JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES díospóireacht -
Wednesday, 14 Jun 2006

Reports on Broadband: Presentation.

Chairman

Today we are reviewing the joint committee's two reports on broadband with Eircom, Smart Telecom, BT Ireland, eNET, ComReg, the Minister for Communications, Marine and Natural Resources, Deputy Dempsey, and departmental officials. I again welcome Mr. Conal Henry, CEO of eNET and Mr. Eoin O'Driscoll. Before I ask Mr. Henry to begin I advise everyone that we will receive a short presentation, which will be followed by a question and answer session.

I draw to everyone's attention the fact that members of this committee have absolute privilege, but this does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. We are very grateful to Mr. Henry and all those appearing before the committee today for their responses and for answering the questions the committee sent them. The answers will be very helpful, if we do not reach every question in the course of our business, when we compile a short report after today's hearing. Perhaps Mr. Henry will tell us something about eNET, the work it is doing and the progress it is making in the rolling out of that infrastructure which is State-owned.

Mr. Conal Henry

I thank the Chairman and the committee for the kind invitation to come here to discuss the issues associated with broadband. eNET has essentially been in business for nearly two years. Our role is to manage, market and maintain the first phase of the Government's MAN project — essentially the first 27 MANs, the list of which is in the first answer I supplied to the committee. There is a straw in the wind to the effect that perhaps the MANs are not going very well. I refute that here and now and very vociferously. The founding vision behind the MANs was to try to achieve several objectives. They were put in place to remove the barrier to foreign direct investment, FDI, in regional Ireland. They were to reduce the cost of telecommunications in regional Ireland and they were to increase competition for telecom provision in regional Ireland. We are making significant progress off the back of the MANs in doing that. If we look at FDI, we see that a number of pieces of foreign direct investment have come to areas such as Letterkenny, Dundalk, Cork and Wexford because of high quality, high competition telecommunications infrastructure. Jobs are being created by these things.

The second feature is regional competition. The committee will hear later from Smarts. Another significant player in the market these days is Magnet. Both of these organisations are on the record as saying that the MANs are at the heart of their regional endeavours. Mr. Donal Hanrahan from Magnet has been quoted in The Irish Times as saying it would not offer services in the regions without this infrastructure. We are providing a platform for competition in the regions. The third piece is about the cost of telecommunications. The MANs are delivering at the high end, for the large corporate entity, the Government customer, for large pieces of telecommunications infrastructure such as circuit delivery, etc. We know, for instance, that the cost of certain high bandwidth circuits available from the incumbent and ourselves has fallen more in the past 18 months than it had, perhaps, in the previous 18 years. There is movement. We are beginning to see a genuine impact in the market and progress is being made. We do not believe it is perfect or that we have cracked it. However, we are starting to deliver on the founding vision of the MANs.

Chairman

I will ask a number of questions before handing over to Deputy Broughan. What is Mr.Henry's view as regards MANs? Does be believe all of them will be profitable, or does he share my view that only 50% of them, perhaps, will be, for example, Cork, Waterford, Limerick and Galway, the large centres of population? Have any of eNET's service providers reached out to the householders, or are they concentrating on corporate or business customers as opposed to households? I know it is serving IT colleges and some local authorities. Are any of the 35,000 schools that have the broadband facility using the MANs? I have checked with Cork City Council and it seems to be quite happy with the work being done and the number of people using the MANs. eNET came to my rescue a couple of months ago as regards my local business and technology park. I thank it for that as well. It has not got all the business in that park, I believe. Some companies have gone to another provider, but I wanted to put that on record. I shall be obliged if Mr. Henry will answer those few short questions.

Mr. Henry

I shall take the profit issue first. I am sure the Chairman knows that profit is a subjective term, particularly in telecoms. I have made the point repeatedly in the answers supplied that eNET only has responsibility for phase 1 lines. I am not in a position and have no brief to comment beyond that.

Chairman

Perhaps you can comment on phase 1, and profitability. As you respond, you might just talk to the committee about group broadband schemes. I know that eNET has only one connected, yet there are 160 group broadband schemes.

Mr. Henry

As the Chairman says, it will be easier to make profit in the larger towns and the return will be more significant and earlier there. That said, in the long-term, all the towns in which MANs are being built have a requirement for open access telecommunications. Once we can drive the take-up and reduce the cost to consumers, there will be a business case. There may not be a case for the profit and loss account of the telecommunications provider and of the Government loan, but there will be a business case for the local economy.

There are very few of the 3,000 broadband for schools awards deploying the MANs and that would be done mainly through Smart Telecom. That is a timing issue, as the schools were awarded the service before we could roll out the service provision. That award is now 18 months old. Another issue with broadband for schools is that the design of the MANs goes down the high street and into industrial parks, not past the schools. Therefore, there is a coverage problem.

Mr. Eoin O’Driscoll

eNET or the MANs enable regional broadband. We do not sell to the end customers. We have 16 operators such as the leading fixed-line operators including Smart, Magnet, BT, wireless operators such as Irish Broadband and Digiweb, as well as mobile operators such as Vodafone. We are an enabler of regional broadband. It is very important that those operators who provide to the schools and the end customer have a competitive landscape that allows them to use the services of the MANs. Ultimately, we depend upon them to sell to the end customer. We see ourselves as an enabler. The fact that are we being used by 16 service providers is a strong endorsement of the MANs. The take-up will really depend upon the competitive landscape, such as how quickly they can progress with local loop unbundling, how quickly they can get local number portability and so on.

We see ourselves as enablers of the operators, as standing for open access competition and ensuring that all of the operators can be competitive.

Chairman

I am puzzled by the answer Mr. O'Driscoll gave to Question No. 7. He states that eNET believes that Eircom could resolve the backhaul issue entirely at will. That puzzles me because, as I understand it, the Government invested in the roll-out of the MANs as a separate infrastructure and telecommunications system to Eircom. It fascinates me that Mr. O'Driscoll could say that the problems his company is having with backhaul could be resolved by Eircom. Why should Eircom have to resolve the problem if we run a dual system?

Mr. Henry

There is backhaul available in 22 of the 27 MANs from ESB Telecom or from BT Ireland. For the remaining five, we are reasonably certain that backhaul is available on the Eircom network. The vision of the MAN is one of open access telecommunications, one where fibre is provided directly to customers and is usable by a number of service providers and not just by the service provider that happened to provide the first service. This means that the customer is entitled to change service provider at will and is not a hostage to the infrastructure. The backhaul is the element of the network that gets the traffic on the MANs back to Dublin. In the service offering and the technical performance of that service offering, it is irrelevant which network provides it. Provided the commercial arrangements can be made from a technical point of view, there are no barriers.

Mr. O’Driscoll

We do not necessarily see ourselves in competition with Eircom. We see ourselves providing open access infrastructure for all service providers, including Eircom. There is a great advantage as we are totally carrier neutral. We offer the same services and provision to all operators to enable them to enable regional broadband.

Chairman

Eircom's representatives have made the point several times — I am sure they will make it here today — that it is a private company providing its own services. It does not need to use any other network. We are rolling out a dual system. We have invested hundreds of millions of euro in the MANs, yet the witnesses have stated that eNET believes that Eircom could resolve the backhaul issue entirely at will for a number of MANs which are not connected. That is what fascinates me.

Mr. O’Driscoll

Eircom sees itself as being a wholesale provider as well as a retail provider. We would like the wholesale part of Eircom to provide access.

Chairman

Am I correct in saying that it is not Eircom's job to provide backhaul for a system on which the Government and the taxpayers of this State have spent hundreds of millions of euro?

Mr. O’Driscoll

Correct.

Deputy Broughan

We have a white elephant, as many of the answers to the questions still seem to revolve around Eircom. The issues of backhaul and local loop unbundling make it impossible for eNET to carry out a mandate as a competitive network. We have invested a lot of money — much of it wasted by the Government — when we could have proceeded with the improvement of regulation and got Eircom to do the job it should have been doing as the national network. It seems astonishing that we read about a network and the company that provides it claims that the other backhaul network is a significant problem.

Are the witnesses again floating the idea of Project Dingle? We heard about a mysterious plan at one stage from the Minister, Deputy Dempsey, to put all the network and backhaul assets of the State agencies into a single network. Is that still the plan?

We asked parliamentary questions about eNET, before Mr. Henry's time as CEO, but we still have very little information. The witnesses admit they do not know how many customers eNET has and even the facts on profitability seem very vague. Besides waving a stick at Eircom, what exactly has eNET achieved?

Mr. Henry

As I pointed out in my opening remarks, there are jobs because of the MANs. There are significant competitive offerings in the regions because of the MANs. The price of high bandwidth circuits and of the Government's own telecommunications consumption has fallen because of the MANs. The price paid for the recent HSE contract was significantly lower because of the competitive dynamic created by the MANS. Therefore, they are having a market effect.

The MANs project is unique and has not been adopted widely across Europe. There will always be things that need to be adjusted and adapted, but they are not major problems. Eircom and backhaul are a side issue. It is not significant in the overall long-term performance of the MANs. It will be resolved in the short term, either through negotiation with Eircom or through the construction of other reasonably low-cost methods of backhaul. The problem does not prevent performance of the MANs.

It is beyond our brief to comment on Project Dingle. We are of the view that there are a number of State assets that, if combined in an offering, if not through ownership, could create a more competitive offering. That is an observation on the market not the policy of eNET. We are very focused on ensuring the MANs are delivering on their objective.

Mr. O’Driscoll

It is very important to recognise that there are 27 MANs under phase 1. As 22 of the larger ones have full interconnectivity, we can now connect from business parks in those 22 towns to anywhere in the country, with open access architecture and with broadband that is available to all the operators. We can now have competition from all the operators in this country for 22 of those 27 towns. Solutions are required and are available for the other five towns. To put this in context, 22 of the 27 towns have full connectivity, fully independent of the incumbent. Operators — 16 operators are using this — can take their traffic from these 22 towns and route it anywhere in the country or back to Dublin.

Deputy Broughan

What difference does it make for householders and small businesses?

Mr. O’Driscoll

For householders and small businesses, there is an issue with the last mile. We are hopeful that some of that will be dealt with as the operators begin to use the network to deal with last mile issues, and also as wireless provides alternative last mile technologies.

Mr. Henry

Householders and small businesses will also benefit through taking unbundled loops, which are supported by our own infrastructure such as Smart and Magnet.

Chairman

Mr. Henry stated that the MANs are at the high end of the market. Will he explain why only 0.2% of Government business is transacted over the MANs, which is the information he gave?

Mr. Henry

That is based on what we know of our revenue streams.

Chairman

Will Mr. Henry explain why a State-owned asset is not being utilised by the Government?

Mr. Henry

The Chairman is probably asking the wrong person. We are in the business of providing a service offering and a facility for our customers — the telecoms providers — to provide for their customers, which are the likes of the Government. Why the Government has chosen not to take that up to the extent it might possibly have done is a matter for those who procure Government services. We are comfortable that our services are of the quality and competitiveness required for Government business.

Chairman

Does eNET market the MANs? Does it tell a service provider it has a facility available and then ask whether the service provider wants to use it?

Mr. Henry

Yes.

Chairman

Therefore, eNET has a market.

Mr. Henry

Yes.

Chairman

Do those to whom eNET markets the facility go to the Government to look for business?

Mr. Henry

Yes.

Deputy Eamon Ryan

I thank the witnesses for attending. The witnesses suggest that foreign direct investment has been attracted owing to the introduction of the MANs. Will they cite locations where this has occurred? With regard to the 27 MANs that have been developed, in which areas does Eircom not have a fibre system in place? Were MANs introduced where there was no existing fibre network?

Mr. Henry

To answer the second question, I do not know because we do not have sight of the Eircom network.

Deputy Eamon Ryan

Does anyone know where Eircom has fibre?

Mr. Henry

Clearly, Eircom would know that. While I cannot speak on its behalf, I assume Eircom would see it as a matter of competitive sensitivity.

Deputy Eamon Ryan

Therefore, when we are putting fibre into a town, we do not know if fibre is already in place.

Mr. Henry

eNet does not know. I cannot comment on behalf of the Department.

Deputy Eamon Ryan

How much money have we spent on the MANs network to date?

Mr. Henry

The spend to date has been of the order of €120 million.

Chairman

We will deal with phase 1 only.

Mr. Henry

I will have to check that figure but it is a matter of public record.

Deputy Eamon Ryan

It is approximately €120 million. The capacity of the fibre in main streets in Manorhamilton, Limerick and Cork is often underutilised, yet we have spent €120 million putting a second piece of fibre down the same streets, although we cannot be sure that this has happened. How does eNET answer the criticism that we have spent €120 million duplicating fibre in towns where there is only limited demand for such fibre?

Mr. Henry

We suggest it provides a point of competition. If there is a monopoly of infrastructure, the monopoly provider can charge what it likes, which renders that part of Ireland uncompetitive vis-a-vis the rest of Ireland or an international location. Competition lowers price. The MANs provide competition for the incumbent.

Deputy Eamon Ryan

In what locations has foreign direct investment been introduced as a result of MANs?

Mr. Henry

I must be careful because I have not asked for specific permission to put this information on the record.

Deputy Eamon Ryan

Mr. Henry could name the towns.

Mr. Henry

It has happened in Dundalk, Letterkenny and even in Cork, where some of the large IDA client companies have increased their presence as well as just——

Deputy Eamon Ryan

If we do not know whether Eircom has fibre there, how do we know we have attracted FDI by installing new fibre?

Mr. Henry

The issue is not only one of technical infrastructure but also one of cost competitiveness, flexibility and access. This cannot just be considered on the assumption that if there is fibre in the ground, the problem is solved. Fibre in the ground allows a company or a number of companies to provide offerings, which can be low cost or high cost, flexible or inflexible. The MANs have allowed the creation of a competitive front. High end users can use that competitive dynamic to create a service offering for themselves that is, for want of a better expression, second to none.

Deputy Eamon Ryan

In response to an earlier question, Mr. Henry stated that profit was a subjective matter. I sometimes wish it was, given the difficulties of running a business. As the revenue in this case is unaudited, we will treat it with caution, but it can be used as a rough guide. The revenue to April 2006 was €3.5 million. On an investment of €120 million, €3.5 million would not even cover the interest cost on the State's investment.

Mr. Henry

We have been in business for only 18 months. The growth we generated last year was treble digit. We expect to generate growth of that order again. If one is looking to get one's money back in three to five years, one does not build high quality fibre optic networks, even in the private sector. The timeframe in which one would be looking to recover one's money on these projects is at least ten and probably closer to 20 years. Deputy Ryan would be familiar with power generation. These issues must be considered over a similar time horizon. That is why I stated that profit is subjective, which is a slightly glib remark. If one considers the profit picture over three to five years, it is not a good one and it was never intended to be. One must look at the long term, 20 to 30——

Deputy Eamon Ryan

Does the revenue even cover the operational costs?

Mr. Henry

At present, no.

Deputy Eamon Ryan

Mr. Henry stated eNET has no responsibility for phase 2. When will phase 2 come in? What role does eNET have? Its experience with regard to the operation of phase 1 must have an influence on what is done in phase 2. How can we justify the further investment if we have so many problems in the existing system?

Mr. Henry

We do not have many problems in the existing system. There are issues which need to be ironed out and it would be surprising had not there not been, given the size of the project. It is a big, unique project which provides a point of competitive advantage for Ireland. There are not so many problems.

As a business, we have taken a view that we will concentrate on phase 1 to make sure it is as good as it can be. Therefore, I have little information on phase 2. The Department has consulted us on learnings and issues for development, which is only natural.

Chairman

Does eNET expect to be given the contract for managing phase 2?

Mr. Henry

I am concentrating on phase 1.

Chairman

That is not an answer to my question. Do you expect to be appointed to manage phase 2?

Mr. Henry

There will be an open tender process for the next phase of the MANs.

Deputy Eamon Ryan

Does Mr. Henry mean that the MANs are effectively used to provide competition in business parks? Whatever about BT providing a backhaul network, was it not already in the business of providing fibre for business parks? That was a lucrative business and one we were able to serve prior to MANs. I have not heard of a significant business park having a serious difficulty with broadband. Although I have heard of many other regional problems, big business parks generally had competition. BT was willing to provide fibre and there were several operators in Dublin such as Colt, as well as Eircom. The one area where we had some ready availability was in business parks.

Mr. Henry

That is the case for business parks in Dublin but I am not sure about elsewhere. The Deputy's experience with his business park is instructive. The infrastructure provided by eNET is provided on an open access basis. The service provider that uses that is not necessarily the service provider that provides the infrastructure and that allows for a more competitive offering. BT uses the MAN in several areas.

Deputy Eamon Ryan

In how many areas of the 27 does BT use the MAN?

Mr. Henry

I do not have that information to hand.

Deputy Eamon Ryan

Perhaps Mr. Henry could supply it.

Mr. Henry

I will have to ask BT's permission to supply it.

Deputy F. O’Malley

Is it eNET's priority to deliver broadband to business parks alone or to domestic customers?

Mr. Henry

There are two types of business on the MANs, originating and non-originating. The originating business is largely for businesses, usually business parks, where the customer digs its own connection to the infrastructure. We are seeking to revise the offering to move further down the customer value chain to the lower spending customers. The other side of our business is non-originating, where traffic originates on an unbundled loop on a group broadband or fixed wireless scheme on a cable network. A number of small business and residential customers are using MANs without knowing it because we carry that traffic for them.

Mr. O’Driscoll

Perhaps I can provide an answer with a different flavour. It is important to recognise that eNET is an open access wholesale provider and enables the 16 operators who use our network to offer competitive services. We enable them to offer competitive, next generation services such as triple play. We expect and hope to provide open access broadband infrastructure, by which we mean it is available to all the 16 operators who can compete with the incumbent and among themselves. This is how one must see the MANs project. As the committee speaks to the operators later, members will see the impact the MANs have in enabling them to have a business case they can put before the subscriber and offer aggressive and innovative broadband packages to homes, SMEs or large businesses. We are beginning to see innovative packages offering video, voice and triple play and in many cases these are being enabled by the investment the Government has made in competition and open access infrastructure. We must regard the MANs as enabling those 16 operators.

Deputy F. O’Malley

Who is responsible for the last mile?

Mr. O’Driscoll

Because we do not sell to the customers, the retail operators such as BT, Smart, Magnet or Vodafone worry about the connection to the customer. We cannot sell to the end customer, only to a licensed operator. One must ask if we are seeing a growth of licensed operators who have access to first class, high-quality, open access technology they did not have before. We are beginning to see a major change in pricing and the richness of product offerings in Ireland, most of which has been enabled by the Government's vision in investing in open access infrastructure in competition rather than monopolies.

