first map essentially outlines the access network in Ireland. One way of thinking of it is how telecoms companies connect to their final customers. Within that, we have such things as DSL, cable TV networks, Internet providers and different higher technologies which may be used for bigger customers, such as SDH and ATM.

The next map depicts the backhaul network, which in extent shows how the operators reach larger cities with bigger capacity networks. Some of the links go up to 800 gigabytes, which is quite extensive bandwidth. The third map shows the mobile coverage and the extent of coverage that we have in the country. It depicts both 2G and 2.5G. We feel that there is a good basic infrastructure in the country and that reflects the level of investment that has been put into the market by the operators. Perhaps Mr. Young might like to continue on that.

Mr. Young

In the investment context, it is fair to note that telecommunications service provision is a very capital intensive activity. We estimate that €5 billion has been invested by the industry since 1997. The Government commitment is quite modest in the context of that overall figure and must be seen as such. The investment is ongoing, and members will have seen from the maps that a large number of exchanges around the country aggregating 800,000 lines would have at least some DSL equipment in them, so there is the opportunity to provide DSL, which would be a service up to approximately 512 kps from those exchanges. Obviously the 3G mobile network is progressing, and it is fair to say that it will offer midband or broadband rates of up to 384 kps which, if one trades off the ubiquity of mobile service, might not be quite as fast as one can get from some land-line connections, but is still very useful to businesses and other customers.

Ongoing investment is really conditional on market factors which are determined by several things, including Government policy and regulatory agendas, which we will come to shortly. We will be making our slides available electronically for the record. There is a gradual increase in utility as bandwidth increases. There is something of an 80-20 rule associated with it. Obviously the mobile technologies trade ubiquity for the absolute value of bandwidth. We see competition as based on services. DSL and fixed networks are the service that has received the most attention. Platforms in the area of cable and wireless systems are also relevant. A policy choice must be made by Government over the medium term between service competition based on the copper network and the incentive for people to put in alternative cable and wireless systems.

The chart indicates some of the services available. Much can be done in the dial-up context. Many of the transactions taking place up to now, such as the booking of airline tickets, would be very much facilitated by dial-up. One does not need a huge amount more. Broadband connections have 512 kps or thereabouts. For teleworkers dependent on large e-mail attachments - such as anyone working in the high technology sector is used to getting - which may have to be viewed at home in the early morning or late at night, the ability to exchange such files at an attractive rate to give good turnaround requires a minimum of 512 kps. That would also be quite useful in the video conferencing area. Only if one wants to achieve DVD quality video and so on does one need data rates of five megabytes per second. That is obviously for a single user. Business will have an aggregate demand that might be significantly higher than each of those figures. To give our perception of what can be done with such technologies, it is appropriate to put up that material.

In every commercial human activity, everyone has their agendas, and enumerating those is appropriate. The users are obviously interested in pricing, but perhaps even more so in services. Having something at a theoretically competitive price is not particularly attractive if one cannot get it. There is a trade-off between service availability and pricing, and we see a balance to be struck in that context. Operators need commercial returns. That goes without saying. The operators are all private sector entities at the moment and must justify to shareholders and lenders exactly what they are doing regarding investment and getting a commercial return on it. It goes without saying that it is necessary.

The Government has its own agenda regarding positioning Ireland Inc. in league tables and also the attractiveness of Ireland to foreign direct investment, which needs widespread availability of broadband. The regulatory agenda is one of ensuring fair competition and service standards, and we must recognise all those agendas as being present.

In the provision of broadband, it is fair to acknowledge that there are challenges internationally for Governments in dealing with what we might call freed offspring. It was general practice at the start of the 1990s for all telecommunications in most countries - I think Britain was the exception, having acted earlier - to free up the market. In most European countries, the Irish situation of a State monopoly obtained. Those monopolies were broken down during the 1990s as in Ireland. Where previously a Minister could dictate that a service be provided in a specific area, that relationship has now changed and the Minister now has to negotiate with a private company and the regulatory structure in place. The culture change associated with that probably requires a little adjustment on the part of all parties.

There is probably a clearer need for Government policy in this area. An overarching policy is needed and the committee's work in that context is valued and will obviously help. We see the regulatory intervention as being quite complex. It is really one of encouraging both the development of a competitive market and investment by newcomers and the incumbent. Getting that balance right is quite challenging because they are not always complementary. Mr. McCabe will shortly say something on regulation. Regarding Government intervention, we see a need for much more co-operation with industry. We must improve engagement. Industry went to Government at the very highest levels in October 2002 seeking to do that. In general, one could compare the provision of broadband with rural electrification in some ways, except that the latter was done by a monopoly under Government fiat. Here one is looking to install broadband throughout the country through private sector operators and the Government task is to develop the incentive and support mechanisms and a business climate that facilitate that investment by private operators. We wish to achieve the same sort of thing - broad penetration of what is a valuable utility. However, the commercial and political environment in which that is being done is very different from that of 40 or 50 years ago when rural electrification would have been on the agenda. That point is important.

On the issue of engagement with the industry, we see the proposed levies mentioned as the wrong way to proceed. They are inappropriate when it comes to working with the industry. There is a need for simplification of relationships between the industry, the Government and the regulator with a clearly agreed agenda between all parties. That should be done to the maximum degree possible, within the boundaries of competition policy. We see a need to align the efforts and focus and to that end IBEC-TIF has been pleased to be involved in the telecommunications strategy group. As you will be aware, this group had been meeting since March of this year. It was launched by the Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern, and on the Government side is principally led by his Department - with Mr. Eamon Molloy from that Department and myself, representing the industry side, as co-chairmen. We would see that group as particularly important in the context of facilitating engagement between Government and industry. An interim report from that group is due to be published later this month, with a more complete report due later in the year. Obviously, the reports will deal with many of the issues associated with engagement.

Initially, the report will concentrate very much on market development and what can be done by Government and operators to develop the market for broadband services in Ireland. The final report will quantify issues in terms of investment and gap analysis and will be a more complete treatment of the issues involved. That full report is expected to be available in the autumn. Perhaps Tommy McCabe, director of the Telecommunications and Internet Federation, would like to come in at this stage on the regulatory issues.

Mr. Tom McCabe

Thank you very much. Mr. Chairman and members of the committee, we are very pleased to be here this morning. Regulation is one of the key elements in achieving - what everybody would seek to achieve - broadband Ireland, to coin a phrase. Regulation is not a simple process. It might be useful to outline some basic principles from an industry viewpoint for the committee and to make some comments on the way forward. The essence of regulation from our viewpoint is to ensure fair competition and protect the investment environment. Both are important if we are to proceed further. Without fair competition and services, obviously we cannot achieve broadband Ireland. Nor can it be achieved without investment; if the infrastructure is not in place, then we are building on sand. To that end regulation should encourage effective and sustainable competition. There is the question as to whether competition should be services based or infrastructure based. Will all broadband services be available over a fixed line or is competition between platforms to be encouraged, be it fixed line wireless, cable or satellite? The consumer does not mind particularly, provided competitive services are available. From a structural point of view, however, it is a combination of both. The role of the Department is critical and industry has been seen to see the initiative given by the Minister earlier this year and at the end of last year, in his clear indication of Government policy direction to ComReg.

ComReg is at the heart of regulation. The Competition Authority has also commented in recent months on the regulation of the telecoms market. The ideal situation is to move from a monopoly to a regulated market with a regulator and in time market forces will take over and any issues of competition should be handled by the Competition Authority, so that ultimately ComReg - or any such body - would fade out. There is no evidence of that occurring to date. The optimal regulatory focus should promote competition and facilitate investment. All operators are working to a commercial remit. They look for a return on their investment so that adequate margins at wholesale level should be ensured. Views have been expressed that broadband should be available everywhere for nothing. That perhaps is an exaggeration, but the viewpoint is that it should just happen. That just does not make sense. In a commercial environment any operator will have to look for a return on investment so there will have to be adequate margins at wholesale level to ensure that competitors will enter the market and existing people remain - and that market forces ultimately set pricing levels.

The EU has brought out a new directive which will take effect this month. This means regulation will be based more on competition law than on standard regulatory processes. Operators will no longer require a licence as such but will have authority to implement services based on given criteria as set by the regulator. Such regulation should be platform neutral so that it does not favour one platform over another. Each has its different merits. The market will decide which is most attractive. In terms of the particular concerns that the industry has in relation to regulation, there has to be accountability across the board. The question may be posed: who is regulating the regulator? That merits discussion, perhaps in this forum and outside it. The office of the regulator is not an easy one but the effectiveness of an independent regulator should be reviewed. In particular, there should be clear benchmarks for the performance of the independent regulatory function, which would have accountability in terms of pricing and the levels of competition and investment in the marketplace. All three of those benchmarks should be applied when the performance of the independent regulatory function within Ireland is being reviewed.

The subject of broadband pricing is of interest to everybody. We would suggest there is a need for greater innovative pricing to address the requirements of industry and the consumer and the ability to pay. Sometimes the ability to set pricing levels is impeded by complex regulatory structures. We have seen that recently in terms of the wholesale rate that was supposed to be introduced to the marketplace but was then referred to the courts so that the process was halted. We believe the appeals board should speed up that process so that operators will not automatically have recourse to the courts and the process - in the event of an appeal - will hopefully be fair, but also fast, so that the market can move on and everything is not bogged down. Let us recall the mobile licence that was ultimately awarded to Meteor. There was a delay of nearly two years before that got though the courts. That is very unsatisfactory. There is a need to speed up the process.

The cost of regulation to operators is another matter for concern. We understand from the ComReg annual report that there is a cumulative surplus in the region of €50 million, which has been required from industry for the running of the office. Industry has no difficulty with this, but it should cover the cost of that office and not be generating profits as such. We should ask why the office of the regulator is accumulating surpluses, which in effect, is to penalise industry. As mentioned earlier the decision making process and consultation procedures can sometimes cause great angst among operators: either a very short period of time is given for consultation or the procedures are not clear. There appears to be a lack of transparency and justification about some of the decisions made within the office. Indeed sometimes the operators hear about decisions taken from the media rather than the office itself. The office's use of publicity has at times caused concern among operators.

I would ask you to conclude on that because members have questions for you.

Mr. McCabe

That is fine. I will leave it at that, Chairman.

Mr. Young

I will conclude, if that is in order, by saying TIF-IBEC believes there is a need for clear vision which is shared by Government and industry. It is a practical realisable decision that everybody buys into, including the Government and most operators. If there are gaps between what is commercially feasible and what Government would like, these need to be identified and their costings. To get that clarity in terms of policy, investment criteria and directions to regulator is important. We need to get that agreement and it is not a zero sum game.

I hope we were not rude in setting a time but we have Esat coming in at 11 o'clock and we are obviously trying to formulate presentations of ten or 15 minutes and equal our later time, if possible, on questions and answers. That is where we can get to some of the meat of the issues, hopefully.

I am thrilled to be sitting here. We are in competition, in terms of the witnesses' group and this committee. Both of us are carrying out the same exercise, reviewing where we go with broadband. We have had about 30 or 40 groups appearing before the committee at this stage from different sectors of the economy, and from society and industry. The Minister's Department is coming in next week addressing the same issue as the witnesses in their meetings with the Minister, Mr. Molloy from the Department and the telecoms strategy group. To a certain extent it will be interesting to see what both our groups say and how we say it and to whom the Minister listens in the formulation of policy. It is interesting to swap notes as we are half way through the process.

IBEC and Tom Butler have given evidence already. I was surprised at some of his comments, as at all times in referring to this economy we talk about our lack of competitiveness. We talk of how Irish industry is hampered by having to pay higher prices than industries elsewhere. In the telecoms sector, which is very important for our competitiveness, it seems the evidence is incontrovertible that we are not competitive. When we look at the OECD ranking on broadband infrastructure, we are bouncing along the bottom. Even where we are rolling out new infrastructure, such as new DSL services, our prices are still the highest in Europe among our competitors, albeit they are half what they previously were. Denmark is close, but if we take account of other line rental costs that were presented last week, we are still the most expensive in Europe. Do the witnesses think we have a competitive market? Is there true competition? It is a complex question as it depends on whether a lot of competition elsewhere is due to cable operators, but do they think we have a competitive market?

Maybe the witnesses do not want to release their findings prior to publication, in the same way that we would not show our cards before our report hit the Minister's desk, but do they have a view on how we could best introduce competition? They rightly make the point that there are a number of different platforms we could use, such as wireless and the like. The main interest I have is the backhaul network that we might be able to use. This could be provided by the ESB or by Iarnród Éireann or other operators. Do the witnesses think there is a way they could provide an alternative backhaul network? What is the view of the witnesses on the role of the metropolitan local area loops in any new or alternative main access network? Can they link up to provide a competitive market or national access?

The map the witnesses provide shows a great level of service all over the country in terms of access and speeds available north, south, east and west. In our committee work we have had a consistent message from Enterprise Ireland and a range of different external non-governmental bodies and consumer groups that there is a serious problem in regional access. While one can get access in Dublin at the moment, for a company based in Sligo or Donegal, or a large swathe of the country, there is no access. There is a serious regional inequality in telecoms infrastructure. I take the point that in mobile and fixed line coverage, in a dial-in system, we have a good universal network. In broadband, which is the issue we are concerned about, our experience here, and in what we hear from people around the country, is that we have a two tier country. There is no sign of that getting any better. I agree that businesses cannot be expected to subsidise or provide access where it is not profitable. Would it be agreed that on a national policy basis a two tiered State is difficult for us to tolerate, especially given the national spatial strategy and other Government policy?

One of the experiences we have had with all the different groups that have made presentations to us is that if we ask anyone in the area of e-health, such as Hewlett-Packard or Microsoft or any of the big industry players, what sort of bandwidth should we be investing in, they all reply that it should be 5 megabytes at least. The DSL is nice and much better than the ISDN, but it is not going to cut the mustard internationally. Therefore we need to invest in proper broadband, bandwidth services. I take the point that DSL covers a lot of the needs, but what is the delegation's answer to the many people who have been here and stated that they want proper bandwidth and not DSL?

The key point not mentioned in the discussion with the regulator over "service trade balance" is the word "price". I take the point that a regulatory structure is very difficult and cumbersome for companies to operate within, but how do we bring our prices down? How do we ensure that we are not the most expensive in Europe and avoid remaining at the bottom of the OECD table? Do the witnesses think it is wrong for the regulator to be involved in the pricing? Should the role be solely one of assessing competition law and the type of services that are provided for the issuing of licences for bandwidth? Is it wrong for the State to be involved in setting prices or to be involved in the pricing arrangements? There are five questions there and I am sure my colleagues have more. It is a huge area but I would be interested to hear your views on some of the points I have raised.

Mr. Young

In relation to competition between the telecoms strategy group and this entity, this is the sort of competition that everyone welcomes. The more inquiries that are done in this area to try and get the right answer, the better. Our remit in the telecoms strategy group is to see what can be done in an engagement to bridge the gap between what industry will provide in its own remit and what Government would like. Government has very high aspirations for Ireland and bridging that gap is the key remit in the longer term. What is deliverable in the interim is market development and demand stimulation. Whatever the Government can do to make sure that there is a viable user base in Government services is also part of that.

In the ranking of Ireland, the fundamental area in which Ireland comes bottom is in the broadband residential area, the widespread mass market broadband area. In broadband for businesses there has not been a problem.

In terms of overall baskets of services, looking at OECD data, there has not been a particular problem. Everybody acknowledges that in the area of mass market broadband there has been a problem and numerous causes have been advanced for that which I shall not dwell on given the short timescale.

Are you saying that the reports that have been published are incorrect?

Mr. Young

No. I agree with them. The black hole of Irish telecommunications has been in the area of mass market broadband developments. Everybody acknowledges that has been an issue whereas the availability of services in that context has developed very slowly in Ireland.

Is the broadband business the problem in Ireland?

Mr. Young

I am saying that business broadband is less of an issue for businesses beyond a certain size. Obviously the SME——

The director of SME would disagree with you.

Mr. Young

I am sorry. If we take mass market, for example, that would come within the small and medium enterprise area. The small and medium enterprise area, the residential area and the teleworker area are the areas that have been particularly badly served by broadband. If we are looking at large businesses, that is a completely different issue and we would certainly agree on the rural split. Obviously the closer one is to major centres the more attractive it has been in terms of service provision up to now, but if one is looking at the tables that is the main area in which there has been a problem.

The more investment there is in backhaul network the better. That should be welcomed. Alternative suppliers in that area may well come in. The maps would indicate there is much capacity throughout Ireland. That can be added to and competitive investment in that context is always welcome.

The role of the metropolitan area networks, as identified by Government, is noted but certainly there is much caution on the part of industry. In many cases it is seen as a response by Government which can compete with industry and crowd out possible investment by industry. The position in relation to the metropolitan area networks is not one of universal welcome.

Mr. McCabe

It remains to be seen but there is a possibility of having stranded assets. One is building rings where there is existing infrastructure and the take-up of that existing infrastructure has not materialised significantly. Where there is low demand, yet building more rings where there is no demand, it remains to be seen if they will achieve the desired result. There is a possibility that they might become islands not connected to anything and a stranded asset, which would be most unfortunate. Industry is not so convinced that it is the way forward.

Everybody who has come before this committee has said there is a need to drive demand by providing supply as opposed to waiting for demand for product which will never come because many do not know what they are missing if they do not have access to a high speed broadband service. Therefore one has to anticipate demand once investment has been put in place. You appear to challenge that view. I accept the point that there is a good deal of fibre in the ground at present but in some cases it is not being shared or is not accessible. The only way to make things happen in the short-term is to put State owned fibre in the ground for users and service providers.

Mr. McCabe

I would not disagree with that. One has also to look at the economics of it. Ultimately one is trying to address the regional divide element. DSL has worked very effectively in Korea because of high rise apartments in compact areas. The technology is very suitable for that type of area but it is not suitable for rural areas as such and wireless might be a more appropriate way of delivering interim broadband services. The clamour is for broadband——

The bands are not in rural areas but in large towns or cities, such as Cork, Galway, Athlone.

Mr. McCabe

Demand will be met there. One of the rings that has been built is in Manorhamilton which is not exactly a city. I agree that the digital divide issue needs to be addressed but to say to industry that it should roll out across the board all services in every area of Ireland is impractical and there is no commercial return in that. That must be acknowledged. If Government wants to proceed to unroll services into some of the rural areas that is fine, but the operators will do so provided there is a commercial return. It has to be acknowledged up front that as part of the overall policy there are difficulties in providing all services in every part of Ireland.

Mr. Young

To address the issue of a two tier State, certainly the view is that Government support should be focused on areas that need it most, whereas many of the areas which have received the investment in the metropolitan area network context should be areas which would be attractive to operators. That is one of the issues - focusing Government involvement in the areas least likely to be attractive in the context of operator involvement - that makes sense. To clarify the position regarding the maps, we do not want to get them taken out of context. If one sees an exchange that is DSL enabled it means that is the first step in the process in terms of getting the access in place. Naturally there will be a regional divide and obviously Government can do something to bridge that divide. This is a key element we are all keen to see happen and towards which we are keen to work. The possibility of five megabytes per second is very attractive. We would all welcome the availability of high bandwidths throughout the country. That desirable objective should not blind one to the immediate practicality in that it is better to have 512kbps or 384 kb now rather than wait an indeterminate amount of time for the five megabytes. If one is considering extending fibre to every home that would be a large investment programme where Government would have to take a clear policy decision. Some quantification work items have been done by Ovum in the context of the ODTR work and we are looking at a sizeable bill. If Government believes that Ireland Inc. needs that sort of bandwidths available widely let us come up with the bill and see what can be invested by operators and what role Government needs to play in making that available. The interim technologies are out there and have a role but if Government feels that a higher byte rate should be available there is a cost associated with it. Let us all look at some partnership means between industry and Government to get us as far down the road towards that goal as possible.

In terms of pricing the fundamental point is that one needs to have a healthy market operating in these areas. It is a healthy market where users benefit from access to services and where operators can make a reasonable return. Up to now there has been the threat of a dysfunctional market which had not worked well in terms of the level of competition and the level of investment. This comment is restricted to the area of mass market broadband. There is some hope that will be resolved and that people will be able to invest and the pricing will come down. In regard to all of these areas my colleague, Mr. McCabe, said having a segmentation where the early adopter or the high user may well be prepared to pay a good deal while other users may be prepared to pay a small amount would be beneficial. The air fare analogy is valid in that if people want premium service and are prepared to book the day before, they are prepared to pay somewhat more whereas the mass market offering can well be priced somewhat less. Regarding it as less than an homogenous offering and allowing the pricing flexibility, and the marketing orientation to develop in this industry, everybody involved with the industry would acknowledge that it is has perhaps been technology led in the past. It is only in recent years that it has been developing a marketing focus. The pricing segmentation, and pricing levels and such levels of sophistication are necessary and are key components associated with the developing market.

Mr. Young said there has been the threat of a dysfunctional market. Does he agree that what we have at present is not a competitive market?

Mr. Young

In terms of a competitive market, there are degrees of competition. Currently there is a relatively small number of players on the Irish market.

Perhaps if I could put it in more detail. In terms of what we are concerned about, which is not necessarily getting fibre to every house but to the general population and all the SMEs throughout the country, the key issue is access to the broad network. Given the current lack of open access to that broad network, it is not a competitive market where market forces can work and prices can become competitive. With the main access network being owned by one large company or a small number of companies, we do not have a competitive market.

Mr. Young

Several points arise in that regard. First, the DSL market is underdeveloped. It has only been opened a little over a year and has only become competitive, in terms of competitive offerings, in the past few months.

It is the most expensive product in Europe. Is that competition?

Mr. Young

In terms of other products in the market, lease lines and such like, DSL came in at a very attractive level. It has further to go, in terms of pricing——

Why is it the most expensive in Europe?

Mr. Young

It is fair to say it is probably the least developed market in Europe. DSL only came into the marketplace very recently.

Why was its launch held up?

Mr. Young

The DSL launch was held up by disputes, which are well documented, between the incumbent operator and the regulator over an extended period. That is the proximate cause. One does not wish to take sides in that context but everybody acknowledges that as a matter of fact which led to a delay in DSL being launched until early last year. One is looking, therefore, at an immature market.

There are several aspects in terms of competition, one of which relates to platform competition. The view in terms of a low price offering is that that will very much depend on the copper network, which is owned largely by one operator, as the Deputy said. It is an area in which price is high currently. We believe there is an opportunity for significantly more marketing input and price segmentation which will allow some people to get enhanced services beyond the basic ADSL offering, perhaps at a higher price, whereas a mass market offering may go down.

We are looking at markets developing. If we get up to a market of perhaps 100,000 or 200,000 ADSL users, I suspect pricing levels may drop materially. Getting us to that level is something for the commercial judgment of the companies involved in terms of the way they develop the market.

Do you envisage that many of those DSL customers could be lost when the metropolitan area networks are in place, with the availability of fibre to fibre, and when it is managed by the managed services entity?

Mr. McCabe

I would have serious concerns about that because the most expensive part is the last mile. The networks as such do not deliver the last mile. There is just a ring around each town. We still have to bring the connection from that ring to the home or the business park. If there is a commercial return, existing operators will gladly do that, and they have done so already. It is quite an expensive step to take, as the Chairman outlined.

To go back to Deputy Ryan's earlier comment about competition and which side the Minister will listen to, the implication being that the Minister will decide the policy and away we go, the difficulty in the marketplace to date is the lack of engagement on the part of the Minister, the regulator and industry. An agreement on a clear path forward and on a buy-in from all the appropriate players is required to enable us achieve this market. One player alone will not achieve that without the others on board.

In what was the €5 billion invested since 1997? Was it in broadband?

Mr. McCabe

No, it was in telecoms infrastructure but we cannot have broadband if we do not have the——

In what area? Could you advise the committee on that?

Mr. McCabe

It includes the investment by fixed line operators. Eircom's investment in its own infrastructure - the Chairman can ask its representatives about this later - is between €500,000 to €1 million every year. The mobile operators who came on board have invested in infrastructure.

Correct me if I am wrong but is it not the case that there was very little investment in broadband by the private operators in terms of the roll-out?

Mr. McCabe

In terms of enablers, the trunk network and such like but the Chairman is correct in that the vast majority of that would have been on general——

Mr. Young, you referred earlier to the roll-out of broadband. We would be concerned to see broadband rolled out to every school because those students will be the users of the service in later years. My colleague, Deputy Ryan, was correct when he said that different views have been expressed to the committee over the past few weeks, in particular the views of students who had a clear definition of where they wanted to go in terms of using the Internet and the technologies available today. What are the views of the Telecom Internet Federation on the proposal for a schools broadband initiative funded by a telecoms levy?

May I ask a question because I have some concerns about the levy? My understanding is that the Minister will bring proposals in relation to that levy before the Cabinet today, or certainly this week. I would like to hear Mr. Young's concerns about that. The funding has to be found somewhere but I have reservations because the Government cannot afford to do it from other sources, with levying industry. Essentially it is another form of taxation, which the customer will probably have to pay for, which works against the attempt to try to reduce prices. Having said that, it is crucially important that we get broadband into schools but there is a balance to be achieved in this regard. I had looked forward to Mr. Young coming to that bullet point but he skimmed over it very quickly and said that the proposed levies are not the way to proceed, without saying any more about. I am glad the Chairman has asked this question because I have some concerns in that area also.

Mr. Young

The levy is very much a form of taxation, a type of stealth tax, which will be imposed on the industry. We see it as inappropriate. The issue of broadband to schools and libraries is fundamental and it is something that has to be paid for, and is paid for in most countries, as a general head in the education area. We see that as the key funding mechanism. That being said, the broad information communications technology industry has always been very supportive of getting equipment and broadband into schools. That would include telecom operators of numerous types and would also include hardware and software manufacturers. We believe there is an opportunity to tap into the good will within industry, formalise that involvement and set up the public private partnership model that would provide a channel for industry support into that area which would complement the normal Government funding that would go in thatarea.

We regard the levy as a tax on an industry that has invested heavily and continues to invest. It sends all the wrong signals and it could be counterproductive in terms of costs to the industry and to Ireland Inc., as it were.

If the Government were to introduce a fiscal measure to drive the PC penetration rate in the home which would include the use of the Internet and would be serviced by the telecoms companies, would there be resistance from the communications sector?

Mr. Young

Definitely not. We regard literacy in this area as essential. It is the prerequisite for Ireland Inc. and any positive measures brought forward in terms of spreading equipment and skills are essential. Obviously we would be supportive in that context.

You have no objection to a fiscal measure being introduced by the Government to drive PC penetration in homes, which is what we talked about earlier, but you would object to a levy being placed on the telecoms companies.

Mr. Young

These measures are in the broad interests of Government. It is in the broad interests of Government that the IT sector be as well developed as possible and that the population at large be as skilled in IT matters as possible. Fiscal measures in support of that are very logical. In terms of investment in the sector, we are looking at significant investment from operators in any event.

Does it make sense to consider the option of contributing to providing a service within the school network and reaping the reward of doing so by the many thousands of people who would use the network subsequent to its introduction?

Mr. McCabe

It does not make sense to purely consider the putting of the broadband connection into schools. It is a question of the use of ICT within the school curriculum. One needs to have a broadband connection to schools, PCs on desks, the content on the PCs, teachers trained and maintenance and ongoing agreements in place. That is a much broader picture than merely putting a broadband connection into schools. It is useless to do that if there are no PCs in the schools or teachers trained in this area. There is a need to have a more comprehensive strategy which would involve commitment by the industry and Government across Departments. As outlined by our chairman, George Young, the funding for this area should by and large come from the State because it is part of the overall educational policy within schools. Industry is willing to play its part in making a contribution towards achieving that policy. Imposing a levy is not the way forward and would not be favoured by the members of TIF, ICT Ireland or IBEC because it would be taxation by stealth, as the Chairman said.

As most of the issues I wished to raise have been covered, I will try not to go over the same ground again.

Mr. Young used the analogy of the rural electrification scheme. Does he consider that the Government has a major, minor or no role to play in providing such infrastructure? I am thinking in particular of sparsely populated areas which would probably pose the greatest difficulty. Mr. Young mentioned ComReg's surplus of €50 million. Does he envisage a role for that surplus being used in rolling out the services in some of these less densely populated areas? In his comments Mr. Young was critical to a certain extent of ComReg. In his presentation he mentioned that to encourage competition and investment is not always complementary. He might expand on that. He also mentioned a lack of transparency and justification for decisions, on which he might also expand.

