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.