Chairman

Mr. O'Driscoll mentioned hope and expectations. Does he have any statistics to back up what he has said?

Mr. O’Driscoll

We have 16 operators using the MANs to provide access for their customers.

Chairman

How many customers use the MANs?

Mr. O’Driscoll

They are probably in the hundreds of thousands. It is no secret that Vodafone uses our network. I do not know how many customers Vodafone has in the country——

Chairman

Has eNET done any analysis or survey among the 16 service providers using the MANs to ask them how many customers there are?

Mr. Henry

No.

Deputy F. O’Malley

On the last page of eNET's presentation it reads:

The cost of connecting to the MANs is inhibiting their use and the ability of telcos to provide open access to regional customers. This is particularly the case for SMEs.

How does eNET think we can reduce prices? I am conscious that eNET is not responsible for the last mile and nobody else is filling the void. As a result, the State does not have services provided, despite having spent a fortune.

Mr. Henry

The Deputy makes a good point. The State has services provided. The last mile is delivered either by wireless or Eircom copper. It is not the last mile but typically the last 50 yards. There is a significant cost to that. One of the points we will make to the Department is that in the next stage of the MANs the design should be different to accommodate that. It is not significantly inhibiting the market impact the MANs sought to deliver because there are so many other ways of using the MANs that deliver the richness about which my chairman spoke. It is a small issue——

Deputy Eamon Ryan

How would Mr. Henry provide the last 50 yards differently?

Mr. Henry

I would build the MANs directly into the buildings it passes.

Chairman

How will the five unlit MANs, which are fibre cables in the ground, be lit up?

Mr. Henry

We are examining each one. The most problematic one is Monaghan, which is the largest. The others will require less traffic management. For Monaghan we are looking at creative ways of providing backhaul through Northern Ireland companies with which we are in discussion.

Chairman

Has eNET been given the responsibility of ensuring backup is provided?

Mr. Henry

If we have not been given it, we are taking it.

Chairman

Did eNET design the MANs for those areas?

Mr. Henry

We had no remit to do so.

Chairman

Has Mr. Henry spoken to the Department about getting Government traffic on the MANs?

Mr. Henry

We have spoken at length to the Departments of Communications, Marine and Natural Resources and Finance.

Chairman

What did they say?

Mr. Henry

Government business is not a single unit that can be transferred but is a rich and varied element. A large element of it is in the gift of the Department of Finance. We have met the Department and have a good relationship with CMOD, the key procurement agency. They have a vision for a national Government network that we share and think is excellent. We support their procedures for developing that network. It has not developed at the pace at which we would like it to.

Chairman

Am I correct in saying that in May 2005 Eircom had 99% of Government data transfer business and that in May 2006 it had 90%? Would I be correct in saying it is hoped to reduce that to around 50% in the next two years?

Mr. Henry

I cannot possibly comment on behalf of Eircom or the Government because I am not privy to that information. The total Government spend also includes a significant element of mobile spending.

Chairman

I suggest that 50% of Government business is available and, if we want eNET to be profitable, Mr. Henry's 16 service providers should go after that business. The next time Mr. Henry appears before the committee he might let us know how many customers are using the metropolitan area networks. It is a statistic he should have. He is telling this committee that he knows how many service providers are using the MANs but he does not know how many customers they have using them.

Mr. Henry

We would not seek to know.

Chairman

Why not?

Mr. Henry

That is a matter for how they deliver their business. We sell bandwidth through which our customers sell services. Services can be used by large individual customers and numerous small customers. One Vodafone customer will not create the same amount of traffic as one large IDA Ireland client.

Chairman

Is there spare capacity on the Cork MAN, for example?

Mr. Henry

Lots.

Chairman

How much of that capacity is used?

Mr. Henry

I do not have the figure to hand but I could supply it later.

Deputy Eamon Ryan

Would it be less than 10%?

Mr. Henry

Yes.

Deputy Eamon Ryan

Would it be less than 5%?

Mr. Henry

I will have to check if it is less than 5%.

Mr. O’Driscoll

It is important to recognise that, as technology develops with wavelength division multiplexing and so on, the capacity of the fibre infrastructure is almost unlimited. More and more can be sent down a single pair of fibres. The positive aspect is that we have a fibre infrastructure that will last for decades.

Deputy Eamon Ryan

Does Mr. O'Driscoll not think it strange that, in 27 Irish towns, there are two sets of fibres, each with almost infinite capacity? We have dug two holes in the street to lay two sets of wires, yet both have an untold amount of capacity.

Mr. O’Driscoll

That is not true. We do not have 27 sets of fibre rings. What has been put in place by the Government is state-of-the-art and has a resilience that is not present in those towns. We have made an investment in competition that is available for all operators to use in order that the population will benefit in the future.

Deputy Broughan

We remember the competition for eNET and the tendering process. Mr. Henry had dynamic views on enabling the country. Some of the companies we met then seemed to have a vision of enabling wherever they had operated, such as America, Canada and so on. Mr. Henry has suggested that we spread fibre optics to buildings throughout the country and is operating with companies such as Magnet on new estates. Is the real problem that the Government has let down eNET by not giving it a total vision of enablement for the country with eNET as the core agent, rather than the company complaining about Eircom's performance and so on?

Mr. Henry

I do not ask that we install fibre optic cable across the entire country. I suggest we tweak the design of the MANs to facilitate usage.

We must accept that the issue of the resolution of broadband in Ireland is a complex one. The oil is in the water and we cannot get it back out. There is no agreement within the Department or between the stakeholders in the industry as to how this can be resolved. There is a need for investment in telecommunications infrastructure to bring us up to speed with competing countries. It is clear that the incumbent will not provide that investment for reasons we all understand. The question remains of where that investment will come from. There is only one other place it can come from and that is the Government. If one accepts that the Government must invest, one must also decide how and where it invests. Does it invest in a monopoly or in competition? The Government has, to date, invested in competition because of its experiences of monopolies. I support that decision.

Deputy F. O’Malley

Mr. Henry suggests the Government must commit more expenditure to this issue. How much more money does he imagine we must spend to get optimum service delivery? A sum of €120 million is sizeable.

Mr. Henry

I do not know. BT in the UK spends around €10 billion on next generation networks. This spending will create the benchmark in Europe. To compete with this, using my experience in food retailing and other industries, the figure for Ireland should be around 10% of that for the UK. That is a guess. It would be around that size to deliver an infrastructure that reaches the benchmark. In the UK that is being delivered by the incumbent because the incumbent has embraced that aggressively and enthusiastically.

Deputy F. O’Malley

Is resistance by our incumbent the reason that——

Mr. Henry

I cannot comment on that.

Deputy F. O’Malley

We can ask them.

Chairman

This session must end because we have two more before the Order of Business with BT and Smart Telecom. Can I move to the next group?

Deputy Eamon Ryan

I have one last question. Is the ESB network lit up by business other than what comes through the MANs?

Mr. Henry

Yes. Its largest customers are the mobile operators.

Chairman

I thank Mr. Henry and Mr. O'Driscoll for coming in and sharing their thoughts.

Deputy Durkan

I had indicated I wanted to ask a question. This may have been addressed in my absence. I regard eNET as a wholesaler in this business. Our record on the provision of broadband is very poor in this country when compared with other jurisdictions. How does eNET see its role as a wholesaler impeded in terms of making broadband available?

Mr. O’Driscoll

Our belief is that if retailers get a fair shot, we as a wholesaler will do very well in servicing them. The bottlenecks and some of the issues around regulation exist at retail level. Once these issues are dealt with at retail level and we free those operators who want to provide innovative, next generation services and give them a level playing field, there will be huge demand for the MANs. We are the enabler of regional broadband for those operators. Once we start to free them, their business will grow and their traffic on the MANs will also grow. This will unleash huge innovation in the provision of services and greater competition in the marketplace.

Deputy Durkan

Has eNET expressed those views to the Minister or the main incumbent in view of the fact that a sale is pending and that there has been a suggestion of a split in services within the infrastructure?

Mr. O’Driscoll

We have expressed our views to all the relevant parties.

Deputy Durkan

Has eNET indicated the need for an investment in infrastructure? Has eNET specified whether this should be in tandem with or proportional to the total value of the investment? Recently, the sale brought about a 42% return on investment and a dividend had been available over several previous years. Has eNET set out any preferred options in respect of the proportion of the total the investment should be in the future? Does Mr. O'Driscoll believe this would be a wise thing to do?

Mr. O’Driscoll

We believe this would be inappropriate at this point. We have expressed our views to the Government about measures we see as necessary for enabling regional broadband. We have also expressed those views to various parties, including current and future operators.

Deputy Durkan

If an operation to provide infrastructure is sold for €2 billion, surely there should be some definite identification of the degree to which an investment from this kind of investment should flow in the future, given the high dependence on the investment? Should eNET, as a wholesaler, not express its views on this matter more precisely?

Mr. O’Driscoll

Does the Deputy mean to the Government?

Deputy Durkan

It should express its views to the Government and the incumbent.

Mr. O’Driscoll

We have expressed our views.

Deputy Durkan

Has eNET expressed its views to both parties?

Mr. O’Driscoll

We have expressed our views to the Government.

Deputy Durkan

Why has eNET not expressed a view to the incumbent? After all, it is a retailer.

Mr. O’Driscoll

The incumbent has been rather distracted in recent months.

Deputy Durkan

That may be the case but the customer must depend on companies such as eNET.

Mr. O’Driscoll

We have spoken to people who are examining future plans for the largest operator in the country.

Chairman

I thank Mr. Henry and Mr. O'Driscoll for appearing before the committee. They have been very helpful and we wish them well in their future endeavours.

I welcome to the meeting Mr. Oisín Fanning and Mr. Irla Flynn from Smart Telecom. We have received their submission and thank them for providing detailed answers to our questions. I understand their document is confidential but I presume members can ask supplementary questions arising from the presentation.

Mr. Irla Flynn

I thank the committee for giving us the opportunity to appear before it and I welcome members' interest in the issue.

Local loop unbundling is the key issue for Smart Telecom, which uses it to provide services for consumers. It is doing well but there is massive potential in this area if we can clear some of the roadblocks. I am happy to take questions from members.

Mr. Oisín Fanning

Further to the earlier conversations, without Government investment in metropolitan area networks, MANs, Smart Telecom would not exist today. It and many other providers would have closed down. It is only through MANs that we can access the rest of the country. Without that, there would be no competition. The Government realised there was a very strong chance that many companies now thriving and creating jobs outside Dublin might leave Ireland and set up operations in EU accession states if affordable broadband was not available. By broadband, I mean bandwidth. It does not matter whether this bandwidth is through a corporate customer or MANs connected to the Eircom exchanges because we have built into these exchanges. Broadband has been vital for the economy and we would have suffered dearly if that money had not been invested.

Chairman

Mr. Fanning spoke about the road map and ComReg. Is he satisfied that the ComReg road map will do the job? What regulatory reform is necessary?

Mr. Flynn

I will answer that question. Members can see from our notes that we believe there are some serious issues in respect of local loop unbundling. ComReg has published the road map and on the basis of the commitments made in that, we are engaged in industry discussions. The road map does not cover all the issues but it provides sufficient prospect of progress for us to go back to the table. We strongly believe progress against the milestones set out in the road map must be maintained at an absolute level. If there is slippage, we will make our views known. ComReg must wade in forcefully if slippage occurs.

We welcome the proposals from the Minister for Communications, Marine and Natural Resources to give ComReg additional powers, particularly powers under competition law, which we believe will significantly improve matters. We are still unsure whether it will give ComReg the upper hand in the debate and the struggle with Eircom. We must wait and see. At the moment ComReg does not have the upper hand.

Mr. Fanning

I wish to add to Mr. Flynn's comments. The road map currently outlined would generate approximately 6,000 broadband customers in a calendar year. From the perspective of both the country and Smart Telecom, the road map is irrelevant. It is a step, but this process has been in place for more than two years. A road map that will generate number portability to a maximum of 120 customers a day for the next 12 months is irrelevant. Smart Telecom's first offering, which provided 1 Mb of broadband with free line rental for €35, attracted 36,000 customers in the first six weeks of business. All of these customers downloaded and submitted direct debit forms.

It was then that Eircom decided that number portability was an issue. Number portability was not an issue beforehand. We raised more than €110 million in the markets to access the Eircom exchanges and drive local loop unbundling. We had reached agreement with ComReg and Eircom at a time when number portability was not supposed to be an issue. However, when we launched our pricing, which was effectively €11 for 1 Mb — now 3 Mb — of broadband, Eircom suddenly used the excuse that it did not realise it needed the telephone number for inventory purposes within the exchange involving other pieces of copper and could not offer number portability. This subsequently happened.

This was an occasion when ComReg should have acted strongly. It is now one year later and despite major investment by Smart Telecom and other countries, progress is still very slow, with approximately 120 customers per day. There is a considerable demand for broadband. We have a backlog with Eircom. A total of 7,000 customers are taking new telephone numbers. We were forced to spend an additional €1 million per month to take on a team which would literally visit people's homes to explain our proposition and that we wanted them to take a new telephone number. We have 13,000 of these customers trafficking with new telephone numbers and a backlog of 7,000 customers. Last month, Eircom agreed to pay us €60,000 in penalties for not putting customers on live quickly enough. This is with new telephone numbers, never mind number portability. There have been large penalties every month since we began.

I despair at where broadband is going for the ordinary person in the street. Off the bands, we access corporate companies, SMEs and Eircom exchanges. Our network does not distinguish between an Eircom exchange and a corporate customer. We have more bandwidth going into Eircom exchanges than Eircom does because of the MANs, yet we cannot access the end customers who are becoming very frustrated.

Deputy Broughan

Is Mr. Fanning saying that when number portability became an issue, ComReg had the power to take action?

Mr. Fanning

ComReg claimed it did not have the power. However, in its last statement, when we got back to the table, ComReg stated that if people did not comply, it would use its existing powers. I wonder what these powers are because it certainly has not used them in the case of broadband and number portability. Members are aware that Smart Telecom has been very well supported by the Irish people and captains of industry. Much of our money comes from UK institutions. When visiting the UK, it is very difficult to explain that there is number portability for mobile phones but not for fixed lines. Merrill Lynch invited me to a conference in the UK to speak about VOIP and IPTV and new technologies. My speech on new technologies was followed by questions from front managers from across Europe. The only question they asked me was why they should consider investing in Ireland if number portability was still not available one year later. This has nothing to do with Smart Telecom investing in Ireland. We must realise that such is being said about us overseas. A year later, people cannot believe we still do not have number portability. As members know, a number of accession countries have surpassed us in broadband penetration.

Deputy Eamon Ryan

Mr. Fanning said that wireless will not be sufficient for the last mile in the medium term and that Smart Telecom is using copper to get into houses or small businesses. Would it be right to say that included in the parts of the business of delivering the service — the last mile and the copper — there is the unbundling of the exchange, which is an expensive and difficult process, the local backhaul network or MANs and the backhaul network, including Smart Telecom's own network system? Each of these involves a cost, but what percentage of the overall cost does the local backhaul network form?

Mr. Fanning

Approximately 30% to 40%.

Deputy Eamon Ryan

Does that include the unbundling of the exchange?

Mr. Fanning

No.

Deputy Eamon Ryan

I am surprised at how high the figure is, given the cost of the copper line rental. It is quite expensive to enter an exchange. Given the distances involved in the national backhaul, I am surprised the figure is 40% for the local backhaul.

Mr. Fanning

Perhaps 30% is the more likely figure. Compared with the rest of Europe's figures, it is cheap. The MANs the ESB is offering in terms of backhaul are much cheaper. For example, we used an STM1 pipe, a unit of one, from Cork to Dublin. Recently, we needed to move it to an STM16 through the ESB, which probably has the most competitive pricing I have ever seen in Europe. There is no doubt that the cost of bandwidth is falling. More customers will use those MANs, but the costs of backhaul networks in terms of European averages are similar, if not a little cheaper.

Deputy Eamon Ryan

An average exchange has approximately 5,000 customers. For local loop unbundling to work, I understand that Smart Telecom would need to win 10% to 15% of customers — 500 to 700 customers — to make the service economical. How will this work? Will there be three or four operators in an exchange, or does Smart Telecom presume it will be in the exchange with the incumbent?

Mr. Fanning

No.

Deputy Eamon Ryan

Can local loop unbundling work where there are four or five operators?

Mr. Fanning

Absolutely. Currently, it is practically impossible for anyone else to consider local loop unbundling. Magnet is doing it to a certain extent. I must be honest and say that I am frustrated by how Smart Telecom, which used shareholders' money to make a significant investment, was obliged to protect itself, namely, invest more money. If we took a step back and examined the situation, we would not do any local loop unbundling now.

Deputy Eamon Ryan

How does Mr. Fanning see customers outside towns getting broadband? Smart Telecom's product is really only suitable for people in cities or towns.

Mr. Fanning

Not necessarily. For instance, we provide 150 people in Ballydehob with a wireless broadband service from the Cork MAN. The situation depends on the strength of the company. The more commercially viable the major towns and cities are, the more access we have to customers and the more we can spread our reach. It would be fair to say that, as we win Government business, of which we have already won a considerable amount, including schools on MANs, we spread our network. While each win may be small, our network is spreading.

The Government has committed itself to 88 mini-MANs. Currently, Smart Telecom is committed to all the MANs until there are 27, at which time we will obviously review our business case and determine whether we can push out to the others. It will depend on how well Smart Telecom is doing.

Chairman

How many schools are connected to the MANs?

Mr. Fanning

I would need to check, but we won approximately 1,200 schools, of which approximately 250 or 300 are connected through the MANs. A MAN connects to an outgoing exchange, from which we unbundle to a particular school. When it was necessary, we bought Eircom's wholesale product for schools, which we do not do for anyone else. We only did it in respect of schools to ensure they were not left without broadband services for any time. When we unbundled the exchange, we swapped the schools to our network.

Deputy Durkan

As a service provider, has Smart Telecom made submissions to those in positions to free the market, unbundle loops and do everything demanded by customers, namely, the Minister, ComReg and the incumbent?

Mr. Fanning

We have done so incessantly in respect of the first two. We are suing the incumbent for a breach of competition law because there is not number portability in Ireland, which is a well known fact and will arise as a case. We strongly reacted to the fact that number portability, which was not an issue, suddenly became so.