Mr. Young said that he hopes to see ComReg fade out. IBEC has 60 member companies representing all the providers, users, equipment manufacturers, etc. Basically IBEC represents all the players in the field. It is asking ComReg to step out of the way because it believes that competition will regulate everything. We have plenty of competition in banking circles, yet we have higher bank charges than anywhere else. In the telecommunications field, we are supposed to have competition in relation to mobile phones, yet our charges are far higher than anywhere else. This would suggest, even though nobody can ever prove it, that there are cartels in operation. Is there not a danger that would happen in this area were ComReg to fade out as Mr. Young would like it to.

Mr. Young

The Senator has raised a number of points and Mr. McCabe and I will answer them. In relation to general incentivisation and the point about Government infrastructure in areas where it does not make sense for operators to invest commercially, we would like to see a public private partnership where Government and operators would recognise the needs and agree what is required to be done. This State has had a good record on working with private companies in the context of IDA grants and supports in terms of tweaking market forces to deliver what is right for Ireland Inc. We believe that those skills should be made available in order that the issues associated with broadband deployment, particularly in more remote areas, can be addressed.

With regard to the issue of Government infrastructure being put in place, we see that as being a somewhat clumsy and expensive solution compared to what should be a partnership between operators and Government. Government owned infrastructure sends the wrong message and it has the danger of crowding out others. One might say that it puts it up to industry to invest, but it is a rather expensive way of doing so. It may well lead to stranded assets and may not be the optimal deployment of funding. Having a partnership with operators makes a good deal more sense. We need to build up the engagement and trust levels between operators, the regulator and the Government to bring that about so that we do not find the perceived need for Government ownership of infrastructure.

In relation to the surplus that has been generated by the commission, that is a material sum, but in the context of the overall investment required for broadband in terms of DSL type broadband, 3G type broadband or heavy broadband at 5 megabytes upwards, which is a further notch in terms of the expenditure required, that is but a small element in the overall picture. According to the Ovum report, we are talking about €4 billion as the total price necessary to get 5 megabytes to each home. We are talking of sums there that are materially beyond what the ComReg surplus could develop. Mr. McCabe might deal with the other points.

Mr. McCabe

In relation to ComReg, TIF has been in existence for some time. We have a telecom policy remit within IBEC and in the mid-1990s we called for deregulation of the telecoms market and the establishment of a telecoms regulator. We have always welcomed the role of the regulator but it has been a transition process. How long that process will take - going from a monopoly to a competitive environment - remains to be seen. In an ideal world in a competitive environment any issues in terms of anti-competitive practice should be handled by the Competition Authority. We are not saying that the market should be given a free rein, we are saying it should come under the Competition Authority ultimately, but it is a gradual process and rather than becoming more bureaucratic and heavy handed it should become less so as time goes by.

Everybody should be accountable in life and likewise we pose the question in terms of the accountability of the regulator's office. There should clear benchmarks and not only pricing of services, which is important and is one of the key areas. There is no point in having low prices everywhere if there is no investment because ultimately one would run out of infrastructure and infrastructure would not be maintained. There must be a level of investment concomitant with lower prices. It must also be an attractive marketplace to encourage people to enter it because it seems to give a return. It is not a straightforward matter of reducing all prices and everything will be fine. The role of the regulator's office needs to be reviewed, as does the commitment by industry and the role of Government policy. There is a need for a practical vision, which would be translated into an agreement with Government, including direction to the regulator's office, and the involvement of operators to achieve broadband Ireland, so to speak.

I thank you for the comments on the regulator, which we will take into consideration when we furnish our report. Can you advise what percentage of IBEC's income comes from telecoms operators affiliated to it? Can we assume that Eircom is its biggest contributor?

Mr. McCabe

We never divulge what any member pays IBEC, so I am not in a position to divulge that information. IBEC has a membership of approximately 7,000 companies. The policy directions given by IBEC are reflected in what serves those Irish businesses. What we are calling for would be what is in the interests of Irish business. That is the remit of IBEC.

For the information of the committee, can you indicate if Eircom is a large subscriber to IBEC? Are fees charged on the basis of the size of a company? I am involved in a member company of the Cork Chamber of Commerce and I have to pay a fee every year. Is the membership fee based on the size of a company? Surely this is not secret information.

Mr. McCabe

That is not divulged. All I can say is that the bigger the company, the more it will pay. On that basis, IBEC has 7,000 member companies and we cherish all our members equally and we try to serve the interests of the business community. It would not make sense to serve the interests of any one particular company over another in any walk of life in business.

The larger the company, the more it pays, is that correct?

Mr. McCabe

Yes.

If the €5 billion was a capital investment there would obviously be substantial capital write-offs in relation to that investment as there is in every other business.

Mr. Young

One has to look at the normal structure of the telecoms industry. If one looks at the balance sheet of a telecoms company, one will normally find that the assets are just above the annual revenue. It is a capital intensive type of business and obviously it would be subject to the same capital write-offs-of——

You would have the capital write-offs that every business has.

Mr. Young

Absolutely. It would be a depreciation.

We did not find out how much of the €5 billion was invested in broadband over the years 1997 to 2003. You might not have the information today but would it be possible to let the committee have that information before we finish our proceedings?

Mr. Young

We can make efforts to determine that but the split will be somewhat judgmental because a duct will be enabled for whatever goes down it or a mast will be there for whatever is put on it.

The reason for asking is simple. We want to pursue the issue of public private partnership and we want to be able to include in our report some information on what the State and the private sector have invested in the area of broadband. Mr. McCabe, we agree that no one size fits all and that different systems can be used. I have every confidence in the MAN system even though it will be connected to a telecoms operator. We would call it the first mile whereas you would call it the last mile.

However, there are other systems. There is a wireless system and a hub that can be put alongside the fibreoptic hub on the metropolitan area ring which will provide the speeds and the broadband access to users who want to use it rather than using a fixed line. The committee has already had presentations about satellite and was most impressed by them. The committee members have travelled to the United States to meet with the experts and visionaries in Silicon Valley and to see the rollout of broadband in Grant County, Washington State, and the services entity there. The members are aware of the different types of applications and will make a number of recommendations in the committee's report to the Oireachtas and the Government.

The chairman has dealt with most of my questions and I am glad he did.

It shows that the Opposition and the Government parties are working together on this committee.

Our report has not been written but we will aim to blend the interests of the public and business together, along with Government policy. The Chair's point is valid - the delegates could help us tremendously if a more detailed breakdown of the €5 billion investment could be provided. It would spare the blushes of the committee members and the people working in the various companies if it was provided.

Mr. McCabe

We will endeavour to do that. It may not be today but we will try to do so as soon as possible.

I thank you, gentlemen, for appearing before the committee. I know you had short notice. Your presentation was enlightening and gave us a different perspective. I hope we can refer back to you on any issues which need to be clarified.

Mr. Young

I wish to express our thanks. Important work is being done and we recognise and appreciate the competing approaches to finding the truth and the optimal solution for Ireland.

Sitting suspended at 11.24 a.m. and resumed at 11.27 a.m.

I welcome Mr. David Taylor and Mr. Peter Evans from Esat BT. I remind you that members of this committee have absolute privilege but this does not apply to witnesses appearing before the committee. It is generally accepted that witnesses would have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it.

Perhaps you will make a ten minute presentation after which Senator Kenneally will start questions on behalf of the committee. Thank you for taking the time to appear before the committee today.

Mr. Peter Evans

I thank the committee for the opportunity to make this presentation. We have a short presentation of eight or nine slides. Each member should have a copy of it. I will briefly outline the background of Esat BT, the company, what it has done, information regarding broadband services, the roadblocks we envisage, what the Government can do and what Esat BT can do. Hopefully, the questions and discussion should take up most of the time.

Esat BT is a full service telecommunications provider and has been in the market since 1994. It serves all segments of the Irish market throughout the Twenty-six Counties and in Northern Ireland through BT Northern Ireland. The company employs 1,000 full-time staff in offices in Dublin, Cork, Waterford, Galway and Limerick. We are the second largest fixed operator in the marketplace, with approximately a 10% market share. Since 2000, we have been owned by British Telecom and we are fully integrated into the BT global services division. Since 1997, we have invested over €600 million in our network in Ireland. This year we will be investing €60 million.

In terms of Internet services and broadband services, we have been consistently first to market with innovative Internet services. We had the first subscription services, through Ireland On-Line and the first free services, which drove the awareness of Internet in Ireland, through Oceanfree in 1998. We launched the first broadband service in April 2002 and we launched the first bundle of Internet minutes in 2002. Last Friday we launched the first FRIACO, flat rate, narrowband service, again through the innovation of the Minister, Deputy Dermot Ahern.

What do we bring to Ireland? We believe we bring competition, choice and innovation to Irish consumers and business on a national basis. We have our own network - 2,000 kilometres of fibre network around the country - and we use wholesale services from Eircom where we do not have our own network or where it is not cost effective to access the customer.

In terms of delivery of broadband services, we firmly believe the corporate and multinational market is well served by broadband fibre. We use our own infrastructure to connect to these customers. The cost of laying fibre in the ground is in the region of €200 - €300 per metre. This means it is cost effective for us and we can get a return by going to the corporate and multinational market. However, there is a problem for small and medium sized companies and also for the consumer market. We believe that the only realistic way to deliver broadband to those customers is by using ADSL and by accessing the local loop which is already in the ground. In this regard, we are totally reliant on delivery of wholesale services by Eircom at the right price and, most importantly, with the right service level.

The awareness of ADSL among the SME and the consumer is poor. The availability is getting better at the SME level, poor at the consumer level. The price is right at the SME level and not right at the consumer level. The price a business pays for broadband at present, if it can get it, is in the region between €50 and €100 per month. If a business uses the Internet correctly, we do not believe that price is extortionate. However, it is for a consumer. We believe these three issues, availability, price and awareness, are interlinked.

The wholesale products available to Esat BT are available to other licensed operators for DSL. There are two wholesale products available - bytestream, which is where Eircom delivers the network right to the consumer and local loop unbundling, which is where Esat BT puts its own equipment into the Eircom exchange and utilises the local loop, the copper pair, to get to every business and consumer in the country.

The prices we pay are as follows: €27 forbytestream whereas the average European price is less than €20; almost €17 for local loop unbundling - there is a High Court case at present - whereas the average European price is less than €12. This means that the Esat BT retail price to the consumer for broadband is €41, whereas the average European price is €34 or less. All the above prices exclude VAT. The roadblocks, in our opinion, are prices and services issues.

How do we drive awareness of broadband? FRIACO - flat rate Internet - will, in itself, drive Internet awareness. It is not a broadband service, however it does bridge the gap between metered dial-up access and broadband. Therefore a consumer now has three different choices - metered, unmetered narrowband and broadband where they can get it.

Broadband for schools is vitally important. Currently the Department is spending a minimum of €70 per week per school for a narrowband style of service. We have written to the Minister for Education and Science, Deputy Dempsey. We can deliver a combined broadband/flat rate product for less than €40 per month to schools nationwide.

What can the Government do? It can assist with demand stimulation before build out. We believe the Government needs to become a customer before it becomes a supplier of broadband services. Currently the Government spends 95% of its telecommunications budget with Eircom.

The broadband rings will help. They will extend the reach of fibre and allow us and other operators get access to the next level of customer. We can now get to the multinationals, the big corporates, companies like Apple, Intel, Microsoft and so on. The fibre optic rings will allow us get to the next level, the larger SMEs. It will not let us get to the small SMEs or the consumers.

What can the Government do? It can provide price stimulation through possible subsidies, the low VAT service rate of 12.5% could possibly apply to broadband, and address regulatory issues to facilitate competition. The latter is critical in giving ComReg the powers. There should be greater urgency on the part of ComReg for local loop unbundling and also for bytestream on both price and service levels.

What can and will Esat do? We will build additional network. We will roll out more fibre network. We will build additional local loop unbundling sites. We currently have 40 located in 40 towns and cities around the country. We will do more. If the pricing issue currently before the High Court is resolved in ComReg's favour, we will roll out more local loop unbundling sites.

We will work in partnership with the Government. We are very interested in public private partnerships in schools, in the health services and in the context of Northern Ireland.

We will continually drive down price points for services. As our wholesale costs are driven down, we will pass these on to our customers. However, we cannot drive down Eircom's wholesale prices. The regulator must do that. We will continue to develop new and innovative products and we will drive the awareness of broadband throughadvertising, partnerships, sponsorship andevents.

Mr. Evans, were you here for the presentation by IBEC/TIF?

Mr. Evans

I was here for part of it; David Taylor was here for all of it.

You stated that the metropolitan area networks are vital. Some of the other contributors did not think they were as vital. They feared that we could have a field of dreams, that people would not use the service. Would you be of the view that, with the fibre being available, telecommunications companies like Esat BT will take up the capacity on those rings?

Mr. Evans

I did not say it was vital, I said it would definitely help. Yesterday I was in Galway presenting to a number of businesses. We have a fibre optic network in Galway. We go around Merview, Ballybrit, industrial estates and around the city. The metropolitan area network ring that is being rolled out there will extend. It is extending to a much greater area than we are covering with our network and we will use that network to get to customers. It will not help us get to the small business. For example, the cost of getting into the offices of the local estate agent/auctioneer, even from the metropolitan area ring, would be very expensive, but most certainly the ring will help us get to the next level of business.

For the purposes of clarity, was the decision of Government to invest in the metropolitan area networks correct in your view?

Mr. Evans

It was definitely a help. If I were personally given the money I would not have done that, but it was a help.

What would you have done?

Mr. Evans

I would have channelled the money into helping ComReg drive awareness of broadband and help to address the service issues with Eircom.

From what we heard from previous speakers, ComReg has a big pot of money. We must inquire what it is doing with that money. It has a surplus.

Mr. Evans

I do not know about that.

I welcome the representatives of Esat, who said earlier that they have 10% of the fixed lines in the country. Where are they located? What effect would they have on the cost of a broadband service? Does it make it easier to deliver the service or make it cheaper in those areas? How will it influence the service?

The FRIACO service was launched recently. Where is that available and by what means can it be accessed? We were told that the cost is €41 plus VAT but another company launched at the same time - I cannot remember its name - but I recall its charge was considerably lower than Esat's. Why is there such diversity?

The delegation gave us the cost at which this service could be brought to schools when prompted by the Chairman and said it could be done nationwide. Does that mean every school in the country? By what means can the service be extended? Is there a loop of telephone lines involved?

The delegation referred to broadband by ADSL. What about other areas where that might be too expensive? The delegation did not say much about ComReg, though we heard a lot about ComReg from previous witnesses. What is the delegation's view of ComReg, particularly its role in the future as the system becomes more developed and competition more pronounced? How competitive is the market at present and how attractive is the business case for investment supply in broadband at present?

Mr. Evans

I will start with the FRIACO service we launched last Friday. That is not broadband. The €41 is for broadband, an ADSL service which is not nationwide. FRIACO is nationwide and available anywhere in the country. FRIACO was launched at an introductory price of €20 for consumers per month, for a flat rate anytime offering, while it is €45 for businesses.

Over a normal telephone line?

Mr. David Taylor

Over a normal telephone line, available anywhere in the country.

Always-on?

Mr. Taylor

It is an always-on, flat rate service, peak or off-peak. It was launched last Friday. This is not broadband but it is an important stepping stone. The two benefits of broadband are always-on connectivity and speed. FRIACO will address one of those issues - the always-on issue. One does not have to worry about call costs if children are on the Internet. Broadband is the next step up, so this addresses one of the issues.

This links to the schools project and broadband for schools. Broadband cannot be delivered to every school in the country but FRIACO can. Our proposal is to combine broadband where it can be delivered, which is probably 40-50% of schools, which are broadband connectable, and FRIACO flat rate narrowband to the rest of the schools. As broadband gets extended the percentage of broadband schools go up.

The price would be the same for a school in the middle of Dublin and a school in the west of Ireland?

Mr. Evans

Yes, the price would be exactly the same.

Would the percentage go up from 50% of schools with the roll-out of MANs in the 19 centres?

Mr. Evans

The MANs will not get to a large number of traditional schools. They will help operators like ourselves get from our network to the Eircom exchange and facilitate the unbundling process. The MANs will also provide a call location facility for our equipment in the towns.

One example is Charleville-Rath Luirc. The rail line goes through the town and we are at the railway station. Our fibre is there. The distance to the Eircom exchange is 1.5 km and it will cost us over €250,000 to get fibre to the Eircom exchange to facilitate unbundling, so a MAN there would solve that problem.

Regarding other methods of getting broadband, cable TV is commonly used in the UK and Canada. Wireless is another method and we have a wireless network, with 20 sites throughout the country. Wireless is a good alternative method for accessing businesses but will never be mainstream as there are security, health and safety and reliability issues. Whether real or not they are perceived as such by the customer base. It will never be an ubiquitous delivery service.

Mr. Taylor

Members asked about the role of ComReg. First, one must ask about the role of a regulator. Regulators regulate dominant firms and act as a proxy for competition. When competition becomes available those regulators can fall away. The situation here is that the market was liberalised in 1998 and competition developed for the first two years and got up to 20% of the total market, though it has remained flat ever since.

Do we have effective competition in Ireland? One member answered that when posing a rhetorical question earlier, and the views of other delegations seem to be that effective competition does not exist in Ireland today. What is the role of ComReg——

Is that your view, Mr. Taylor?

Mr. Taylor

Yes.

As a telecoms operator?

Mr. Taylor

As a telecoms operator, yes, there is not effective competition in Ireland right across all the markets. If that is our view and that of Government and consumers, then obviously regulation has to continue. If competition has also remained flat for the last two years, it implies that additional powers have to be given to provide another function.

With broadband we have the bulk of supply supplied over the local loop, that is the final mile. Eircom, as the ex-State incumbent, controls the final mile and it is all about access to that final mile. From previous presentations the committee will know that Eircom has taken legal action against ComReg decisions on prices for accessing that final mile, and without prejudicing other issues, one can take one's own view on why Eircom might have done that.

We will not discuss that. If there is a case before the courts it issub judice and it is not for us to discuss.

I asked about fixed lines.

Mr. Evans

We have 10% of the market by revenue; we do not have 10% of the fixed lines in the country. As I said earlier, a lot of our revenue is in the multinational corporate and larger businesses. We have approximately 5% market share in the consumer business and probably a similar market in the SME sector.

I recall that you have approximately 900 kilometres fibre cable in the ground along the railway network.

Mr. Evans

Some 2,000 kilometres.

I recall that data from the CIE inquiry which never concluded. Is all that fibre lit up?

Mr. Evans

No.

The delegation might talk about that aspect when responding to Deputy Ryan's question. I am interested to know whether there is much fibre in the ground which is not lit up and the reason for that.

Mr. Evans

There is a lot of fibre in the core network. As mentioned earlier, it is like having a motorway and not having roads off the motorway to get to houses and the people. We have 96 fibre pairs on every one of the railway links, and we are using two. The technology has improved in recent years to drive more and more bandwidths on a piece of fibre. The problem is not in the core network, it is in the access network.

The Chairman has the uncanny ability to ask questions I was about to ask. I do not want to get into the scary situation of repeating questions for hours on rail lines and fibres. However, I want to be clear on this point because it is interesting. Mr. Evans said he had 2,000 kilometres of fibre. Is all of it adjacent to rail lines?

Mr. Evans

No, a lot of it is within cities. There is road fibre within Dublin and around the cities of Cork and Limerick.

Therefore, 900 kilometres of it is on the rail lines?

Mr. Evans

No, there are at least 1,500 kilometres of fibre on the rail lines.

Roughly three-quarters of the lines are along the rail lines and the rest are in Dublin or other main urban areas.

Mr. Evans

In towns or cities.

Mainly to large corporate customers?

Mr. Evans

Yes, or to Eircom exchanges to facilitate unbundling to access our customers.

In terms of the rail network, that is your main motorway or backhaul network around the country. Given that the rail network is a fast disappearing asset, is it a circular network which is secure in terms of possible breakdown in connectivity at any point? Does it cover north, south, east and west? Does it cover the full island of Ireland?

Mr. Evans

It covers the rail network. It also covers areas where the rail network no longer exists. For example, the Tralee ring is covered off from Tralee to Limerick; it goes Dublin-Waterford, Dublin-Cork-Tralee-Limerick-Galway-Sligo-Dublin-Dundalk. It does not go to areas such as Letterkenny.

If there is local loop unbundling and development of local area networks, including the backhaul network, can you provide almost a nationwide service to small SMEs and residential customers?

Mr. Evans

Yes, when you say almost nationwide in terms of addressing 70% to 80% of the businesses. However, it would not address areas such as Connemara, Donegal and other areas outside the railway network.

Your parent company is BT? Have you a relationship with Northern Ireland or the UK in terms of the broadband area? What is BT's current experience in terms of the uptake of DSL and other products? By comparison, what is your experience? This is just a very new service in the Republic in terms of DSL uptake. Could you give us a rough indication of the level of interest and uptake, where it is coming from and the comparison with the experience in the UK?

Mr. Evans

Broadband DSL in the UK has been a tremendous success in the past year. BT has more than one million ADSL customers at retail and wholesale levels. More than a half of BT's ADSL connections are delivered by third party retail companies. Some 50% of BT's broadband connections are delivered at a retail level by BT. The other 50% is delivered by the hundreds of ISPs and other licensed operators who exist in the UK.

What is the wholesale and retail price of DSL?

Mr. Evans

In the UK, the retail price for broadband is £27 sterling.

Is this to businesses?

Mr. Evans

Businesses can also avail of that product. The wholesale price is £13 sterling, which is approximately €16 or €17.

That is not as big a difference. We were presented with figures showing that Irish DSL prices were the highest in Europe; Denmark was a close second. There is not a huge gap between €38 and €41.

Mr. Evans

The €41 excludes VAT. The lowest broadband price in Ireland is €49.49, which is just below €50. In the UK it is more than €10 cheaper, including VAT. We believe the price must be below €40 for consumers to take it up.

In terms of my own experience, if I was always on a narrow band FRIACO service, having got used to a faster service in terms of Internet service, I could not go back. I would be pulling out my hair using the Internet on an ordinary dial up connection. I would be interested to know what the international experience is in the UK in terms of that narrow band. I would have thought people would go for the broadband if the price difference is not so significant between the always-on broadband and always-on narrow band.

Mr. Evans

The always-on narrow band in the UK is €20 and the always-on broadband is €38.

What has been the uptake on the always-on narrow band?

Mr. Evans

The uptake was phenomenal on the narrow band always-on service in the UK launched approximately two and a half years ago. When broadband reached one million, which is approximately 5% penetration of broadband, flat rate services flattened out. While broadband was going in, flat rate narrow band was still increasing. It was only when it got to 5% penetration that the flat rate service started levelling out in terms of the number of subscribers.

What is the delegation's definition of broadband? Is it just the dial-up connection, DSL, DFL or 5 megabytes?

Mr. Evans

It is 512 kilobytes per second and above.

That is your definition?

Mr. Evans

Is that where we need to go? Five megabytes is a very ambitious task set by the Government. For customers who are using 56 kilobytes dial-up today, to move to 512 kilobytes is a big step change. The next level is two megabytes. This is a realistic vision for which we should aim.

The vision given to us by different presenters was that we must aim for 5 megabytes within five to six years.

Mr. Evans

The ADSL technology that exists today in commercial deployments typically goes to two megabytes per second. There are tests and equipment vendors who can go to eight megabytes per second. It will probably be a few years before that becomes a reality. One could aim for five, but two is the realistic limit.

Is that your view?

Mr. Evans

Yes.

I have three questions on the wireless system. Have you made any approaches to Government regarding who will manage the metropolitan area networks and tying in your fibre as part of the national backbone? It is pointless putting fibre in the ground if you already have some there. You mentioned earlier that you launched a wireless system. Do you see your company putting hub alongside the fibre hub, a satellite hub or even a wireless hub and taking the connection from that fibre and selling it on to customers as a wireless system as opposed to the fixed line system which you currently operate through another supplier? You might also tell us how the Northern Ireland market is operating for you so that we can compare both markets. Can you advise the committee on why one operator has 95% of Government business and the other has 5%?

Mr. Evans

It is more than one operator.

You might explain why one operator has 95% of business and all other operators have 5%.

Mr. Evans

On Government business, Eircom, won a competitive tender issued 18 months or two years ago for the supply of mobile, fixed line and Internet services. It is a three year tender.

When does it expire?

Mr. Evans

In 18 months. On wireless access to the fibre optic network, we have wireless stations in places such as Carlow. They are connected to our fibre backbone and are delivering a wireless local loop into the customer's premises. It is a good method for connectivity to SMEs but there are limitations. One needs line of sight and must have a visible direct connection.

Your system requires line of sight but there are systems available that do not?

Mr. Evans

Yes.

We have seen some in Silicon Valley in San Francisco.

Mr. Evans

The biggest barrier to rolling out wireless services everywhere is that customers still have health and safety, reliability and security concerns.

What is the position of roll-out in Northern Ireland?

Mr. Taylor

BT Wholesale in Northern Ireland provides a significant amount of ADSL services. Approximately 20 different service providers buy those services and BT also sells at a retail level. There are 700,000 lines in Northern Ireland compared with approximately 1.6 million or 1.7 million in the Republic. The plan is to have installed by this time next year, 40,000 ADSL lines in Northern Ireland of which BT will probably supply about 40% on the current basis at a retail level. It will probably supply about 80% at a wholesale level and the bulk of 20 other service providers will provide the rest.

At the prices Deputy Ryan was inquiring about?

Mr. Taylor

At the same prices available in the UK.

Did you say there were 26 Internet service providers in Northern Ireland?

Mr. Taylor

Yes.

Do you know how many Internet service providers we have in the Republic?

Mr. Taylor

It is a completely different environment for a variety of reasons, some of which we touched on earlier in regard to competition. It is much easier for service providers to operate in Northern Ireland and the UK as opposed to operating in the Republic.

Do you have any idea how many Internet service providers operate in the Republic?

Mr. Evans

There are quite a few ISPs, approximately 12 or 15 registered ones. On ISPs with more than 1% market share, there are about three. That includes ourselves and Eircom.

And who else?

Mr. Evans

Netsource.

You have covered most of the questions I wished to raise, Chairman. Mr. Evans indicated in his presentation that they have invested approximately €660 million in six years.

Mr. Evans

The bulk of that was invested in 1998-99 in delivering the fibre on the backbone network.

What percentage of it related to broadband?

Mr. Evans

It was all broadband.

What percentage of wholesale Eircom services do you use? The presentation states that your company plans to roll out more fibre network should the current crisis be resolved. If it is not resolved to your satisfaction, what then will be your plans? What do you plan to invest in the rolling out of additional network?

Mr. Evans

We are investing €60 million this year in network. Some of that will be spent on fibre network roll-out and some will go to local loop unbundling services. The balance between how much is spent between digging to multinational corporates and how much goes to local loop unbundling will be determined by the outcome of the court case. Our budget for the year is €60 million.

On how many customers are directly connected and how many use wholesale services, there are 90,000 SMEs in this country. There are between 500 and 1,000 large businesses which we could cost effectively connect to our fibre optic network but we connect 90,000 SMEs and the one million consumers through the Eircom network. The vast majority of our customers are indirectly connected. In revenue terms, it is about 50:50.

I apologise for missing the earlier part of the meeting but, like other members, I had another meeting to attend.

Esat BT seems interesting to somebody like myself at least because you have had the experience of being the incumbent in the British market. I presume you are still the incumbent. If you were to compare your experience as effectively competing against the incumbent in this market, how do you think British regulatory authorities took a more dynamic role in regard to making your company in the UK open up to more competition than has been the case with our regulatory authority? Is there a difference? We seem to think that Government in the UK is much more focused on this issue and is developing this type of service at a much faster rate. That is one of the reasons we are having this meeting. Perhaps you could outline your experience on both sides

Mr. Taylor

Regulation in the UK is handled differently from how it is handled here. The simplest way to describe it is that Oftel has what is called co-competition powers. It acts as a competition authority and a regulator and is extremely tough in the enforcement of those powers. The Government and regulator stance in the UK, from the Prime Minister down, is totally in favour of making broadband Britain happen.