Mr. Flynn

We, Eircom, ComReg and the other operators are involved in industry talks to try to advance local loop unbundling. Smart Telecom is doing everything it can to make progress.

Deputy Durkan

To revert to my question to the previous witness, I assume there should be some time set aside to identify the precise degree of investment in infrastructure at the time of the sale of the major incumbent. If not, we will find ourselves impeded by someone in ten years. Does Mr. Fanning have any suggestions in this regard? Various economists have said that if there is no identification of a precise level of investment in the system, it will remain to pay dividends and be a utility service trapped as an investment centre.

To what extent has Smart Telecom attempted to address this matter? While the regulator can respond to Smart Telecom, it may not have sufficient powers. The Minister has the power to direct the regulator. Telecommunications services are at a crossroads and it is time to address the issue. If it is not dealt with now, nothing will happen.

Mr. Fanning

I agree with the Deputy. Further investment depends on who owns Eircom and how it operates. It is fair to say that the Government's investment in infrastructure was brought about because Eircom as we knew it when it was owned by a different group of people ensured there was no competition whatsoever. If the new owners of Eircom take a different and possibly more commercial view, these issues might change.

On our discussions with the market in general, we anticipate that the Government's level of investment must double, that is, a total investment of approximately €350 million to access most of the MANs, then to a smaller scale with mini-MANs, etc. If the Government decides to pursue this route, it will be in that order.

Chairman

We understand our guests' comments on portability and will raise the matter with ComReg after lunch. How many broadband customers does Smart Telecom have?

Mr. Fanning

We have 13,000 live broadband customers — people who agreed to take new telephone numbers and have been processed. The backlog of people with the incumbent is approximately 6,500. Each month approximately 5,500 to 6,000 new customers must take new telephone numbers, which is a significant inconvenience for them. In the meantime, it does not take a genius to work out that every month we sell, the backlog is increasing.

Chairman

Smart Telecom has 13,000 broadband customers and 6,500 customers waiting to be processed.

Mr. Fanning

They are in the system.

Chairman

Mr. Fanning stated this is taking a considerable time.

Mr. Fanning

Yes. Our customers cannot avail of our broadband offer because Eircom says they must return to it and take a new account number before availing of our service. Customers ring us and say they want to accept our broadband offer, but we must tell them that they must return to Eircom, lose service and pay Eircom at least one bill.

Deputy F. O’Malley

Must customers do that because Eircom owns the network?

Mr. Flynn

The Deputy should ask Eircom to explain that matter. Eircom will not do it the other way. As far as we are aware, there is no good technical reason for that decision. Eircom tells us it has an objection in regulatory and economic principle.

Deputy F. O’Malley

Is this not a case of a company protecting its interests?

Mr. Flynn

One could view it in that way or as a dominant operator abusing its dominant position. Should that type of restriction be allowed and is that the broadband market we want in Ireland? The view of Smart Telecom is that it is not.

Deputy F. O’Malley

Therefore it is the fault of ComReg that there is not greater competition. Smart Telecom exists in a market where the dominant incumbent can act in this way. Delivery of service to the customer is compromised. Smart Telecom is suing Eircom and this is not a happy situation for anyone. We should not refer to fault, but can services be improved through ComReg with its new powers?

I have received representations from constituents who are effectively customers of Smart Telecom but who cannot receive the service from Smart Telecom. Eircom has Smart Telecom over a barrel. That is not satisfying in light of the investment made by the Government to provide this service. How can we solve this problem?

Mr. Fanning

This is the problem and the fault of ComReg. At the last committee meeting I attended, people referred to ComReg having the teeth of a poodle. It does not have the necessary powers. If it has the power, will it use it?

There is much talk but little action and the only loser is the consumer. As a chief executive officer of a public company that takes its money from the market and has invested more than €110 million so far, I must explain to the market each time that matters will improve. My investors will respond that I made the same promise last year.

Chairman

May I ask a question of Mr. Fanning?

Deputy F. O’Malley

May I continue on that subject? Mr. Fanning states that there is much talk but little action. Who must act — the Minister or ComReg?

Mr. Flynn

Both, but it is a broader issue. All Government agencies, particularly ComReg and the Minister, must decide if this is a priority and if they wish to solve the problem. If they do, they must take strong action. Eircom is acting on its own as a commercial entity and there is limited ability to influence its behaviour. Smart Telecom is a commercial operator and is also one of Eircom's largest customers. We wish to do more business with it but it is not interested.

Chairman

Does it not want additional business?

Mr. Flynn

It does not.

Deputy Broughan

Regarding line rental charges, a sum of €17.98 excluding VAT provides a narrow margin for Smart Telecom to cover its costs. What would line rental cost in a competitive market? There is a no-contact period before Eircom can try to win back customers from Smart Telecom. Do the representatives of Smart Telecom believe this period is not long enough? Was the Smart Telecom service not efficient because of the problems outlined? Was it not possible to offer a service to match the incumbent? According to the latest figures on broadband, it seems that a tiny percentage of the 340,000 lines are enabled at this stage. How many people have land lines and cannot avail of broadband?

Mr. Flynn

I will answer the last question first. Tens of thousands of customers are using land lines for the wholesale line rental service. This is, effectively, a resale of Eircom's service. As Mr. Fanning stated, the vast majority wish to change to broadband but cannot do so.

Smart Telecom purchases the service at wholesale prices, 10% below Eircom's retail price. Based on the costs we incur, it is difficult for us to undercut Eircom's line rental charge and it is a struggle for us to match it. If the margin were increased to 20% to 30%, operators such as Smart Telecom and others could undercut Eircom. This would affect the retention of customers after the no-contact period. A customer is with Smart Telecom for four months before anyone can contact and win him or her back. In that period the customer will receive one or two bills, of which the key element is the line rental. If the line rental fee is the same as with Eircom, the customer questions the advantage in Smart Telecom. Savings will be made on calls but the line rental, the largest part of the bill, will be the same. It is difficult to compete in this sector and it is difficult to retain customers. It is a low margin business and we have prioritised broadband and local loop unbundling as a more attractive market.

Chairman

Mr. Flynn is stating that thousands of customers are waiting to be connected to broadband. Number portability is one problem and delays in connection are another. Is there a problem with the infrastructure, the copper wire? I read Mr. Flynn's submission which suggests there is no problem with the copper wire infrastructure. BT Ireland has made a similar submission. Was one cogging from the other?

Mr. Flynn

Certainly not.

Chairman

Perhaps both share a view of the marketplace.

Mr. Fanning

The infrastructure is fine. We have customers in Dublin, 4.5 km from the exchange, who failed the Eircom broadband test. They receive 14 mb of broadband and 100 television channels through the copper wire line. Much depends on how the exchanges are equipped. The equipment we install, ADSL 2+, is more powerful than the equipment Eircom has in its exchanges. We can reach 30% beyond Eircom. There is only a very small percentage of customers we cannot reach.

Chairman

With the right equipment in the exchange, is the existing copper infrastructure capable of being improved to provide more than 2 mb?

Mr. Fanning

Yes, we have customers receiving 14 mb of broadband and 100 television channels through the copper line.

Mr. Flynn

Our standard offering is 3 mb. Many customers receive more than that.

Mr. Fanning

On the Deputy's final question, I agree that 13,000 is a small number of customers. We have had to meet them in their homes and persuade them to take a new phone number. As long as Eircom makes local loop unbundling difficult, other operators will not compete in the market. As a result, they will only sell Eircom's wholesale product.

Deputy Eamon Ryan

Without revealing confidential information, what is the annual turnover of Smart Telecom?

Mr. Fanning

Our turnover last year was €47.5 million. It has doubled every year.

Deputy Eamon Ryan

In the past year what volume of business was done with eNET in turnover?

Mr. Fanning

I would have to check but I estimate at least €1 million.

Deputy Eamon Ryan

The company has 16 customers and its turnover is €3.5 million in total.

Mr. Fanning

We are the first and have most of those MANs lit. Other customers are more recent. The volume of business should be in that region.

Deputy Eamon Ryan

The turnover with eNET is €1 million out of turnover of €47.5 million. How does that relate to Mr. Fanning's earlier comment that the local backhaul network accounts for 30% to 40% of costs?

Mr. Fanning

That company, eNET, is only one part of the process — supplying the loop. The ESB supplies the backhaul.

Deputy Eamon Ryan

In my question I differentiated between national long distance and local backhaul and asked what the percentage cost was——

Mr. Fanning

I apologise. I was thinking in terms of the entire backhaul.

Deputy Eamon Ryan

On a percentage basis in the MANs, €1 million out of €40 million is——

Mr. Fanning

Our budget is expected to go to €5 million when all the MANs are lit.

Deputy Eamon Ryan

Why is it such a crucial issue in developing competition if it is such a small percentage, not 30% as Mr. Fanning originally stated, but in single figures? Why is it such an important part of Mr. Fanning's roll-out programme?

Mr. Fanning

In what sense does Deputy Ryan mean "a crucial issue"?

Deputy Eamon Ryan

I am in favour of State investment if we must have it. However, I want to ensure we use our money well.

Mr. Fanning

I will give an example. A major customer in Cork must dump approximately 100 mb of data to the United States one day a week. The bill from the incumbent to do that was €250,000 a year because its view was that pipe had to be open to Dublin and kept open 365 days a year. By connecting that company to the MAN and utilising our bandwidth, we were able to provide it with the liquid bandwidth we give all our customers. That means they can turn it off or on within three minutes by a telephone call. That customer now spends €50,000 a year.

Those companies are cost conscious. Without the Government's investment in MANs, there would not be that competition. Only a short while ago an STM1 with limited capacity from Dublin to Cork cost €640,000 from the incumbent. The same bandwidth to the United States cost $30,000. That crashed only when the MANs were built. Bandwidth crashed worldwide but not here.

I state, not from Smart Telecom's point of view but from an Irish point of view, that without Government investment, this country would be in a dire state. That is a fact. If multinational companies do not have basic affordable telecommunications, they will move.

Deputy Eamon Ryan

Smart Telecom invested €100 million and at least it gets €40 million turnover per annum return on it. We invested €120 million and receive €3 million return on it.

Mr. Fanning

That may be correct, but my losses amount to approximately €20 million per year. During its five years Smart Telecom may have——

Deputy Eamon Ryan

How much do we lose on our €120 million?

Mr. Fanning

The State may be losing money in terms of the pure business case. I do not agree that will be the case in the next decade. From a utility point of view, the State must consider the long term. The State is not losing companies. I state, without my Smart Telecom hat on, that if that bandwidth were not available, we would lose companies to accession countries. Ordinary consumers in accession countries have better penetration for broadband. Why would a company not leave Cork, Limerick or Letterkenny and move abroad? That was the risk to Ireland and the Government took this brave decision.

Chairman

Deputies Durkan and Broughan may ask a final question each. BT Ireland must also come before the committee.

Deputy Durkan

Telecommunications infrastructure by its nature has a short lifespan. How does Smart Telecom rate the potential lifespan of the infrastructure in which it and Eircom invest?

Deputy Broughan

Should there be a universal service obligation in broadband?

Mr. Flynn

To answer the second question first, extending a universal service obligation to broadband might be a good idea. However, the question is how it would work in practice. It would be a bad idea to hand it to Eircom and give it a monopoly for the entire broadband——

Deputy Broughan

I meant that we ask all the key operators to operate on that principle in a competitive network.

Mr. Flynn

If competition gets a clear run, the restrictions are lifted and the Government's investment continues, we will have extensive competition in all parts of the country. That is the best guarantee that consumers will have real choice, prices will decrease and quality will improve. That would be a better means of achieving it than imposing a regulatory obligation.

Regarding the lifespan issue raised by Deputy Durkan, we always endeavour to use equipment with the longest lifespan possible. We always consider future requirements. At present, our network has a huge amount of capacity not in use. We have the capability to increase the bandwidth available to all consumers. We are happy with what we have. Telecoms equipment has an investment cycle, as with any infrastructure investment.

Mr. Fanning

I will add briefly to the reply. Part of the question was on the eNET network, which will last forever and a day. It is the most modern technology possible. A piece of fibre can now take approximately 40 times' more bandwidth than five years ago. What is in place in the ground will last forever.

The incumbent's infrastructure is based on copper and will always require investment. Notably, its investment in infrastructure dropped over the past few years but it has been sufficient to maintain it. Once fibre has been put in the ground, it is rare to have to return to it.

Chairman

I apologise for rushing the session, but I am conscious that members must leave and I am anxious to hear from BT Ireland. I thank Mr. Flynn and Mr. Fanning for appearing.

I welcome Mr. Danny McLaughlin, CEO of BT Ireland. Before I ask him to begin, I advise everyone that we have received the presentation documents and will ask Mr. McLaughlin a number of questions. I draw everyone's attention to the fact that members of this committee have absolute privilege but this same privilege does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

Deputy Broughan will ask Mr. McLaughlin questions and Mr. McLaughlin may include information in addition to that contained in the presentation documents we received in his replies. As I presume the document we received is confidential, it will not be included in questions. However, we will ask a number of questions arising from it.

Deputy Broughan

I welcome the delegation. BT Ireland is an interesting company in the context of this debate because, during the past decade, it went through a process in our neighbouring island which many people would have liked our incumbent to have gone through. Does BT Ireland believe the settlement reached by the British Government with its parent company is a model for what should happen in Ireland? Would BT Ireland like to see ComReg having similar powers to Ofcom?

As we understand it, seven or eight years ago the Prime Minister, Mr. Blair, was upset when he saw the statistics for broadband roll-out and the ICT situation as Britain slipped down the league. Allegedly, part of this was problems with the incumbent. Is it a fact that both Government and the newly empowered regulator made a difference?

Reference was made to the situation in Northern Ireland and the number of exchanges, approximately 40 of which have been enabled for the BT service. Up to 150 exchanges, which would cover approximately 80% of the population, are attractive economically. Is it envisaged that with the kind of arrangements being put in place since last year, everywhere in Northern Ireland will be broadband accessible? Would BT's operations there provide a good model for the Republic of Ireland?

Mr. Danny McLaughlin

A lot can be learned from what the British Government did in terms of regulation and how BT responded to that, with the undertakings with Ofcom. While many of the lessons from that process would be applicable here, I would not say that the British model is an exact fit, given that there are 264 undertakings involved.

It is true that the Government gave the issue priority and that we were a very dilatory incumbent, but the empowered regulator was a key factor in the change of behaviour of BT. Another important factor was a change of leadership within BT. The old guard moved on and the new chief executive who was appointed made broadband Britain a priority for the company and demanded behavioural alignment within the company against that objective.

Much can be learned from the British experience but the critical point for Ireland is that the regulator becomes empowered with co-competition powers. That was the single most important factor which caused BT to get with the programme, as it were, because the alternative would have been a referral to the competition commission and the high probability of the break up of the company. In that context, the path of least resistance was to get on with the job and make broadband available to 100% of the population.

The story does not go back ten years but only as far as 2003. In that year, in the case of Northern Ireland for example, only 44% of the population had access to broadband and only 7,700 customers were using the service. Only 27 exchanges were broadband enabled, from a total of 191. By February 2005, we had completed the exchange enablement.

When the company had reached a certain level of availability in 2003, the Government decided to tender for enabling exchanges which were not economically viable. At the time the tender was issued, approximately 28% to 30% of the population could not access broadband and the Government intervention related to that cohort. It was not the case that the Government simply decided it should pay for the 28% to 30%. Rather, it was a question of determining how long it would take the industry to complete the task and the conclusion was that it would be a very long time indeed. Therefore, the Government intervention was aimed at bringing forward the date at which broadband would be available to the entire population. The financial intervention for Government became more realistic in that context because instead of hundreds of millions of pounds, which industry would have spent over time anyway, the sum involved was less than £10 million.

Deputy Eamon Ryan

Is it the case that rural customers in Northern Ireland access broadband via the standard copper telephone line rather than via wireless systems?

Mr. McLaughlin

We have approximately 100 customers who are not served in copper because of the laws of physics. Those customers have been given a satellite or radio alternative. Therefore, of approximately 186,000 customers in Northern Ireland, only 100 are served by means other than copper DSL.

Deputy Eamon Ryan

It seems, from the presentation, that BT is not interested in entering the wireless or satellite provision sector of the market. The company has examined the wireless option but the economics are difficult so it is not considering that as a long-term option. Is the company examining the satellite options?

Mr. McLaughlin

We are going to provide satellite as an option here.

Deputy Eamon Ryan

Is BT, as a company, examining it?

Mr. Peter Evans

We are looking at wireless options for the Republic of Ireland. We have done a number of WiMAX trials, one of which was in Scarriff, County Clare. We believe wireless has a role to play in this market. It is a technology which can provide very good in-fill in those areas where the copper network cannot provide it. However, the copper infrastructure in this country goes into every home and business and is, therefore, the most economical way to provide broadband for consumers and small businesses.

Deputy Eamon Ryan

Therefore, BT is not rolling out wireless or satellite options on a commercial basis.

Mr. Evans

No.

Deputy Eamon Ryan

On the roll-out of copper, it appears that BT, with the other companies present today, is primarily interested in the unbundling of urban markets. Is this correct or is BT interested in the whole market? Can I, as a policy maker who wants to provide broadband access to every home in the country on an equal basis, be assured that BT will engage in universal service provision in a similar way to the present incumbent and not simply operate in areas where the market is significant?

Mr. Evans

There are parts of the country that will be uneconomical to unbundle. To date, we have unbundled 40 exchanges, in places like Ballina, Arklow, Clonmel, Gorey and so forth, which are not enormous urban areas. However, it is true that as one moves to the smaller locations, it will be economically difficult to unbundle. As Mr. McLoughlin has outlined, that problem was addressed in Northern Ireland through a competitive tender process to unbundle the exchanges serving the last 10% of the population.

Deputy Eamon Ryan

The incumbent and other suppliers engaged in a competitive tender for the exchanges that were not economically viable.

Mr. McLaughlin

Yes. In my view, that is the best way to deal with the issue. There was an open tender process with transparency regarding the amount of Government funding available to complete the task. Given that the cost did not run to hundreds of millions of pounds, but much less, it was the most competitive way of completing availability to the remainder of the population.

Deputy Eamon Ryan

To be able to do that, however, the incumbent must be willing to give up its network or rather, to allow it to be open for competitive tendering.

Mr. Evans

The incumbent could partner, on a wholesale basis, with retail providers. It could provide local loop unbundling services and wholesale bit-stream broadband services in those areas, in partnership with numerous retail operators and e-net, on an open and equal basis.

Chairman

Is it correct that BT Ireland has the same problem with number portability as the other telecoms provider that appeared before the committee?

Mr. McLaughlin

Yes, these difficulties are all generic across the industry. We share the views of Smart Telecom, and others, in that respect. We have been part of the same industry process in order to try to find a resolution to that problem.

Chairman

Is BT satisfied that the ComReg road map will do the job?

Mr. McLaughlin

The road map is a good starting point and a strong statement of intent. BT, as a company, is playing its part in that. Mr. Evans and I have put together a team of 25 to 30 people who are dedicated to making sure that we achieve our part of the milestones within that road map. We are aligned, from top to bottom, to play our part in the process. It will become clear in the coming weeks whether everyone else is as engaged in the process as BT. I believe it hinges on the issue of leadership. It is clear what has to be done now but things must change among all of the stakeholders to make this a priority and make it happen. In fact, I would not even refer to milestones but to inch stones. We must examine whether, day by day and week by week, the requisite progress is being made. If we begin to fall behind with the plan, the worry is that the consensus reached so far will begin to unravel. It is very important that the milestones are met but the road-map is definitely a good starting point.

Chairman

In his response to a question on infrastructure, Mr. McLaughlin stated that there are no problems with the quality of the copper cables used by Eircom.

Mr. McLaughlin

Copper is copper. The same factory supplies the cables for the entire industry. The copper used here is no different from that used in Northern Ireland.

Chairman

I asked Smart Telecom whether bandwidth could be improved beyond the level envisaged by Eircom.

Mr. Evans

It would be technically possible to drive 34 megabits per second on a standard copper line.

Deputy F. O’Malley

Ireland got off to a great start with broadband but we have lost our way. What must we do to regain the momentum we once had?

Mr. Evans

We did not get off to a great start. During 2001 and 2002, a regulatory dispute arose between the Office of the Director of Telecommunications Regulation and Eircom which delayed the original roll-out of broadband. We were lagging then and are now even further behind. The Government and the industry needs to follow through on the ComReg plan. We also need to ensure that the Minister's statement on co-competition powers for ComReg is followed by action. Any deviation from that will derail the process.

Mr. McLaughlin

It is not only a matter of "build it and they will come". The entire industry has to focus on stimulation of demand and making broadband attractive for customers. That goes beyond issues of price because while prices are currently high, I expect them to fall. We have worked to stimulate demand in the North and across the UK by micro-marketing at the local level to communities, councils and small business organisations. Invest Northern Ireland subsidised broadband to the tune of 40% for the first year in order to stimulate demand among businesses in Northern Ireland. That subsidy applied to connection charges and rental. There is a viral quality about broadband in the business community. When a cluster of small businesses gets broadband, everyone else has to get on board or else they will be disadvantaged. Not only are the supply side aspects of the ComReg road map and regulatory measures important but the industry must also stimulate demand.

Deputy F. O’Malley

Is BT Ireland confident that the Minister and ComReg will establish a clear regulatory environment in which broadband will be encouraged?

Mr. McLaughlin

I have two answers to that question, yes and no. We have been great supporters of ComReg. An opportunity has presented itself and progress has been made but a lot of work remains to be done. It is important that the Minister's proposals on co-competition powers and legislation become reality as soon as possible because they will make bad behaviour less likely. If I lack confidence, it is because of that issue.

Chairman

How many broadband customers does BT Ireland have?

Mr. Evans

We have 35,000 consumer customers and approximately 2,500 business customers.

Chairman

Does BT Ireland have many customers waiting to be connected? Some 6,500 are waiting on Smart Telecom's books.

Mr. Evans

Our situation is somewhat different from Smart Telecom in respect of the consumer market. We have been involved in local loop unbundling since 2002 and have become familiar with the obstacles. We have not decided to launch a local loop unbundled based service in the consumer market, so all our consumer broadband customers are effectively resold bit stream services from Eircom. We do not use our local loop unbundling network for our consumer business because of the issues raised by Smart Telecom with regard to migration and number portability. However, assuming that the road map set out by ComReg is adhered to, we are somewhat confident that we can begin to use the local loop network.

Chairman

What is BT Ireland's response to the allegation that telecoms are cherrypicking customers?

Mr. McLaughlin

We have a capital investment plan to reach about 80% of the population. I would not describe that as "cherrypicking". If our coverage remained at 30% to 40% in attractive areas, we would be cherrypickers. Sadly for me, last year was the first time in my career that I underspent my investment budget because the conditions were not right for completing our capital investment. We spent approximately €55 million and could have spent more but returned the remainder to the group because I saw no opportunity to make use of the investment and did not want to market services which would generate poor customer experiences. The timing of our investment has to coincide with the delivery of the parts of the roadmap that would allow us to deliver a decent customer experience. As my colleague from Smart Telecom noted, we should not put our customers through a lot of inconvenience to avail of a fairly straightforward consumer product.

Deputy Eamon Ryan

I asked about the competitor bidding system for franchises in less economic areas. If an incumbent is both a retailer and a wholesaler, how can it enter a partnership arrangement with the successful bidder? The retail arm will probably have made a bid and it seems impossible to distinguish between the profits made respectively by retail and wholesale arms.

Mr. McLaughlin

The participant in that process would definitely be the wholesale arm. If the retail arm is treated on an equivalent basis to the rest of the industry, there is no reason why the arrangement would not work.

Deputy Eamon Ryan

BT Ireland had a successful business in leased lines, whereby a line would be supplied directly to a company. Is that still a significant part of BT's business?

Mr. Evans

Yes. Last year, our turnover was €470 million, one third of which came from corporate and government services delivered directly to customers on our own network.

Deputy Eamon Ryan

In that case, to what extent does BT use MANs?

Mr. Evans

We are one of the biggest customers of MANs, using approximately 12 networks.

Deputy Eamon Ryan

I presume the turnover would be less than €1 million.

Mr. Evans

That is correct.

Deputy Eamon Ryan

Given that BT turns over at least €130 million from its leased lines and that MANs are directed at businesses, are there instances in which fibre-optic cables supplied by BT run alongside MANs?

Mr. Evans

Yes, that is the difference between BT and other operators. We have been building our own network since the sector was deregulated in 1998 and have spent upwards of €500 million to €600 million on putting fibre-optic cable in the ground. Members will be aware that our cables run alongside the country's railway tracks. The bigger MANs co-exist with our network in Cork, Galway and other places.

Deputy Eamon Ryan

One of the recommendations of our initial report on broadband services was that any development of MANs should be carried out on the basis that the State would ensure that existing fibre in the ground was integrated into the new MANs networks. Would BT Ireland have been willing to allow its fibre to be a component part of the new MANs we were developing? Will it be willing to allow its fibre to be used in the development of MANs infrastructure?

Mr. Evans

We will always allow our network to be used as long as we can get an economic return from it. We have a lot of fibre-optic cable in the ground but are also network-agnostic, in that we will use anybody's network to get to a customer, be it Eircom's eNET's or Colt Telecom's. Likewise we will sell to any other company and provide our network on an equal basis to other operators.

Deputy Eamon Ryan

When the MANs were being built, did anyone approach BT Ireland and ask as to the possibility of using BT Ireland's fibre?

Mr. Evans

I am not aware of any approach but there may have been one.

Deputy Eamon Ryan

Can Mr. Evans come back to the committee with a reply to that question? He would know because it would have meant a large capital investment and would not be something one would fail to remember. I imagine there was no such approach.

Mr. Evans

If there had been an official approach, I would have been aware of it.

Deputy Eamon Ryan

There was no official approach, despite the recommendation of this joint committee. One of our first key recommendations was that the development of MANs should not take place on the basis of a duplication of fibre. We recommended three or four years ago, before this started, the use of existing fibre in the ground. It seems to me that nobody did that.

Chairman

We will take up that issue in the afternoon.

Deputy F. O’Malley

I have a brief question. I realise I am in a room full of experts and that I am about to display my ignorance. Mr. McLaughlin said BT Ireland would supply lists of the 40 exchanges it had enabled and the 150 which were economically attractive but that, because of commercial confidentiality, it would do so under separate cover. Does Eircom not know what exchanges have been unbundled? Why is this information commercially sensitive and confidential?

Mr. McLaughlin

It is because we must take a commercial view of the priority order in which we unbundle exchanges. That involves examining the market, the customer demographics and the attractiveness of the customer sets. Therefore, we make a roll-out decision on which tranche follows which to try to win customers over. The commercial sensitivities exist around which ones we believe would attract customers with our particular offer.

Deputy F. O’Malley

Information about which network or exchange has been unbundled is in the public domain.

Mr. McLaughlin

Yes.

Chairman

I thank Mr. McLaughlin and Mr. Evans. We will be using the presentation document and the responses they gave to our questions for our own reference as a committee. We will have questions for Eircom, ComReg and the Minister in the afternoon.

Mr. McLaughlin

If there is anything the joint committee requires, BT Ireland will be very happy to supply it.

Chairman

Thank you.

Sitting suspended at 12.05 p.m. and resumed at 2 p.m.

Chairman

I welcome Dr. Philip Nolan and Mr. David McRedmond from Eircom. I draw everybody's attention to the fact that members of this joint committee have absolute privilege, but this same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I thank all those attending today for sending in answers to questions which have been posed and putting as much information as possible in those answers. We accept a number of areas might be sensitive, but a good understanding was nonetheless provided for the members. This will help the committee in its future deliberations. We have read the submission from Eircom, as well as the amended submission received today at 11.45 a.m.

If there are a number of areas on which the witnesses feel the need to expand when answering questions, they should do so. Deputy Durkan will begin the questioning, as we will not go through the entire written submission.

Deputy Durkan

I have put my first question to other relevant parties today. Regardless of whether we like it, there is an impression abroad that broadband coverage in this country is not keeping up with rates of provision and general access in other countries, many of which could be deemed inferior to this country in terms of technological advances.

Has there been a determination in Eircom at the highest level on the optimum annual investment in infrastructure? In certain business quarters there is a presumption that if a company is providing a service in a market, the annual investment in the service in some way should be related to the scale of the operation and the dependency on the investment etc. This is opposed to concentrating too much on the payment of dividends.

It has been mentioned that prices here are good value, which may be the case. They are not cheaper than the EU average. I would like some clarification on that matter.

My next question relates to the degree to which technology has been modernised, and it relates to a previous question on ongoing investment. What is the proportion of the company's total technology which has been upgraded and modernised in line with modern best practice and requirements? Given this country is heavily dependent on foreign investment, what is the degree to which the country relies on technology of that nature?

Dr. Philip Nolan

The three questions are related in many different ways. In Ireland, we have come a huge distance in broadband terms since the last time we appeared before the committee. We should not ignore that or the progress which has been made. There are probably currently more than 360,000 customers using broadband. Between 250,000 and 260,000 of these are using such services off Eircom's network. Approximately 14,000 are on local loop unbundling, and we do not know what they use. I assume most of these use broadband. There is a sizable number of people using broadband.

Chairman

Does that number relate to homes or businesses?

Dr. Nolan

It relates to lines.

Chairman

I would like to know how many homes have broadband.

Dr. Nolan

We could provide such detail in a written state. I am taking these figures from having read reports and I will not guarantee them to the last 1,000. We can produce accurate figures for the committee.

Such numbers are a great achievement for the company which has achieved these figures while paying a dividend. In examining the dividends paid by companies, one would generally look at the appropriateness of the dividend in terms of the yield and the company. This is the dividend yield. Our dividend yield, about 5% or 6% depending on how people view the share price, is not out of line with our peers, such as BT in the UK and other places. Our dividend yield is comparable to other companies' dividend yields.

Deputy Durkan

Are they related to investment?

Dr. Nolan

They are not particularly related. There are two salient factors with regard to investment. Investment in telecoms is normally expressed and normalised as a percentage of sales. Sales are a measure of the amount of cash coming in and capital going out. Eircom has been at or above the European average for a long period.

Deputy Durkan

If customer needs are not being met dividends will suffer and constriction will take place and render the company ineffective.

Dr. Nolan

I do not know if Deputy Durkan's logic follows through. One must define customer needs and so on. A company cannot survive in the market unless it meets consumers' needs in the broadest sense of the words. There are few companies that meet every customer need in a national economy. One must look after one's customers or else one will not have a business. One must look after finances or else one will lose employees. All of these factors are taken in when creating a balance. The normal metrics applied to telecoms see capital normalised as a proportion of sales, this is the case in analyst's reports or any published reports.

In terms of our capital as a proportion of sales we are at or around the EU average. Our dividend policy is no more generous than is the norm in the telecoms industry. In terms of capital expenditure versus dividend I am happy with the trade-off to date.

Deputy Durkan

Given the proposed sale of Eircom, does Dr. Nolan envisage any change in policy? For example, it was envisaged in the early stages that the company would be broken into two areas catering to two separate aspects of the market. The investment company saw this as a way of loosening up the telecoms industry, creating more competition and providing better returns for investor and consumer alike. How does Dr. Nolan see this developing in the future? Does he accept that the Minister and the regulator will now study the telecoms sector afresh with a view to ensuring the delivery of services occurs more quickly than it has done heretofore? Does he expect the Minister to breathe down necks in that area?

Dr. Nolan

That is one of the longest questions I have had and I will try to keep my mind on the various pieces.

Chairman

Dr. Nolan only has to suffer today. We have to put up with this every day, but he is a good Deputy and he means well.

Dr. Nolan

I represent a plc and many shareholders. As we are at a sensitive time in the middle of a transaction, I am constrained in what I can say. I will not attempt to speak on behalf of potential new owners because they are not owners yet. I am CEO of this company and our policy is to run the company as we have set out. I do not accept some of the assertions made on broadband. Ireland has one of the fastest growing broadband penetrations, albeit from a low base. We are closing the gap and have invested significantly.

Broadband coverage in Ireland today is good at 85%, in line with the European average and better than the US which is 76%. Our prices are benchmarked by our friends in ComReg at or below the EU average. I accept that we have more work to do. We would love 100% DSL availability for everyone. The only obstacle to achieving this is economic viability. My team, my people and my organisation talk broadband and sell broadband. The company has taken a loss of between €110 million and €120 million in promoting broadband throughout Ireland. We have put everything behind broadband and we are not lagging behind other countries. Three out of four people in Ireland, by our calculations, can receive broadband but of those only one takes it.

Deputy Durkan

Earlier today it was suggested by a service provider that Eircom was dragging its feet in terms of loosening up lines, local loop unbundling and was impeding progress in the delivery of the services that it is charged with.

Dr. Nolan

Local loop unbundling is happening. Between 400 and 500 loops are being unbundled every week. Also, we are in consultation with ComReg and the industry on designing processes that will make it run more smoothly. ComReg have outlined a set of milestones for us to achieve and we have said we will deliver.

We must be careful not to allow comments by vested interests to masquerade as impartial. This must be taken into account when quoting other people to me.

In terms of the local loop we have followed the legislation. We have a process in place for smoothing it out and making it better and I think we are making progress. The evidence is that people are unbundling loops every week.

Deputy Durkan

Is Eircom in litigation on local loop unbundling at the moment?

Dr. Nolan

Yes.

Mr. David McRedmond

There is no current litigation on local loop unbundling. We are in a process with ComReg and the other operators in an industry forum to develop the product the other operators seek. This has progressed well, though there were stumbling blocks. ComReg has put milestones in place to which we believe we significantly contributed. We are now delivering local loop unbundling.

There is litigation concerning another operator on a broad view of competitive issues. We have noted this as ongoing litigation in all our documents and in our annual report.

Chairman

Following on from Deputy Durkan's question, has Mr. McRedmond heard what was said earlier today by the other two operators, Smart Telecom and BT?

Mr. McRedmond

Yes.

Chairman

The question of number portability was raised. Smart Telecom has 13,000 broadband customers with 6,500 awaiting connection. Is this something Eircom is delaying or is Eircom seeking more operators to give it this wholesale business?

Mr. McRedmond

It is something we are facilitating. This brings up some very technical issues on number portability and local loop unbundling. Four or five years ago we offered those operators a process to put these things in place. They said, at the time, that they did not need it, one does not need a telephone number to switch broadband and have broadband over local loop unbundling. It is only because of recent market developments, a range of other services that require a telephone number, that other operators suddenly want number portability. We consider this a reasonable commercial request. Eircom is recognised by the EU as one of the most advanced companies in terms of being open to competition. The question of how number portability is delivered is something we have worked through with ComReg and those operators and we aim to deliver it by 8 August.

Chairman

We are trying to ascertain where the blockages are and who is causing them. Is it correct that Smart Telecom has placed orders with Eircom for broadband connections for 6,500 people and they have not been delivered?

Mr. McRedmond

I cannot answer that because I am not allowed to discuss wholesale information on any operator. One operator wrote recently threatening litigation if we disclosed confidential information. I would love to be able to answer the question. Last year there was a very public High Court case in which the judge stated that Eircom had never sought any delay in this process. We do not seek to delay it and we want it to come about and work extremely well.

There have been well publicised issues in the UK as they have been introducing local loop unbundling and there are ongoing difficulties. They are being worked through in the UK and we are working through them here. We appreciate the role played by ComReg in the operations carried out to deliver the end result.

Chairman

The charge made here today is that approximately 6,500 customers are waiting to be connected to broadband. The witnesses cannot answer the question so we must let the issue stand.

Mr. McRedmond

That is correct. We are not in a position to say what other operators do.

Dr. Nolan

The point Mr. McRedmond has made is that a person does not need to port a number to port a broadband connection. A broadband customer does not have a number, and the number is needed for something else. With regard to portability, there were technical issues which have been worked through. There is a timetable for delivery. We are not putting a block down, and if anything we are solving the issue.

Mr. McRedmond

I should add that our products and processes are entirely open and available to any operator. If an operator chooses to sell a service for a product which is not currently available, and which it knows is not available, the operator takes a risk. We do not see it as good practice to sell products on the market which are not available for delivery.

Chairman

Is Mr. McRedmond suggesting that all operators are welcome to use his company's systems and the services which it provides? Is he suggesting that the company would welcome wholesale business from any operator?

Mr. McRedmond

Absolutely.

Chairman

The company would not frustrate the process.

Mr. McRedmond

Yes.

Chairman

It was mentioned that approximately 250,000 lines were broadband enabled. How many lines are there in the country?

Mr. McRedmond

There are approximately 1.8 million paths at the moment. There is a question of whether ISDN lines etc. should be included in this number.

Chairman

Is it correct to state that there is a universal service obligation on Eircom to provide broadband?

Mr. McRedmond

That is incorrect.

Chairman

I am asking a question.

Mr. McRedmond

There is not.