BT comes under enormous pressure, both publicly and privately, to ensure it is competitive. Basically this is about the provision of competitive services. It has been realised that we cannot have just one company providing services. There must be a number of competitive services or consumers will not buy the product. Enormous pressure is applied to BT at various levels to ensure that its prices and services for wholesale enable a competitive market to develop. It is quite different.

Is it the view that Oftel, because it has these significantly additional powers, has made the incumbent - your sister company - move at a faster pace than BT as the next best competitor has been forced to endure in this market?

Mr. Taylor

Yes.

Mr. Evans

BT is in a very difficult position. In the UK, where it is the incumbent, it has a strong regulator and in every other market - Germany, Ireland, Spain - it has a weak regulator.

To some extent Esat BT has the worst of both worlds.

Would Esat BT send us more detail on its schools proposal and on whether it intends to look at connectivity in terms of a wireless system for schools that will be left out of the loop, even with the MANs. We will look for information from other telecommunications operators also in that regard. Is Esat BT a member of TIF?

Mr. Evans

Yes.

I shall not ask how much the company is subscribing because it appears to be top secret. I thank Mr. Taylor and Mr. Evans for their presentation. It has been helpful to the committee. I hope we will be able to come back to them if we need more information. I wish them well in their endeavours.

Sitting suspended at 12.13 p.m. until 12.15 p.m.

I welcome Dr. Phil Nolan, chief executive officer, and David McRedmond, commercial director, of Eircom and thank them for coming in at short notice to make their presentation. I draw their attention to the fact that members of this committee have absolute privilege but this same privilege does not apply to witnesses appearing before the committee. It is generally accepted that witnesses will have qualified privilege, but the committee cannot guarantee any level of privilege to witnesses appearing before it.

I am delighted to have this opportunity to address the committee. We recognise the importance of communications, especially telecommunications, to the future of Ireland. I would like to start with a somewhat wider view than just broadband. It is important to step back and look at telecommunications in the round rather than dive straight into broadband. I will spend a few minutes looking at the general situation.

We have a good story to tell on how telecommunications in Ireland, on a benchmark basis, are competitive with Europe. We are also well positioned to address the broadband challenge going forward. We all need to get behind broadband and rather than accentuating differences we should accentuate that which binds us. I propose a short agenda which will look, in the context of the industry, at Eircom today, at our views on broadband Ireland and at some ideas we have on the action required.

Telecommunications are going through a difficult period. We have just come through a significant investment boom to a bust and growth has gone from the telecommunications market in general. In common with BT Esat, there is a huge over-capacity of fibre, particularly in backbones. We have 207,000 fibre kms in Ireland. That is the scale of what we have. The best analogy I can make is that big cables in telecommunications are not dissimilar to gas pipes. With a gas pipe one can flow gas at a rate which depends on the diameter of the pipe. However, if the pressure of the gas is increased it can flow much faster. We have cables which have the capacity or ability to pass signals at a given rate. When we add an electrical piece on the end we can pass 60 times what went through before. Therefore, there is a vast over-capacity of fibre in the backbone. Because of this, and because so many investors have lost so much money as a result of the downturn, the biggest single issue for telecommunications going forward is how to attract capital and investment.

The telecommunications market is changing and making a transition to a new state. If one looks at the market for voice, it is now 60% mobile and 40% fixed line. There is huge competition for the revenue that comes from just making calls between mobile and fixed line. That competition is ignored largely by people who look at the competitive landscape. It makes no sense to say that Eircom is 80% of fixed line voice because one is only talking of 80% of 40% of a market. Mobile is the major market. For a long time into the future the major source of revenue for telecommunication companies will continue to be voice revenues. Those voice revenues are necessary to finance the next transition step for the fixed line telecoms which is mainly focused on data. I do not think voice is going away for fixed line telecoms but data are becoming much more important. The Internet and the passage of high speed data lines are much more fixed than mobile at the moment. They are more secure, reliable and faster. This transition means the networks that telecommunications companies built, in particular, Eircom's access networks, were built to carry short duration voice calls. They are now being required to carry very long duration - in fact, always-on - data conversations between computers and big host servers somewhere else.

Those are the three big challenges for us. We have been through a downturn and growth has gone from the market. Mobiles are taking the lion's share of the major revenue that is available in the market and the fixed has to transition to a new state which requires capital investment in the networks. In general terms, those are the big picture issues that I wish to highlight.

Eircom today is a commercial company, driven by both customer and shareholder value. We are the telecoms infrastructure provider. We have 207,000 fibre kilometres. That is by far and away the biggest network in the area and the access network has a reach that goes all over Ireland. We have invested more than €1 billion in the past five years and our current plans would see us investing €1 billion in the next five years. We are a big network investor. To a large extent, many other operators resell our access network.

We are driving for efficiency and value for customers because that is important to us. Our workforce has been halved since 1985 when it was 18,500 to 8,500 today. Historically, our prices have been among the highest in Europe and today our average price over all our products is, we reckon, in the top quartile. We are operating in a competitive market as approximately 60% of the voice market is mobile. Our wholesale prices are pretty much around the European average and we have the lowest what is termed the "interconnect" - the charge that is applied to other operators to terminate fixed voice calls in our network. We have the lowest flat rate Internet charge at a wholesale level in Europe - this has been recently introduced.

The prices for other operators to use our network for those two things are the cheapest in Europe. This was the first country in Europe to introduce CPS - carrier pre-select - which is the ability for a customer to say: "I would rather one of your competitors carries my calls and bills me than you do". All of that was achieved very rapidly because Ireland was very late in starting the deregulation process. Eircom was privatised in 1998 while, by comparison, BT was privatised in the 1980s. The regulatory system has taken much longer to develop. Ireland has by contrast to other places, come a long way in a short time which means that in many ways its process has been a bit rushed.

In terms of the cost base which I think is very important, I have plotted the reduction in head count. It is down 23% in the past five years and down by 1,700 since Valentia did the acquisition 18 months ago. We have achieved this without disrupting service which I think is very important. Carving out costs and not delivering service is not in anybody's interest. This has been done without any service disruption. Our analysis of annual report data shows that our operating costs per line are below the levels in BT.

Ireland is disadvantaged when it comes to telecoms networks. I am familiar with the ComReg presentation to the committee. It demonstrates that basically 30% of the population live in Dublin, 20% of the population live in the major towns and the other 50% is what we call rural. That is a very strung out population which is difficult to reach with fixed networks and also very expensive to reach. With that structural disadvantage, Ireland is also one of the most expensive countries in Europe. A report from Forfás shows that despite a high cost economy, communications in general benchmarks very well - ninth out of 12 - which means we are the third cheapest for communications. From a structurally disadvantaged type of network and an expensive operating environment, I think in communications in general, Ireland punches above its weight in Europe. That is a good story to tell and we should tell it.

If one looks at how price movements have gone in the last five years, from 1997, Eircom prices have reduced by 20% in nominal terms but by 50% in real terms. The source of the data is not ours but is from the CSO April 2003. These data are independent and objective. Because of the nature of our price control, our prices will continue to track below inflation over the next three years.

It is well to examine the general range of products and how these benchmark. A shopper in a supermarket does not just look at one item to decide whether it is a good supermarket; they would take a basket of items to make a judgment.

The average residential bill is the fifth cheapest in the 15 EU countries. The average business bill is the fifth cheapest in the 15 EU countries. In what we call business broadband - that is, leased lines -Ireland is the fourth cheapest of the 15 EU countries. In international leased lines - what business uses for the broadband connections overseas - Ireland is the cheapest of the 15 EU countries.

The conclusion I draw from a very wide perspective is that Ireland has a good telecommunications infrastructure, a good telecommunications history. In working in partnership with Government, Eircom and the Government made this place the call centre capital of Europe and we have a good network and a good suite of products which are at competitive rates for Europe. The story we should tell is that this supports inward investment in Ireland, it does not stop inward investment as some people would have us believe. There is a good story to tell of a competitive offering in comparison to Europe.

We argue that Eircom is rapidly advancing the Government's vision for broadband Ireland. When I arrived here 18 months ago, we had no broadband and no DSL roll-out. The reason we did not have DSL roll-out, as I discovered, was that we were locked in a court case about pricing. To unlock that court case about pricing, I settled it very quickly. We then rolled out first the business product for DSL because we wanted to test our systems and bring in a high-end product. When we were sufficiently satisfied we could handle the product, we rolled out a consumer product. We now have a backbone network which is as good as you will get in Europe and which is the most efficient in pricing terms. We are meeting all the corporate needs - that is, the leased lines and international leased lines which are corporate broadband. The rollout of the mass broadband is well advanced. More than half the lines in the country are already covered and we are on target for two-thirds by the end of the year. Supply of the infrastructure, we believe, is not the critical issue; the critical issue is the take-up of broadband.

The list of all the exchanges which are already enabled and the exchanges being enabled are presented for reference. On broadband pricing, there are different graphs which sometimes compare apples with oranges. I refer to independent data from Tarifica, March 2003. For the 512 kilobyte monthly rental retail, exclusive of VAT, Ireland at €45 is very competitive with Denmark and Finland. It is less than Spain and marginally ahead of the UK and France. There are all sorts of comparisons everywhere. I will answer any questions.

Price is not an absolute; it varies with the market. When you bring out a new product, benchmarking is very unreliable because people set it at different price points, defining where the customer demand is and how things are rolling. We cut the price in half to bring in a consumer product and that has already given us significant extra take-up.

We also have a wholesale offering, which we call Bitstream. This is offered at €27, so there is an €18 difference between the retail and the wholesale, Bitstream, price. We sell it at one port at the time so it is on an individual basis. There is no volume requirement for coming to buy it from us.

To summarise as we go forward, I think we have got a good network. We have a history. We are becoming more efficient. We benchmark well on average across Europe - better in some things than in others. We are working at delivering better service and more efficient costs.

We have taken broadband strongly by the scruff of the neck since we came here following the takeover and we are aggressively rolling it out. In our view uptake is the real issue. We benchmark badly on tables against Europe because the uptake of broadband is low, not because the infrastructure availability is low. We think action is needed which will specifically focus on increasing the demand.

It is everyone's issue, but more is required. We believe the regulatory environment is too much cost driven. It is too much a case of getting the price of voice telephony down rather than saying: "Let's create a framework which will encourage the roll-out of broadband". In this the network must never be priced below cost. The most important thing in this is that broadband is about the network. Without the network, nothing works.

There has to be an incentive for investment in networks. If there is no incentive for investment in networks, then, in the long-term, whatever competition exists which relies on the network is not sustainable. There is sustainable competition between fixed and mobile, but if it is just going to be a sharing of networks, one of the prerequisites must be that the network investor earns an appropriate return on capital. Otherwise we will not get people to invest in networks. The classic example of where this goes to completion is shown in the United Kingdom railways. The network must have an incentive to invest because it is the core.

People argue that it is not possible to have another fixed access network. In terms of access, the competition will be between mobile, fixed and wireless, and fixed, but it will probably run over a single fixed network. For that network to be well maintained and sustainable in the long-term, it must earn an appropriate return.

We think the Government's focus should be on stimulating demand. That is the focus in the United Kingdom. There are many ways of doing that. The use of fiscal incentives is an example. Broadband penetration will not go beyond 38%, because only 38% of households have PCs. PC demand and uptake is important. Many companies can build a business model around broadband and around the Internet - Ryanair is a good example. It must be remembered that it is not possible to book with Ryanair except over the Internet. These kinds of initiatives drive demand and uptake and make it important to people.

Faster roll-out of e-government would be a big stimulus to broadband. However, if there are always alternative ways to operate, it is difficult to get people to use these things. The wider industry also has a role to play here. PC availability is very important. I do not know whether it is an issue of price, but it is certainly something we should look at.

Content providers have a big role to play, because it must be remembered that mobile penetration is absolutely superb; it is more than 80%. There are more mobile phones than fixed phones and yet mobile is expensive. People do not just buy on the basis of cost but on the basis of value. Most people would not be without a mobile phone and that is because they value it. It has great utility to them, as they say in the jargon. We have to create the same kind of usefulness around broadband. If that usefulness was there, we would see broadband uptake accelerate dramatically.

One should not forget the survey done by Amárach, presented by ComReg, which indicated that more than 50% of those surveyed were disinterested in broadband. We have a selling job to do. What we should do is promote and build the content, which everybody should market. We have to market broadband more than anything else.

On the specific broadband point, I would say we now have supply in place. We have retail and wholesale offerings. We can all offer it, but we have to stimulate the demand in order to get up this league table, which we all see as so important for attracting people.

I thank Dr. Nolan. We are at one with him on the PCs and we are looking at that whole area. Has Eircom considered the rental of such equipment?

Do you mean renting PCs?

Yes. Has Eircom considered it, in collaboration with the service provider, the computer hardware manufacturer and the software manufacturer, coupled with training?

We have not looked at it in any detail. We are a telecoms company. We have great expertise in running networks, etc. I am not sure we have the expertise in television. It is certainly something we would be willing to do and will take it away as a suggestion. The type of financing we have differs from that of TV retailers or manufacturers and distributes. I am not sure it would be particularly attractive to our investors if we had to put capital into producing TVs. If we could get to the situation where there was an alternative capital provider that makes TVs for its main line of business, we could get together and try to do that.

Would the company welcome a collaboration of the telecoms companies with the PC manufacturers and the Internet service providers to provide PCs to the home in the same way as supplying a telephone instrument?

I thank Dr. Nolan for a thorough overview of the market and the industry and also for focusing on some of the issues that have come up repeatedly at our hearings into the broadband deficit in the country. Many of the points he made are well taken.

I want to ask about five major issues. The workforce of Eircom owns a very large portion of the company through the ESOP, which I believe was extended following the Valentia takeover. The public perceives this as the last phase in the evolution of Eircom from the Department of Posts and Telegraphs into a private company. Given that venture capitalists, including Dr. O'Reilly and the workforce, put so much money into the company to enable it to develop to this phase, is it not the case that the company is under major pressure to get a return on this investment, which explains the dynamics of Eircom's positioning in the market? In other words, as the incumbent, Eircom may act as a logjam to broadband development, because it is under pressure to extract the maximum returns from the investments put in - although Dr. Nolan might not see it that way. How does the company cope with incumbency and what pressures does that bring?

Dr. Nolan has told us that DSL has been rolled out in exchange after exchange. However, that is not what we have heard. Dr. Nolan included various exchanges in Waterford and Cork, but I have received many e-mails from people complaining bitterly about the iStream product and the fact that DLS was not operational for whatever reason - perhaps because the last mile or the exchange, having been enabled, not functioning properly. I tabled a parliamentary question to the Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern. While we have seen many of Eircom's glossy advertisements, the feedback we have been getting is that it is still very bad and belated.

Dr. Nolan makes a very good point about prices, which the Labour Party has heard from our colleagues in the CWU, etc. They have made the case that Eircom should not be placed in a position whereby it would have to offer wholesale services below cost with regard to the loop, bundling and the other final stages. How can the witnesses convince the committee it would be below cost?

The presentation included a number of charts, including a key one on competitiveness. It was stated that telephony services are in ninth position in terms of European prices generally. However, that must be viewed in the context of the second most expensive country in the euro zone, with the worst inflation rate. We are already very expensive and telephony is just one factor in that. Today's presentation included showing a new product, with emphasis on its being brand new - "the DSL 512KV, nicely positioned" and so on. Is it not a fact that Eircom deliberately delayed this product for as long as possible? Is it not also the case that the company itself is part of the reason for high prices?

In deference to other colleagues, I will deal with my remaining points quickly. Dr. Nolan made some very good points with regard to the demand side, but perhaps he could expand on them. The Chairman raised a very good point on the question of rental. What is envisaged with regard to tax breaks? I believe the roll-out of broadband should be viewed on a similar basis to the provision of utility services, such as water and electricity. My party takes the view that disadvantaged areas - urban and rural - should not be left behind or deferred for some years. On the demand side, what is Eircom's view of the proposal which, evidently, the Minister is considering with regard to a levy on the industry - one might say a further levy - to facilitate the provision of a computer on every school desk?

I agree with the comments on e-government. With one or two honourable exceptions, such as the Revenue, performance in this area continues to be poor. I am aware that Eircom is involved in a further battle with the regulator. We have been informed by Esat that the UK regulator has even stronger powers with regard to competition. What form of regulation does Eircom envisage, taking into account the new appeals system, which may avoid the necessity to have resort to the courts? I thank the witnesses again for an excellent overview of the situation.

On the question of pressure for a return on capital, I return to my first point: No company can compete and survive in the long-term unless it makes a return on capital. Irrespective of venture capitalists, bank debt, bonds, employees or whatever, the money of venture capitalists comes from such sources as pension funds and so on. All capital needs remuneration, either as interest on debt or dividend on new equity.

There is no logjam. I would argue that since the venture capitalists took over at Eircom, we have released broadband. When I first became involved, there was no DSL - we were in the courts and everything was logjammed. We released the logjam.

Was Eircom not dragged, kicking and screaming, into the DSL era?

Who dragged me kicking and screaming? I can only speak for my own experience. The Deputy should speak to other people with regard to what happened at an earlier stage. Since I arrived, our first move was to settle the court actions. We got DSL up and running. We have a programme which will have provided for one million lines by the time this phase is fully rolled out.

What was the basis of the court action?

It was two-fold. There was a court action in relation to the price of DSL, to which the local loop and bundling were critical. This issub judice, as everybody will be aware - I do not wish to get into the details.

Is the witness referring to the present court case?

The present court case is concerned with the local loop price.

Was there another case?

There was a court case running on the local loop price. Rather than go through all of the case, we settled on an interim price of €16.81, which was meant to carry us through until a proper evaluation was done, following which we would get a final price.

Is the court case still in train?

We will not discuss the court case, Deputy Ryan.

The court case was reopened because there was a new direction which very significantly reduced the interim price.

I caution the members that we must be extremely careful when there is a matter before the courts. It is in the interests of us all not to prejudice the outcome of those proceedings.

I am suspicious that the court case may be used as a reason for delay.

Let me make the situation totally clear. A month ago, we were rolling out DSL on this programme. Today, we are rolling out DSL on exactly the same programme. We are not stopping; there is no impact from this court case on our current DSL roll-out.

Why did it not happen sooner?

It did not happen sooner because of a lot of history. I can only speak from when I arrived at Eircom. When I arrived, things were not happening because of a regulatory dispute over pricing. We settled that very quickly and have rolled out quite considerably and quickly since then. My position is that, rather than our creating a log-jam, we have freed one in so far as broadband is concerned.

How long have you been involved, Dr. Nolan?

I arrived in January 2000.

To clarify matters for the record, is the current court case with the telecoms regulator concerned with prices?

Yes. We should be very clear——

Is it about access to the local loop by wholesalers?

It is about access by other operators.

Mr. McRedmond

If I may intervene, it would not quite be a correct characterisation to suggest that DSL was not being rolled out. In fact it was, but what was not available was a low cost product. Consequently, the business broadband was being rolled out, exchanges were being developed for DSL and much of the R&D work was taking place. That has meant that, even though the low cost product has only been there for two months, we are achieving a more rapid take-up than other markets have seen. We can roll it out extremely fast because so many exchanges are already enabled. Accordingly, while it might appear to be coming later, the work was being done and the product was available at a higher price. We now have the lower priced product and, as a result, it is rolling out extremely fast.

There were some further questions from Deputy Broughan for Dr. Nolan to answer.

I could not comment on the examples given by the Deputy without knowing where they are located. The technology is limited, it can only reach so far from the exchanges and there will be problems with a certain proportion of lines. That will be worked out, over time. I repeat that we are rolling out the exchanges, they are being enabled but, in any massive programme, there will always be a few problem areas. I cannot comment on the issue raised by the Deputy as I have no way of knowing whether it represents a minimal percentage of the cases or 10%. I suggest we move on, in that regard.

On prices, I do not wish to get involved in the subject matter of the court case. On the comment that we deliberately held up product, it is notin our interest to hold up product. We are atelecoms company and we are trying to restore some growth to a static market. It would not make any sense for us to delay anything. All the actions we have taken since I became involved demonstrate that we have gone to considerable lengths to roll out the programme quickly.

With regard to tax incentives, I do not like people telling me how to run my business and, accordingly, I will not tell the Government how to run its business. There have been useful tax incentives in many areas. Could VAT be alleviated on broadband going in? Could companies be helped by way of extra tax breaks? Perhaps somebody who has a creative approach to tax could work on it. Such incentives would be very useful.

On the question of the ministerial levy, I am not a fan of levies as they amount to a form of arbitrary taxation. Aside from the issue of telecoms, they are not a good idea. There is general taxation. I do not like levies.

Internet in schools is a great idea. Eircom has invested significantly in the Ennis information age town project and the schools programme. We have already invested in the order of €40 million in putting personal computers into schools and developing Ennis as an information age town but have not seen a significant return.

On the one hand, you favour using fiscal measures to put a personal computer into every home, while, on the other hand, you oppose levies as a means to bring broadband connectivity to every school in the country.

No, I said I am against, in principle, the use of levies as a way of increasing taxation. I am used to them because I used to work in the oil business. Whenever the oil fields looked promising, a levy was imposed on oil. In principle, I do not believe levies are a good way to raise taxation.

Do you have a proposal, which the committee could include in its report, on how to achieve what the Minister seeks to do? Let us avoid the use of the word "levy" for now. How could telecoms companies assist in providing a broadband service without the imposition of a levy?

I suggest a combined industry approach in which everyone involved, including PC manufacturers, software makers as well as telecoms companies, tries to find a way to get together funding. We have been down this track before. Eircom made a special effort to put funding in place and we would like to see an industry effort now, rather than falling back on telecoms companies.

Eircom has a special responsibility, given that it inherited a company which had a universal service obligation. Does the company's problems in ensuring all schools and rural areas are linked up indicate thatit is retreating from universal service? Some comments emanating from Eircom in the past four to six months appeared to show it was trying to back off from the universal service obligation or indicate to Government that it required a subsidy to continue to perform this role.

In the past, Eircom had 100% of the market. We have never said we want to get rid of the universal service obligation. We recognise the issues surrounding universal service and support the concept. However, times have changed significantly. When universal service first arose, the company had 100% market share and no competition. Currently, the mobile operators take the majority of available voice revenue and do not contribute to the universal service obligation. The only point we have made recently is that we support the universal service obligation, but it should be better defined and the contribution to it should reflect the revenue made by different parts of the industry.

It is unfair not to recognise that we currently carry 100% of the regulation and universal service obligation, but receive, by revenue, only approximately 40% of the voice market which is still the main revenue generating market by a long way in Ireland. All we have said is that others should also contribute. To characterise that statement as Eircom not wanting the universal service obligation is a little misleading.

On the question of the United Kingdom regulator, regardless of where one is, one will find the regulator in one's backyard much worse than elsewhere. That is the nature of the business. What would one expect people to think? There are ups and downs and differences between the regulatory regimes across Europe. For instance, for an extended period we had the lowest interconnect rate in Europe. It was not just 10% lower, but two, almost three times, lower that elsewhere. Our case is that the regulator is being tough on this issue, whereas operators elsewhere would argue a case in a different area. It is all a measure of how it appears in the round.

A critical issue is the cost of capital. BT in the United Kingdom makes a 13.5% return, which is what the regulator there permits, whereas we make an 11.5% return. To claim the position in some countries is much more difficult than in others is wrong. The regulators are different. The UK also has an appeals system, which we should have here.

There are many issues on which the regulator and the company under regulation will not agree because of the nature of the frameworks we have built. If one were to examine regulators' decisions, one would find they always state their objective is to introduce competition, but never mention the licence obligation which requires them to allow the incumbent to make an appropriate return in order that it will reinvest in the network. This obligation is also in place but is not highlighted by regulators.

There will always be differences of opinion and it is no surprise, therefore, that there will frequently be disagreements. When a disagreement involves a matter of principle, one needs arbitration because the sides cannot get together. While there have been differences as well as advantages and disadvantages, I do not believe the regime here is any more onerous in the round than elsewhere.

I thank the delegation for an excellent presentation. Is it true that under the regulations Eircom is being forced to lease lines to competitors below cost price? Is it the case that Eircom, which has 38% of the voice market, is the only company obliged to share lines with competitors? Will the route followed by ComReg lead to sustainable competition?

The witnesses may not wish to answer my next question which is slightly off pitch. Before the most recent changes, the public perception of Eircom was not good and people felt prices were too high. In addition, former members of the top layers of management of Eircom and other telecommunications companies, who had spent a relatively short period employed by the various companies, became multimillionaires when they received massive golden handshakes. This sends out the wrong message to the public and Eircom customers. What are the views of the witnesses on that issue?

Our prices for leased lines, as will be shown, benchmark well in Europe. However, a new directive is coming through which will require us to introduce what is known as a partial private circuit which would further reduce rates for leased lines. We have not achieved agreement on the cost of the provision.

I understand we are the only company which must open its network to all comers at a pre-determined cost effective regulatory price. The mobile operators do not have to do this. While one of the 3G licence holders will be required to do this, these licences are not yet operating. Perhaps Mr. McRedmond could verify that.

Mr. David McRedmond

That is correct. Although some other operators open their network, it is twice as expensive for Eircom to connect to the network of the other operator, Esat BT, as it is for it to connect to ours.

Does the ability of other operators to piggy-back on the network without making any real investment act as a disincentive for them to invest?

The regulatory framework dictates that this is the case because it prices us below net entrance costs. Is it sustainable? There are many models of regulation. If one looks back at privatisation, it was successful in that it brought new products and lower prices and changed the market. This was helped by growth in the market and it established the usual objectives of privatisation and deregulation, one of which is to remove from the Government balance sheet the necessity for funding this area. As a result, it is no longer competing with hospitals and schools for funding. That much has been achieved. A great deal of commercial capital was available for it and it was successful.

Regulation, however, should be only a transient stage. As one goes forward others should become involved which will lead to the development of competition, thus rendering regulation unnecessary. However, things did not happen the way they were planned. Continuous regulation strangles returns from the industry and this leads to falling investment. This is unsustainable because there are no networks being produced other than ours and if we are made to sell below cost, then we will not be sustainable in the long-term.

In order to create new networks there has to be a return for new investment. In a static market I do not think it is possible to get the required investment to build new networks. In such a case one has to rely on a well built existing network. It has the characteristics of a natural monopoly but it needs to be well regulated. It does not need to have as its overriding objective the introduction of competition. Good regulation is required, which should have as one of its prime objectives, to ensure that the incumbents can make a return which will encourage new investment. It depends on which model one chooses. The way this model is going, it is unsustainable because it does not give the required incentive for network investment.

Why is there less competition in the fixed line business since liberalisation?

There is more competition in that there are more people selling telephone services.

I am speaking purely in terms of the fixed line business.

There is more competition.

No, there is less competition.

No, there is more competition.

It has not gone beyond 20% in the last——

It depends. There is a critical issue here. Does one want to say that effective competition cannot be established until there is a certain market share? If that is what one wants to do that is a completely different understanding of competition to mine. There is no need for a regulator as nobody can ignore the market price. The market sets the price, not some incumbent who manipulates the price to what he or she wants it to be. Where there is sufficient market power to regulate the price, then regulation is often introduced. Some 20% of the fixed line market is with somebody else. We have to take note of its prices because consumers will go to the company with the lowest price as long as the service is good. Many people leave us and then come back to us. We also have significant competition from mobile. My children do not use fixed line phones. Many of the new generation just use mobiles. That is competition. We cannot price in such a way that we drive people to use mobile only. There is a great deal of competition. If one wants to establish that a given party will have no more than a certain percentage of the market, then one will have to dramatically change the regulatory regime. In order to get more people to invest in the networks more money will have to be put into the network side than is currently the case. While there are many difficult elements here, competition does exist. People regularly leave Eircom.

Back in the 1970s the telecoms business was about the provision of voice services where a daughter rang her mother or granny for ten minutes. We have had a series of presentations over the past number of weeks which focused on the possibilities of e-health, e-education and e-business. Society is changing dramatically and, far from the data transmission system or the use of a network being in decline, there are massive opportunities. If we do not avail of those opportunities we will fall behind internationally, not only in terms of business, but also in terms of the effective running of society. The level of data communication required in the areas of e-health and e-education is potentially enormous. It is not correct to focus on protecting a declining monopoly market. The voice business, which is being taken over by the mobiles, is not the current concern of the committee which is addressing how we develop broadband services and in so doing, develop our society. There are huge obligations on us as legislators to ensure we do that.