Chairman

That is fine. I read recently that Mr. Pierre Danon, the man responsible for taking over Eircom for Babcock & Brown, has placed much emphasis on broadband. It is a major item for him and it will be a major project for him to ensure that when he takes over the company on behalf of Babcock & Brown, the company will roll out broadband even faster than it is being done to date.

Dr. Nolan

We run the company and it is not owned by Babcock & Brown. The remarks it makes in public is down the company itself and not Eircom for the time being. We have put everything in Eircom behind the roll-out of broadband. We would expect anybody taking over the company would do similarly. The public utterances of Babcock & Brown indicate it will.

Deputy Durkan

I have a final question. What influence will the management or investors in Eircom likely have with regard to the future development of the company, including its expansion and delivery of services? Babcock & Brown are strategic investors and it has a job to do, which I presume is to look after the investor. I have no doubt it will do it well.

We mentioned earlier the necessity to look after the consumer. For example, utility services are fast becoming investors' paradises, but not necessarily a paradise for the consumer. A classic example would be the M50 motorway. In that case, the road is very beneficial from the point of view of an investor and there is a huge return on investment, many times over. For the consumer, who is trapped and captive, he or she must sit and wait to be allowed the privilege to pay to use the road.

There is a grave danger that a similar process could happen in the telecoms area. It is totally unacceptable. The regulator and the relevant Minister will have to take action in such circumstances. Otherwise there will be a total failure in the delivery of services to the economy. That economy reflects both the domestic and commercial consumer.

Dr. Nolan

I cannot speak for Babcock & Brown. If that company is just a set of investors, there will clearly be a managing team in the company and there will be a necessity for the company to compete with others. That will ensure that the focus is kept on delivering what the customer needs.

It is part of business that a company must deliver for the customer. Otherwise the company will go out of business. The company cannot deliver a wish list out of nothing, and sometimes there must be trade-offs. I expect that type of attitude will continue. Our wish going forward would be that everybody in Ireland would have broadband and that what can be achieved through commercial investment is done. We wish to have what remains to be done, outside the remit, carried out through partnership with Government. That is probably the best way to take the process forward.

Chairman

The regulator was mentioned in some of the answers. Has Eircom signed up to the ComReg road map in the same way as other operators have? We will be meeting delegates from ComReg afterwards.

Mr. McRedmond

Yes. We support the milestone as outlined.

Deputy Eamon Ryan

I appreciate that Dr. Nolan and Mr. McRedmond are here under difficult circumstances. I may get the witnesses to recount matters in the past rather than looking forward, as that is particularly difficult to predict.

On a technical note with regard to DSL provision of broadband, is there a distance factor involved in developing rural services as well as an economic one? Is there a significant problem related to distance, or can this be overcome with new technology, be it DSL or others?

Dr. Nolan

There is a distance issue, which is not quite what it used to be. Technology progressively helps to overcome the problem. It is not a hard and fast issue. Mr. McRedmond will correct me if I remember figures incorrectly, but some 5% to 7% of lines are currently too long. As with other players in the industry, we have looked at how to reduce that number through technology. It is a difficult process and can be dependent on what is needed as a minimum speed. There is a trade-off between distance and speed.

We have managed to get 512 kbps much further than we used to have it, but if the standard is to be 2 Mbps, the situation is changed. There is a trade-off, and approximately 7% of the lines are currently too long. We hope to reduce that with the application of new technologies.

Deputy Eamon Ryan

We heard a presentation earlier from BT. We must be aware that they spoke with a vested interest, just as the witnesses now speak with certain interests. They made the point that in the North the problem may have been solved from a policymaker's viewpoint, where we may wish to have a fair situation where every household would have the possibility of broadband access. The representatives from BT suggested that a competitive tendering process may work for areas where it is not economical to provide broadband access.

Various operators could pitch for the business through a competitive tendering process. This may involve the incumbent's retail wholesale business being separated. A situation may occur where the incumbent wholesaler would be in partnership with a separate retailer to deliver in an area that may not otherwise be economically viable. Is that a good model for delivery of broadband in areas where delivery would not be ordinarily economical?

Dr. Nolan

I do not quite understand the model. I would need to have some more detail. Has the Deputy been describing local loop unbundling, LLU? With that, a company can come in from the wholesaler, take the line and provide broadband over it.

Deputy Eamon Ryan

Is it not different in the sense that as the operation would not be economical, no company would like to do it? The process of LLU can be done, but if there is no economic imperative to service the market, it has to be done in partnership with Government. Would it be a better approach to allow companies to competitively tender, with the Government essentially subsidising the process?

Dr. Nolan

If that is the same scheme as Northern Ireland, we would support it. I am on record numerous times not only supporting this but requesting it through writing. I am on record here asking for the same thing. We support it as it would bring broadband to customers.

Deputy Eamon Ryan

Yes.

Mr. McRedmond

On that point, I highlight that in Northern Ireland, BT was at the point of having delivered 70% coverage when the last 30% was put out to tender by the authorities. I remind the Deputy that we have significantly higher coverage here in Ireland, delivered by Eircom. The figure is 85%. If or when the Government decides to put such areas to tender, it is important to realise that the exchanges are Eircom's. They are very complicated, they are in the most rural areas and they are most difficult to access. While it would be a competitive tender, Eircom would be a sensible choice, as BT was in Northern Ireland.

Deputy Eamon Ryan

In its presentation on the 27 MANs which have been developed, eNET stated the five MANs not lit up because of the lack of a backhaul network could be connected by Eircom. It also stated that Eircom failed to respond to its request for information in August 2005. Why did Eircom not respond to eNET when it was contacted regarding backhaul connection to those MANs?

Dr. Nolan

The Deputy asked a specific question and I do not have material here to answer it.

Mr. McRedmond

I do not have information on that. I will check and provide the report for the Chairman.

Deputy Eamon Ryan

Does Eircom do any business with MANs?

Dr. Nolan

Specifically, I do not know.

Deputy Eamon Ryan

That is not a difficult specific question. It is a "yes" or "no" answer. Surely Dr. Nolan knows——

Dr. Nolan

I doubt it simply because we have our own fibre where the MANs are and we use that. I cannot be absolutely specific because I cannot guarantee that somewhere someone has not. We can examine it.

Chairman

We can assume Eircom does not. Does Eircom plan to use the MANs for its own business?

Dr. Nolan

It is not a question of planning to do so. Eircom is a commercial company and if it is commercially viable we will. So far, generally speaking, we have our own infrastructure and it is better to use that.

Deputy Eamon Ryan

If someone, who is supplied services from separate operators, seeks to do business with Eircom, and the MANs wants to connect back through a local backhaul network to a national backhaul network which Eircom has, why would Eircom not take that business?

Dr. Nolan

My assumption is we do.

Deputy Eamon Ryan

However, eNET stated Eircom did not even answer its letter.

Chairman

Will Dr. Nolan make contact with eNET to see what are its requirements?

Dr. Nolan

Certainly, I have met eNET and it did not raise that issue with me.

Chairman

Its representatives spoke about backhauling through Northern Ireland. It would be a dreadful shame if that had to be done when a company in Ireland such as Eircom could provide the service.

Dr. Nolan

It would be in everybody's interests if we took specific instances away and examined it.

Chairman

I accept that.

Deputy Eamon Ryan

The assertion was made by a number of operators today that one success of the MANs is that it radically reduces the cost of Eircom's high-end business products. Was that the case during the past two years and if so, why?

Mr. McRedmond

All our products have decreased in price. This committee is well aware that telecom prices in Ireland are below the European average. Prices for wholesale connectivity in particular have sharply reduced. That has nothing whatsoever to do with the existence or threat of the MANs. It has more to do with the existence and potential threats of the regulator. It has been worked through the regulator, particularly where wholesale connectivity, known as "PPCs", has been driven in Ireland. Ireland was one of the first countries to introduce it at low prices, which has principally driven the reduction in Eircom's prices. It was also driven by competition at a retail level. The MANs have not had any impact or effect yet because we are not aware and do not have knowledge of the specific business the MANs may have.

Deputy Eamon Ryan

The MANs are in two phases, the first comprised 22 and now another more significant number is planned. Does Eircom believe it is appropriate, or is it open to the prospect, of its existing fibre on the ground being used in new MANs? Could existing fibre be shared with Eircom and used in a project managed by eNet?

Dr. Nolan

We are open for commercial negotiations with anybody. If a company approaches us with a proposition which makes commercial sense then we will do it. We do not have any ideology or principle stand on this. It is quite simply a matter of whether it is commercially sensible.

Deputy Eamon Ryan

When the MANs were developed, this committee recommended the use of existing fibre on the ground made more sense. The carrying capacity of fibre is often underutilised. Did anyone from the State approach Eircom to consider that? Why did Eircom not approach the State given that it knew the MANs were coming and had duplicating fibres, and make a commercial proposition to the State?

Mr. McRedmond

Regarding the MANs, as Dr. Nolan stated we are always open for discussion with the Department of Communications, Marine and Natural Resources. To our knowledge, we have infrastructure everywhere the MANs are. There is no case for us to open up commercial discussions where we already have infrastructure, which is completely open access for any operator to use because we have an extremely advanced set of wholesale products and services. If one builds a ringroad with a great deal of capacity and everyone uses it, it does not make sense to state another ring road will be built outside it and a deal should be made to share it. The basis is not there.

Discussions have taken place with the Government——

Dr. Nolan

We had long discussions both before and after MANs were built but they did not lead anywhere.

Deputy Eamon Ryan

Did Eircom offer to provide its network in the MANs?

Dr. Nolan

Our network is available where we have fibre and a commercial case can be made to use it. Frankly, if we examine a proposal to use our fibre which is not commercial, we will not do it. We have an obligation, we are under regulation and when we make our fibre available we do so on a cost-effective basis. That is how we do our business. There is no question of us not making our network available either on a regulated basis where the services are regulated or on a commercial basis where they are not. We would not give them away on a non-commercial basis.

Deputy Broughan

I welcome Dr. Nolan and Mr. McRedmond. Last week, the media covered references made a while ago by Deputies and Senators to a 20% line failure rate. This management team is coming to the end of its era. I admit the number of enabled lines has increased to 350,000. However, is it an indictment on the achievements of the company under the stewardship of Dr. Nolan and Mr. McRedmond that we are still so far behind?

This morning companies before the committee stated that co-location is a disaster and that Eircom drags its feet every which way and delays people for six or eight months. They stated Eircom invented portability to screw up the other companies. Eircom has the highest wholesale line rentals in Europe and it is difficult for another company to obtain a reasonable margin. Eircom answered that the overall package is cheaper. However, Eircom may have followed the instructions of its owners and delivered a slow walk to the future. In the process, the nation has a serious problem which has not been resolved.

Last week, statistics on Northern Ireland were examined. It is an awful indictment that 16% of homes with a computer are broadband enabled while in the North that figure is 60%. These statistics keep ringing out at us. We are the second-lowest of the 15 pre-accession EU countries in terms of connectivity. We are a long way behind the ball game.

Eircom took the commercial decisions it felt it had to take. However, regarding the national interest we are still in dire straits. These issues remain to be resolved. I presume the new owners and enhanced worker-ownership along with ComReg will address these issues. The delegation mentioned that it would cost €220 million to solve the split line and carrier problems. Why was this not done? Why were the remaining exchanges, involving a €60 million investment, not done? The Northern Ireland solution is obviously an issue for the Minister and we should really be putting many of our questions to him. It is a political issue for us. Although we have improved, are we still not the laggard of the class? Is there not an ongoing disaster?

Dr. Nolan

It is an unusual way to put the question but I will take it as it was put. On the point that we are lagging behind, Ireland has the fastest growing economy in Europe. Sean Dorgan of the IDA, for whom I have much respect, said there is no evidence that broadband penetration has any effect on inward investment. The Department of Communications, Marine and Natural Resources, in its strategy document, went to pains to outline that the lack of broadband penetration has no discernible effect——

Deputy Broughan

One executive, in particular, among those who appeared before the committee up to 18 months ago, stated his company could not do business in this town because of the broadband problem. It is an ongoing disaster.

I would not mind inviting Mr. Dorgan to one of the Oireachtas committees to explain exactly what the IDA has been achieving under his remit in recent years. Obviously Ireland is near the top of the table in terms of GNP and GDP.

Dr. Nolan

The country is doing very well, as are those responsible for broadband. We have achieved a desirable level of broadband coverage. We can all listen to anecdotes and assume the circumstances they depict obtain in the majority of cases but statistics show that our broadband coverage is on par with the European average.

Deputy Broughan

Dr. Nolan said it was not a demand-side problem. We have investigated the issue of the demand side in our last report. What about the figure of 16% of lines?

Dr. Nolan

There is no supply-side problem. We have managed and solved the supply issues as much as any other country on average. I am not saying the issue is completely solved as more must be done but the Deputy should at least give credit regarding the distance we have come. We have come the vast majority of the way and are now considering the remainder.

There is a demand issue to be addressed. Some 25% of lines cannot have broadband but, of the 75% that can, only 14% have opted for it. We believe, and the reports to the Commission state, it is a demand-side issue. I take credit and my team has done a great job in bringing us from nowhere to where we are today, although I am not claiming victory.

The real task is not to look back but to determine how to proceed from here. There are two issues to be considered in this regard, the first of which concerns addressing the remaining supply issues. Although this has largely been done, there is still some work to do, and we would like to do it. It is difficult because it is not commercial. This is not unique to Ireland or Eircom but is evident in other places. Northern Ireland is the example we all use in determining how to solve the issue. We did not invent the problem, it is not unique to us and it is evident everywhere.

Our PC penetration is below the EU average. We have grave difficulty in selling broadband to those without PCs. An initiative to drive PC penetration would be extremely helpful and there are many examples of such initiatives, particularly in Scandinavia and closer to home in the United Kingdom.

Other initiatives to drive the demand side would be very welcome and this is where the major challenge lies. We have been promoting, advertising and marketing and have spent tens of millions of euro trying to get our product on the market. There is a consumer adoption factor and we must try to drive it. It will be driven when consumers see uses for the product.

Rather than serving as an indictment of anything, we are what we are. We have a very strong economy and country. We have a great opportunity but have been slow to adopt broadband. In this regard, we should be considering the demand side stimulus. This largely concurs with what is in the Chairman's report.

Deputy F. O’Malley

The witnesses are very welcome. What is Eircom's attitude to the current regulatory environment?

Dr. Nolan

I am not quite sure I understand what the Deputy means by "attitude". We are in a regulatory environment and accept it. We accept that some forms of regulation are necessary while others are not. Regulation is very well developed here. The European Commission's own publication — it is not ours and, therefore, does not represent a vested interest — ranked Ireland third in the Union in terms of openness of network.

Deputy F. O’Malley

Does Eircom find the regulator has strength enough to allow it to do its business?

Dr. Nolan

The regulator has very significant regulatory powers. Telecommunications and gas regulators are some of the most powerful institutions across all countries in Europe. They have very wide-ranging powers to do everything. We try to work as best as we can with the regulator. We sometimes agree and at other times do not. When we do not, there are conflict resolution mechanisms such as appeals, the courts and negotiations. I would always prefer to do business through negotiation than by having recourse to appeals or the courts. This is demonstrated by the fact that, over ten years, we have been to court only twice although there have been approximately 110 directions from the regulator.

Deputy F. O’Malley

As with other areas, including the energy sector and health insurance market, in which there is a dominant incumbent, the attitude of the latter to the regulator is always very different to that of bodies trying to enter the market and make it more competitive. This worries me in so far as I believe there should be a competitive environment in which the product can be delivered to the customer. It is important that the customer gets the service. The State has certainly made the investment and it therefore needs to ensure that this will happen.

Having considered submissions from other companies and having communicated with them, we note that Eircom is the first company that has said it believes the regulator does not need added teeth. This causes me to worry, given Eircom's position.

Dr. Nolan

If one is behind the dog, one believes the dog has not enough teeth and if one is in front of it one believes it needs fewer — that is one way of putting it. Our objective is to have a healthy industry that delivers for consumers. I understand the Deputy's focus on delivering for consumers but contend that, in the longer term, an unhealthy industry cannot deliver for consumers, nor can an industry that does not have incentives to invest.

I was in Europe last week with the European operators talking to the Commission and the main issue that arose was the question of how network investment could be encouraged. If, by 2020, we want ubiquitous cable or fibre-type connections to homes delivering 20 to 50 megabits, we must think about what incentives can be put in place so the necessary investment can be made now. The technology has a timeline and takes a long time to roll out. If, however, we want a mixture of technologies, including fixed wireless, satellite, DSL and cable, all competing for a market, there will be less to invest in each one. To deliver to the consumer, there needs to be some sort of modelling in advance. One cannot plan this.

The answer to the capitalist-communist debate on whether one can plan everything to ensure it will be absolutely right on a given day is "No". One must put in place a framework within which there is flexibility and freedom. Therefore, some people will innovate. They could innovate by doing something somebody else has not done or take a risk on some technology on which somebody else has not taken a risk. This is the kind of regulatory framework we should have in place.

Deputy F. O’Malley

May I ask Dr. Nolan about portability, which was raised previously? If I was a new customer to Eircom, how quickly would I get a line?

Dr. Nolan

That would depend on where the Deputy lives. It would first depend on whether there was a cable running into her house. If she was a new customer with no cable——

Deputy F. O’Malley

Let us say I have an existing home and just need a new number.

Dr. Nolan

If it is an existing home we can electronically enable it. That means we can do it from a remote control centre electronically and the Deputy will have it the next day.

Deputy O’Malley

The next day. If I move 12 miles up the road——

Dr. Nolan

If we have to send somebody out to do that——

Deputy F. O’Malley

What if I moved five miles up the road into Blackrock?

Dr. Nolan

It is very difficult to give the Deputy an answer because it depends on the local——

Deputy F. O’Malley

I would be able to take my number with me, is that right?

Dr. Nolan

If she is on the same exchange.

Deputy F. O’Malley

Given that I would be able to do that in a smaller area, why can I not do it if I am not one of Eircom's customers?

Mr. McRedmond

It is because the telephone number is what identifies a line and if anything goes wrong with someone's line, it needs to be repaired and someone has to go out to repair it. What needs to be put in place is an inventory management system that can do that. That has been the problem with portability. It is what we proposed to the industry in 2001. It was not taken up then. We are proposing it again now but even without that, we are saying we will come up with a manual solution. We will employ more people. We have a centre in Castlebar. People can ring that centre and it will deal with the problem. This will be resolved by 8 August and portability should not be an issue thereafter.

Deputy F. O’Malley

Can Mr. McRedmond clarify that? He said that within two months the question of portability would no longer be a problem in this country.

Mr. McRedmond

That should be the case in terms of customers, within certain constraints.

Deputy F. O’Malley

That means 90% should not have a problem.

Mr. McRedmond

Correct.

Deputy F. O’Malley

Following on from Deputy Ryan's questioning, I want to ask about phase 2 of the MANs. Whatever happened in phase 1, Eircom clearly did not engage with eNET to try to maximise the use, which was a recommendation of the report. Will that be done in phase 2? Presumably, Eircom wants to develop business for itself.

Mr. McRedmond

The answer is largely the same. It must be remembered that we do not have all the plans. It is not a case of us doing business with anybody who is putting fibre in the ground. We have a network that has a lot of under-utilised fibre which could be used much more. We have plenty of capacity. In looking at phase 2 and what we could deduce, from memory I believe it was approximately 119 towns. We already have fibre going into 116 of those towns and we provide broadband in those towns. What is the purpose of the business? If there is a case, certainly in the other three towns, we would use it. Even if we reached capacity in those cases or for whatever reason, it would make sense to do that commercially but no rational case has been put forward at this stage.

Deputy Eamon Ryan

Is the problem not that Eircom can effectively name its price? Mr. McRedmond answered my earlier question by saying it does it on a commercial basis but Eircom has the monopoly. It decides. It is not communist versus capitalist; it is a monopoly system. Eircom can name its price and no one can say whether that is a fair price. Why would it not name top price?

Mr. McRedmond

That is just not true. We are cost oriented on our prices. We are regulated. We cannot charge whatever we want. We must charge prices according to regulation. In terms of the confusion surrounding the MANs, we have a network here which is subject to very heavy regulation because it was a monopoly network. It is now subject to heavy regulation and is an extremely open network which any operator can use in a variety of circumstances. I acknowledge there are one or two circumstances in which they might want something different or specific. That is the reason we have the regulator and the reason we have to work thorough those issues with the regulator. We operate under regulation for that reason and the need to work with some other network that is somehow unregulated or competing does not arise.

Chairman

Dr. Nolan, may I ask you about the country schools? You mentioned there is 80% coverage of Eircom's network here. Have you an opinion as to the reason 50% of our schools are using satellite broadband through the broadband for schools programme? We are given to understand by the Department of Communications, Marine and Natural Resources that this was the only available option for those schools. Did Eircom tender for that contract?

Dr. Nolan

Yes. We tendered for the schools contract. We were not awarded any.

Chairman

Not one school.

Dr. Nolan

To my knowledge, no. We have had no involvement, therefore, but I have been asked on a few occasions to help out where major difficulties arose. When asked, we have done that.

Chairman

The question about the——

Dr. Nolan

I do not know about the overall performance of it. I hear anecdotal stories but——

Mr. McRedmond

We do know that the distribution of schools tends not to follow population needs. There are more schools in rural areas than in urban areas etc. It would be a slightly different percentage from our overall DSL availability or coverage of broadband of 85%. It is much higher than 50%. We know that because a number of schools have called us. One school in the north west called us with a problem. This was at the time of the USO applications. It had satellite broadband. It was not working. It is not a great technology. We had a pipe going into that school and we were delighted to provide it with broadband but unfortunately, for whatever reason, and we did tender, we were not awarded any of the schools.

Chairman

On the fixed wireless access, how much does it cost for broadband on the national licence?

Mr. McRedmond

The fixed wireless access we have is expensive for broadband. It costs €800 to connect. We do not have the licence for providing broadband; we have it principally to provide voice, particularly in rural areas where, as the Deputy pointed out, there are much longer lines and where for some customers, even allowing for the universal service obligation, the cost of providing a service to them would be prohibitive. In those instances, and they are very neat instances, we provide voice services using the fixed wireless licence. We have 4,200 customers to whom we provide that service. We only have 254 broadband customers on fixed wireless and I note that this morning, BT in Northern Ireland said it had 100 broadband customers on the fixed wireless licence. That is for a good reason, namely, the coverage of fixed wireless is fairly close to the coverage of DSL or fixed line broadband, which is a far superior technology, cheaper to provide and more robust. It is always our intention to provide people with fixed line broadband.

Having said that, where the licence is important going forward is with newer technologies. A technology called WiMAX is another form of wireless broadband which provides much higher band width and is more robust. That technology has been around for a while. It has always promised much but not really delivered. Nobody has fully commercialised it but we have a fairly extensive trial under way. We have 80 customers doing the technology trial. We are extending that to 160 customers to do an operational trial to ensure we get the operation elements to work, and we have scoped 45 possible sites.

WiMAX is a very exciting technology and it would be wrong to say it will solve many issues but at this stage we are encouraged, certainly by the technical aspects of the test. We have some operational issues to examine. Going forward it will be much more important. Fixed wireless is not sufficiently reliable technology when it is up against fixed line broadband.

Chairman

In your submission there is a sketch indicating that in March 25% of lines could not have broadband but in your answer to the question you say that in June 2006, 85% of network lines are now broadband enabled. Which is correct?

Mr. McRedmond

We say 85% of lines are within broadband exchanges. We used that figure because that is the only figure operators use throughout Europe when they talk about coverage. The average coverage for Europe is 87%; we are at 85% coverage. However, all telcos throughout Europe have an issue in that even though broadband is available, some lines will always be too far from the exchange or there might be some technical issue in the line. In this regard mention was made of carriers.

Every operator has those issues. No operator publishes what is called the line failure rate, so we do not have a comparison there. However, the difference between the 75% and 85% is accounted for by those lines we are not absolutely sure can carry broadband. We are sure that 75% can carry it and we are also sure that 85% are covered by broadband, using the EU definition and the same definition that every other company uses.

Deputy Broughan

Eircom says in its submission that the 15% represents 1,500 sites.

Mr. McRedmond

That is the last 15%, which is not covered. It accounts for a huge number of sites. That is correct because we have an extremely dispersed population. In Ireland there is one third the population per exchange as compared to other countries and that just reflects population dispersion. This is not an easy issue. We have identified the cost of enabling those exchanges as being €50 million. As Dr. Nolan has told the committee, we have called several times for Government to work with us to enable all those——

Deputy Broughan

What about the €200 million in investment which Eircom spent in recent years? Did that go primarily to the enablement of broadband for the other 85%, for improvement in lines?

Mr. McRedmond

That is correct.

Chairman

Mr. McRedmond mentioned that Eircom had 85% of exchanges and lines enabled. Could one exchange, perhaps, account for 40%, another for 90% or 95%? It is not a true reflection of exchanges throughout the country.

Mr. McRedmond

In terms of the number of lines, 85% are connected to broadband exchanges. Within those exchange areas, the line failure rate is 12% countrywide. In other words, 12% of lines where broadband is available, fail for some reason. That can vary greatly, exchange by exchange and is likely to be much higher as one moves into rural areas. As there are more long lines in rural areas, it is likely to differ, exchange by exchange.

Chairman

Before we finish am I correct in saying Eircom has an interim, not a long-term, solution as regards portability and that it does not have to be dragged kicking and screaming to do that, as other operators are indicating?

Mr. McRedmond

We have a solution. We have shown there is no need for us to be kicked and dragged, screaming.

Chairman

I have two questions for Dr. Nolan. I was interested in what he had to say about demand and the committee is aware that there is a great problem about take-up and demand and something must be done at national level to get people to become computer literate and persuade them to use systems. I understand that 60% of houses have computers, perhaps, but only about 40% to 42% are connected to the Internet. Quite a number are dial-up connections still, as we can see, as against the 25% to 30% that are broadband enabled. This is a major problem. Does Dr. Nolan share the committee's view that it is a difficult problem and that the usage level has to be driven?

Dr. Nolan mentioned one part of the equation, namely, content. That is what is driving the AB digital audio broadcasting for radio in the UK. Content is important and also education and, perhaps, community skills.

Deputy Broughan

Eircom could have driven demand. It started to drive demand about a year ago with its famous advertisements and so on, but it could have been doing this all along. It could have put it to Government, for example, that it would enable all the schools instead of the shambles of enablement that we now have. Many schools are not connected or signed on yet. Eircom could have done this. It could have submitted a process of enablement to the last national development plan, but chose not to do so. Is that not the bottom line?

Dr. Nolan

No, we would have been very happy to take on the schools project. We tendered for it. We participated in the process and were excluded.

Deputy Broughan

Was there not scope for Eircom, Dell or whoever to come up with some type of package which included computers and so on? Was any imagination shown?

Dr. Nolan

There are a number of things to considered, not just the fact that if there is a problem, it has to be Eircom. We had a television offer which we brought out on our own with Fujitsu. We have partaken in a number of industry sponsored projects which we have helped to fund. We have encouraged the TIF in IBEC to set up a group for broadband, which Mr. McRedmond now chairs. Currently our losses on broadband are €116 million. Therefore, we have spent a considerable amount of our own money. We have made advances, but it is not easy. Demand is very important. As the Chairman said in regard to what drives demand, PC penetration has been recognised around the world. People do not really want to buy PCs from Eircom, however. They go to people such as Dell and PC World. We brought out our cheap PC and at the time it was the cheapest way to get onto the Internet. We did not sell very many of them. We hope it would spark somebody else to match the price. We did those things within limits. There is no teleco in the world that has been able to embark on leading that demand. They have tried to do things to urge the market along, but they cannot lead it.

Government sponsored initiatives for PCs are a must and this has happened in several countries. The applications in terms of e-government, e-learning, e-education and e-health all give people reasons for participating. One of the reasons that Ryanair, for instance, managed to drive the use of the Internet was that it did not take bookings any other way. That is a great impetus for people to use the Internet.

If we look at the current universe of people who are prospective broadband customers, they are those who use PCs and dial up to the Internet. I reckon there are about 700,000 of them. When Deputy Broughan says we have not penetrated this sector of the market, there is no hope because people do not have PCs, or if they do, they do not connect to the Internet currently, even with dial-up. That is the demand issue. The dial-up prices we have in this country, through our free access offer are very cheap. If people use it off-peak, it offers a very cheap solution to occasional use of the Internet, and the economic imperative for them to move to broadband is very low. We have put it in the document, that the economic gap that must be jumped to change from off-peak free access use to broadband is the biggest in Europe. That hinders people who are low users from using broadband. We have tried giving it away for a period to see whether the usage would keep people, but by and large we wasted our money. We promoted and connected, but when people were asked to pay for the service they disconnected.

Chairman

In finishing, the committee understands that Eircom is open for business with other telecos, with demand if required and for more Government business if it can get it. Is that my clear understanding of the Eircom position?

Dr. Nolan

There are a number of ways we do business. We are open for business on a commercial basis with anybody. We are open for business on a regulatory basis. We would argue, in some instances, that this is not on a commercial basis, but that is beside the point. That is the law and our obligation and we will fulfil that.

Last year about 176,000 customers chose to leave Eircom and go to other people. I am not going to argue about how much it is, but if one takes 1.8 million lines, that is approximately 10% or probably more of telecom users who chose to leave us and go to someone else. That is because they are exercising choice. Competition is all about choice. Therefore, a great many people exercise choice. Of those, 140,000 came back because we actually provide a good service. We cannot coerce people to come back; we make them an offer and they come back.

Chairman

How many came back?

Dr. Nolan

Some 140,000 odd.

Senator Finucane

When something goes wrong, that is the reality.

Deputy F. O’Malley

Dr. Nolan mentioned, when I asked about the regulatory environment, that when one is behind the dog one does not look for people to be there. That implies that Eircom sees the regulator as protecting its interests.

Dr. Nolan

What I said was that when one is in front of the dog——

Deputy F. O’Malley

No, but Eircom saw itself as being behind the dog.

Dr. Nolan

If I said that, I mixed up my analogy. What I said was if one was behind the dog then it has not got enough teeth because it was attacking someone one wanted to attack. All our competitors would like the regulator to have more teeth because it is in their commercial interest that they get more.

Deputy F. O’Malley

Eircom would not.

Dr. Nolan

We get regulatory directions and all things with which we have grown up and we feel that we have got many more imposts than we can possibly deal with. We would like to see less, but that is life.

Deputy Eamon Ryan

Is Dr. Nolan saying that he would accept the regulator setting a price for standard access to his backhall network, which could be part of a future MANs extension?

Dr. Nolan

The Deputy is putting words in my mouth. His question is not exact enough for me to say yes or no. It is in our interest to ensure that Ireland gets as much broadband as possible. We are behind that. Where we can do that and still protect the interests of our shareholders and of our employees, then we are right behind it. We are not in the position where we do not want this to happen. We are open to any reasonable suggestion on how we move forward. I would like the dialogue to happen, but we must make sure that it is not disrupted by stating that it must be one way or another. There must be some flexibility and innovation in how these things happen.

Chairman

I thank Dr. Nolan and Mr. McRedmond for appearing before the committee.

Sitting suspended at 3 p.m. and resumed at 3.05 p.m.

Chairman

I welcome the three regulators, Ms Isolde Goggin, Mr. John Doherty and Mr. Mike Byrne. I thank them for the detailed information they have given to the committee and the responses to the questions we asked. We appreciate that because it will be helpful to us when we are concluding on this matter. Rather than have a complete presentation, we should reflect on some of the questions that were put today in order to get clarification.

Ms Isolde Goggin

We had a brief opening statement prepared that would only take a couple of minutes.

Chairman

That is fine.

Senator Kenneally

Previously in the Seanad I raised the issue of the problems that arose when a number of parishes around the country had to stop broadcasting masses. I got a telephone call from ComReg about this and I explained what was happening. I said that I intended to raise it at this meeting and I was told that was fine and that substantial progress should have been made at that stage. I am raising the issue now, as I promised I would, before we get into the discussion about broadband. I would be grateful if the witnesses could let me know where we are with this situation.

Chairman

Mr. Byrne might refer to this in his response.

Ms Goggin

On behalf of ComReg, I thank the committee for the invitation to appear here today. I acknowledge the valuable contribution made by the committee in its various reports on this key issue for Irish competitiveness. It is now over two years since the committee's first report was issued and we are pleased to say that substantial progress has been made in that time. There is no room for complacency and much still remains to be done. Many of the indicators are now on a far more positive track.

Broadband adoption in Ireland is growing rapidly. Penetration is now at over 8% of the population. We have over 350,000 broadband subscribers in Ireland, an increase in 114% in the past 12 months. While that is a huge growth rate, it is more significant that the competing platforms are representing an increasing proportion of the total. Fixed wireless access has grown 340% and cable has grown 170%. We have one of the highest growth rates for broadband subscription in the EU and the pricing situation has improved greatly. Our digital subscriber line product, DSL, is now the sixth cheapest in Europe and prices from the fixed wireless suppliers are comparable to those.

Our own responsibilities are to regulate Eircom's wholesale provision of broadband services in line with European legislation and to promote competition via alternative platforms such as wireless and cable. We consider that LLU, local loop unbundling, is a critical component in ensuring that consumers are provided with a choice of innovative and keenly priced broadband services, as well as contributing to the wider aim of developing Ireland's competitiveness. The key element of LLU as opposed to Bitstream, which is where the other operators resell Eircom, is that it allows the competing operators to put in their own equipment and design their own services. It is not a rebranding of the incumbent's products, but a genuine choice and innovation.

We feel that sound progress has been made on key elements of LLU. We recently issued a document outlining the key milestones agreed with all the operators which are necessary to advance the LLU process. This is a roadmap to achieve full unbundling in a satisfactory timescale. We intend to monitor this very closely in the coming months and to publish monthly updates on progress. We note that LLU is now running at more than 1,000 orders per week, up from 100 per week this time last year. In recent months, the volume has greatly increased.

With regard to alternative technologies, we believe that there is no single way to achieve the deployment of fully national broadband services, that is, 100% availability. There is no silver bullet. International experience has taught us that DSL on its own will not create a broadband-based community. Issues such as line failure and customer distance from the local exchange all have an impact. There are also areas without appropriate exchanges and where a combination of economic and technical issues will result in DSL deployment being impractical without further investment. Therefore, a range of technologies have a part to play, such as fixed wireless and cable and these have provided choice to customers.

Good progress is being made on the supply side, but there will still be a residue of consumers who will not be able to get broadband without further intervention. On the demand side, if we currently have 350,000 customers then that means there are about 850,000 consumers who could get broadband but have not availed of it. If we are to improve our standing in the league tables, demand stimulation is central to driving take-up in Ireland, by giving both consumers and business a reason to move to broadband.

The key challenges for operators and other stakeholders are stimulating energies of demand for broadband and increasing the use of the Internet through increasing business and consumer awareness of the benefits of broadband, encouraging relevant content and application creation, and encouraging PC ownership and Internet usage. Our role is to raise awareness of innovation in networks as a means of promoting competition. Our key recommendation is that demand must also be stimulated in parallel with the developments on the supply side. We welcome the provisions of the proposed electronic communications Bill and the proposed new co-competition powers to address the LLU challenges and others which will arise in this sector.

I wish to deal briefly with the church broadcasting issue. It came to our attention, through investigation of a complaint from the Irish Aviation Authority, that some churches were broadcasting mass locally in the FM frequency bands — they are the bands, from 88 MHz up to 108 MHz, on the dial on a radio. They are right next door to the aeronautical radio navigation bands, which begin at 108 FM. It is crucial that there should be no unlicensed broadcasting in that band. We simply cannot allow it. It is a safety of life issue. If we cannot allow unlicensed band broadcasting, there poses the question as to what we can do about it. We recently signed off, as did the Minister, on regulations to allow local broadcasting systems in CB bands which are at 26 MHz or 27 MHz, about which there are not interference issues. We expect those regulations to be published in Iris Oifigiúil this Friday and the commencement date will be 30 June. From then on we can issue licences to anybody who wants to provide broadcasting services to parishioners in that band.

On the question of whether licensed broadcasting can be provided in those bands, that issue would have to be referred to the Broadcasting Commission of Ireland because we do not licence sound broadcasters. Our relationship with broadcasters is that we licence the frequencies to RTE and to the Broadcasting Commission of Ireland and then they enter into programming contracts with the various commercial broadcasters. In terms of the regulations we have completed, we are doing all that we can within the current system not to deprive people of this system but if further movement is wanted it will have to be taken up at a wider area.

Chairman

I take it that ComReg is supportive of broadcasting religious services and other community services.

Ms Goggin

We are neutral on whether they are religious or community services. I understand there are provisions in the Broadcasting Act on equality of access to different communities but, unfortunately, that is something the BCI and not ourselves must implement. It seems to be a difficult area. Our responsibility is to make the frequencies available to the BCI as and when it requests it.