Dr. Nolan's first point related to the difficulties in the overall telecom market due to the downturn. As far as I can see, the main problem with telecoms was the huge capital investment by telecoms operators in the mobile business which has left them very much under-capitalised and stretched at present. I do not expect Dr. Nolan to disagree with this assessment.

In regard to Eircom, it actually sold a mobile network at a very high price. That may be something which the company now regrets as mobile is so strong in the voice market. What price did Eircom receive for the sale of Eircell?

About €1 billion.

About €1 billion, which is almost the total amount invested by the company over the past five years.

The money received from the sale of Eircell went to shareholders. It did not come to us.

If we take the money the shareholders received for its investment——

No, not the current shareholders, it went to the previous shareholders in the form of Vodafone shares.

What went to the State?

The State sold to the ordinary investors and then the company sold the mobile business to Vodafone and gave the Vodafone shares which they got to the ordinary retail investors. We did not get any money. We paid for the other half. The company was sold to the public by the Government, which gave rise to a plc. That plc broke itself in half, one half of which was sold to Vodafone in return for shares which went to those retail shareholders. The other half was sold to us.

It was used to pay for the purchase price of the company.

By Vodafone, not by us.

The new owners of Eircom bought the company with the mobile operator.

No, we just bought the fixed line.

I stand corrected. Dr. Nolan said that there is a choice in terms of the direction in which we go. The reality is that in terms of the regulatory issue we do not have a choice. European regulations are very well defined in this area and they are not something to which we can opt in or opt out. Across a whole range of services, be it postal services or telecommunications, the EU is pressing for the opening up of access to the networks, regardless of whether the universal service provider feels that its competitive position is compromised or otherwise. It is not a choice we have; this is being dictated by the EU.

Dr. Nolan made the point that Eircom is a special case because there is a certain distribution of population which means that we have to protect the universal service network and we have to protect a return on capital to provide for its continued investment. On that basis, and given that we are not viewing broadband as simply one of a range of different telecoms products, I would argue that we do not have a choice in this regard in terms of how our society develops in the next five to ten years.

How will we provide universal service obligation in terms of broadband access? How will Eircom provide for DSL services on a nationwide basis? Is there a rough timetable for that? I would be interested in hearing how it will deal with the issue in terms of split lines as areas in my constituency with supposedly DSL-enabled exchanges cannot actually get the service because of local split lines allocation. In the context of the universal service obligation or the need to get a return on capital to provide for investment in the network, I want to hear how that network will be made properly universal.

Broadband is an essential service and that view is supported by what we heard in the presentations we have had over the past two months from a range of different people. This country needs to have broadband as a product on a universal service basis.

If we have the lowest flat rate access on a narrow band basis, which is essentially using the same network to the distributed rural population, why do we have the highest - even though it has been called a low cost product - DSL price product? One could argue that one could take the VAT out and amortise the connection fee in a different way. ComReg, which is the State's regulator, which we have to trust to give us the correct figures on this, said quite clearly at last week's presentation that we have the most expensive DSL services. Why is that given that we have the cheapest flat rate access for narrow band which uses effectively the same network?

In terms of investment in the past five years, according to the earlier presentation from IBEC's Telecommunications and Internet Federation, there was an overall investment of €5 billion in the past five years from different telecom operators. Is Eircom, in investing €1 billion - which is actually 20% of the overall amount - investing enough to maintain its position of having 80% of the fixed line business? I do not want to ask the representatives to give us commercially sensitive information, but can they give us an indication of the level of pick-up per month - for the last month or two, even - for DSL services? What percentage of that is being sold to the wholesale operators? What are the projections for the end of the year, after more than a year of these services?

Before Dr. Nolan answers, am I correct in stating that the universal service obligation only refers to voice services and not to broadband?

Did Deputy Ryan wish to know whether we should be looking at the extension of the universal service obligation to information services and broadband?

Yes, that was my view.

There are EU regulations, but there is a huge variation in the way the EU regulations have been put in place. We must consider different costs and different ways of doing things. In Ireland and the UK there is wholesale line rental; that does not exist in most European countries. There are different rules in different places. Most EU rules do leave significant opportunity for local regulatory authorities to recognise local needs. A simple example would be the cost of access to networks. In some places, Belgium for example, broadband is cheaper than it is here. The price for other operators to access the network, however, is approximately 1.6 times what it is here. There is nothing wrong there. There are general rules contained in EU regulations; in my experience, much of it is in language that has to be ambiguous to make it acceptable to everybody. There is also the opportunity of transposing that into local regulations which are more fitted to the local regulatory environment. That is the way things have been done.

It was mentioned that the market had to be opened up. Ireland is one of the most open countries. The European Commission did a report in which it gave each country a regulatory score card encompassing how open it was in competitive moves and Ireland scored at the forefront of that, along with a couple of other countries such as the UK and Denmark. We are not against opening up the market. We facilitated bringing in all these moves towards competition. We have had a couple of arguments about pricing. Inevitably, those are difficult issues to overcome. Most of our moves towards deregulation are at the forefront, however. This was the first country to have carrier preselect for all calls, well ahead of the rest of Europe. In other areas we may have lagged behind a little, but overall we have been in the front of the pack, despite having started much later in 1998.

We are not asking for special treatment for Eircom. We are saying that there are structural costs that one cannot wish away no matter how much one would like to. The cost of having a particular demographic population is one that is there. If I could take it away I would, but I cannot. It is there and must be recognised. We are applying the European rules as quickly as anywhere else, but we are asking that the European rules say that these services should be cost reflective and the prices should ensure an appropriate return to the investor and ensure investment for the future. We are not asking for special treatment; we are implementing EU rules. We have had one or two difficulties over pricing, but in all other respects we are pretty much at the forefront of things.

Broadband is not part of the USO. If it were to become part of it the costs would become very significant. I think that ComReg did a presentation and analysis of the cost of this and depending on how much coverage and what speed is required, we are talking about more than €3 billion.

Let us consider the provision of DSL to every part of the country so that a businessman in Sligo or in Donegal can compete.

That figure is for the provision of DSL to every house.

Mr. McRedmond

Certainly providing DSL to every household would be a very significant cost because as one moves above 90% coverage it starts to become extremely expensive.

There are wireless technologies that could achieve it.

Mr. McRedmond

Absolutely, and we are in favour of utilising those technologies. In terms of getting broadband out there, there is no doubt about that.

Is there mobile technology in place at present?

Mr. McRedmond

There is a very limited amount. To fulfil our USO, we would like to use fixed wireless technology because it would be cheaper than running a line for a very long distance. It is one of the issues with the regulatory environment; while in many ways we have made good progress, as have the regulators, it can be difficult to obtain agreement on certain issues. However, we would like to use more fixed wireless technology. Also, the USO issued by ComReg for the future proposes a minimum level of Internet access, which we believe is right. We can deliver that and we will do so. The issue of broadband access is very tricky because it would require massive cross-subsidisation from some portions of the community to others on the basis of geography. It is not necessarily a rural-urban issue; it is often to do with how near one is to a particular exchange. It is much easier to get broadband to people who live near an exchange than those who live elsewhere. The USO is probably not the mechanism under which we will get broadband out there. We are much better off pushing DSL as hard as we can in terms of the roll-out we have in place and we are doing this.

Is that not part of Eircom's policy? Eircom has traditionally been late in introducing low cost and flat rate Internet products to the market. Its approach to the mobile market was the same until there was the prospect of competition in the 1990s. Is it not true that Eircom does the right thing several years late? What lies behind this strategy? What is Eircom's view of the effect of this strategy on the general economy?

Is it not true that Eircom is a bit like St. Augustine - it wants to be made good and holy, just not yet?

I do not believe we have been lagging in any way since we took on this company. Since I have been here, although I do not want to speak for other people, we have not been like St. Augustine with a policy of too little too late. This is a company. A company raises capital from the market and has to pay it back. If it makes a mistake in judging the market, as so many have, it goes out of business. That is not in anybody's interest. We have seen many great companies take visionary stances. Cable & Wireless, for example, took a stance that voice telephony was gone and that all the growth was in data, and decided to become the global data provider. The company was almost lost, or at least it got into great difficulties. Now it is taking a much tighter tack. There are sensible risky decisions that must be taken by management and they must be taken with a mixture of risk and prudence so that the company can go on serving its customers over the longer term. That is what we are doing and we have made good progress.

Of course one can point to things in the past that did not happen. Eircom did not get a 3G licence, which in hindsight was probably a good thing, but it did not seem a very good idea at the time. Judgment with hindsight is always a bit unfair.

Is it not true that the Government has had to invest heavily in MANs? Dr. Nolan is telling us that his company has 207,000 kilometres of fibre cable in the ground, a lot of it presumably unlit. Would he not agree that if his company had come to the market earlier, with all this fibre cable in the ground, it would have prevented the Government from now creating a situation where there is going to be MAF competition in the marketplace?

How serious an issue is inefficiency in Eircom in terms of disagreement over price? In other words, if Eircom's efficiency levels were higher and costs lower, would there be any arguments in the courts today? Dr. Nolan mentioned progress the company has made in reducing its staff from, I think, 18,270 to 8,540. Does the 30% employee shareholding in Eircom mean that the Irish consumer is being forced to pay for inefficiencies in the company? Is this one of the problems that is causing Eircom not to be able to offer wholesale rates at the rates being offered throughout Europe or, indeed, the world?

It is very difficult to answer the Chairman's question without running the risk of getting involved in this court case, which is all about this issue. When we look at the cost per line we do not find that Eircom is inefficient. That can be done simply by looking at the operating cost of another company and dividing it up. Some of the data are not very good but when we look at the total cost of operating for European telecos, Eircom is pretty competitive.

Why then does it have the most expensive DSL line in Europe?

Mr. McRedmond

That is simply not a true characterisation. If one looks at the data in the presentation received from ComReg, it outlines the different speeds at which broadband is offered. If one looks under France, for example, it says 128, which is effectively ISDN and not broadband. Indeed, during one of the previous presentations the Chairman requested the definition of broadband. I think Esat said 512, and we would agree that 512 is a reasonable definition. The data completed by Tarifica - completely independently of Eircom which did not pay them any money or anything - looked at comparable products and shows that we are reasonably priced.

In the presentation, Dr. Nolan also noted that prices are dynamic and that we keep looking at them. The DSL prices are reasonable. Of course we must constantly look at that and make sure we get it right, and if the Deputy wishes to see more broadband rolled out and reaching all parts of the country we have got to balance the amount we charge for broadband against investment requirements.

Is a wholesale broadband product available here? We heard in an earlier presentation that there is 50% take-up of this wholesale product in the UK. For what percentage of our market does the wholesale product account?

Mr. McRedmond

There is a wholesale product. The price is higher than in the UK but, again, we believe it is reasonably priced. It was priced in agreement with ComReg. Eircom cannot just set its own prices.

What price was agreed?

Mr. McRedmond

The agreed price is €27.50 for the Bytestream product. It is also of course open to any operator to take LLU. Frankly, it is open to any operator to build broadband themselves, but it is also open to them to unbundle a loop at a certain price. That price is currently €16.81. There are wholesale products available.

What is the level of uptake?

Mr. McRedmond

These are very early days because the low cost product has only been available for a short while, but the level of uptake as a proportion of the current market share is roughly around the 80-20% mark.

Price is important. I accept the point that France might have a narrower type of DSL, but countries like Britain, Austria and Sweden are comparable, so why are they about €18 to €20 cheaper, given that DSL has not been rolled out to the most out of the way places? It cannot be an issue of dispersed population because we are not rolling out to the whole country. Why are they about €18 cheaper?

Mr. McRedmond

I would be glad to go through this matter in more detail after the meeting because it would take up an awful lot of time in the meeting itself. It is very difficult to get comparability of prices. Factors include the levels at which DSL is sold, the rate adaptivity, the contention ratio, how much is going to be put through a big pipe and so on. All of those issues make it very difficult to get comparability across products. Tarifica would have expertise in this area and I would accept its view on it. The source of the data here is Telegen, which should also be very good at doing this. It deserves quite a degree of examination to understand the price levels. We are certainly not setting a price which we believe does not represent some value.

The committee will make a number of recommendations on the future of broadband based on the principle that no one size fits all, whether it is a question of satellite, wireless, connectivity to the ESB loop, to the MANs or whether the Government should spread its business right across the competitive market. We will look at all these areas before we conclude our deliberations, so we would be delighted to receive any information from Eircom, through our Clerk, that it does not believe we have accurately received already. That information would hopefully be included in the report. It is terribly important that the message goes out that we are looking for connectivity at competitive rates. We want to finish, and I know that Deputy Coveney has a frontbench meeting, but I think he did have one last question.

I apologise for not being here earlier. Unfortunately there was a clash of meetings, although this was the meeting I wanted to attend more than any other.

From our point of view, the three key issues from the very start have been access, price and choice of service - in other words, introduction of competition. Eircom has the network. As one of our guests said, Eircom is the network at the moment, apart from the fibre rings that have been put in place to date. As the Chairman said, those fibre rings may not have been necessary had the existing infrastructure been opened up more freely.

The key issue in relation to price and service is a wholesale product. The current price for a wholesale broadband product is €27. 50. That is more expensive than the retail price that we are trying to achieve. Does Eircom envisage being able to reduce that wholesale price to such a level that we can actually start looking realistically at having a retail price in or around €25 per month for a broadband service, as is available in other European countries and certainly in the United States? That is our target. There has been some talk of it being unrealistic and unreasonable to ask Eircom to take significant risk in the marketplace and so on. We are only asking Eircom to share its infrastructure openly and freely without having to be forced to do so at every step by the regulator.

My understanding was that a number of months ago a wholesale price was agreed with the regulator and that Eircom then pulled back from that price. Was that the case or could Eircom clarify that? With regard to the price over which it is in court at the moment with the regulator, was a price originally agreed by Eircom and did Eircom pull back or was there a reason for that?

I have no knowledge of a price on which we pulled back. There was an interim price which we agreed about a year ago and it is still current.

Mr. McRedmond

There must be some confusion about this and I do not want to——

Maybe we can clarify that later.

We should not mention anything connected with the court case.

Mr. McRedmond

In terms of wholesale DSL there was no other price. We worked hard to agree a price with ComReg and it was not a case of Eircom saying it fancied this price. It is not done that way, particularly at wholesale level. It is cost reflective and both ComReg and Eircom have an obligation to ensure that the price at which we set something is based on real cost, including efficiency targets. The cost for DSL would have been set in that way at €27.50.

Was there a benchmark for that price based on the cost of producing or creating it? The benchmark should not be solely the cost for Eircom of doing that; we should look outside Ireland for alternative production costs. Does the efficiency calculation that Eircom describes take that into account? For example, it is argued that Ireland is sparsely populated, therefore the roll out of broadband is expensive, yet it has been rolled out in Scandinavia, which is also sparsely populated, and at a lower price.

Mr. McRedmond

One of the Scandinavian countries gets over twice as much as we do for voice calls, which is why the issue cannot be separated from voice since the same network is being remunerated in different ways. One cannot look at one element alone. The fact that the cost of connecting to Eircom's network is so low, by multiples less than some countries in Europe, is going to force the cost on elsewhere and it will be pushed on to the access network. We cannot be both the most efficient and the least efficient company at the same time. We would very much like to do the work with ComReg because we are better off making sure that the costs are spread across voice and data, and between access and core, in a way that allows us to charge the best prices to stimulate broadband. We are well aware of that. While the price of minutes is so low it is going to force the cost issue onto some other products elsewhere.

The cheapest price in Europe according to the ComReg chart is in France, at €30 for ISDN and that includes tax because the prices quoted are post-tax. If the cheapest in Europe post-tax is €25——

It is £14.99 in the UK for the basic package from AOL, online, 24 hours. In the US it ranges from $19 to about $17.

That is not from an incumbent. AOL is buying the service and there is a question around the capital risk because it does not invest in the network. It buys on a one-off basis. It has a customer and knows how much the customer is buying and how much it can charge, so there is a guarantee on the margin.

I saw a bill last week in the UK for £14.99 for 24 hour access, always-on.

Mr. McRedmond

That is for its FRIACO service.

Absolutely.

Mr. McRedmond

Whether Eircom was dragged into it, and however it is characterised, Eircom's FRIACO rate is the cheapest in Europe. It is important that these facts are noted and recorded.

What is the rate?

Mr. McRedmond

The wholesale FRIACO does not break down into a single rate because one is selling——

What is the retail rate?

Mr. McRedmond

There is no retail rate. Eirtel will launch its FRIACO product, that is a commercial decision but in terms of the wholesale product, which we launched last Friday and which allowed BT Esat and UTV to launch their FRIACO retail——

What is the Eircom rate for 24 hours always-on?

There is no Eircom retail FRIACO rate.

Mr. McRedmond

There is an Eircom wholesale rate. The important thing is that one cannot have a retail rate until the wholesale rate is on the market.

Is Eircom proceeding in that direction?

Mr. McRedmond

Yes.

I thank Dr. Nolan and Mr. McRedmond for coming before us today and for their presentation which we found extremely helpful. We wish the company luck in the future. If there is additional information they can offer it to us through the clerk, or our consultants, so that we can evaluate that and incorporate it into the final report.

Sitting suspended at 1.35 p.m. and resumed at 2.15 p.m.

I thank Mr. Willie Fagan and Ms Grainne McLaughlin from Chorus and Mr. Ed Brophy and Mr. Mark Mohan from NTL for attending the meeting. Perhaps each group could make a five minute presentation and we will then open the discussion to questions from members. Some members are attending another committee meeting but will rejoin us. I thank the witnesses for attending and offering to make presentations on broadband and how cable and cable companies can deliver broadband to homes and businesses.

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

Do I take it that Mr. Fagan will begin?

Mr. Willie Fagan

That is right. I thank the Chairman and the committee for this invitation. It is not often we get a chance to come in on the inside, as it were, and explain what we are about. I have a presentation which members will see on the screen behind me, and I have copies of it for every member of the committee. I will go through it quickly to give a broad picture of what we are and what we are capable of delivering.

I wish to speak briefly about technologies. I am not a technocrat or an engineer by background but I need to refer to the technologies we employ, namely, cable modem, which is a black box that fits between the cable system and a computer, and the networks in which we locate these, especially the fibre networks. I will speak about wireless because Chorus is in the wireless business, has been for many years through its use of MMDS and has recently gone into fixed wireless. I also want to speak about fixed wireless and wireless networks.

On cable modem, members will probably have heard a great deal in their hearings about delivery speed and some of these numbers can become a bit boring. The typical delivery speed of a cable modem is 512 kb downstream and 128 kb upstream. However, for cable modem to work effectively, a minimum standard of cable is needed, which is a 550 MHz hybrid fibre content cable. Unfortunately, most of the cable in Ireland was laid before such cable became either available or the norm.

Chorus is a company that has been formed in much the same way as the unification of Italy. It was formed from many small companies and networks built by different people at different times. The cable modem service is available where we have upgraded networks, especially in Kilkenny, Clonmel and Thurles. We are making the service available at about €50 per month. It is flat rate access. Chorus has about 40 cable networks passing about 220,000 homes. Most of these do not meet the specification to deliver broadband.

I have provided a map of the country with blue dots showing the cable networks and red lines showing the backbone where we can interconnect these networks. As will be seen, they are widely dispersed. A simple way of looking at it is that Chorus is everywhere NTL is not and vice versa. I will let my colleagues from NTL talk about that later.

Issues relating to cable would be the cost of upgrading, the return on investment, combining television and data services and standardising these services. We do not have standardised services. Another matter would be issues with local authorities regarding the cost of makeover of roads. We find that it sometimes doubles and trebles our costs. Another issue is cabling into new estates. We would like to see it as a planning requirement that all new housing estates built from now on would be ducted for the provision of cable - not just ours but anyone's. Another issue is a link to the Government funded metropolitan area networks in Cork, Limerick and Athlone. I can claim authorship for the one in Cork because I persuaded the city engineer in Cork to become involved in this. It is beneficial to us - we will admit that - in that it can reduce the cost of our upgrade to provide broadband by up to two-thirds.

Does Mr. Fagan have a handout?

Mr. Fagan

Yes, it is the same, but I can provide it. It is not a problem.

I wish to move on to wireless access. We had licences in two different areas, one nominally called broadband and the other narrowband. I will touch on the capabilities of these two types of wireless network. We also have extensive networks using what is traditionally known as MMDS. All these are in different spectrum bands. Fixed wireless networks are shown in the presentation and these are linked into the backbone network. The purpose behind displaying this is to show Chorus's ability to link networks and services. On the map in the presentation, the coloured areas show the areas of coverage. The little green dots show where we have other low level sites which may provide a local service or where we plan to have sites. The main functioning ones are coloured and are mainly concentrated around our company headquarters in Limerick.

The next diagram in the presentation may seem to indicate that Ireland has been bombed overnight by the US Air Force but it shows that the MMDS signal coverage is very extensive and, in terms of providing wireless, offers tremendous opportunities which I would like to touch on shortly.

The customer equipment for what was originally called broadband fixed wireless, which was at 26 GHz, proved to be very expensive at around €5,000 a time and too expensive for small and medium enterprises. The business model for that has yet to be proven. We are not aware of anyone running a business on this band and we have given back our licence and closed our one site in Dublin.

Despite its title, narrowband can do broadband, and I hope I do not confuse the committee by saying this. We are running broadband services off Keeper Hill in Limerick - that is the large pink area on the map I showed earlier. That will give 512 kb downstream and 128 kb upstream at a price of €50 per month for residential customers. We have 36 base stations and would like to expand that service.

The MMDS spectrum is widespread. In our case it passes 442,000 homes. That is more than double what we pass on our cable networks. It has been traditionally used for broadcasts but in 1999 we were allowed 15% of that spectrum for forward path. There are questions about the availability of the spectrum after 2005. There has been talk about some of it being allocated to 3G. We feel that the user spectrum for return path using cable modem would provide low cost ubiquitous service. It would be the cheapest and most widely available form of broadband, especially in rural areas. However, such a network could not be maintained and developed initially on the demand for broadband. To maintain the system and a revenue stream that would justify the broadband service as it is developed, good digital television product would be needed that would be competitive with what is provided by Sky and other satellite operators.

Cable and wireless can provide competition for DSL. I know the committee has probably heard all the DSL operators saying their platform is the only story in town. I can point to what has happened in other countries in which cable modem has been able to compete and get ahead. Even in the United Kingdom to this day the number of cable modem users exceeds that of DSL users. Outside urban areas - and much of Ireland is such - wireless may be the only option.

Chorus is looking for regulatory equity and certainty. We do not always get these. We do not want to moan about our regulator, simply to mark that point. Perhaps there could be a more consultative approach from our regulator. We often read about regulatory decisions at the same time as they appear in The Irish Times. They affect us and that can therefore sometimes be a little disconcerting because one feels one has not really had an input.

We would also like full co-operation from local authorities regarding the makeover of roads, and a planning requirement for the ducting and cabling of new estates. In other words, new housing estates should be broadband ready. We would like synergy with the Government funded networks. We want to work with the MANs, especially in areas such as Cork, Limerick, Athlone, Mullingar, etc., and others that may be rolled out.

What we are looking for and what drives our business is return on investment which for us involves the profiling and matching of supply and demand. I am on the Government telecommunications strategy group and we are producing a paper at present on demand stimulation. Recent MRBI surveys indicate that many people in Ireland are still not aware of broadband and its benefits. The two must be profiled together to make this a success.

Mr. Mark Mohan

I will kick off before passing over to my colleague, Mr. Brophy. I thank the committee for having us here today to talk about broadband and our plans for the same. We will wait a moment before introducing ourselves so we can plug in our laptops and allow members to see the presentation.

The first slide introduces NTL. No doubt members know the brand name. The company entered the Irish market in 1999 with the purchase of Cable Inc., which had about 30 years' work in the Irish market behind it at that stage. NTL Ireland's main business is multi-channel television, with around 370,000 residential customers, of whom 50,000 are now digital customers, and those services are available to the vast majority of them. We have 76% penetration in our cabled areas, which are principally the main urban areas of Dublin, Galway and Waterford. We are an Irish cable company with 550 employees in this country, and over the past four years we have been a net contributor to the Irish economy in that we have invested considerably more money than we have generated from it.

Our main competitor in television is Sky, which very much has a UK focus and distributes a similar service to the Irish market. By way of comparison, Sky has around 11 employees in Ireland, most of whom work in advertising sales. Sky pays UK VAT at 17.5% on its programming services. I understand that it pays Irish VAT on its advertising sales. Revenue on them would be around €10 million to €15 million per year whereas programming revenue would be around €150 million to €200 million from this country. On that sum it pays VAT at 17.5% rather than Irish VAT at 21%. Sky is not regulated in this country and its revenues are returned to the UK. It has around 275,000 digital customers in this country.

Members should have a map in front of them showing the Irish market. It may be blacked out on the paper copy, but it shows Ireland and delineates the areas in which we operate, which are Dublin, Galway and Waterford. The next slide shows a map of the UK and Ireland, marking out our main backbone network, spread from Ireland across into the UK. As members can see, it is a very extensive fibre backbone network covering the main cities on the east coast of Ireland, Dublin and Belfast, then crossing from Northern Ireland into England, Scotland and Wales. We have full redundancy on the network in that we have two submarine pipes crossing the Irish Sea into the UK.

I will talk a little about our experience in the UK and then in the Irish market. NTL is the largest cable company in the UK, with 2 million television customers, 2.4 million telephone customers and now 660,000 broadband Internet customers with an additional 436,000 dial-up Internet customers. All those figures are as of the first quarter of 2003. NTL is the largest cable broadband provider in the UK. We launched broadband services in the UK in 2000. We achieved 12,500 customers in our first year, 112,000 after year two, and at the end of year three, 2002, we had over 500,000 broadband customers. Put simply, the growth in broadband subscription has been exponential.

One of the key drivers in learning from the UK experience has been platform competition, in other words, not relying on the incumbent telephone company's telephony network which becomes DSL-enabled. Rather, one should provide services on one's own cable network thereby getting one out of the wholesale/retail price gap problem which arises in such situations. We operate on our own network in the UK. We have led the market on price in all cases since we have the lowest priced product in the ongoing subscription price and the entry subscription price to avail of the service. For example, we do not charge for cable modems but supply them to the customer and we mirror that in the Irish market. We have product leadership in that our product is generally perceived as being more advanced than that of the competition. For example, the main product purchased in broadband markets tends to be a 512 kps connection to the Internet. We provide one that is 600 kps. Network availability is clearly a huge issue and members will have seen the extensive network across the United Kingdom on the previous map. We have product innovation, attempting to do things before other competitors in the market, such as providing software to enable customers to have their own service rather than need to call out engineers to do it for them. We do that in the UK extensively.

Some more examples from the UK will illustrate a point that was made by Mr. Fagan earlier. In the UK market, cable is running ahead of DSL in customer penetration and having competition between the two platforms drives overall penetration. On the map before members, the light grey line shows cable subscriptions and the dark grey one DSL subscriptions. The heavy black line illustrates the cumulative number of broadband customers for cable and DSL in the UK. There are now over 2 million customers there on broadband.

I will turn the presentation to Ireland and what we have done here. We launched broadband to specific parts of west Dublin in early 2002. We made a service available to 23,000 homes in that area, and of them we currently have 2,200 customers, which is 9.6% penetration on broadband. That is very good compared with the kind of penetration delivered in the UK and other markets. In specific regions in the UK, cable companies are now approaching 9% or 10% penetration, and we are doing the same in the small area to which broadband is currently available. Our target penetration is 15% for that area by the end of this year. Among our key consumer insights arising from the experience is that there is very little understanding of broadband among the bulk of the population. That has been borne out by recent MRBI research on behalf of the regulator. A major sales effort is required to encourage customers to subscribe to the services and, since customers are extremely price sensitive, downward pressure on price is what we are seeing, and that is understandable.

Regarding feedback, much education is required as part of the sales process. One needs to explain from first principles what broadband encompasses and take the customer all the way through the key selling points. Installation fees and modems are a major barrier to entry. In other words, customers do not want to have to fork out hundreds of euro to avail of broadband services. Regarding use, time on line more than doubles when using broadband. The key selling points would be that the service is always-on since one does not need to dial up as for traditional access; services are available at very high speed, allowing customers to download material very quickly——

Do you have information on how many people are using the Internet and time spent on line?