Chairman

What spectrum on the frequency is it? Is it 27 MHz?

Ms Goggin

It is 26 MHz to 27 MHz.

Chairman

Will that require the installing of new equipment by churches and other bodies that may apply for a licence to the BCI for those frequencies?

Ms Goggin

A number of churches are de facto using these frequencies. They are like an extension of their public address systems. In some cases they would have the equipment. In other cases, if they have been using the FM bands, they would have to get other equipment.

Senator Kenneally

Would the purchase of such equipment by churches be expensive?

Ms Goggin

No, the equipment one would use to broadcast from a church would be €1,000 and the end user equipment might cost between €30 to €50.

Senator Kenneally

One would not be able to pick up the frequency on an ordinary radio?

Ms Goggin

Not unless one gets it licensed by the BCI. I do not know if there is some scope in that respect and I do not want to put words in the mouths of those in the BCI because I do not know how they implement the legislation as regards the representation of various communities. The only way it could be picked up on an ordinary radio is if it is a sound broadcasting service.

Deputy Finucane

Ms Goggin referred to risk of interference on aeronautical bands, is that risk confined only to certain areas? Much of the focus of the publicity of this risk was on Kilkenny and its surrounding areas. Would the threat of a similar level of risk exist in County Limerick and the area around Shannon Airport?

Ms Goggin

It isa threat that is unacceptable, irrespective of what area it is in.

Senator Finucane

Have the locations where the broadcasting of mass services pose a potential risk been identified? The media highlighted the risk in this respect in Kilkenny and the surrounding area. Is it a national or a localised problem?

Ms Goggin

It is a national problem. The issue is that the signal does not simply go sideways it also goes up. We had representations about the area in Kilkenny.

Chairman

I must move forward with this debate, as the Minister is due to speak at 4 p.m.

Deputy Durkan

The highest spectrum one can tune into on a standard domestic radio is 108 FM, one cannot get a frequency beyond that level unless one has a special radio.

Senator Finucane

There are special devices one can put on the top of one's house to receive mass service broadcasts.

Deputy F. O’Malley

We have not had a chance——

Deputy Durkan

I accept that but-——

Senator Finucane

This is an important issue.

Deputy F. O’Malley

I know that.

Chairman

Thousands of mass-goers throughout Ireland are concerned and wonder if they can tune into their local mass or religious service. We would be doing a great service to the public by listening to what the representatives of ComReg have to say on this and asking whatever questions need to be asked.

Deputy Durkan

In my area the 108 FM band is the highest level of the FM band spectrum at which I can get a reception on radio. In the days when I was lighter, I learnt to fly aeroplanes and from memory the 113 band was usually used for ground use and the 121 or 125 band was used for communications with aircraft. Where have the bands merged and what has happened in the meanwhile? Ms Goggin can refer to that again if she wishes.

Chairman

I ask the Deputy to put questions to ComReg on the issues with which we are dealing today.

Deputy Durkan

I wish to raise a question I have raised with a number of other service providers. The Eircom report states that the company invests a certain amount of money in infrastructure on an annual basis. I would describe that as rejuvenation of infrastructure, which is a normal requirement. Having regard to the total value of Eircom, does ComReg consider that level of investment on an annual basis is sufficient, insufficient or average and it is achieving the desired result?

Having regard to the views expressed earlier by the various service providers, including the dominant provider, is Ms Goggin imbued with any new sense of direction or resolve as a result of anything she might have heard? I draw her attention to line failure in broadband. We were not able to get information on the extent of that line failure because it is supposed to be commercially sensitive. Is ComReg aware of the extent of line failure resulting in an inability to provide broadband services?

I wish to put a further question that I have put to other service providers, namely, does ComReg envisage its role will change in the aftermath of the sale of Eircom to the new company? Does ComReg intend to take any new initiatives? Would it be surprised if the Minister suddenly decided to introduce a change of regime, attitude and purpose in the future, given that telecommunications services are vital to industry and the domestic sector and our expanding economy greatly depends on them?

Chairman

Ms Goggin may response to those questions or share them out among her colleagues.

Ms Goggin

In terms of the level of investment, we check what Eircom states in its annual report and financial records about what its spends on fixed assets. According to its most recent annual report for the year to 31 March 2005, it has spent €209 million on fixed assets. Those accounts are independently audited by Eircom's auditors and they appear to be comparable, on a percentage basis, with what is being spent by incumbents in other European countries. We would also be aware of the details of Eircom's broadband exchange enablement programme, which is available on its website. It is regularly updated with the list of exchanges which have been enabled. It has almost achieved the desired result. There is an end group of consumers whom the digital subscriber line, DSL, will never adequately serve and we need to look at other ways to serve them.

We take very seriously the statutory objective of promoting competition, as set out by the Oireachtas in the 2002 Act. We have made a significant effort in the past few years to enable many small wireless operators to get up and running by having easy access to spectrum, low entry costs and so on and have tried to encourage investment in the cable industry. The slow rate of broadband roll-out two years ago was almost an opportunity for those operators because they were able to get in and pick up consumers. We would like that to continue and for them to put pressure on Eircom by having a good level of roll-out and consumers.

We retain the level of resolve we had, to keep the different streams going. I have mentioned fixed wireless and cable but we are also determined to achieve results on local loop unbundling. I will ask Mr. Doherty to speak about that in a moment.

We get information from Eircom about the rate of line failure and the time to repair, and issues regarding repeat faults and so on. Our experience of the number of lines connected to a broadband-enabled exchange that will fail the test appears to be in line with that in other countries. The experience in Northern Ireland, for example, bears that out. We were set up as an independent regulatory body in 1997. Since then Eircom, which had been a State-owned body, has been privatised, re-floated on the stock exchange, and been taken over again. This does not change our role. Assuming that the takeover goes ahead, we will meet the new chairman, if there is a new one.

Deputy Durkan

Will ComReg set down any new parameters?

Ms Goggin

We will have the same parameters but some of the people involved there have a track record in the telecoms industry in countries where broadband roll-out has been very successful. We will put it to them that we expect to continue on this track.

Mr. Mike Byrne

Some people have speculated that there will be a reduction in Eircom's obligations but it is quite clear that whatever obligations Eircom has today will remain in place once the takeover is complete. Eircom has an obligation as the universal service provider. Obligations regarding any wholesale costing or the provision of retail products through its wholesale services will remain in place irrespective of the change in ownership. There will be no reduction in obligations as a result of the takeover.

Senator Finucane

There was speculation before Babcock and Brown finalised the deal that it had approached the Government to ask that Eircom's privilege in respect of local loop unbundling prevail in the new company. Was there any agreement of that kind? Local loop unbundling is a perennial question on this committee. Is it true to say Eircom has taken on ComReg on different occasions in respect of this issue?

While it is excited to be unbundling 1,500 lines a week, up from 200 a week in 2005, that is only 3% of the whole DSL, which it will quantify later. Is this positive news with regard to local loop unbundling for the future because this is a vital component of opening up the market place?

Mr. John Doherty

I agree as does the commission, that local loop unbundling is a key building block for innovative broadband services. When we started out in 2001 dealing with number portability it was a data only service. Today it is a fundamentally different product and service, in the interest of consumers. ComReg was not happy that sufficient progress was being made quickly enough and that is why it set out the milestones.

Deputy Broughan

If that was the case and ComReg has the power to levy fines of €3,000, why has it not fined Eircom day in day out for the past three or four years?

Mr. Doherty

The other operators must first furnish a request and develop that request. That was formulated and by the beginning of this year——

Deputy Broughan

At this committee two years ago, when Mr. Doherty was present, we heard a similar saga of failure to comply all across the board but ComReg has not acted on this. Is it not the case that ComReg is almost a perfect specimen of regulatory capture? It is captured by the incumbent. Not alone is it the incumbent's poodle but it is like a house pet of the incumbent. Why did it not at least use the power that was open to it?

Mr. Doherty

We have used our powers and have made fairly clear what needs to be done.

Deputy Broughan

Every time ComReg comes——

Chairman

The last time ComReg was here Deputy Broughan had a robust exchange with it. He should take it easy now for a second and let Mr. Doherty finish.

Mr. Doherty

Perhaps I can answer the question. The formulation of, and serious demand for, local loop unbundling has only crystallised in the past six to eight months. We have tried to move the whole industry forward. We have an opportunity to do this but Eircom must provide the services around number portability.

It is unacceptable that customers could be asked to lose service because they have elected to go to another operator. We have set out clear milestones and have made Eircom clear about what we propose to do. To be fair to Eircom, it is in line to meet the objectives we have set out, which runs counter to the suggestion that we are a poodle or an Alsatian.

Deputy Broughan

ComReg is a peaceful Labrador. ComReg came has presented us with a document dated 30 May 2006, setting out milestones. We have heard this many times. We know there are issues to be discussed, which we will put to the political master when he arrives, regarding the long-planned legislation that has not appeared, to give the dog a reasonable set of teeth.

Is there not a sense of déjà vu about ComReg’s presentation today? It is always on the verge of doing something. In the past year there has been a significant improvement and 350,000 lines have been enabled but there is always the promise that ComReg will do better in the future. Why did it not use at least the little power that was available to it in recent years?

A sea-change may come over Eircom in two or three months' time. Several Deputies on this committee have met the incoming management and some of the promoters and so on. The outgoing team ran rings around ComReg.

Mr. Doherty

I do not accept that. If one applies any measurement about the openness of the market here, whether wholesale line rental, on which most of Europe has tried to copy us, or the fixed line——

Deputy Broughan

We charge four or five times the average EU price for wholesale line rental, for example, in the United Kingdom——

Mr. Doherty

We are one of the best providers of access products. The European Commission defined us as the third most open market in Europe. There seems to be no recognition of the progress that has been made on broadband. We have one of the cheapest broadband services, taken up by 8% of the people. We have one of the highest trajectory growth paths. People seem to ignore the fact that we are ten times as high in local loop unbundling as we were 12 months ago, which is genuine progress.

If the Deputy is asking whether there is more we could do the answer is "Yes" and that is why we set out milestones and are determined that Eircom will reach them. We use our powers appropriately.

Deputy Broughan

How many times did ComReg use the existing penalties to fine Eircom? How many times was the €3,000 fine levied? Was it ever levied?

Mr. Doherty

It has never been levied. The objective was to move the process forward. We want to try and work with the industry in terms of local loop unbundling, LLU. We now have ten times as much as we had a year ago. At the same time we also have milestones which give potential for further provision of local loop unbundling. I see no reason we will not meet those targets, as we are doing currently.

Chairman

Earlier this morning two operators spoke about number portability and local loop unbundling. Mr. Doherty may have heard me asking Eircom whether it needed to be dragged and kicked to provide local loop unbundling. Is ComReg satisfied with Eircom's answer to the committee that we will have the interim solution by 8 August? Also, what Deputy Broughan said was that line rental here is €8 above the European average and €6 higher than our nearest EU neighbour.

Mr. Doherty

If I may answer the question, we have set out milestones which set out a number of interim measures. What we must be able to do is to move into an automated processing method. We all accept that the interim measures are simply that and not an endgame. However, they are a way of moving the process forward so that operators can invest in the marketplace, acquire customers and provide increasing choice and variety of services, which we think is critical. Eircom has committed to meeting the particular deadlines set out in the milestones and we intend to keep it to them.

Senator Finucane

To clarify, is ComReg happy about Babcock & Brown's emergence on the scene? Under those circumstances will the local loop unbundling continue at the frenetic pace achieved in the past year, up to 1,500 lines from 100 per week in 2005? Has ComReg finished with the litigation through which Eircom tried to stymie ComReg with regard to achieving its objective of local loop unbundling? Is that over?

Ms Goggin

First, local loop unbundling is a requirement of the European regulatory framework. It is set down in the directives and is implemented in Ireland by ComReg. Therefore, who owns Eircom does not matter or make any difference. The requirement or obligation for whoever is dominant in the provision of metallic local loops to open those up and make them accessible to other companies will remain.

On the question of whether we are happy with the rate of unbundling, the answer is "No". We have made a start to the process, it is ticking along and we have set out milestones for the next steps to be taken. As Eircom said earlier in response to the Chairman's questions, it is committed to the milestones and will implement them. We will not be happy until we are at the end of the process, all the milestones have been achieved and the rate of local loop unbundling is comparable to the best in Europe.

Senator Finucane

How long will that take?

Mr. Doherty

We do not know.

Deputy F. O’Malley

The criticism of other operators in the market is that ComReg has interpreted its job description too narrowly. Does Ms Goggin agree with that? Several people said today that if ComReg used the powers it already has, we would have a much better broadband system here. What is ComReg's reaction to that?

Ms Goggin

I did not hear what people said about interpreting our brief too narrowly so I am not sure what they meant. However, I do not think so. Through the legislation under which we operate, the Oireachtas has set down broad objectives for us with regard to promoting competition, the interests of consumers — where we have made great strides in recent years — and the completion of the internal market. We have taken all those objectives on board. I do not accept we have been in any way backward in trying to move the process along in terms of local loop unbundling.

As the Deputy knows, last year we ended up in the High Court with Eircom. We were told we had to go back and give Eircom every chance to appeal any decision we would make. The provisions with regard to appeals create the possibility for delay. They are, however, part of the European framework and there is nothing we can do about it. We must all work within that framework. This is why we have put so much time and effort into getting a consensus and in making sure that all sides are ready to step up to the plate and do what it takes to make LLU a reality in the Irish market.

Deputy F. O’Malley

Smart Telecom mentioned that it has been hearing that for five years, but there has been little action. It is only in the past six to 12 months that the LLU rate has increased, from a very low base.

Mr. Doherty

It is fair to say that these issues are not unique to Eircom. This is not just an issue of Eircom not doing something. There are issues on the operators' side in terms of getting systems in place.

Deputy F. O’Malley

As Ms Goggin said, the critical element in terms of developing competition here is local loop unbundling. We, the people who want the service, are held to ransom. Smart Telecom said earlier it could not access customers. The regulatory environment is not working well if competitors cannot access customers directly.

Mr. Doherty

That is why we have set out the milestones with regard to what needs to be done by a specified date. I agree with the Deputy it is unacceptable that customers cannot get a service. This is the reason we have set out these parameters. We have directed Eircom with regard to delivering on these measures and we expect it to adhere to them.

Deputy F. O’Malley

ComReg has not included timescales for delivery.

Mr. Doherty

We have. The decision is quite comprehensive in terms of when and how much. To be candid, it is beyond the next stage. The devil is in the detail. What we have in place now is a workable interim solution.

Chairman

Will that commence on 8 August?

Mr. Doherty

Yes. The next stage, when we get the volumes up, is to have automated systems in place to support the type of volumes the market can provide.

Chairman

Eircom spoke about that also. Is Mr. Doherty aware that Smart Telecom mentioned it had 6,500 customers waiting to be connected or transferred to its account?

Mr. Doherty

We are aware of bottlenecks with regard to processing. Smart Telecom shared those details with us last night at approximately 5.45 p.m. We were aware there were issues with regard to the processing of orders. Previously we called in senior management from Eircom to explain the issues. Eircom does not agree with the figures and we are currently carrying out an investigation with regard to the detail.

Chairman

With what figures does Eircom agree?

Mr. Doherty

Eircom feels that the actual figures for orders are probably half of those being quoted.

Chairman

Eircom would not give us those figures today and said it was not aware of any complaints. Is ComReg saying that it called in senior management of Eircom — I presume it was some of those who were here today or those under them — and discussed this matter with them? Yet, Eircom indicated to the committee today that it was not aware of any major problems.

Mr. Doherty

Not only that, but we had a number of forum meetings on the specific issue of what could be described as the standard processing of local loop unbundling and how it is not working. One of the challenges is that in the absence of number portability, some of the companies have been selling to people who either do not have a number or are new customers. It takes longer to provide those services because a new number or line may be required. It is true to say, however, that we have brought the problem to Eircom's notice. We have had the senior network director in ——

Chairman

What is important to this committee is that people presenting before the committee should tell the truth and provide accurate answers to questions posed by committee members. Would Dr. Nolan and Mr. McRedmond be part of the team of Eircom managers that ComReg called in to discuss the issue?

Mr. Doherty

They would have been part of the team.

Chairman

Were they present?

Mr. Doherty

One of them was present.

Chairman

Which one of them was present? I can handle this.

Mr. Doherty

Mr. David McRedmond is the normal party with whom we deal. We have also dealt with the key network director to try to understand the problems.

Chairman

Mr. McRedmond was there.

Mr. Doherty

Yes.

Chairman

We will reflect on the Dáil record as soon as we have it. We will examine exactly what was said. I ask Deputy Fiona O'Malley to continue.

Deputy F. O’Malley

Did ComReg ask for the new powers which it is about to be given? Did the Minister decide that such powers were necessary to strengthen this country's regulatory system?

Ms Goggin

I will give some of the history of this matter before I ask Mr. Byrne to respond to the Deputy about some of ComReg's specific new powers on overcharging and customer protection. The Communications Regulation Act 2002, which established the three-person Commission for Communications Regulation, provided for penalties to be imposed in cases of breaches of directives. It made it an indictable offence to breach the directives. A set of EU directives was subsequently introduced in 2003. It is obvious that they were transposed via secondary legislation, which can only create summary rather than indictable offences. The miscellaneous provisions Bill will restore the circumstances which existed under the 2002 Act, but was subsequently amended by EU legislation, in cases of breaches of directives. It will bring the 2002 provisions back, which is something that the commission was keen to see happen. I ask Mr. Byrne to speak about some of the additional provisions of the new legislation.

Mr. Byrne

I will respond briefly to a question that was asked earlier. The commission has been quite proactive in completely expanding the full interpretation of its responsibilities under the regulations, particularly in respect of the provision of information to consumers and the protection of consumers. The commission will receive some additional powers within that area to deal with incidences of overcharging in the electronic communications sector. It has built up a strong track record of dealing with overcharging when it has happened. It has secured full refunds for consumers, as well as the payment of additional compensatory payments, such as call credit in the case of mobile telephone services. ComReg has developed two award-winning websites, one of which deals specifically with consumer-related questions. As it works in an extremely technical area, as we have seen today, the commission tries to make information available to consumers in a form that is easy to understand.

The second website that has been developed provides information about call costs. When it was initially launched it dealt with mobile telephone costs, but in a couple of months' time it will deal with fixed and bundled broadband costs. If consumers enter details of their usage patterns on the website, they can get information on the products available in the marketplace which best suit their needs, ranked by order. The commission has taken this matter very seriously. It is quite proud of its achievements and its record.