Mr. Mohan

We can tell with our customers.

Are they using it for an hour each day or two hours?

Mr. Mohan

From memory, the average would be about eight hours per week, which is double the typical dial-up Internet use which most surveys recorded. Four hours per week was an average across all users.

The committee would welcome that information.

Mr. Mohan

We can provide further information in relation to that. The key selling points include it being always-on, so no dial-up is required. The high speed is important and a flat rate monthly fee is extremely important so customers have a guarantee in terms of the amount of money they will have to pay each month for Internet access for the family. The telephone line is not in use when availing of the cable modem service whereas with traditional dial-up Internet access, one cannot use one's telephone line at the same time as dialling up the Internet.

The next slide sets out the price comparison. We talked about price leadership in the UK market and we will attempt to do the same in the Irish market. We are doing that in the west Dublin area where our service is available. Our leading product is branded "Always-On 600", which is a 600 kilobyte per second product, and is priced at €40, including VAT. We provide the modem and the installation fee is €65. With regard to the other fixed line operators, their products operate at lower speeds, higher prices and with more significant installation fees, ranging from €99 to €200. We lead the market in terms of price.

Where are we going from here? I have discussed the 23,000 homes in west Dublin. Since that experiment we have moved on to a new area in Lucan, also in west Dublin, and we made the service available to 4,125 homes in late May. We are planning to launch to a further 6,000 homes next month and a total of 16,000 homes will be enabled for broadband in the Dublin area this year. Service could potentially be made available to approximately 140,000 homes in Dublin, Galway and Waterford by the end of 2004. That is subject to internal capital approval but it is our intention to achieve that aim. We have instigated that process already.

With regard to the remainder of the homes to which we provide television services, which number more than 400,000, in the last quarter of this year we will commence a major planning exercise to investigate the potential for enabling the remainder of this network for broadband. In the near term we can say that 16,000 homes will be enabled and in the medium term of two years, there is a target of 140,000, with plenty of planning taking place this year to investigate what is involved in providing service beyond that.

To summarise, platform competition is where the action is. We are leading the way on price and we intend to continue that, and on product. My colleague, Mr. Ed Brophy, head of regulatory affairs, will discuss the regulatory and public policy issues.

Mr. Edward Brophy

I will not detain the committee for long because the main issue is the product. However, it would be useful to outline what we have observed about the regulatory and policy environments. The question is whether regulation in Ireland has encouraged or hindered investment. There is a mixed answer to that question. On the one hand, it has obviously facilitated market entry by new operators but, on the other, particularly in the case of cable, it has removed scarce funds that might have gone towards broadband investment, that is, the 3.5% cable licence fee. A new regulatory framework will come into place from 25 July which should eliminate some of these distortions and lead to a better investment climate.

There is much talk about competition; it is the overriding objective of regulation. However, the overriding objective of regulation must be sustainable competition rather than competition as the be all and end all. That would create incentive for investments and this will lead to infrastructure based competition rather than competition using Eircom's network via DSL which will not necessarily lead to the type of broadband market we want in Ireland. Regulators will have to abandon their fixation on competition for competition's sake and low prices because the corollary of low prices is low levels of investment.

There is a need for greater public policy coherence. The national spatial strategy, for example, was clearly not aligned with the regional broadband programme. Some towns that availed of funds under the regional broadband programme were not included in the national spatial strategy as potential gateways. There is a disjunct there. The approach is not joined up and that needs to be addressed. There should also be a requirement that broadband infrastructural requirements at local and regional levels are factored into planning guidelines.

Another area where there was an apparent lack of joined up policy formulation was awarding the Government's telecommunications services contract, VPN, to Eircom. That sent a negative signal to new entrants. One arm of Government, via ComReg, was trying to encourage competition and new entrants into the market but another arm was effectively strengthening the dominant operator.

Was that not a tender process?

Mr. Brophy

It was but the feeling was that the manner in which the tender was written meant that only one operator could win it. That has to be looked at again.

Measures that lead to closer co-ordination between industry and Government will improve the situation. The telecom strategy group, of which we and Chorus are members, is a good first step but there might be a need for a permanent advisory and monitoring group. There is talk that the information society commission will fulfill that role.

There are recommendations that might move the situation forward. There is merit in imposing a ducting requirement on devlopers of new housing estates and an automatic right of way for broadband networks.

What does that mean?

Mr. Brophy

It means, effectively, that in the same way that other utility services are considered to be necessary in the development of housing estates and are taken into consideration, the same would apply to broadband networks, Internet ducting and telecoms ducting.

You mean to the ducting?

Mr. Brophy

Yes.

Would that give them the right to dig up roads and so forth without licences? Is that what you are suggesting?

Mr. Brophy

It is not necessarily an automatic right but if broadband is considered an important part of the overall State infrastructure, in the same way as sewerage and water mains, one has to consider how to reach a situation where the planning system recognises that and factors it into the system. I am not necessarily calling for an automatic right of way without licences. There obviously must be oversight by the planning authorities.

That is already starting to happen in some local authorities.

Mr. Brophy

Yes.

Cork County Council, of which I will be a member for another two weeks, is already factoring this into the system, certainly with regard to the road developments in place. The council is installing ducting for Cablelink, specifically for the broadband fibre that is required. It is not just to deal with demand but also to provide for extension from the fibre ring, as it were. It is starting to happen but Mr. Brophy is correct that it needs to happen universally across the country.

Mr. Brophy

That is a progressive move and more such moves would be good. There has to be greater focus, both on the industry side and on the Government side, on raising awareness and on the provision of public information. The regulator was before the committee last week and she commented that according to a survey conducted on her behalf only 40% of people knew what broadband is. That is a critical issue. We are potential industry participants sitting before a committee of public representatives who are experts but the wider public is not necessarily as aware of this issue. A better joint approach by Government and industry is required.

Joint funding is also worth examining in areas where there is market failure. MMDS also has a role to play in broadband delivery.

You mentioned that 16,000 homes have been enabled. How many of those people have taken up the service? You said that you were providing modems free of charge. Have you considered a rental scheme whereby you would put a PC into every home that does not have one and provide an Internet service, training and connectivity? The commission has been considering this and everybody we mentioned it to has indicated that they would like the idea to be developed further. There should be a model in place with the hardware and software developers and operators. Perhaps you could tell us something about the Internet service provider with which you operate. As Deputy Coveney said, one of the recommendations of this committee is that there will be a pipe to every house. That is as important as turning on and off an electric light switch or a tap in terms of having the infrastructure in place for the future. We had an opportunity to meet students who told us their vision of the future.

Mr. Mohan

As regards the availability and penetration of service, we currently have service available. Until our recent additional 16,000 customers, which became available in late May, we had 23,000 customers, of which more than 2,200 availed of the service. The majority of those people bought a 600 kilobyte product for €40 per month, including VAT, or they bought a 150 kilobyte connection to the Internet at €30 per month. That is 2,200 customers from a network available area of 23,000 customers.

What is the connectivity?

Mr. Mohan

It is 600 kilobytes per second. Approximately 70% of customers have the 600 kilobytes product.

Mr. Fagan

I am one of those customers.

Mr. Mohan

Willie Fagan is one of our customers.

Mr. Fagan

While I work for Chorus, which is the only telco with headquarters outside Dublin and Limerick, I live in Templeogue, not far from Deputy Ardagh, and I receive excellent service at approximately 612 kilobytes per second downstream on my cable modem. I can vouch for the NTL service, which is excellent.

Mr. Mohan

Those are the figures. We have made service available to a further 16,000 customers and we are selling and marketing to those homes as we speak.

As regards PC ownership and ComReg's surveys in the past six months, PC ownership seems to be at approximately 60% in the residential market. There are plenty of customers with PCs in their homes. We do not see the initial problem being the availability of PCs but rather the availability of broadband services. We do not envisage taking an initiative in the short-term to fund PCs in customers' homes to capture those who do not have a PC. The first place to start will be with those who have demonstrated a willingness to buy a PC and enable their home for services via that PC.

As regards ISP, NTL is the ISP. We provide our own ISP services to our customers. In addition to being a residential and business television company, NTL is now a residential broadband company. It is a market leader in the UK and it will become more significant in Ireland over the next two years.

Mr. Brophy

As regards the point about PCs, as part of the telecom strategy group on which we are working with the Department and as part of ICT Ireland within IBEC, there is a willingness to work together with the Microsofts of this world and the hardware providers to consider ways in which that programme could be developed. It is in everyone's interest to move forward.

Mr. Fagan

As regards the PC issue, we had difficulties with the upfront capital for set top boxes, etc. It is an additional capital cost. There are two issues. While PC penetration is approximately 60%, Internet access penetration is approximately 34%. There is still a gap between the number of people who own PCs and the number of people on the Internet. I am a member of the governing board of ICT Ireland. We are looking at co-operation across the sector between the manufacturers, such as Microsoft and Dell, and the other companies which are members of our group. The area we could target initially is that of public access rather than individual residential areas. We are thinking about schools and libraries. That would be more manageable initially than providing them to homes on a widescale basis.

Can NTL's customers e-mail the company and get a response? One of its customers wrote to me recently and said they got an e-mail asking them to telephone.

Mr. Mohan

I will leave you my business card and you can e-mail me directly. That is an unusual situation. I must investigate that single isolated incident.

You might get back to us on that because I would like to respond to the person who raised the matter with me.

Mr. Mohan

Have you raised it formally with our company?

No. NTL is an Internet service provider. I want to know if people can contact the company by e-mail and get a response by e-mail. I am interested in both companies' responses to that.

I welcome the representatives from Chorus and NTL and I thank them for their presentations this afternoon. As regards the Chorus presentation, one of the first things stated was that Chorus provides a service where NTL does not. That is mainly in the provision of a cable television service. Perhaps the reason is that Chorus does not think the market is big enough for it to compete in the same areas. Will that pose a problem in terms of competition for broadband services? Will Chorus or other operators not go into the areas in which others operate because they do not regard the market in Ireland as big enough?

It was also stated that Chorus passes 220,000 homes in terms of cable and 442,000 homes in terms of MMDS. To how many of those homes does Chorus have access? I am interested in MMDS because there was a huge furore about it. Many people did not want it for a variety of reasons. I am curious to know to how many homes it has access. Perhaps one of the representatives could explain how MMDS can be used for broadband services? I was not aware that the MMDS network could be used for broadband. Perhaps it needs to be upgraded. Perhaps he could clarify that. It was stated that broadband services are available in Kilkenny, Thurles and Clonmel at a cost of €50. Perhaps he could tell us the type of penetration in those towns.

As regards NTL, it seemed to bemoan Sky's television penetration in this country. Perhaps part of the reason is the service. I am a customer of NTL in Waterford and I know from talking to other people that if there is a problem, the back-up service is appalling. One could have to wait 40 minutes on the telephone for a reply. I am told that people who use the Sky service do not have any problems in terms of getting service. That is bound to damage confidence in NTL. Will that cause NTL difficulty in terms of moving forward?

As regards roll-out and the map of the broadband network, which is mainly in the UK but with some in Ireland, why has the service not been rolled out further here given the success NTL has had in the UK? We heard about the success NTL had in west Dublin and about what it hopes to achieve in Lucan. If it has been successful, why has it not been replicated in other areas? NTL is going up the east coast. Why is it not doing it in Drogheda or Dundalk which are large population areas? It seems to be doing it in a piecemeal way. Perhaps Mr. Mohan could clarify why it is not being done more quickly. Does the price quoted for west Dublin include VAT? Could he also give us a comparison as to the cost in the UK and ultimately what will end up being the price in Ireland because it has been suggested to us previously that it might be €20 to €25?

On the standard of cable being used, I am sure my experience from home was echoed in Dublin and Galway. On taking over from Cablelink, NTL dug up the city's streets and replaced the cable in order to bring in digital television. Can that be used for broadband or must one put down fibre optic cable for that?

Mr. Fagan

I do not want to dwell too much on the history of why we are in different areas. A cable licence was traditionally given out for a particular town and therefore applied to whoever held the licence for that town. They used to be exclusive. We surrendered our exclusivity a year and a half ago. Under the new EU rules which are coming in from 25 July, exclusivity is basically verboten on cable.

There is a slight difference on MMDS in that it involved the allocation of spectrum to an operator. One could not have two operators using the same spectrum in the same area because there would be interference. It is a question of the availability or the amount of spectrum that is available.

I want to state here that there is no non-competition pact between Chorus and NTL. I am sure my colleagues from NTL will confirm this. It is just that our ability to compete in those areas is limited by the fact that we neither have spectrum nor infrastructure in those areas. It is for that reason only. My comment earlier was merely to simplify describing a map of the country.

The second point was about the number of homes. We have 200,000 customers and we pass more than 600,000 homes. We are in about one third of the homes in the areas where we have infrastructure passing by.

I am not an engineer. If Senator Kenneally wishes, I can certainly get one of my engineers to give him a description of the technical ability of MMDS to deliver broadband. We have run trials in Cork and it works extremely well. It uses a cable modem and a transceiver on the side of the house. It uses the MMDS spectrum. Given the sites that we have and the reach of those sites, we have considerably more reach than the 3.5 gigabit fixed wireless, with which we have also experimented. We have customers in the Nenagh-Limerick area. We have actually reached as far as 400 kilobits per second and as far away as Aughinish from Keeper Hill. The members will appreciate the distance involved which is in excess of 30 km. If one is on a high enough site, if one has the right range of spectrum and one can develop a business model based on cable modems which are reasonably cheap, the only problem is the transceiver equipment, that is, the equipment which must go on the side of the house to receive this. We have been running high-speed wireless data services to around 200 to 300 customers in the Limerick region, both SMEs and residential customers, and they are extremely happy with it. The members of the committee are welcome to come down to the region to see it. I cannot demonstrate it in Dublin because we do not operate the service here.

I was asked about Kilkenny, Clonmel and Thurles. We would have about 200 customers out of about 12,000 to 15,000 customers in those three towns. I do not have the exact figures here, but it does not represent anywhere near the 10% penetration which the NTL system has in Dublin. They are smaller systems. At present we are able to meet the existing demand. We would like to stimulate demand and to have more customers because we could take more customers on that, but we have only had it available for about six months.

I want to stress again that Chorus competes in the television market with Sky and with deflectors. Chorus competes in the telephony market with Eircom and with Esat BT. Chorus competes in the data market with everybody else involved in that market.

Is Chorus also an ISP provider?

Mr. Fagan

Yes. We own Internet Ireland. You might know its brand name, Unison, which we own along with our shareholder, Independent Newspapers. They would provide the ISP services to us.

With whom is the connectivity?

Mr. Fagan

Connectivity is with our network and we try to carry it as far as possible on our network because, as we all know, if one has to go onto the incumbent's network, then the cost of service increases.

Mr. Mohan

There were four questions from the Senator and I will take them in turn. The first issue related to customer service in Waterford, which is the Senator's constituency. He made a comparison with Sky. Clearly we would recognise that at a particular point in time we have had customer service issues, but over the past six months we have been investing very significantly in additional resources in our customer service centre, which, interestingly, is based in the Senator's constituency in Waterford but serves our main areas of Dublin, Galway and Waterford. In terms of resources, we have been investing not only in IT systems to enable us to manipulate data and queries faster, but also, more importantly, in human resources by employing more people. We have brought in a significant number of additional people to answer telephones and handle customer queries in our Waterford call centre to address those issues.

Since customer service was referred to by the Senator in his comparison with Sky, I should also put on the record that all after sale services are provided free of charge by NTL. There is a freephone number to call NTL and if one is holding the line for 15 or 20 minutes, there are no charges to customers. More importantly, there is no charge for a call out to rectify a problem in a customer's home.

There is a charge if a customer is availing of Sky's service. Sky's Irish contractor, who is employed to go out and rectify problems in Ireland, will, when he gets there, charge a significant sum of money for correcting that service issue.

The second issue relates to our network availability in the UK and Ireland. The Senator asked could the success in the UK be mirrored in Ireland. The answer to that is: "Yes, I do not see why not." He also asked why there is not wider availability in Ireland and why there is a piecemeal approach to enabling our network for broadband. The answer is simply that the UK network is more modern. It has been established over the past ten or 12 years. In Ireland, the cable networks are older by virtue of the fact that cable television is an older business in the Irish market than in UK market. We must do some work on our networks to enable them for broadband. Obviously there are significant funding issues associated with that - internal capital approval processes. There are also the logistical issues associated with doing work on networks. One can only do so much work at any one time and, by definition, it must be done on a piecemeal basis.

Do you mean changing the cable?

Mr. Mohan

That is correct.

Is it a fibre cable or a co-axial cable?

Mr. Mohan

In the backbone it is fibre. The fibre is brought into nodes serving several thousand homes and then it is co-axial cable in the local loop.

The Senator asked whether price points include VAT. They do. Our 600k product is available at €40 including VAT and the 150k product is available at €30 including VAT. The Senator asked the corollary to that question, which was, the comparison with the UK price points. They prices are about the same when one makes the sterling exchange. The prices are more or less the same, within a euro, depending on the way the exchange rate goes at a point in time. Therefore, there is similar pricing to the UK.

The Senator also asked where the price point will end up. It is probable that the entry price points he mentioned would be in the region of €25 or €30. Our entry price point is €30. Potentially there is downward pressure on that and the price could conceivably lower in the future as the market matures. That is possible but we would also say that our price points are the leading ones at this point in time.

We are running out of time. We appreciate very much what you have told us. Before I hand over to Deputy Coveney, I want to ask a few questions. How do you account for the 60% of people who are unaware of the importance of Internet, broadband and connectivity? How do we reach those people? You and Mr. Fagan of Chorus would have cable going into those houses providing television. I must declare my interest at this stage. I am a customer of NTL and Chorus in Cork and Dublin.

Mr. Mohan

The chairman is a man of property.

How will NTL reach those people?

Mr. Mohan

As we enable the networks for broadband, we will talk directly to customers by means of traditional marketing approaches, with direct mail going to the home and telesales and field sales people contacting the customers directly as well as traditional advertising activities to promote the availability of the services. We will adopt the usual communications approaches to telling customers about ourselves as they are available. The general move of all the companies in this space to promote broadband is arousing interest.

I am also a customer of NTL in Dublin and Sky in Cork. I regret to say that to the Chorus representatives, although I was a customer of Chorus until I moved home. The main reason I am a customer of Sky in Cork is that the housing estate in which I live in the suburbs is not connected to the other networks, which highlights a lack of co-operation between the local authority and the cable operators.

What is Mr. Mohan's view on the proposed levy on telecommunications operators? I have a number of concerns about the proposal. If NTL must pay a levy, will that be passed on to the customer or will the company be able to take that hit, which is unlikely? With regard to closer co-operation with local authorities generally, telecommunications companies could take more of an initiative themselves. Local authorities have established strategic policy committees, which would be open to suggestions they would have to make in this area. They should do so and perhaps that should be one of the sub-committee's recommendations.

I refer to NTL's wireless operations. These questions are also relevant to Chorus and I am sorry I was not present for the Chorus presentation. Do both companies plan to move out of the high density areas they service through cable or are they concentrating on that network base? Demand is relatively high within those areas in which the companies are competing. We are at the start of providing a solution in regard to competition and consumer choice, pricing and access in areas such as Cork, Dublin and Waterford because they have the critical mass to force that change. For example, in Dublin NTL, Eircom, Esat BT and UTV are competing and we are trying to generate such competition everywhere to drive prices down and improve services. Are the companies planning to move out of their home territories by using wireless technology to link rural towns and so on?

What are their plans to link with MANs? I presume that is an option. Have they had negotiations with Eircom regarding the use of parts of its infrastructure to link with MANs? If so, have they been frustrated or has the linking of the networks been a relatively straightforward process?

Are the companies required to provide a wholesale product on their networks? In other words, are they required to allow other retail service providers to use their networks by the regulator in the same way as Eircom? Eircom has been put under a great deal of pressure recently to open its network to other users and has been accused of frustrating that process. Are NTL and Chorus under the same pressure? If not, why not?

I am most familiar with NTL. I refer to the table that compares cable operators with fixed line broadband operators. Is NTL an incumbent similar to Eircom? There has been a gouging of consumers in regard to the basic television package that has been provided for the past 20 years. NTL is making an unfair comparison in terms of price because it is ensuring revenues will be generated from the bread and butter part of the package. Is that the case?

Mr. Fagan

The levy has been considered at length by the industry. Some companies are making a profit, some are not. The last thing the companies that are not, including ourselves, need is another levy. That does not mean we fail to see the huge benefit of providing broadband to schools. The reaction within ITC Ireland, in which I am involved, is that co-operatively the broader industry - software, hardware and delivery providers - can get together and work with Government to produce a solution that will provide broadband to schools.

Our feeling is the reason we are being levied is that it can be done and not because it is the best way of doing it. I would like to put that to the test. There is a mechanism in legislation. It also needs to be examined strategically because if the Government collects this money, it is not clear to us what it is talking about. Is it talking about providing a network or services with the money? We have a network and we can work together with the Government in providing a network for this purpose. The levy is a blunt instrument and I am not sure it is the best economic policy initiative. It would be better if the companies were working together with the Government.

We have wireless technology and we are doing broadband over fixed wireless in a limited area in the Limerick region. I mentioned earlier the possibility of utilising the MMDS spectrum. It will work because we have done the trials on it. It is extensive and would provide low-cost ubiquity. The issue always is what are the trigger points for investment such as whether there is sufficient population in the area. We are running telephony using the FWA spectrum through large parts of County Cork and the question is what population density is needed in the footfall of this area.

For example, we are serving Nenagh totally by wireless. In other words, Nenagh has digital MMDS and high-speed Internet access because it happens to sit near a site we have on Keeper Hill. It is part of our plan to develop wireless. We need regulatory certainty on it and we also need ComReg to decide whether it will give us the spectrum to do this because there is talk about parking some of this for 3G. We can supply broadband on a wide scale before broadband services are available on 3G. A number of colleagues from the mobile telephony industry are sitting in the Gallery but that is a fact. We will not have a squabble over who should have that spectrum but we will indicate what the possibilities are in our response to ComReg.

In terms of concentrating competition in the urban areas, it has to be a concern that there will be areas of the country which will be broadband deficient. In the natural scheme of things, areas like Dublin, Cork and Limerick will attract a number of players because they have the population densities. The regulatory model needs to take account of this. In other words, it needs to be designed to ensure that investment will be attracted into those rural areas and that the service will be provided. The technology is available.

On the question about providing access to our networks, we already carry some interconnect traffic on our networks. The red lines on the document I provided earlier show our backbone. It comes up all the time that most of our cable networks are so old they are barely capable of carrying the television signal. The question of providing access to someone and being obliged in the same way as Eircom simply does not arise. It is not technically possible to do this. Most of the cable in Ireland is not capable of being unbundled in that form or fashion. In answer to the Deputy's question, there are no regulatory requirements on us in this regard. I have said enough and will hand over to my colleagues from NTL.

I will have to ask Mr. Mohan to be very brief because we have gone over time by 30 minutes.

Mr. Mohan

I will be very efficient.

We are very keen to hear what all the groups have to say.

Mr. Mohan

Mr. Fagan has answered most of Deputy Coveney's questions. I reiterate our interest in the wireless avenue and providing additional services to more rural areas. That is absolutely the case. We have recently launched digital television on MMDS after significant investment late last year and early this year in developing a digital MMDS product. Further significant investment will go into that product over the coming 12 months. As that process is being completed, we are investigating the possibility of the provision of broadband services on MMDS as well. With licensing, we would envisage the possibility that it could happen, but a significant amount of investigation and planning must go into that. It is very much in our target.

Mr. Fagan answered most of the other questions. On Deputy Broughan's questions regarding whether we are an incumbent and if are we "gouging" - the phrase used - consumers via our basic pack, I think I can allay the Deputy's fears on that point on two fronts. The main one is that, over the past four years since NTL acquired Cablelink, it has invested significantly more money in Ireland than it has generated from all the packages and services it provides, including business services in television, data and telephony. The answer to that question is "No".

The second piece of evidence for this is that we have significant platform competition from Sky which is a major operator in this economy, as I think everyone is well aware. I will give a simple price comparison on the basic pack to which the Deputy referred. Our basic pack has 15 channels and is available at €17 per month, including VAT. Sky's basic package has six channels for €19. That is its entry level package of channels and it does not have the regulatory issues we would have or the VAT issue which I referred to in my presentation,. Sky has price advantages accruing from the levy we pay, which is 3.5% of our television revenue, and the VAT issue. We pay VATat 21%. Sky pays it to the UK Exchequer at17.5%, a differential of 3.5%. If the 3.5% VAT differential is added to the 3.5% levy, Sky has a price advantage over us of 7% at retail level. We must compete with that. I have referred to the fact that we are cheaper than Sky in terms of entry level packages and it has a price advantage on us also. We can allay the Deputy's fears on that point.

Mr. Brophy

Just one final point on price gouging. Any price——

We are not going to get into a discussion today about Sky or anyone else. We are here to discuss broadband. We will discuss that issue on another day, not today. We thank the witnesses for their presentation, especially regarding broadband, and informing the committee about what both companies are doing. I extend the good wishes of the committee to the companies and hope they will assist in the roll-out of broadband.

The witnesses withdrew.

I ask Mr. Andrew Kelly, Mr. Niall Norton and Mr. Laurence McAuley to join us. Mr. Norton is making the presentation. I ask him to try to give it in about six minutes because we are running 45 minutes behind time and the ESB, the Department of Finance and another group are in attendance. I do not mean to hurry Mr. Norton but I hope he will be able to say what needs to be said in six minutes. The committee will then be afforded an opportunity to ask some questions. I understand the witnesses have a presentation pack for us.

Mr. Niall Norton

Yes, we do.

Mr. Norton is from O2, Mr. Kelly is from Meteor and Mr. McAuley is from Vodafone.

I remind the witnesses that members of the committee have absolute privilege but this does not apply to witnesses appearing before the committee. It is generally accepted that witnesses would have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it. Perhaps Mr. Norton would proceed.

Mr. Norton

I thank committee members for the opportunity to appear before them. The three mobile telephone service operators are appearing together. We hope it will lead to an educational presentation, notwithstanding a certain lack of commercial bite because three competitors are presenting together.

There are two big issues that the mobile business can offer to the Government and the nation in addressing the issues of universal access and the digital divide. O2 would feel quite strongly, and I am sure this is true for my colleagues in the other businesses, that there is probably an underappreciation generally about mobile telephony and its ability to breach the broadband divide. We have a concern in some respects that mobile as a solution to bringing broadband to Ireland is probably underappreciated. I would ask the committee to allow us the opportunity at some stage to demonstrate what we can do in the mobile telephony area. We think it may be helpful.

I found it quite interesting when listening to the cable operators who made their presentation before us that, when they referred to broadband and rolling out broadband solutions to their customers, it was almost universally around MMDS. We would take that in some respects as a tacit acknowledgement on their behalf that wireless solutions should be given more consideration. Rolling out wireless solutions in some respects offers us the capability of rolling out broadband access more quickly and cost-effectively nationwide in rural areas and other areas where it may not otherwise be commercially possible to do so.

Regarding the slide show, the first slide shows wireless versus wire line in Ireland. This is a fact that may not be appreciated but, over the past two years in a significant fashion, mobile communications - this would be largely voice and text-based GSM - have significantly outstripped the fixed line companies in Ireland. The point we make is that, on basic provision of service, which is what GSM would allow us provide, we have demonstrated that there is an appetite and, in some respects, a more attractive offering in terms of mobile above its fixed line counterpart.

In terms of high data usage per subscriber we have put the total SMSs and SMS per user on a monthly basis to demonstrate the kind of texts we and Vodafone use. A great deal of these data are in the public realm, particularly given that the companies produced year-end results recently, which provoked a lot of debate. It is an established fact that data in their most primitive form are probably the text-based service.

In terms of the mobile infrastructure overview, mobile capacity to deliver data solutions is here today. Three mobile operators exist today and as three come on-line a fourth will become available, and that is not counting what cable and other operators may do. Today under 2G licences the GSM networks provide a national service, while 2.5G provides high-speed data - our networks offer those higher speed data services with new applications and services all the time. That includes e-mail on the move and other high-speed data solutions.

We see mobile broadband technology and Internet and e-mail on the move as a major part of our future. There is a general lack of appreciation among people as to how powerful and how good a solution this can be. One example of a component technology - each operator will have his or her own views - is mobile broadband solutions working with technology like wireless LAN and other complementary solutions offer a capacity for a mixed bag of fixed, semi-fixed and mobile options to be available nationwide. A consultation process is under way with ComReg regarding the extension of broadband access within the licensed GSM spectrum and we are part of that process. This is a further demonstration of the effectiveness of this area.

The 3G licences were awarded in July 2002 and debate on it is ubiquitous. We expect 3G, very high speed broadband, to become available. It probably will be slower than we had originally anticipated but we see huge opportunities, notwithstanding the here and now, to deliver broadband nationally.

The next slide details consumer data service and shows a chart of capability for fixed and mobile solutions to deliver broadband over time. One can see that in 2000 the fixed network had the capability to deliver 128 kilobytes per second. The mobile operators could then deliver 28 kb per second but one can see that very quickly we will be in a position to offer comparable capacity using 3G networks and complementary technology. It is significant that in considering broadband solutions we should include mobile solutions. As 5% of lease lines in the marketplace are at 2 megabits or more per second broadband, as it exists and has been rolled out, is not a mega-speed of 2 mb or more. It is much more modest and delivers a sensible solution.

In terms of working with business, mobile can and does support the communication needs of staff in the field, relaying and accessing information to and from other persons between the field and head office as well as increasing efficiency in work practices by replacing and complementing existing processes. We do not necessarily see investment in mobile as meaning one throws out all one's fixed line solutions; we see mobile as working in place of them, by preference, but also along with them. At the risk of plagiarising, in e-mail on the move, for example, we have devices today which blend with fixed line offerings in a work capacity to allow wireless or mobile solutions.

In enhancing existing services offered to the public by Departments by using mobile-based applications like voice SMS multimedia, we are currently engaged with the Government at the wireless LAN end of things in rolling out that as an experiment. My colleagues and their businesses are engaged in the other similar types of service. SMS has revolutionised talk shows in enabling comments to be transmitted to the shows. I use basic examples to show the beginning of the data story but this is the tip of the iceberg.

In terms of the mobile toolkit, we have put in place unique boxes showing security techniques and capabilities for mobile operators that differentiate us from a fixed line offering. For security and authentication purposes, particularly when it comes to remote access to office LANs and so on using the SIM card set-up which is part of the mobile solution, we have the capability to provide extra security for remote access to home networks. One of our products which uses this remote access capability has been US military approved.

Facilitating m-commerce is effectively using the mobile device as a quasi-credit card solution where one can pay for parking, betting and other services and this will certainly develop. Content re-purposing and device profiling is tailoring the delivery of an Internet solution to the device size one is looking at, so that an Internet page does not appear in a way that forces one to scroll all over a very small screen. We can deliver that multi-system delivery capability.

Location-based services include vehicle tracking services where one can find outwhere a lorry is or get a delivery notification via SMS. The capacity to deliver enhanced data solutions around that kind of technology is huge. We have worked with the co-ops to send telemetry information such as the temperature of the milk in a co-op lorry as the lorry is travelling.

Multimedia messaging includes voice, picture and video. The most obvious example of this is journalists being able to send picture messages. This applies to a variety of situations. Pull and push information personalisation means allowing consumers or businesses to personalise the kind of text alert services they want.

On the consumer market, there is high dependency on mobile networks for daily communication needs and more people use mobiles than fixed line networks for both the number of lines and the number of minutes they traffic on them. There is a large early adopter market segment in Ireland and a high uptake of new products and services. There is an appetite to try these new things.

In conclusion, the mobile networks already support the communication needs of more than 3 million people in Ireland. The mobile applications enable organisation to communicate, access information in the field and improve their delivery of core business activities. When access to Government services is provided over mobiles, the services are more transparent, more accessible, more efficiently accessible and more cost-effective than other means. All of this benefits the citizen and the Government as a whole. When it comes to rolling out broadband in Ireland we are strong proponents of the opinion that it is cheaper, speedier and less intrusive to deliver a wireless broadbandsolution. Applications such as wireless LAN would address the digital divide, among other matters.

The next slide is "Think Mobile". I hope I have not gone too far over my six minutes.

Mr. Norton has gone over the six minutes so there is a black mark against him already.

Mr. Norton

I apologise.

It is all right. I thank him for the presentation.

This is an important presentation. It is great to see how O2 and Vodafone have grown. I am always careful which name I say but it is good to see the two organisations in here working together. I accept much of what Mr. Norton said in his presentation. The capabilities of mobile technology are almost endless. I am a regular user and I am on the Internet.

What impact will the levy have and what are the alternatives? Everybody agrees that schools must be linked to broadband high-speed facilities so that use of the Internet is maximised. However, there is more than one way to skin a cat.

With regard to network sharing, if broadband services are to be rolled out via wireless networks - all three companies maintain that is possible and should be happening - will there be an element of shared facilities? In the past, there has been little or no sharing of masts. Can the same mast infrastructure be used for broadband wireless roll-out as is available for telephone lines?

Are the companies required to provide a wholesale as well as a retail product in the provision of broadband service? For example, what is the difference between Eircom being the incumbent of the fixed-line service across the country and it owning and running the network? Vodafone and O2 together have a similar dominant position in terms of owning and controlling the wireless network via masts. Do the companies intend to provide a wholesale product to allow other service providers pay and use the network on competitive terms so they can compete in the wireless marketplace?

Mr. Norton touched on the position regarding wireless and LANs, but could he provide some examples of wireless working in Ireland? Has he experimented and linked up with satellite technology? For example, satellite is the only way to bring broadband to regions such as Connemara and south County Kerry, following which it can be linked up with wireless networks in rural regions. Is consideration being given to that aspect?

Mr. Martin, you can share the questions. I will first call on Deputy Broughan.

There is much market inertia in the telecommunications sector. What is the latest position on competition and portability?

Mr. Laurence McAuley

I will take the questions in sequence. With regard to the telecommunications levy, there is broad agreement and support for the ICT industry for extending broadband to schools. There will be considerable support in the industry for working in partnership, not only among the telecommunications operators, but also the other stakeholders, for example, the equipment suppliers and others involved in bringing broadband to schools.

Do you have any difficulty with the levy proposed by the Minister?

Mr. McAuley

We do. We say it flies in the face of partnership. There was no consultation with the industry. However, we would agree to work in partnership with other stakeholders to bring broadband to schools. The levy only applies to the telecommunications industry; it does not apply to the other stakeholders in broadband. The industry, ranging from mobile to fixed and including the equipment suppliers, such as Dell, Intel and Microsoft and content providers, needs to work together in partnership to bring broadband to schools. Therefore, the levy should not apply to only one sector of the industry.

The point was made by Mr. Fagan that some companies are making money while others are not. We must consider the levy on the same basis as a new entrant to the marketplace, that is, ability to pay and how it will impact on competition in the long run in terms of the ability of a new company entering the market to pay a levy such as this while continuing to invest in infrastructure. The way forward in terms of competition is not to impose greater levies on newer competitors in the marketplace, but to work in partnership with the new competitors to bring services to schools, which is something we all want to achieve.

Mr. Norton

The bottom line is that our preferred way forward on this is a consultative one. We believe the industry players can work with the Government to deliver a solution which we all think is the right one. One of the very big negative effects of a levy is that the cost of capital for the operators rise, which reduces our ability to borrow and slows our investment in our businesses in the economy. That has a very detrimental effect for us, notwithstanding all the other arguments——

Are companies not earning huge revenues in the Irish market? Surely the two leading players are doing so. Much of the revenue will be derived from first and second level school children using their mobile phones. Should companies not give something back to that generation, which has so enthusiastically taken up their technology, on a quid quo pro basis?

Mr. Norton

We have no problem with giving something back. That is not the issue in terms of our support for the extension of broadband access to schools; we do support it. The question is what is the best mechanism for supporting it. We believe there is a much better solution than introducing a levy. The downside to introducing one makes it an unattractive solution. There are better ways of proceeding and we would like to participate in them

What do the companies suggest as an alternative to the levy? A number of speakers have said they wish to see a more consultative approach. That is a grey answer. How do the companies propose to link up schools?

Mr. Tom McCabe

I am a member of TIF, the Telecommunications and Internet Federation, of IBEC. All witnesses before the sub-committee are members of TIF. There is full agreement among the telecommunications operators and the broader membership of TIF and IBEC that the imposition of a levy as a means of extending broadband to schools is not the best mechanism. We would oppose it. We have discussed an alternative with Departments. It entails a joint partnership agreement which would look not only at extending broadband to schools, but providing PCs on desks, content on PCs and teacher training. The total picture must be considered. That will involve the input of companies, such as Intel, Microsoft, IBM and Hewlett Packard, as well as all the telecommunications operators and the organisational plan within the Department of Education and Science to deliver ICT type facilities to schoolchildren. There is a need to consider the broader aspect and not confine the issue to the extension of broadband to schools. A more equitable and comprehensive long-term measure should be considered to enable the kind of programme I have outlined to proceed, rather than imposing a levy on the industry.

How will it be paidfor?

Mr. McCabe

We stated this morning that a large element should come from the Exchequer, because that is part of the overall education training of children, but that industry is willing to play its role. In particular, the telecommunications operators are willing to fund part of it on the basis that an agreement will be in place which will involve the other players in the industry and Departments. Industry will be willing to participate on a PPP type model or a joint Government-industry initiative.

The Exchequer would also need to fund the large part of the project going forward because it is not just a once-off. It is a three to five-year programme that will change the nature of education in schools. It is a much bigger project and it can be done in a more effective manner if it is addressed in a more comprehensive and co-operative manner, with funding from industry and the Government.

We will not return to that discussion but will continue with the other questions raised.

Mr. McAuley

Vodafone and the operators share a network, including masts, however, we do not own all the masts. We rent, and have a licence to use 1,000 of Eircom's masts and Eircom can make them available to anybody. The Garda masts are made available to O2, but not to any other player in the market. We are open to sharing where we own our masts and infrastructure.

With regard to sharing the infrastructure for broadband in the city areas, as it is more economical for operators to build their own infrastructure, there is a network of infrastructures.

Are the operators not using the same masts?

Mr. McAuley

There is no difficulty with masts. I am referring to the switches, the transmission lines where we link the masts together. Given the capacities in the cities, it is more economical to place the owner antennae on the shared masts and have one's own infrastructure behind it. In the rural areas it makes sense to share infrastructure. The licence allows us only to have infrastructure sharing after we have built a certain amount of infrastructure of our own. This means there is competition at infrastructure and services level.

We have agreements among operators to share masts where we own and control them. We do not have access to Garda masts as it is for the Garda to make that arrangement. We have access to Eircom masts and it is open to Eircom to make its masts available to anybody for sharing. We also have arrangements with landlords throughout the cities and the country, and they can make similar arrangements with the other operators. We control only 30% of our masts.

Do the operators plan to use their current infrastructure for telephone lines - in other words the masts - for a wireless broadband roll-out?

Mr. McAuley

Yes. All our 3G sites are on our existing 2G masts and we will be optimising masts as much as possible.

One thing we cannot plan for at present is the aforementioned consultation on the use of the GSM spectrum, which would use the same infrastructure. However, it is not in place, nor is it allowed by regulation at present. It is subject to consultation.

Mr. McAuley

On the question of supply of our wholesale products, we supply interconnect at wholesale level and we also make commercial agreements to supply wholesale. We have certain regulated products, which is the interconnect, available to all licensed operators. With non-licensed operators where there is a commercial arrangement, we engage in the wholesale of products and are prepared to do that going forward.

On the question of sample and data working, my Vodafone connect card gives me full access to data services, my e-mail and the Internet, both in Ireland and roaming abroad. Next year, we will have a combined 2G/3G data card, which will provide 3G access to the Internet on the move. From here I can access the Internet or mye-mails. Our combined card comes out next year. It is an industry card and not exclusive to Vodafone. The other users will also have combined PCMCIA cards. These cards will allow full Internet access on the move and e-mail access.

On the question of portability, at present the operators are working on the basis of non-portability. We start a business process trial next week and will have it fully operational by the end of the month. Customers will be able to move from one network to another with the full number, not just the seven digits but the full ten digits. The trials are working reasonably successfully at present. From next week - 7 July - we will have live transfers of selected numbers between the networks.

The committee is of the view that no one size fits all. It will mean, for example, that in the future it will not be fibre to fibre. We are considering others systems, such as satellite and wireless. Representatives from Chorus attended the committee this morning. That might reassure you.

We thank you for your presentations and apologise for rushing you. You might wish to submit information to complete your presentations. You may communicate with the clerk in that regard. We will be pleased to include any additional information in our final report.

I welcome Mr. John McSweeney and Mr. John Wyse from the ESB and thank you for appearing before the sub-committee. I ask you to make your presentation on the fibre backbone you have, or are about to roll out in stages, and assist the sub-committee with its deliberations on broadband roll-out and connectivity. I draw your attention to the fact that members of the sub-committee have absolute privilege but this same privilege does not apply to witnesses appearing before it. It is generally accepted that witnesses would have qualified privilege, but the sub-committee cannot guarantee any level of privilege to witnesses appearing before it. I call on Mr. McSweeney to make his presentation within the allotted timeframe of seven to eight minutes, if possible, following which questions will be submitted.

Mr. John McSweeney

I will do my best, Chairman. I do not have a hard copy of my presentation, but I can forward a soft copy.

Please do so for the record of the sub-committee.

Mr. McSweeney

I know, Chairman, you have an understanding of the background from the ESB, so if you wish me to move ahead at any time please let me know. It is important to outline to the sub-committee the strategy of ESB Tele-coms. It is a non-core activity for the ESB and investment will only be supported when commercial payback can be demonstrated. There is also a requirement to rely on our asset base for leveraging wherever possible.

With that in mind, the experience goes back to the construction and management of the largest private network in Ireland before the introduction of the new operators. As you are aware, we were involved with Ocean as a joint venture partner with BT, which was subsequently bought out by Esat. We then sold our interest to BT.

ESB Telecoms is a limited company, incorporated in 2001. Turning to the business lines, our interest in infrastructure provision started with towers in 1997 after our unsuccessful bid for the second mobile phone licence with Persona, and we offered our sites to both the winners, Esat Digifone, now O2, and Eircell, now Vodafone. We are the leading independent telecommunications infrastructure provider. We own and manage over 400 sites and we insist on mast sharing by mobile operators.

A capital investment programme on towers is under way because we realise that broadband will not be confined to fibre, but also to radio and mobile. We are undertaking a survey of all ESB sites nationwide to hopefully assist in the roll-out of 3G as that arises.

We are also trying to promote the use of existing ESB electricity pylons for the location of mobile phone antennae. There are examples of this around the country. It does not suit every single application, but as we speak, all operators are on pylons. We also design, install and construct a range of different antennae or masts throughout the country while meeting with local authority requirements. The clients using our towers are all the mobile phone operators and Chorus and Esat. In addition, they are shared by the local authorities, the Garda, the Irish Aviation Authority and what may be termed the blue light industry.

Turning to the FibreCo, we are trying to provide a national, large-scale broadband service. It is a flagship project within the national development plan and is fully supported by the Government. It consists of some 1,300 km. of 48 core backbone fibre, connecting all urban centres in a figure of 8, with a spur to Letterkenny. The southern loop was made operational in the fourth quarter of 2002 and we will have the complete circuit finished by the end of the year.

Members of the sub-committee may wish to examine the map in more detail. It outlines the route of the ESB's national backbone fibre. The little red stars are the local authority metros, the municipal area networks, and the blue stars are the spatial strategy towns identified by the then Department of Public Enterprise. There is a reasonably good fit of the roll-out of the ESB's backbone with both the municipal area networks and the spatial strategy. I use this display only to indicate the amount of fibre already positioned in Dublin. There is an amazing amount of fibre all over Dublin.

This display illustrates the ESB's connectivity with the various business parks. All the overhead fibre is sheathed in a highly durable, high-density protective envelope covering to avoid shock and damage. This photograph illustrates the type of mechanism or technology used for the fibre wrap. It was developed by a United Kingdom company called Focus and was first pioneered on the UK national grid, by a company called Energis.

These infrastructures support a service by the communications service, which is the internal communications delivery service in the ESB. It undertakes many activities, ranging from complete planning and installation to the communications services business. We have a national footprint in terms of people. We also manage the ESB's digital microwave network, a nationwide network, in additional to the fibre optic roll-out.

Members of the sub-committee will have read in the newspapers that we will pilot a power line technology trial in autumn 2003, that is, the use of a high-voltage network for the transmission of broadband, a technology that is not yet proven. We will pilot it later this year. Fundamentally, ESB Telecoms is a national provider of top-class infrastructure to telecommunications operators, whether they be mobile, fixed or radio.

I thank ESB Telecoms for a very interesting briefing. The sub-committee has already heard of the figure 8 in the context of the basic infrastructure. How valuable is the basic infrastructure? Mr. McSweeney indicated that the ESB received almost 50% of funding to create it from the Government. It is a core infrastructure and the ESB does not appear to have any plans to provide a link to customers.

Mr. McSweeney referred to the use of the transmission network on a pilot scheme. What is the company thinking in that regard and what is its position on wireless, LANs, the difficulty of a dispersed rural population and the universal provision requirement placed on companies such as the ESB? We will have an opportunity later to consider the massive changes in the electricity industry. Am I correct in understanding that as the ESB links up with the MANs network, the 19 towns will grow to 67 towns and will hopefully grow to 123 towns? Given the ESB's outline network and the adjacent State network, does this mean we will have a high class roll-out of the fibre optic network for the entire country?

The history of the development of the various networks is interesting. Mr. McSweeney indicated the ESB did not get the second mobile licence. Its core business is changing rapidly and in view of this, has it any further plans to help in the achievement of the main aim of our report, which is to connect every household and desk in the country to high-speed broadband as an essential service?

I greatly admire this interesting company as a State company. Its role in the development of the country parallels the history of the State. As the State went through different phases, the ESB geared it up to the next phase of its development. Given that the ESB rolled out the basic power network, does ESB Telecoms share our fundamental aim to extend the broadband network in the desired manner, which is as critical to the future of the country as was the role of the ESB in the course of its impressive history?

Mr. McSweeney

The Deputy raised many questions and I will try to answer them in sequence. The total funding for the fibre-optic roll out is €50 million, of which €16 million is by way of grant aid from the Exchequer and the European Union. It is important to explain where we position ourselves as a carriers' carrier. We believe we are making it possible for new carriers to come into this business by offering a backbone that is pitched at a price level significantly below the incumbents. It is the same position we took in the development of the mobile business through the provision of towers, in other words, as an enabler to work with operators to enable them access the home.

The question on wireless is apt. It is likely that it will take a combination of technologies to achieve the ubiquitous delivery of broadband into the home. It is going to take a backbone system. It is going to take municipal area networks or local area networks and probably high-speed radio to deliver the final local access, particularly in rural areas. I think it is going to take a combination to deliver this. We will play our part in the backbone provision because that is where we see our strength.

Obviously we have a universal service obligation in the delivery of electricity. I do not see the same responsibility lying on our shoulders for the delivery of telecoms. I know that our chairman has seen the wireless backbone in a particular way. We talked about rural electrification; he talks about rural "fibrication" as an enabler to start. That is where we see ourselves - working with operators to give them an alternative to Eircom and Esat. In that regard, we offer dark fibre and we are the only carriers to do so. Everyone else offering broadband only offers managedservices. I hope that has addressed thequestions.

Mr. Wyse

I would like to add to that. We share the vision that the Chairman spoke about in terms of rolling out broadband to the country generally. The investment we are making in this fibre of €40 million of our money is a reflection of that in the context of many of the industries that would have delivered revenues to this going through hard times.

I already outlined what we saw in Grant County in the United States where the public utility company, which provides electricity and energy, is investing $120 million in the roll-out of fibre to fibre for every home in Grant County, which is a rural environment of approximately 40,000 premises. We could see the importance of that. It also manages the network for Washington State. Has the ESB any plans to tender for the management services entity the Department requires to manage the demand networks and the connectivity of that given that the ESB has experience in managing networks since it was founded?

Based on different presentations made to us and from our inquiries, is there a danger that the ESB's network might not be used by a sufficient number of customers due to the inability to sell the capacity at rates attractive to wholesalers? In the United States, we were told about the "field of dreams" in Idaho where the state rolled out a complete network and found it had no customers. If the ESB is not competitively priced, is there a danger it might be bypassed?

Do the witnesses agree with my colleague, Deputy Broughan, that broadband is so essential for every home and business in the State that it must be considered to be a third utility along with electricity and water? In future, there should be connectivity to every home by fibre cable, satellite or wireless. We were alarmed last week to hear Mr. Dan Flinter of Enterprise Ireland express serious concern about the roll-out of and the difficulty a number of businesses had in gaining access to high-speed broadband connectivity. He indicated to the committee that this could have a serious effect on Ireland's competitiveness and its ability to get overseas companies to locate here. The witnesses will be aware of worldwide reports of Ireland's position in broadband roll-out and connectivity. What are their views on that?

Mr McSweeney

Regarding the managed services entity, we are studying the terms of that competition. We are, however, precluded from entering into it because anyone with a basic licence or greater is not allowed to bid for it. We are looking at the implications of that as we speak.

On the pricing issue, I mentioned initially that our prices are extremely competitively pitched against the current prices available in the marketplace. It will only be when the full national circuit is complete that we will be in a position to answer whether they are attractive to third parties. If new entrants come into the market, we will certainly be able to operate a flexible and price competitive regime that will surely attract them to our network.

We are working with some potential customers. We have one contract signed on a local basis, which proves we are capable of offering a service that will connect to a municipal area network. That is even before the network is finished. That is a signal that there is a future for us. As the economy improves and industry and homes increase the demand for broadband, we believe we will be in a position to offer a competitive price.

I emphasise again that it is not just backbone fibre and that the towers and the masts can be equally instrumental in driving this forward as broadband to the home. Together with everyone in the industry, we are definitely concerned with working to make sure that happens. We are certainly committed to driving it out, but there is one condition I am bound by, namely, that any decision for investment will require a proven business case. That is one condition I labour under.

Do the witnesses plan to tender for Government business to take up the spare capacity the ESB has on its loop or national fibre backbone?

Mr McSweeney

I was not aware that Government business was available.

When the Government business becomes available——

Mr McSweeney

We would be delighted to enter into competition for it.

I am sure the Department of Finance would be interested in getting a good deal for the public's money if the service were available. I am amazed at the bravery of the ESB's decision. I accept Mr. McSweeney's point that the ESB will only take decisions on investment where there is a proven business case. However, the ESB has invested €40 million of its money in a system. I am glad to see it doing so and it should be a good bet in the long run. However, it is quite a bet in that the ESB has only one contract with a local customer and there are a number of other operators.

Representatives from Esat told the committee that its 2,000 kms of cable are effectively unlit. It is using about 2% of its overall capacity. Eircom has 270,000 kms of cable, the vast majority of which is unlit. I welcome the ESB's arrival on the scene with another 1,300 kms of back-haul cable, which represents a courageous move by it.

How will the ESB connect into the local access network? I presume it has to use the local incumbents unless it is carrying mobile or other wireless operators' services. The ESB has this figure of eight from which, depending on the transmission grids, I presume there are national power lines into most of the major urban centres. Is the ESB considering extending on to that, which could be done without significant additional cost?

I do not need contractual details for the following question. When compared with what incumbent or other telecom operators charge on the wholesale market for blackhaul operations - the motorway service as it were - roughly at what level can the ESB price these? Does Mr. McSweeney believe he has a significant advantage in that the cable infrastructure is in place and installing fibre cable is not that expensive? Does he have a rough indication as to how much cheaper his operation is compared with the incumbent providers?

Mr. McSweeney

The decision to invest was taken at a time when telecoms was riding on a high. Seventeen companies were operating in the country, but many have gone to the wall. There has been a significant difficulty in getting the return on investment we made. However, we believe the business will recover and that it is a good investment for the medium term. It must be remembered that investment was on the basis of a very successful towers business that was also started at a time when it was not obvious there would be business and a successful joint venture with BT. We have a track record of success and we are patient.

There are no plans to extend the network to local areas, but we will keep it under review. If we find that the take-up from the back-haul makes it a sensible decision, we would have no hesitation in looking for further support, but it would have to be on the basis of a prudent business case.

In terms of the pricing on the wholesale side, I draw a distinction between managed bandwidth and dark fibre. From a dark fibre perspective, we are the only ones in the market for that, and that is primarily to attract new operators. On the managed bandwidth, in terms of published prices, we operate at a serious discount compared with the incumbent and a discount of between 12% and 17% compared with everyone else in the field.

Does Mr. McSweeney accept the local area network as being adequate?

Mr. McSweeney

We have points of presence established around the network. The Deputy may have seen it on the schematic. In those points of presence we have set up an interface between the high voltage network and the public fibre uptake with a safety barrier in between to ensure there are no issues of safety. We have 28 of those around the complete network and they are available as co-location spots for any local area operator who wishes to join it. If not, we will have to come to an arrangement with the incumbent for the last mile access. I emphasise that our strategy is to be a carrier's carrier, not to get down to the retail offering.

They are available for the wireless system as well where there would be the fibre cabinet alongside which the wireless cabinet can be put.

Mr. McSweeney

Yes, they are available for municipal area networks which might want to extend the fibre backbone, wireless or mobile networks. All three are available on the co-location.

On a municipal air network or another carrier which is using a line rather than a wireless, would it have to provide the connection to these points of presence that Mr. McSweeney would have already constructed on his network?

Mr. McSweeney

Yes.

Can we finish by concluding one aspect? Did Mr. McSweeney say he was prohibited by his licence from tendering for the management services entity, MSE?

Mr. McSweeney

It is a condition of the competition that whoever tenders for it is not in receipt of a licence, which we are.

That puts you outside of it?

Mr. McSweeney

It means we have to decide whether we want to keep the licence.

I already stated in my questions to Mr. McSweeney that we are losing the opportunity to be a natural provider of a networkservice by not being able to compete and tender for that service, given that Mr. McSweeney is managing his own network throughout the country.

Mr. McSweeney

Bluntly, yes, but I suppose it is up to us to decide whether we want to keep the licence in terms of what would be the better business decision for us.

I sincerely thank Mr. McSweeney and Mr. Wyse for attending and sharing their views on the roll-out of broadband. I wish them every success in their business endeavours and hope I will eat my words, "field of dreams", in 12 months' time.

Mr. Wyse

I look forward to that.

I ask Mr. David Doyle, Mr. Paul Byrne and Mr. Jim Duffy from the Department of Finance to join us. They are welcome. I have not met them for a long time.

Mr. David Doyle

We met in different circumstances.

That is correct.

Mr. Doyle

I am accompanied by Mr. Jim Duffy and Mr. Paul Byrne.

I invite Mr. Doyle to make a short presentation on the role of the Department in the area of the roll-out of broadband and Internet connectivity.

Mr. Doyle

I will briefly explain our roles. Jim Duffy is head of the information technology side of the Department. Paul Byrne has responsibility for the Vote for Communications, Marine and Natural Resources. My job is head of the public expenditure division in the Department. I will comment briefly on the overall policy context for all public services, briefly give members our perspective on the telecom sector and touch briefly on the role of Government as a consumer of telecoms and a provider of services to customers.

When examining particular sectors with which the Government deals it is important to consider the overall budgetary context in which a Government operates because this is a critical driver of our consideration when it comes to examining new development areas. I will touch on this briefly. What I will say on this front is not new and is presented in the 2002 budget documentation, but it is useful to zero in on it.

We have moved from a period of high economic growth, which averaged about 7% from 1997 to 2002, to where our prospects for growth now average in the region of 3%. That was as of last December. On the budgetary front, our revenue performances have moved apace in line with that. Revenue now grows at modest rates in the lower single figures.

On the spending front, overall spending by Departments between 2002 and 2003 grew from €26 billion to €38 billion, up by €10 billion or an increase of 47% in three years when inflation was around 15% in that period. In the same period our tax revenues increased by €5 million, from €27 billion to €32 billion, which was an increase of about 18%. In the first three years about which I spoke, 2000 to 2002, the Government and taxpayers had a cash surplus of about €4 billion. The budget for 2002 set out a projected cash balance over the three years 2003 to 2005 of a negative figure of €9 billion.

On the economic front, I mentioned the average growth rates going forward. The international climate is weak, our inflation in terms of the domestic economy is about twice that of the euro zone generally and we are working in a competitive environment. If our cost base is out of kilter, it will undermine our competitiveness and diminish our capacity to compete. Movements in our currency have been relevant in that regard.

A critical part of maintaining competitiveness would be to ensure that overall Government spending does not drive costs in the economy to a point where one has unsustainable competitiveness. We have many demands for improved public services, intervention and changes that people are contemplating such as an operator contemplating a major public intervention in this area. Those changes have to be accommodated within a limited pot of resources. We now face a situation where we have a €9 billion negative cash projection for 2003 to 2005 and one would expect that to colour our thinking generally.

Regarding the telecoms sector and our perspective on it, we are fully supportive of and buy into the conclusion that a modern telecom sector is vital to support and drive economic development. There has been some limited intervention in the market by Government, either in global crossing or the 19 area networks. The area network projects were intended to be demonstration projects to prove that the "field of dreams" scenario referred to earlier with the ESB could be made a reality and that, when we put the services on, customers would step forward and the investment would be justified.

When that approach was arrived at in the usual way between our colleagues in the Department of Communications, Marine and Natural Resources and ourselves, the intention was that these projects would be a test to prove that the market was there and that, once one invested, customers would step forward, avail of, exploit and pay for the service leading to self-remuneration going forward, pending further roll-out. As in all this, policy development is an area of flux, but that was the context for this proposal.

Regarding the market, we see that it is primarily a matter for the private sector to provide the services its customers need. We see an economic need for high quality service but, given the overall fiscal context, the primary role in addressing this should be for the private sector. We see the regulatory regime in place as critical in facilitating and encouraging the private sector to target its investment in the right area and to have an appropriate pricing structure that will allow needed services to develop. We welcome the steps taken by both Eircom and its competitors to put in place low cost services in the market. We are confident, now that is done, that market penetration by broadband at the customer level will accelerate significantly.

In terms of our perspective on business users, what is being put in place now will be of major benefit to individuals, SMEs, branch offices of large companies and teleworkers. Regarding high-end business users, our perspective is that they will be able to continue to exploit the existing facilities to meet their services. Not everyone agrees with that, needless to say, but that is our read of the market.

On the Government role as a customer of the telecoms sector and provider of services to customers, in general, spending by Departments on information technology and telecommunications is several hundred million euro a year, with €100 million being spent on telecoms and €200 million on information technology. That is generally devolved to Departments. Our read on the quality of telecom infrastructure available to Departments and the public service generally is good, including access to broadband, but local offices need more capacity. The new initiative undertaken by Eircom will help to address that.

Our overall objective on the customer end is to put additional capacity in place to provide end-line user services to customers so that users can access customers on-line to the maximum extent justifiable by feasibility and cost. For instance Revenue has a major on-line service for business customers for which take-up is significant, and it plans to roll out facilities for personal tax returns and so on. Our overall goal is to support Departments and public agencies in rolling that out and delivering the maximum possible on-line service. Some examples of the on-line services available include Revenue, FÁS and Civil Service recruitment, the Land Registry, exam results, the Central Applications Office, driving tests and e-tenders. They are all on stream as on-line services. Motor tax is being addressed as are applications for driving licences, births, marriages and death certificates. The overall objective is to put the maximum number of on-line services in place.

In the short-term this is adding to costs in that one must simultaneously provide on-line services and a real, human-to-human service given that many do not have access to the Internet or will not have the capacity to use it in the next four to five years and knowledge of IT is more extensive among the younger generation than the older population. I will leave it at that and will be happy to answer any questions members may have.

There are a number of questions but there is a vote in the Dáil and Mr. Doyle knows what that means. I am conscious of the fact that he wants to be finished by 5.30 p.m. and we will do everything in our power to try to facilitate him. Mr. Doyle raised some important points which we need to address.

I did not draw to the witnesses' attention the fact that, while members of the sub-committee have absolute privilege that same privilege does not apply to witnesses appearing before the sub-committee. It is generally accepted that witnesses have qualified privilege but the sub-committee cannot guarantee any level of privilege to witnesses appearing before it. I am conscious of the fact that Mr. Doyle has heard that on numerous occasions.

I propose suspending for the vote and then resuming to allow questions to be put to Mr. Doyle and his officials.

Mr. Doyle

I am flexible in terms of time.

I am also conscious that we have Mr. Colm Butler from the information policy unit present and hope he can wait as well.

Sitting suspended at 4.10 p.m. and resumed at 5.20 p.m.

I thank Mr. Doyle for his presentation.

Earlier today we heard from a number of interesting people who were putting on the poor mouth in regard to a proposed levy to raise funds to develop broadband in schools. Everyone is in agreement that this is an area in which we need to invest nationally to improve our competitiveness and to benefit society. While the industry says it is not the one who should, necessarily, finance it, I gather from the earlier presentation by the Department of Finance that its coffers have run dry in this area. If neither the State nor industry is willing to provide finance, how do we develop the valuable infrastructure that everyone agrees we need, such as the development of broadband in schools,e-medicine and business in general?

Having said that, I was pleased that in the last budget the Government lived up to its significant commitment in that the Department of Communications, Marine and Natural Resources received funding for the metropolitan area networks. In a budget which slashed spending on virtually everything else it was good to see that there was some investment.

We heard today that the pilot demonstration project would be seen to be successful in terms of developing users, which makes me somewhat concerned, as I understood it to be a three year roll-out programme, rather than the commitment being just for this year. Can I get confirmation that funding is guaranteed for next year and the following year? Is future funding dependent on an immediate return on the investment or an immediate sign of usage? Surely this is something to which we have made a commitment and we will then wait and see whether it works.

In regard to the use of such networks, throughout the proceedings a great deal of interest was expressed in the State taking a lead in using the metropolitan area networks, in which it is investing. Interest was also expressed in the use of the alternative access backhaul routes, about which we heard today. I put down questions to each Department on their telecoms budget, particularly fixed-line business and, almost invariably, all of the replies focused on one company. There is a remarkable similarity in the budgetary allocations across Departments. Does the Department of Finance have any intention of putting some purchasing power into users, such as in the metropolitan area networks? Has the Department entered into any new arrangements with the main incumbent supplier of telecoms services?

I was also informed some time ago that the Department has signed a contract with one company for the development of particular services to the State in the telecoms area. I do not, however, have the details of this and am only going from memory. Can this be confirmed?

How will we develop the services everybody agrees we need if neither the State nor industry is willing to invest in them? Are we committed to the metropolitan area networks on the agreed three year roll-out programme and how will the State use such services?

I may have one or two other questions which I hope I can put later.

Mr. Doyle

There is an ongoing debate on the question of investment and the levy. As I explained to Deputy Coveney during the recess, our colleagues in the Department of Communications, Marine and Natural Resources are grappling with this on a day to day basis and are evolving policy. They are best placed to answer the Deputy's question when they come before the committee, which I understand will be next week.

With regard to my earlier comment on the coffers being dry, I said they were short by €9 billion over the three year period. That does not mean they are dry, but one can interpret the €9 billion shortfall over the period 2003-05. I shared that information with the Deputy to draw his attention to the fact that if it was contemplated that one would spend €100 million on a new service, it has to be considered in the overall policy context of a lot of pressure on public resources. Costs are generally ramping up and demand is ramping up even further. There has to be reconciliation across programmes as to priorities.

In the current year, priority was given to the metropolitan area network referred to and I would expect, to the extent that the Government has decided on a plan, that priority will continue for that trial project. I also said that the original intention behind the 19 towns initiative was as a trial project to show that the market would react to additional capacity in terms of customer demand, utilise the service and pay whatever commercial rate of fees were set for access and usage. This would remunerate investment going forward. Deductions will be made from the outcome of that experiment, which will not be known until the projects are up and running, marketed and so on. Policy in this area is in a state of flux. I am aware that our colleagues in the Department of Communications, Marine and Natural Resources are contemplating the overall policy context and I am sure they will be bring forward further proposals in the area.

In my initial comments I mentioned the role of the regulator in promoting and developing the roll-out of new services. It is no accident that in recent months we have seen a series of announcements concerned with the launch of low-cost Internet access services. It follows the policy direction issued to the regulator from the Government, who negotiated with the industry to put that in place. At a national strategic level, the pricing structure in the market that the regulator approves has to take account of some of those commercial considerations, which I am sure Dr. Nolan commented on when he was here today, and the needs of the economy.

It is possible that something could be done in terms of incentivising the industry through a pricing structure, incentivising particular areas, making some less critical services slightly more expensive and re-balancing the tariffs. However, the issue needs to evolve through the role of the regulator and, as I said, our colleagues in the Department of Communications, Marine and Natural Resources are re-evaluating the policy in the area of broadband.

On the question of funding for the 19 projects, funds will be put in place for those that have received the go-ahead. I expect that future allocations will also be available. The third question concerned the role of the State as purchaser of telecoms services and I will ask Mr. Duffy to respond.

Mr. Jim Duffy

I think the Deputy asked two questions in that area, the first of which was to inquire if the State would use the metropolitan area networks when they became available. As the Deputy is aware, the metropolitan area networks are a carrier and the State has taken a decision to acquire most of its telecommunications as services from service providers. Obviously service providers in those areas will provide access circuits, and because there is an untapped market for things like schools, branch offices, health centres, etc., and also Government offices in those areas, there will be a drift to them. There will also be a connection for office types etc., that are not currently economical to connect. It will happen through intermediaries. We must wait to see what emerges to see how much force we have to apply to ensure that the use is achieved and that they are not relying on private circuits. It is our intention to push the boat out in this area.

With regard to the wider question about the State's bulk procurement of telecommunications services, I think the Deputy was referring to a VPN contract signed with Eircom and Vodaphone just over a year ago. That contract lasts for varying amounts of time depending on the service. We took a judgment that some services would be open to competition before others. Therefore, there is a shorter period of contract for some services. The data services are for shorter periods of contract, and there are review dates within a fraction of the total length of a possible contract for fixed voice services, mobile voice services and the data network needs of e-government. It did not include the circuit needs of individual Departments, offices and agencies. In other words, they can and are being procured outside that contract.

The question I think the Deputy is asking is why we did it. The reason was that we had a demand for e-government which, given the current state of the technology, required a level of consistency that we could not achieve by giving it to multiple suppliers. The willingness of the telecoms providers to work with one another was also a big issue. It was not evident at that point that there was great willingness to put in the technology that would allow two or three separate suppliers to work together. We are engineering that now, but the inter-working is happening on Department of Finance territory rather than on the territory of telecoms providers because the inter-working there just would not happen.

The other reason was that the amount of telecommunications services demanded by Government agencies is on the increase year on year, and we had to see if we could do something about cost containment. The contracts have achieved that and have altered the state of the market in some areas. Mobile phone costs, for example, have been significantly affected by the existence of the contract and have been taken up by some organisations within the wider public service. Therefore, with the ramping up of demands, we were motivated by the potential for savings by containing costs.

The important point is that we made a judgment - this was an inter-organisational committee made up in some instances of people with a lot of expertise in this area - on the varying lengths of contract for the different services in order to go to the market again when we think there is real competition. Most importantly, new procurement directives will hopefully come into being later this year, which will allow us not to have a winner takes all situation but one where multiple suppliers can be kept in competitive play thereafter. The new directives will allow us to force ongoing and continuing competition. When this started there were no such freedoms.

We also intend, and are already on the way towards trying to do something in this area to create volume purchase agreements. That is not absolutely accurate, but it is a good enough term for DSL services and any other digital access services so that agencies across the wider non-commercial public service will be able to access these directly without having to go to the market again. These will be with all suppliers of such services. The idea would be to try to wean, say, the primary and secondary education sectors off ISDN and possibly move them up the food chain towards DSL and cable wherever it is available.

We hope to have those volume purchase agreements in place by early autumn, and they will be available for use by all agencies across the service. Consequently, we expect that will further ramp up demand.

I take Mr. Duffy's point about how it may have been a more robust system he was buying into and that there may be cost savings. Would he accept the point that at a time when we are concerned about the lack of competitiveness in the Irish economy in international terms, it is unfortunate that the State is unable to introduce more competition into the telecoms area through its purchasing power? We are in a chicken and egg situation in that there is no alternative supplier available. The reason is that the customer base is not sufficient to provide an alternative supplier.

That is one of the problems we have and why we are placed down on the OECD list in terms of broadband. It is also why certain telecoms services are very expensive by international comparison. Would Mr. Duffy agree that it would possibly be beneficial for the State to try to encourage more competition?

Mr. Duffy

I refer back to the fact that we have had to introduce interconnection on our own site. We fully intend to maximise the use of the interconnection to enable DSL over private IP circuits and DSL for teleworking and so on. In that way, we intend to try to create a new market to allow us to go to the market again within the next 12 to 18 months. We want to create new behaviours among the telecommunications companies. Our clear understanding, based on experience, is that there is not a great willingness on the part of many of the telecommunications operators to necessarily create the technology environment that allows inter-working to happen.

Mr. Duffy may have heard some of the comments made to the ESB about the national fibre backbone it will operate, and, indeed, the MAN. Is it his intention to spread the Government business to ensure that this network operates and works and is able to survive? Is it also his intention to invite those managing the network to tender for Government services? Could he see the Government being an anchor tenant on such a service, given that it is State money in the main that has gone into providing the MAN? I think some money from Europe went into the semi-State company as well.

Mr. Duffy

As I have already indicated, it would be unbelievable if we were not a major user of the metropolitan area networks. The ESB has positioned itself as "a carrier's carrier," in that it would offer services mainly to organisations which will in turn offer services. That type of posture precludes it directly offering services for most Government applications because the level of capacity it would be offering would be significantly beyond the requirements of most Government agencies in the non-commercial public sector.

However, one could see a future for some type of usage where one is talking about, say, diagnostics between two large hospitals where such a type of usage might be required. Nevertheless, given the posture the ESB has adopted - it is a realistic and good posture - it would expect to be directly involved in our type of business. In other words, we would go to the market looking for a service provision. Our intention is to try to create an environment where there would be multiple winners in future contracts and multiple continuing competitions. If the ESB can keep a posture of low cost provision, we expect that it will inevitably be attractive to service providers.

It is now accepted nationwide that we are moving increasingly toward a knowledge economy. Surely the Government must continue to invest in the whole area of telecommunications, connectivity, broadband and ICT. My colleague touched upon this with regard to schools.

Whatever about the levy, the view of the committee, and the view that I am sure will be echoed in the various presentations made to us, is that we must extend broadband connectivity to every school in the country, not just the normal dial-up line that is available at present. Whether that is delivered by fibre optic cable, satellite or by wireless means is neither here nor there once the speed and connectivity is provided. Would the Department of Finance agree with that view?

There are a number of points I would like to make on this issue but they are very much on that theme. Other countries like Singapore, South Korea and even Slovenia, which will soon be an EU member state, made a strategic decision some time ago to significantly upgrade their IT infrastructure and give it the same level of importance that they give roads, rail and the development of ports, airports and so on.

Communications infrastructure is as fundamental to the economic success and growth of those countries as the normal, physical infrastructure projects that we all associate with the national development plan and so on. There does not seem to be any of that type of ambition here. There is a strongly expressed view that it is for the private sector to serve the needs of its customers. There is some truth in that, and in Dublin, Cork Galway and Limerick this will probably happen. It will not happen, however, in parts of the country where there is not a critical mass to attract private sector investment to roll out the kind of services people need and to which they are entitled.

The State must take a lead in providing services in this area, which unfortunately means spending money, of which we have less now than maybe three, four or five years ago. It is of fundamental importance that the Department of Finance makes a strategic decision in this area. While the detail of policy is the remit of the Department of Communications, Marine and Natural Resources, to be fair, it needs to know that it is pushing an open door when it looks at how to finance in a sensible way a broadband infrastructure roll-out across the regions. Otherwise, we will continue to have the digital divide between Dublin and the rest of the country.

Companies that come to Ireland will continue to only have the likes of City West and a number of similarly provided commercial parks in different towns and cities as potential destinations. We are not being ambitious enough in this area. I can understand that Mr. Duffy's job is fundamentally about trying to keep the books balanced and, at the same time, allowing the Government to proceed with the national development plan and other policies. However, I believe there is a willingness within the Department to prioritise broadband roll-out and IT infrastructure so that Ireland sends out the message that it is an IT country looking for business and inviting investment on the basis of a quality workforce and infrastructure.

We do not have that at the moment and are falling behind. If we rely solely on the private sector to catch up with other countries, it will not happen. It will happen in areas like Dublin and its hinterland, and it may happen in some of the metropolitan network areas, but even then there are still problems with regard to the last mile, the first mile or whatever one wants to call it.

I am concerned at the lack of willingness or ambition to say that in three years time we want Ireland to be up in the top five again in terms of IT readiness and communications infrastructure. Almost all of the private sector interests that have been before us, whether it be Microsoft or anybody else, and all the users, are saying the same thing. This is particularly true of foreign investment companies. They are saying that they would like to expand in Ireland but that it is very hard to make the case for doing so now when one compares Ireland to other countries in terms of physical communications infrastructure.

It makes strategic sense to be prioritising IT, but I get no sense that the Department of Finance is doing so. Correct me if I am wrong on that.

We will let Mr. Doyle answer some of those queries.

Mr. Doyle

I do not think too many questions were raised, Chairman. There certainly was——

Mr. Doyle said he was open to comments that might influence his decision, so I was commenting more than——

I have experience of Mr. Doyle answering a lot of questions before so I have every faith in him.

Mr. Doyle

If my job was to balance the books, the Deputy should pass a motion dismissing me, based upon what I said earlier.

We have every confidence in Mr. Doyle.

Mr. Doyle

It is not the case that our job is purely to balance the books. Our job is to advise the Minister for Finance and the Government on the best possible mix and approach to allocating resources, having regard to the needs of the economy. As I intimated at the outset, we accept the argument that a top quality telecommunications infrastructure is a paramount requirement, whether in Dublin or the regions. We accept that as a given.

Can I see a position whereby the State invests as lead investor in providing those services? In practical terms, if we accept the example, outlined by the Chairman, of 40,000 or 50,000 customers costing €100 million in the United States and multiply that to Irish households, we would arrive at a figure of several billion euro. Can I see that sum being available, given the——

We are not advocating that.

Mr. Doyle

All right.

My point is that areas of the Government will not have a roll-out if it does not take a lead because it does not make financial sense for the private sector to do it at the moment. In areas such as Connemara, Dingle or north west Donegal, children going to school need the same access to IT as children in Dublin and Cork. We have a very good and developing e-government service but nobody can access it in many areas of the country. The Government has to take the lead in pushing roll-out in regions like this, and it will probably have to pay for it in the short-term and make the calculation that it will get the pay-back over time.

To be clear with regard to Grant County, it consisted of fibre past the door. The POD had $120 million to invest and decided to do it that way. We are of the view - it will be reflected in our final report - that no one size fits all and that once the basic infrastructure is put in place by the Government, one will be able take one's radio system from it. There are very good satellite systems working now. One such was recently launched in Cahirciveen. I do not believe we need to convince the Department because I am very pleased with the officials' answers and satisfied that they realise, as well as we do, that if we want to remain a knowledge based economy, we must continue to invest. I am pleased to hear the officials agreeing with that.

Mr. Doyle

If I could just continue on my theme in response to the Deputy's question about the development of a broadband network, I have seen figures for potential investment of €1.5 billion in Irish terms, regardless of what happened in the US. I do not know whether that is accurate. I know the Deputy does not suggest that the industry sees the State as having the capacity to make that type of investment. Given our present position and the demands on existing investments, economic, social or public services, social security or health or whatever, it would be difficult to see the State stepping in as a major player. The telecommunications provider is the private sector, but although we need more competition, in realistic policy terms the State has to encourage the research to put the broadband in place through the regulatory regime with the industry.

Our colleagues in the Department of Communications, Marine and Natural Resources are reflecting on this and that is why I said that policy in this area is in a state of flux. However, it is at such an early stage that it would be inappropriate to comment on it other than that the Deputy's point is taken that investment is required. On the imbalance between the centre and the west, some of the projects that have been selected for the area networks are not in typical city centre locations and include some urban communities. Does Mr. Duffy want to comment on the technical possibilities outside the home to home direct approach?

Mr. Duffy

As someone who comes from an island off the north-west coast——

That was not meant in a disparaging way.

Mr. Duffy

I understand what the Deputy says. I will include the question put to me by the Chairman which I did not get a chance to answer. Greater demand as a result of Government using computing more for administration, health, education and so on means that a greater amount of telecommunications services will be required. It is to be hoped that this will not exceed greatly what we spend on telecommunications now. It is equally obvious that one size does not fit all. For example, there is no question of DSL services being available outside certain areas and within certain distances.

I accept that.

Mr. Duffy

As a parallel exercise, the Government is at the late stages of evaluating a satellite based system to see if we can use schools, health centres, etc. to generate sufficient traffic to make them the base tenancy on a satellite arrangement. We have not come to conclusions in this area because we are waiting for a consultancy to finish in the Department of Education and Science and do not want to pollute the space until we see it. We have a rough design and know what it would cost. We intend putting it into the funding arena in the information society area if it proves viable after the consultancy exercise is completed.

That is like the south-west regional authority and the roll-out of its separate system, which appears to be proving extremely popular and very competitive.

Mr. Duffy

Yes. From the studies we have done it is fairly clear that the greater the demand, the better the satellite service for rural or small urban areas. It is obviously viable and an example of where the inevitable roll-out of State use of technology can be used as an anchor tenant to push that sort of development.

Given that Ireland lags behind in terms of broadband penetration and that this is documented in a number of reports, as the witnesses will be aware, does the Department of Finance consider this to be a problem? If so how serious is the problem and how does the Department think it should be tackled? I refer to a number of reports which show that Korea, Canada, Finland and Singapore, Australia and the US would be the first five in the world in terms of broadband penetration and we are down to 27th in one report and 17th and 21st in others. How does the Department view that and how does it intend to tackle it?

Mr. Duffy

Could I take it from a Government services perspective because I do not feel competent to talk about it in a wider economic perspective?

I might as well tell Mr. Duffy that we are concerned about how the Department of Finance views the fact that Ireland incorporated is at 27th in the league table. How does that look to international investors who want to invest in this country? Mr. Flinter from Enterprise Ireland told us last week that there is serious concern in Enterprise Ireland about these reports and the fact that several companies feel that they are unable to access the network, even though they should be able to.

Does the Department accept now that Ireland incorporated needs to send out a strong signal to the international community that it is serious about upgrading Ireland's communications infrastructure and will do it quickly? That is what is required. No one expects the Department of Finance to do the impossible and upgrade the infrastructure over an eight or ten month period, but a signal of intent is required at this stage followed by a planned quick roll-out, which, to be fair, has already begun.

Mr. Doyle

Maybe I will comment on the general question and then Mr. Duffy can finish his point about the customer service. On the overall position, the Department of Finance fully accepts that a high quality infrastructure system in telecommunications is vital to drive the economy. In an internationally traded environment many of our employment activities will be under pressure because of excessive costs here and more competition on the international markets. We must tool up our skills generally, whether in education, road transport or telecommunications infrastructure. We buy into that fully.

The policy to address that can be approached in several different ways. There can be an Exchequer-funded approach to putting services in place, and I have explained how that is going to be quite difficult unless there are major trade-offs made in other priority areas which I would see as extremely difficult for policy makers to contemplate. The policy formulators in the Department of Communications, Marine and Natural Resources are exploring the question of whether it is possible to put in place an arrangement between the regulator and the private sector that allows the private sector to roll out these new services on a commercial basis. I have no doubt that the sub-committee will explore that area further.

I hope no one is under any illusion that there is a doubt in our minds about this being a critical driver for the future. Policy development in the area is in a state of flux, and we have to await developments in this regard. I am sure the views of the sub-committee will be relevant and will be taken on board by the Government. Did Mr. Duffy wish to finish his point?

Mr. Duffy

On Government services, the fact that we have been able to get broadband for larger locations mirrors views expressed to the sub-committee by ComReg. The truth is that there is broadband to larger offices throughout the country. In other words, if there is enough demand, broadband will follow. The area where we have issues is with regard to branch offices, health centres, schools, etc. We are willing to help move things on with DSL, satellite, etc. using Government traffic in that area. We would benefit from it as much as the other potential users at those locations.

The Department of Communications, Marine and Natural Resources has committed to investing €65 million in broadband in 2002 and 2003. Is the Department of Finance happy with the way in which the investment has been planned, designed and executed?

Mr. Doyle

The relationship between ourselves and the Department spending the money is not one of hands-on control. The budget allocation is there and Mr. Tuohy's Department's role is to manage and put that in place. The investment is in train according to our discussions with that Department and we are happy about the approach so far. When we get our management services entity in place, we will be happier. Whether we will be happy in terms of the assessment of the outcome of the project remains to be seen.

Does the Department view the fibre-optic infrastructure in the same way as a road network? Does the Department foresee investment in that network in the same way as there is investment in roads for upgrading? Is that type of investment envisaged as ongoing to keep the infrastructure at the cutting edge of technology? That could be funded in several ways by contributions by those who use the network with a fund being generated to improve it when needs be.

Mr. Doyle

I see many areas for priority activity, whether it is by the Government or the private sector. A top quality telecommunications infrastructure is one of those priorities.

That would mean continuous investment. We do not want equipment that is out of date in five years time and is not replaced which means we would find ourselves lagging behind again.

Mr. Doyle

I believe the industry would be in a terminal condition if it were to let that happen.

The other question concerned a fiscal measure to assist people in using the Internet and gaining PC penetration. We have been using the term "scrappage scheme", similar to the scheme where £1,000 was given to car owners to upgrade their models. We have discussed a fiscal measure to achieve PC penetration. We have 36% to 38% Internet penetration at present. Something 60% of people have PCs in the home. There was a startling revelation by ComReg about people's lack of awareness and interest in the area of Internet connectivity where 60% did not care enough to understand it.

We are developing a model which will be completed by the time the sub-committee finishes its deliberations next week. The report of our findings will be published at the end of September. We propose that service providers, computer manufacturers, software developers and the telecoms industry with an incentive from Government would create a package whereby a person could rent a system and obtain training. This would allow for PC penetration in as many homes as possible. It would be similar to what happened in South Korea. Would the Department have any views on a fiscal contribution to a package? We want the industry to provide a package for householders at a certain cost, for example, €1,000, with connectivity to designated Internet service providers. Does the Department see any merit in this type of proposal? Perhaps there could be some form of fiscal incentive such as tax relief?

We have a problem in Ireland in that producers of IT products are at a competitive disadvantage with some other European countries. The level of VAT paid on a product purchased in Ireland is higher than that paid on one purchased elsewhere. Does the Department plan to address this issue? I know it is not easy to address without reducing VAT levels on IT products we export.

We are reliant on this industry and have a responsibility to ensure we are competitive with the UK and other EU countries. A number of people have contacted me on this. They have asked if we can consider changing the tax regime to create a level playing pitch for them against UK companies when they sell software in the same market. That is something on which the Department could directly advise the Minister for Finance.

Mr. Doyle

I have to confess that I have not been briefed on the tax side. I am aware that there is a specific issue on Internet sales in terms of imposing the Irish VAT rate on exports. I am sure that is being looked at. I do not know whether it is possible to address it given that there is now a requirement to impose the tax. I can ask our colleagues to give the Chairman a note specifically on the VAT issue.

With regard to the question of whether I see the case for a fiscally based incentive mechanism to encourage greater purchase of computers, I will have to go back to the overall context. I see many cases where there are actions it would be nice to take, but there are hundreds of these ideas with the Minister for Finance and other Ministers.

With regard to fiscal incentives or tax concessions, there would be some cost in that people who are enthusiastic about computers or about upgrading their existing machine would be keen enough to avail of it. Prices have already come down dramatically so there is an incentive to buy. Tax incentives generally benefit people who have resources to be taxed rather than people who do not. On the other hand, a general grant based scheme comes into that competing resources category I spoke about earlier, so one has to ask where it sits in the queue. We will not start into sensitive health issues, but there are many queues and would a grant based scheme be a priority for the scarce public resources?

In terms of the lack of awareness in the community about the possibilities of the Internet, the industry could certainly tackle that by way of a promotional campaign in the same way as people are encouraged to buy consumer products left, right and centre. The campaign could push the benefits of having access to on-line services and using it for information gathering.

Much of that comes down to the training of people. That is why we are so concerned about schools and their access. We hope the CAIT programme, which seems to have fallen by the wayside, will be reintroduced because it was worthwhile, a fact which emerged in the presentations. This is our fourth day of presentations, and we will be finished next week. It has become clear to us that the CAIT programme, the community aided information technology programme, was worthwhile and productive. It will be one of our recommendations that the Government should consider it again.

I thank Mr. Doyle and Mr. Duffy for their patience, attending the sub-committee meeting and sharing their views with us. We are delighted to hear that they are on the same wavelength as us regarding the importance of IT and the roll-out of broadband. I thank them most sincerely.

I apologise to Mr. Butler and Mr. Duggan for keeping them so late. It was important to discuss certain matters with the Department of Finance. I thank Mr. Butler and Mr. Duggan for attending the meeting and for the presentation they will make. I draw their attention to the fact that while members of the sub-committee have absolute privilege, this same privilege does not apply to witnesses appearing before the sub-committee. It is generally accepted that witnesses would have qualified privilege, but the sub-committee cannot guarantee any level of privilege to those appearing before it. We ask Mr. Butler and Mr. Duggan to make a presentation for seven or eight or a maximum of ten minutes. Whatever questions we have, we will then ask.

Mr. Colm Butler

I am delighted to respond to the invitation to talk to the sub-committee. My colleague, Mr. Tim Duggan, is from the Department of Finance. In certain aspects of the work we are doing on information society policy we work closely with our colleagues in the Department of Finance because they very much occupy the technical space, whereas we tend to occupy more the philosophical space.

It might be useful if I gave the background as to what the information society policy unit does. In essence it promotes the concept of the information society, which would be confusing to a lot of people as there is no simple definition. I try to define it as the society where everyone is able to use technology to achieve fulfilment in whatever they do, whether at work, at school or at home. Our policies as spelled out are designed to make that possible. They revolve around making it possible for people to use technology and having the ability to use it. That gets us into such areas as awareness, infrastructure access, affordability and usability. The second area would be giving people a reason to use technology. That has to do with relevant content.

The role of the ISPU, the information society policy unit, could be summed up in the objective of e-enabling Ireland. Our agenda covers infrastructure, the legal and regulatory environment, education and learning, e-Government, e-business, research and development and e-inclusion. We are involved in policy synthesis. Part of our difficulty is that we tend to have to know a little bit about a lot of things, although there are a few things we know a lot about, because we are constantly flitting from item to item on the agenda.

The bulk of our work is in the area of co-ordinating what other people do. I recall that the Minister of State with responsibility for the information society, Deputy Hanafin, was speaking to the committee recently and she noted that she seems to get the blame for everything and the credit for nothing. That is the area in which we work in the Taoiseach's Department, and when it comes to making announcements about such things as broadband, it is not the Taoiseach's Department that makes these announcements.

Our agenda began in 1999, when the Government published an action plan for the information society. That revolved around the need to build infrastructure, create awareness and put in some enabling measures. It spoke about e-public services, or electronic delivery of public services. The concept of e-Government did not exist four years ago. In the wake of that, the information society unit was created, and we focused on developing the concept of e-Government. In March or April last year, the New Connections plan updated that. This covered infrastructure, regulatory environment, e-Government, research and development, lifelong learning, e-business and e-inclusion.

On the issue of infrastructure, we recognised that, without it, there would be no way that the concept of an information or knowledge society could emerge. Our primary concern in that area is that there should be a policy to address infrastructure. In that connection we have worked closely with our colleagues in the Department of Communications, Marine and Natural Resources and the Department of Finance to see what can be carved out in the current climate to stimulate the development of infrastructure. The previous speakers from the Department of Finance addressed that.

In the area of regulatory environment, New Connections sets up what has to be done, and that has been updated recently by the Information Society Commission, the advisory body to the Government on the future direction of policy on the information society.

In the e-Government area, we have done extensive work on the development of on-line public services, but we are also turning our attention to the wider question, namely, the issue of e-Government in the transformation of bureaucracies based on the availability of the sophisticated technologies.

Reference was made earlier to education. The Department of Education and Science has been looking at infrastructure for schools, and our unit has engaged with it on the wider issue of the use of technology in the education process as opposed to simply using it as a curriculum item in schools. Over the next few months, officials from the Department of Education and Science will be preparing a report for the Cabinet committee on the information society in relation to education and the use of ICTs in the education process.

We are also looking at the area of e-inclusion. The Information Society Commission has compiled a report which is about to be published and which is an analysis of public policy on e-inclusion. We have also conducted our own research within the Department to try to find out what State interventions are going on across the country. The purpose is to realign our thinking with regard to what has to be done to address properly the issue of giving people the ability to use technology, and what we might do in terms of creating the reason, because the reason is very important.

I mentioned earlier that there is a Cabinet committee looking at the structures. There is also a group of Secretaries General of Departments which looks at wider information society issues, more specifically the area of e-Government which looms larger as a major issue as we go forward.

The Information Society Commission is an independent body with its own working groups, and it reports to the Taoiseach. It is defining a new work programme over the next year to 18 months on the future for schools with regard to the information society and the future of working areas. There are various officials' groups which we chair from time to time, depending on the issues that start to emerge.

We also participate on the board of the Reach organisation and the Oasis project. In terms of e-government, the emphasis thus far has been on on-line service delivery and the focus initially was on the dissemination of information on life events using the Oasis website for citizens and on business life events using the BASIS website for businesses. They are up and running and in operation. There is also an e-tender site for public procurement. It is currently in a reasonably basic form and our desire is to move it forward to enable more on-line interaction with the procurement process, as we consider this is one of the areas in respect of which it would be encouraging for the SME sector to get on-line.

In the area of e-government there is the goal of integration. The current system of Government has evolved around a series of silos, which are individual departments or units examining a particular area of public policy. As a result of advances such as the Internet and the expectation that people get a more rounded service, the trend is for issues to be dealt with on a more horizontal basis, using more the concept of a value chain rather than individual silos.

A vote has been called.

The ship will not go down tonight, will it?

We will continue so, Mr. Butler.

Mr. Butler

The tendency not only here, but in many countries, is to examine the possibilities of joining up Departments and agencies to deliver services in a different way. Part of what we are doing regarding the development of e-government is examining how we can streamline back office processes. We can amalgamate common processes and reduce the cost of governance, which is a major issue currently in terms of national competitiveness. Going forward with that, we are working closely with the Secretaries General to try to develop a vision over the next six to eight months on what that might be, but it raises certain issues. There are constitutional impediments to working across boundaries and the way Government is structured and interacts with the Oireachtas is based on the silos rather than across Departments. There are issues such as that to be addressed in the longer term.

I would like to return to a point I heard earlier on the issue of PC penetration. When examining research data, one of the issues that comes to light is that quite a number of people do not believe they have a reason to use the technology. There is a fear that one could be in a situation of encouraging people to buy technology where there is no good reason to use it. There is an onus on all sectors of the economy to examine that aspect because, for example, people working in the community and voluntary sector could very well give their client base a reason to use technology by putting their services on-line. Government tries to give a reason to use its services on-line, but the reality is that a great number of people do not interact with Government most days of the week. One might occasionally go on-line to renew one's driver's licence or passport or pay for one's motor tax. One can purchase flights and shop on-line. Therefore, the demand for such technology cannot be met from only the public sector.

I mentioned that in Sustaining Progress, the recent partnership agreement, the social partners have taken on board a special initiative on e-inclusion. We have had an initial interaction with them. I made the point that e-inclusion is not any one person's problem. If one reflects on giving people a reason to use it, on the basis of the fact that there are 4 million people or thereabouts living in Ireland, there are at least 4 million reasons to use the Internet. It involves many people becoming aware and engaging with the opportunity that these technologies present in terms of building mutually beneficial relationships, whether it is in business, school or at home.

The ISPU is involved in a large number of areas. There are the seven policy strands of the New Connections policy document, and we are also monitoring the alignment of our policies with e-Europe 2005, which is the European agenda. We are also participating in the preparatory process for the world summit on the information society, which will have its initial summit meeting in December of this year. Other issues arise from time to time in respect of which we must drop everything and deal as the moment dictates.

The fundamental requirement for the construction of an information society, a knowledge society or a knowledge economy, is the existence of a robust telecommunications infrastructure. The goals set out in New Connections indicate that we would have a high quality, affordable, always-on facility available by 2005. That would be the culmination of many targets in that area. When one considers the job of promoting the information society it is clear that it is not a job that will go on forever. What we should really be doing is examining how we can get everybody who has to be engaged with this process engaged so that we can at some stage look to an end game where we can say that Ireland is as far as possible e-enabled. Our current aim is to try to achieve that by 2005.

I thank the officials for staying so late to take us though this territory. The committee is running a little behind in its business. Our officials have tried to advance the agenda. The Chairman referred to the analogy of that famous film about providing a field and the teams would come. In that context, has the Government not failed lamentably in getting e-government up and running? This would seem to be the case when one compares the position to that of the United Kingdom where the Prime Minister has said he has an e-envoy and he sets out a range of targets across Government and these must be delivered within specific timeframes. Can a similar analogy be drawn here in respect of e-government? The officials would probably say one could, but considering this area from our perspective and that of an ordinary citizen, I am not sure that one can. I question the Minister of State, Deputy Hanafin on this area - I do not want to stray into the political side - but she is the e-envoy. She is supervising a votáil that we have had to miss. It seems that this part of her remit is not taken seriously by Government. For example, on a few occasions I got the opportunity to question her on this area. We basically raise questions on the infrastructural side regarding e-tendering. I was surprised, certainly at that time a few months ago, that we had no e-tendering, yet across Departments, the Govenrment spends massive amounts of money purchasing all kinds of services.

Mr. Butler mentioned the Oasis and BASIS websites, but we seem to be only barely beginning to interact in this territory. A number of us would be familiar in terms of the general economy with IT sectors in industrial estates - in Dublin and Cork in the case of the Chairman and me - where companies tender on the Internet and use on-line options and so on. This process is immediate, competitive and it produces results for particular companies.

The transport committee is like this committee, in that the two committees seem to be the most important as they are dealing with critical infrastructure for this State into the future. That committee is meeting in another committee room. The meeting has been taking place all day and will reconvene again tomorrow, just like this committee. That committee is examining major deficits in the territory with which it deals and a major problem with which it is dealing is cost overruns. It seems that people sign up to contracts and then the projects end up being three times the initial cost estimated, as in the case of the new bridge across the Liffey or end up being twice the initial cost estimated as in the case of the port tunnel or the Luas.

The debate is going on between the Minister for Transport and his colleagues. Surely from every point of view, cost-effectiveness and so on, if we are serious about creating a demand we are taking this far too lethargically. Perhaps we should have a full Cabinet Minister who is the e-envoy. Is it true that the 2005 target will not be met? I have had a question down for the Taoiseach on this for the last few weeks but it is demonstrably true that the 2005 target will not be met in the next 16-18 months.

It is the failure of the witnesses and of their political masters which has created the situation in which we are not getting enough interest on the Government side. We have had successes in key Departments being on the Web, such as Revenue, and we as spokespersons access sites as part of our work, but we are not taking e-tendering seriously enough.

I did not have a chance to talk about infrastructure but my colleagues will ask the Department of Finance hard questions on that. When budgets are discussed coming up to December will broadband infrastructure, which can be seen as a soft target, be cut rather than other areas of Government?

We had a discussion of e-inclusion and I used the example of the leafy suburb of Clontarf, which is one of the most pleasant suburbs in the city and country, though it is not in my constituency. It had a particular problem with a road closure and I was inundated with e-mails, some of which blamed the Minister of State, Deputy Callely.

Did the Deputy correct that?

Yes, I said he was almost certainly responsible. In other suburbs in different parts of the north and west sides of Dublin the response would not be as immediate when it comes to getting Members to solve problems. There seems to be e-exclusion already regarding a big chunk of my constituency. People do not have computers in the most disadvantaged areas. Those in disadvantaged areas interact almost every day of the week with the Departments of Health and Children and Social and Family Affairs, as well as various other Departments and the local authority. I am fearful that if we continue at this pace and if the Department of Finance does not come up with innovative strategies which regard this as a fundamental utility, as the Chair said, we will end up with a divided society divided in another way: those who are on-line and those who are not and hopelessly out of the loop.

This will not end in 2005. There will be an ongoing responsibility because information is power and if the Department does not ensure most powerless people in our society do not get information as speedily as possible, then I do not see how this will happen. This is shaping up as a problem in remote rural areas also and I have real fears about the exclusion of large sections of the population, which the report will reflect.

The bottom line is whether we are taking this seriously enough. I read New Connections and put questions down for the Minister of State, Deputy Hanafin, but surely this is something on which the Taoiseach should comment. He should be saying we will go for this and get every household and school on-line. That is the remit of this committee. I appreciate the officials are hard working and hard pressed but this is the way we should be going.

Mr. Butler

It might be unwise for me to be drawn into the political aspect of Deputy Broughan's comments. I was talking to the e-envoy recently, Andrew Pender, and he feels that putting services on-line is a ludicrous target. When we said "all services on-line" we meant all services capable of being put on-line. Looking at this now, there are other considerations. It would be ludicrous to spend millions putting something on-line for a small group of people. We are assessing the services that can be put on-line realistically in conjunction with other Departments and the services that can make a difference to people.

Regarding folding the tent by 2005, I agree with the Deputy that the agenda may not be over by then but we will be reassessing where we are going. There is a drift of emphasis away from talking about the information society - and there are difficulties for some people with coming to terms with that concept - towards talking about the development of a knowledge economy. That is becoming more apparent by the day, as we need to change the value of jobs in Ireland.

Regarding the Minister of State and the Taoiseach, the Taoiseach chairs the Cabinet committee on the information society so he is fully apprised of the issues. The Minister of State is the committee convenor so both are also very engaged in the process.

Everyone is anxious to get the e-procurement process up and running and it was mentioned in the partnership programme as requiring co-operation in order to pursue it in Sustaining Progress. My understanding is that the EU is currently revising procurement directives so we may have draft directives later in the year, though my colleague might be better able to answer this.

Mr. Duggan

It is important to clarify the distinction between e-tenders and e-procurement. We have been using e-tenders for some considerable time, and nearly all public service tender opportunities have been advertised on the Web on an e-tender site. That is essentially just publishing tender opportunities and allowing companies to download them.

E-procurement is an entirely different matter, where companies have the facility not only to make electronic submissions in response to tender requests, but the whole procure to pay process can also be put on-line. If one thinks about the current state of procurement law, where most procurements end in a winner takes all situation, putting that on-line does not add much value to anyone. It adds considerable additional cost to everyone to put the technology in place and also significant layers of complexity to the whole process. We are conscious that the SME sector has for some time been complaining about the significant degree of complexity in dealing with tenders for public service bodies.

What is happening with procurement directives is that a new directive is expected later this year from the EU which will allow us to develop framework procurements. My colleagues from the Department spoke about this earlier in the context of broadband acquisition and that we would be able to go out into the open market tendering exercises and then qualify numbers of providers for services or products at the same time. As qualified suppliers they would be able to maintain catalogues of services or products they are supplying. Rather than public service bodies having to continuously engage in public service tendering opportunities, which take considerable time and are complex because of the legal issues, etc., they would be able to run mini-competitions off the catalogues. In that context, there is considerable scope for significant savings in public service procurement exercises. Ane-procurement environment underpinning all that would be vital.

Mr. Butler

To return to the area of e-inclusion which the Deputy mentioned, I agree that if there is any danger of people being excluded by this wall of technology, this effort will have failed. In the review of the e-inclusion strategy taking place, we would be keen to examine how effective it has been. When examining what is happening around the country, we found that there is a danger that one can ride in over the hill like the cavalry and push people who are doing valuable work aside. What is emerging from the information society report, of which we have had sight, from our investigation and from reports from the county development boards, is that the area of co-ordination probably has to be examined. From our point of view, we would make sure that there is a mechanism to target the people who must be catered for. The trick is to find the optimum way to do that. The community and voluntary sector would have a major impact in that context. However, we recognise that not everybody is associated with or connected to a community or a voluntary group. Over the next few months we propose to carefully examine this area and note what money has been spent. The CAIT initiative was mentioned earlier. We will examine existing structures and mechanisms without creating more layers of bureaucracy to ascertain whether we can be more effective in the way we are addressing this issue.

One of the most ubiquitous pieces of technology is the mobile telephone and the functionality of mobile phones is increasing. I recently had a meeting with a number of mobile operators to ascertain what they could do in the area of mobile telephony services. What is happening in the area is exciting. One could have services, information services in particular, tailored for delivery over mobile phones. There is in the region of 80% penetration of mobile phones in this area. As we move towards more sophisticated generations of mobile telephony, I see that as an answer in this area. It is not all about having PCs on the hall table. If one facilitates people getting PCs, there is a danger that they would be like unused wedding presents lying around the house. It comes down to people having a reason to use them. A great feature about mobile telephones or mobile devices, which are becoming more and more sophisticated, is that they are mobiles and one does not have to carry a big piece of technology around with one. In terms of the future, this e-inclusion space will have a bigger and more defined role for emerging technology in the mobile telephony market.

Have any attempts been made to research the point to which Mr. Butler responded, the take-up of on-line services in different geographical locations and among different social classes? Has any detailed research been carried out in that area?

Mr. Butler

As regards the take-up of on-line services, especially citizen services, the people in Oasis, which is run by the Comhairle organisation, continue to research who requests information. Perhaps some of the people who really require that information cannot get it. It recently opened a contact centre with a view to making it a national contact centre. The pilot project started in Cork. When we started talking about the delivery of public services using technology, our objective was that such services would have to incorporate technology to allow people to come face to face or have telephone contact with officials. That contact centre is based on experience Comhairle has had in its citizens' advice centres and that will be built on over the coming years. The short answer to the question is that Oasis has such information, but I do not have it to hand.

The Irish Parliament is the most IT prepared parliament in Europe. Is the Irish Government the most IT prepared Government in Europe?

Mr. Butler

That is an interesting question. We have a reputation among our colleagues in Europe of being advanced in our application of technology. An issue which a colleague has mentioned a few times is that there is a minimum cost of sovereignty. I suspect that every Monday morning a fleet of trucks leave Brussels with the same volume of paper in each one and it is disseminated to all the capitals in Europe. The reality is that the number of people working in Irish public administration would not equate to the number working in, say, German public administration, yet the issues have to be given the same attention, but our approach and resources allocated to dealing with them are different from that of Germany.

One of the interesting findings from research in the UK - a conversation I had with the head of the Inland Revenue service in the UK bore this out - is that primarily what people want from on-line government is information. There is very little demand currently for interactive services. As one of the Deputies mentioned, information is the cornerstone of democracy. A concept that has not been developed anywhere to my knowledge is the concept of e-democracy. One could argue that by connecting citizens and Government officials on-line, one is creating what is called a consumer democracy, which in some way would shift the land a little and perhaps ultimately change the role of representative politicians.

On that point, a distinguished senior member of the Labour Party in Britain, Tony Benn, when Minister, used to look forward to a time when everybody would be on-line and the people, effectively, would become the second House. We are having a similar debate on the Seanad and the role it should have and that debate involves members of this committee. Some people believe it should not have much of a role, given its history. It is interesting that this technology would open up routes to direct democracy.

In the state of California a major campaign is taking place - I wish we could have a similar one here - to recall Governor Davis. He has been in power for a year and many electors believe he has not done the business and has misled them. Many striking analogies can be made between that situation and what has happened here. A major campaign is in train in Los Angeles and elsewhere to bring that governor back and to have another general election. I know the Chair would welcome one taking place here, as it would give us a chance to debate these critical issues and mistakes that the Government has made during the past year. Mr. Benn was often credited with having zany and slightly bizarre ideas, but such technology opens up possibilities. For example, Deputies will be asked to approve budget 2004, but perhaps in 2014 could the people be asked to approve it? Ultimately, such technology opens up significant vistas around the structures of democracy.

Mr. Butler

There is much validity in what the Deputy said, but as this technology unfolds one of the issues one would have to face is the fact that not everybody is on-line or would choose to be.

That is my precise point. We believe everybody should be. A recent report referred to the number of people who do not have a land line. There were quite a number of land lines when the Department had responsibility for this area and at the time of the changeover to Eircom those who did not have land lines opted for mobile phones. Somebody wrote an interesting article recently on this area which referred to the number of households who do not have a fixed line, a trend which may be increasing. We all know people who only use a mobile telephone as opposed to a land line. In this context, surely Mr. Butler is talking about a new utility which should embrace everybody. Hopefully, there are no households which do not have access to electricity or water.

Mr. Butler

I agree with the Deputy. Part of what we are doing is examining alternative methods of giving people access such as through libraries and perhaps through the schools, although there are problems in that regard. However, perhaps that could be addressed through some lateral thinking.

What we are talking about in terms of e-democracy is some kind of different model. On the basis that democracy is based on information, one could perhaps be talking about learning networks in communities of common interest, but there is always the danger of people with a particular axe to grind taking over by purporting to be members of the public. The more I examine it, the more I cannot see representative democracy disappearing because there are certain very complex issues that probably should not be put in the hands of people who do not have the time to think about it.

May I ask Mr. Duggan for his views on the newspaper article - I think it was inThe Sunday Business Post - which reported one-invoicing? The issue was raised at this committee last week. The report was commissioned by the Information Society Commission and it indicated that there is a potential to save millions of euro for the Exchequer if we move to e-invoicing.

Is there an audit system in place to audit all Departments in terms of their e-government procedures and their development of e-government? We visited the centre for digital government in Sacramento. It is responsible for carrying out audits for different states, local authorities and Government Departments in the United States. They had a league table of states which showed that the governor of the state in first place was IT literate. It also showed who was at the bottom of the list.

Do you consider it important to restore the CAIT programme, given that according to the ComReg survey, 60% of those questioned are not aware of the importance of IT and of the Internet? Ms Catherine Walsh, who attended this committee as a representative of senior citizens, as well as those representing disability groups, all acknowledged the importance of IT and the Internet in their lives. There should be more training in place so that more people could use computers and the Internet.

I ask Mr. Butler to comment on Ireland's rating in terms of our position in the world IT market. You are the first civil servant I have met who wants to be put out of a job in that you are hoping that your function will finish within the next number of years if you do it well.

Mr. Butler

I will deal with the report mentioned inThe Sunday Business Post. It was commissioned by the Information Society Commission. It said there was a strong economic rationale for electronic transfers, such as e-invoicing and e-payments, and that there were potential savings to the economy of approximately €420 million. The amount varied from €250 million to €420 million, but it was significant. It would strengthen the quality and sophistication of the microeconomic business environment which would help small businesses in particular.

The report also said that there were opportunities for improved cost efficiency, for enhanced quality of service, for extension to the wider business to business payments, for a standardised payment infrastructure and a resolution of the unbanked issue because there are apparently a number of people in Ireland who do not have a bank account. In summary, it said that the Government has an opportunity to address this area by making all its payments electronically and that there was another opportunity in the economy as a whole if the banks could agree to share their infrastructure. At the moment, I understand they are competing on their infrastructures, whereas if they can be persuaded to have a common infrastructure and compete on services, it would have a better impact on the economy.

Work has begun on addressing the first issue. The Secretaries General of Departments met at the Department of the Taoiseach last week. Arising from that meeting we are starting to put together the key players across Government to see what has to be done to move to electronic payments. There are many issues to be addressed in that area, not least the industrial relations issue. We are hoping to come up with a target date for the changeover of Government payments to electronic format. On the banking side, we are examining how we might engage with the banking sector to see if they are willing to engage and, if so, how the issue might be progressed.

The e-payments report was commissioned by the Information Society Commission and was done by Accenture. We had a hand in its original work area because we felt that there was a lot of talk about an e-payments strategy, but nobody seemed to know quite what was needed. The report has been useful in clarifying that question.

The question on auditing e-government activity is interesting. It arises in the context of our deliberations regarding the 2005 services. There is a world-wide lack of information on how one measures the success of e-government. We have been doing some research recently on the subject with a view to clarifying the 2005 services. There appear to be approximately five areas that one would look at, one such being reducing the costs of Government. That is an easy area to measure because one can find out what it cost to deliver a particular service before it was e-enabled and then measure the cost following e-enablement. There are other areas which are a little nebulous and a little difficult to grasp.

There is a value for money audit regime in place which is under the remit of the Comptroller and Auditor General. The IT control unit of the Department of Finance keeps an eye on what is being spent. There is no formal order of procedure.

We can supply you with information we received in the United States from the centre for digital government as to its method of auditing. It might be helpful.

Mr. Butler

It would be extremely helpful because we are casting our net around to find the best way of doing it.

It is a "for-profit" organisation but it carries out audits for the different states. What is your view of the CAIT programme?

Mr. Butler

The CAIT programmes one and two were extremely successful. It has been temporarily suspended but I do not know what is the ultimate aim in doing that. In the context of our work on e-inclusion, we will be examining the impact of CAIT. We are not too worried about the name but we want to see a regime in place that gives people an opportunity to learn and train in the use of technology. This has been very successful in some counties but we want to see everybody adopting the same good practice. Whether such a programme is called CAIT or something else does not matter.

When I say that I want to do myself out of a job, I mean that the problem we are trying to solve is getting people to realise that there is a great advantage in using technology for fulfilment. Both Government and business can be transformed. Technology can bring tremendous benefits to people in any situation. We want to introduce the concept of sophisticated technology into the DNA of society and through all sectors. If we can do that we will have achieved our objective. I fully realise that we may well not do it by 2005 and when we assess it, it might be different.

Will you be fully funded to do the job?

Mr. Butler

We have been adequately funded, but our main objective is to get people to take ownership of their responsibilities. One of the things we have found is that by setting up a separate information society policy unit, there is a tendency for people to shift the blame on to the unit and not take ownership of the problem. It is incumbent on everybody, especially in the public service and the wider public sector, to engage with technology as a mechanism for improving the way they do their job, dealing better with those with whom they are engaged and enabling citizens to better their lot and achieve a greater level of fulfilment.

I thank you for your presentation. Deputy Broughan asked a question about Departments. Is there now a need to have all the areas of e-government co-ordinated by one Department?

Mr. Butler

Yes. It is a good question. In recent months this issue has been raised because of the structure that is in place. The Secretaries General group has been looking at it in the context of on-line delivery of service and it has been agreed to establish a core e-government policy group between ourselves and my colleagues in the Department of Finance. Over the next six to eight months we will look at what is required in the longer term to promote and support the development of a more federal - I will not use the word "corporate" because of the problems associated with it - type government where there is much more interaction and ability to move across boundaries to deliver more holistic services. There is an acceptance that something is required at the centre that does not exist at the moment.

State governments in the United States have a cabinet minister who is totally responsible for e-government in the state.

Does Mr. Butler have his own ranking of Departments in how they have responded to this challenge? The Chairman mentioned other countries. The English carry out a comprehensive performance assessment of all English local government areas, part of which covers IT. This allows people to know which is best and worst. The same applies to hospitals and other institutions, which so far we do not have here. Does Mr. Butler tell Departments they need to do better or that they are doing well? Does he think in such terms?

Mr. Butler

Without being drawn into any controversy over that, there are some Departments and agencies that are doing very well, as are some local authorities. In this 2005 services process we are attempting not so much to look at organisations as at public services and to concentrate on public services that give value to citizens in terms of cost and quality. We do not get hung up on individual agencies. We interact with many agencies, both at central government and local government level, and with the health boards. We depend on them for their co-operation in what we are doing and in our thought process in moving it forward.

Generally speaking, there is a huge amount of enthusiasm for moving forward, but it must be recognised that some agencies do not deliver that many public services. For example, the Department of the Taoiseach does not do so; it is very much an internal organisation.

I thank Mr. Butler and Mr. Duggan for sharing that information with us today and for advising the committee on the area of work in which they are involved. I thank all the other people who made presentations. It has been a long day and I know that the members have had different things to do during it.

The joint committee adjourned at 7.05 p.m. until 10.00 a.m. on Tuesday, 8 July 2003.