I will now respond to the question that was asked about powers. Some of the provisions of the new miscellaneous provisions Bill relate to areas in which the commission has been asked by the Minister to take action. I refer to the regulation of the new electronic call answering service, for example. Other examples include the replacement of the 999 service and the regulation of the .ie domain registry. The commission has looked for additional powers in a number of areas, including consumer protection. It has asked for co-competition and enterprise powers so that it can deal with future possible logjams in the area of local loop unbundling with the incumbent.

Deputy Broughan

Opposition Deputies were not given an opportunity see the heads of the Bill, obviously. Did the commission set out a menu of powers that it would like to have on foot of this legislation? Does it appear, to the best of the commission's knowledge, that the Minister is not granting any powers which it would consider to be necessary?

Mr. Byrne

The commission responded to the request for consultation on the draft heads of the Bill. It is obvious that the commission and the Minister's officials deal with each other on a regular basis on operational matters, for example, or on legislation that would allow the commission to do its work more efficiently. The commission is confident that the proposed miscellaneous provisions Bill will allow it to handle the issues it is dealing with today and is likely to deal with in the future. Having said that, it is very difficult to foretell the future.

Chairman

Did Deputy Broughan have an impact on the energy Bill?

Deputy Broughan

We were supposed to.

Chairman

We have not seen it yet. I thank Mr. Byrne.

Deputy Eamon Ryan

I thank the commissioners for attending this meeting. They have painted a positive picture of where we are going. I am sure the Minister will be even more upbeat. He has set a target of there being approximately 400,000 broadband subscribers by the end of 2006. Does the commission agree that, according to the OECD's broadband penetration figures, if we achieve the 400,000 target we will have approximately ten subscribers per 100,000 people, or the second smallest level of broadband penetration in the 15 countries which were members of the EU before the enlargement of 2004? If one compares Ireland with some of the countries with which we should be comparing it, such as Denmark, one will find that they have increased their levels of broadband penetration significantly from a level of 1% or 2% in 2001. Denmark has increased its broadband penetration to 25%, Finland has increased it to 22%, Belgium has increased it to 18%, the UK has increased it to 15% or 16% and Norway has increased it to 21%. The countries with which we are competing in economic terms seem to have twice Ireland's level of broadband penetration and the gap is not closing.

If one compares the relative growth in this area in Ireland to that in other OECD countries one will find that while broadband penetration in Ireland is increasing, the difference between Ireland and its competitors is not decreasing. I am not speaking about whether something like broadband is a good thing — it depends what people use it for, I suppose — but about whether our level of broadband penetration is affecting our economic development. On that basis, it is clear that the countries with which Ireland is competing are continuing to move further ahead of us. Does the commission dispute my portrayal of the reality in this regard?

Ms Goggin

I do not dispute the current statistics but when one considers that Ireland's rate of broadband penetration has grown by 114% over the last year, whereas the annual growth rate in the EU as a whole is 50%, it is clear that we are catching up. We might not catch up by the end of this year, but we should be well above the average within two or three years.

Deputy Eamon Ryan

In 2005, the yearly growth in broadband subscriptions per 100 population was 4.5 among the 15 pre-accession EU member states, which are the countries with which we are directly competing, but it was just 3.4 in Ireland.

Ms Goggin

Yes, but it depends on the base from which one is coming.

Deputy Eamon Ryan

It is obvious that Ireland is coming from a lower base.

Ms Goggin

The system has to be able to absorb the growth, particularly when we are trying to foster competition among fixed wireless guys and cable guys. We should bear in mind that they started from zero — not only did they not have any broadband, but they did not have any customers at all. Many of them started their own companies. We are connecting approximately 15,000 broadband subscribers each month. We should be ahead of that target by the end of this year. That would mean there would be an additional 180,000 subscribers each year. I apologise — I do not want to do the sums in my head as that would be far too risky. We are growing faster than the countries which are near us.

We have to consider the point at which the adoption curve flattens out. As long as we continue to grow at the current rate, that is fine, but the curve will level out at some stage. The point at which it levels out will depend on a number of factors. It will be influenced by the number of people who have personal computers. Why would one want broadband if one does not have a PC? Approximately 55% of households have PCs and 45% do not. Approximately 10% of households which have PCs do not have Internet access. That means that approximately 45% of households have PCs and Internet access. If we are limiting our addressable market to 45% of households, the point at which broadband penetration will start to level out will be much lower than it would be if a higher percentage of the total population was addressable. Such attributes on the demand side have to be taken into account.

I would like to speak about the contribution of broadband technology to Ireland's competitiveness. This issue is particularly relevant to small and medium sized enterprises, particularly those at the smaller end of that scale. Larger companies do not really have as much of an issue in this regard because, as we said earlier, many of them are looking at leased lines in any event. Very big companies normally get fibre in, etc. In the case of small and medium sized enterprises, there has to be a value proposition as regards productivity. There is no use in saying to such companies that they should get broadband if their costs are very tight — they do not want their employees to use broadband to Google their ex-girlfriends, etc.

Such organisations must be shown how broadband will contribute to one's bottom line. ComReg believes there is a need to raise awareness in respect of the services and products which will really make a difference to such organisations, consumers and the entire nation.

Deputy Eamon Ryan

At a previous presentation, Mr. Doherty addressed the issue of the roll-out of the vulnerable user scheme. The committee had expressed concern that as the fixed line rental rate was extremely high, it had a disproportionate effect on those with lowest incomes, as it constituted a very large percentage of their overall bill. Although the vulnerable user scheme was in place, it appeared to be hidden in the vaults of a building in St. Stephen's Green or somewhere because at the time, only 100 or 200 users availed of it. What is the current usage of the scheme? How successful has ComReg been in ensuring that those on lowest incomes are not disadvantaged by what appears to be a clear policy on the part of Eircom to try to ramp up their fixed line revenues as much as possible?

Mr. Doherty

As ComReg stated in this context the last time, this programme requires continual promotion, which is basically what has happened. I am glad to report that the figure of a couple of hundred people, to which I may have alluded the last time, has now grown to the point where more than 22,000 people have taken up the vulnerable user scheme. We continually explore ways to propagate that message best, in order that those to whom it is relevant know it is available. Moreover, ComReg does the same in respect of Eircom. As the joint committee is aware, one slight change which took place in the marketplace since then is that the Government has introduced a telecommunications scheme which benefits disabled people and those over 70. In total, it equates to approximately 400,000 people. Hence, the combination of the two schemes provides a degree of protection to vulnerable users. However, we must keep bringing this matter to people's attention to ensure they are aware of its benefits.

Deputy Eamon Ryan

I have concerns in respect of the roll-out of the metropolitan area networks, MANs. The concept was originally supported by most parties, on the grounds that it might help to introduce competition and kick-start the market. However, although €120 million has been spent, the volume of traffic on such networks appears to be remarkably low. One of the joint committee's key recommendations in advance of the development of the MANs, namely, that they should be operated and developed on the basis of using the existing fibre network — on which there is plenty of capacity — has not occurred.

What is ComReg's role in the development or use of the MANs? As I suggested earlier, what is its role regarding the possible regulation of operators in order that existing fixed fibre could be used in new MANs? Price regulation could make it effective. Has ComReg worked on this matter and what is its role?

Ms Goggin

Our role pertains to the promotion of competition. It is immaterial to us whether the source of the competition comes from the public or private sectors. In so far as Eircom has significant market power in any particular market, its prices will be regulated. For instance, the leased line market has trunk segments and terminating segments, and the MANs are somewhere in the middle. However, Eircom is obliged to have cost-oriented prices for such elements and to make them available to other operators on a cost-orientated basis. Hence, there must be access to its network.

As for the Deputy's proposal, I am unsure how such combined competition and co-operation between Eircom and the MANs would work. They were intended to operate as competing, rather than as combined infrastructure. Hence, it would be difficult to get them to work together on such a basis. I would like to consider the suggestion further, to explore how it might work.

Deputy Eamon Ryan

From a competitive viewpoint, the State has, in effect, spent €120 million to develop infrastructure which only generates €3.5 million in revenue per year. While one might not describe this as a distortion of the market, a major investment is not being used effectively. Does this raise questions of competition with ComReg, or does this not affect the market? Is it part of ComReg's role to examine the effect which such investments have?

Chairman

That question would be better addressed to the Minister. It is not a question for ComReg.

Deputy Eamon Ryan

I am interested, given ComReg's competition brief, that Ms Goggin has queried how one can both compete and co-operate at the same time. This is ComReg's job. In a sense, everything is false in a regulated market. Hence, why not regulate such a co-operative approach?

Ms Goggin

First, do the MANs distort competition? As the Deputy is aware, the European Commission Competition Directorate General has examined whether the MANs are a State aid which distorts competition. It decided that this was not the case, and that they are justified on the basis of regional development and bringing broadband to areas in which it might not be otherwise available.

As for ComReg's role, rather than regulating the MANs themselves, it regulates those who provide services over them. The MANs were intended to provide dark fibre, after which the operators came along. Hence, the customers of the MANs come within our bailiwick. However, their potential regulation depends on whether they have significant market power. The trigger for regulation is significant market power in any market, be it wholesale or retail, trunk or terminating segments. This is where Eircom's obligation to provide cost-orientated access and so on comes in. Thus far, none of the MANs have reached the trigger point where they would become subject to regulation.

Chairman

This will be the last question, as the joint committee has gone over time and the Minister is waiting to appear before it.

Senator Finucane

Many people complain about unwanted telephone calls from fairly aggressive companies. Such companies first ask whether the person answering the telephone is the householder, and then begin a sales spiel. Many people complain about this unnecessary harassment. I have met several elderly people who have been called several times and who are concerned by it. Has ComReg encountered this issue, and how does one contend with it?

Dr. Nolan was quite eager to state that although 10% of his customer base, or 176,000 people, left Eircom last year, 140,000 returned. There must be an underlying reason as to why 140,000 customers returned. I suggest that many people leave because it is spelled out that they will have cheaper telephone calls. However, because the line rental remains with Eircom in most cases, the billing process subsequently becomes quite messy and people return to Eircom out of frustration. Has ComReg any views in this regard?

Mr. Byrne

The first point is of concern to the regulator. ComReg and other regulators are concerned with the protection of consumers from receiving unwanted direct marketing calls. The Senator may have seen reports in yesterday's newspapers that the Data Protection Commissioner and ComReg took direct action against a particular operator who was in breach of——

Deputy Broughan

During consultation on the forthcoming Bill, which hopefully will appear shortly, did ComReg ask the Minister to take over the powers of Regtel?

Mr. Byrne

Can the Deputy repeat the question?

Deputy Broughan

Has ComReg asked to take over the powers of Regtel?

Mr. Byrne

No, it has not.

Ms Goggin

The Data Protection Commissioner, rather than Regtel, deals with this matter.

Deputy Broughan

Very well.

Mr. Byrne

To return, essentially the provision exists for customers to be able to contact their telephony service providers and to request an opt-out from receiving direct marketing calls. There is an obligation on the part of the service provider to adhere to those regulations. Some of the regulations concerned relate to the Data Protection Commissioner and others to ComReg. The latter works in tandem with the Data Protection Commissioner to ensure that consumers are fully protected and that where instances occur, action is taken. In the past, ComReg has taken action a number of times when we have found that a small number of service providers did not adhere to those regulations, due to faults in their own systems or for whatever reason. Hence, ComReg is very concerned about this. When it finds a trend, we will act on it and will also work in partnership with other regulators in this respect.

Ms Goggin

I will answer the question regarding people who switch providers and who then switch back. The churn rate is extremely high. In the past, the experience whereby people switched and then received two bills, one for their line rental and one for their costs, has been a nuisance factor, because in many cases, people did not realise it would happen. However, this is what was behind our introduction of the wholesale line rental product. More than 60% of people who take their calls to another operator can also take their line rental. They are still using the same line but they only get the one bill, which reduces the nuisance factor.

Many people with Eircom are not on the most advantageous package. If they switch to someone else and Eircom figures out it has lost the business, it will come back and offer the package to save money. People get the benefit of competition even if they end up back with Eircom. They are not told until they switch that if they take a certain package, they would do better.

Chairman

Who is responsible for driving broadband roll-out?

Ms Goggin

We have partial responsibility. It involves policy makers, the regulator and the industry. We have a role to play in driving competition through the alternative platforms and accessing Eircom's network.

Chairman

Is broadband mentioned in the regulator's terms of reference? The universal service obligation for Eircom does not include the driving of broadband, it is a commercial decision.

Deputy Broughan

Do only 70% of households now have landlines? We will soon be talking about a broadband service. Is there a case for a universal service obligation for broadband?

Ms Goggin

The universal service obligation is defined at European level; the current obligation we work to was defined in the 2002 directive. At that stage it was decided that it should only relate to the provision of a single, narrow band access line. It does not extend as far as ISDN, never mind broadband.

The directives are being discussed for the next round and the Commission consulted about the universal service obligation last year but it signalled that it does not intend to include broadband in the universal service category because it prefers to see how far it will get with competitive pressures to achieve roll out. Then, if 80% had broadband, leaving a number who could not achieve the same participation in society, it may be considered. At the moment it would be premature.

Chairman

Has the incumbent applied for an increase in line rental prices?

Ms Goggin

Not as far as I know.

Chairman

Is the regulator aware that line rental is €8 above the EU average?

Ms Goggin

Yes.

Chairman

Is there a legal impediment to Babcock and Brown splitting Eircom into a retail and an infrastructural company?

Ms Goggin

To the best of my knowledge, no, but whatever obligations there are under the European directive would remain and would apply to whichever company remains.

Chairman

Has the Competition Authority major reservations about ComReg taking on competition powers?

Ms Goggin

It expressed reservations at an earlier stage, before the Minister made his announcement, but we met Deputy Martin and he did not have any problems with it. What we proposed was not just that ComReg would have co-competition powers in the same manner as the telecoms regulator in Britain with the Office of Fair Trading but also that the Competition Authority would have powers analogous to those of the Competition Commission in Britain under the Enterprise Act, which can entail structural separation of companies if the Competition Commission investigates market structures and concludes they are not working to the benefit of consumers. We would have seen it as a two-pronged approach.

Chairman

Are all the telecommunications companies co-operating with the regulator on the programme set out in the road map?

Ms Goggin

All of those that are involved.

Deputy Broughan

Why is there no date for each objective to kick in? Are they starting immediately?

Mr. Doherty

They are sequential. The first must be in place before the next can take place.

Deputy Broughan

When will the first be?

Mr. Doherty

The first deliverable will come on 8 August and we will build on from there.

Deputy Broughan

Will it be September or October?

Mr. Doherty

Yes.

Ms Goggin

I thank the committee for inviting us today. We are making progress on the supply side of broadband penetration but we must keep the pressure up and the competition going. We must also address demand side issues to ensure we plateau at a point at the head of the EU league table rather than in the middle. We will require more than is currently happening.

We must focus on the real benefits of broadband to encourage people to take it up and consider the remaining 15% for whom the current supply initiatives will not take them to where they want to be.

Chairman

I thank the witnesses for appearing before the committee. As always, the information supplied was very helpful and will feed into our report.

Sitting suspended at 4.15 p.m. and resumed at 4.23 p.m.

Chairman

I welcome my colleague in the Fianna Fáil Parliamentary Party, the Minister for Communications, Marine and Natural Resources, Deputy Noel Dempsey, Mr. Brendan Tuohy, the Secretary General of the Department, Mr. Peter O'Neill, the assistant secretary, and other officials from the Department.

We sent a letter to the Minister on 16 and 24 May asking for 40 questions to be answered by the Department. I understand from the Minister's correspondence that he will deal with those 40 questions today. Does the Minister wish to make an opening address?

Minister for Communications, Marine and Natural Resources (Deputy N. Dempsey)

No.

Chairman

In that case I call Deputy Durkan.

Deputy Durkan

I welcome the Minister and his officials. A number of aspects regarding telecommunications have been of concern to the committee recently, one of which was the slow delivery of broadband services, the slow development of the telecommunications sector, the fact that we are a developing economy with a high dependency on telecommunications and, furthermore, we are concerned that we are not keeping pace with other colleagues. Various protests have been made to the contrary since this meeting commenced this morning, not all of which we believe. It would be interesting, therefore, to hear the Minister's observations, particularly on the points that come to mind arising from the questions furnished to him.

I wish to pose directly to the Minister one point concerning Eircom, which has stated that it invests €200 million in infrastructure on an annual basis. We cannot verify that to any great extent but my view is that a firm of the size and value of Eircom, and taking account of the degree of service it provides throughout the community, would need to invest to a greater extent in terms of the proportion of the total value of the firm to ensure that we have adequate infrastructure in the telecommunications area in the future.

I am not certain that the degree of investment is adequate to meet the modernisation requirements of a modern telecommunications system. Furthermore — the Minister and I have exchanged views on this subject previously — I believe that the transfer of ownership of Eircom, being a major player in the telecommunications sector, presents a major opportunity for the Minister and the regulator to insist on the manner and methodology whereby the telecommunications sector should develop in the future. Does the Minister believe he will be in a position to instruct the regulator to that effect, given existing and proposed legislation? Does he believe the regulator will have sufficient powers at his or her disposal at that time to be able to dictate the pace of the provision of the infrastructure?

It was mooted prior to the sale of Eircom that the networks might be separated from the rest of the company. Does the Minister view that as a major issue in the development of the telecommunications sector here? Will he encourage the regulator to follow that course? Will he avail of this opportunity, at the initial stages, to start as he intends to proceed and make it clear that the national economy is heavily dependent on the provision of IT in the telecommunications sector?

Will the Minister comment, if possible, on the number of areas where land lines are no longer available?

Chairman

A vote has been called in the Dáil. I propose that we suspend the meeting until after the vote. If the Deputy has only one more question, he could mull over it while he goes to vote.

Deputy Durkan

My last question concerns the arguments between the main service provider and various developers on the connection of land lines in new housing estates.

Sitting suspended at 4.28 p.m. and resumed at 4.43 p.m.

Chairman

Deputy Durkan had asked four or five questions. Does the Minister want to respond to them first?

Deputy N. Dempsey

I will deal with some of the questions raised by Deputy Durkan. At the outset he made a general comment expressing his concern about the slow rate of rolling out broadband. Since taking over my current portfolio, I have shared the view that broadband was initially rolled out too slowly, if at all. I never expressed myself as being satisfied with the provision of broadband and will not do so until we have 100% quality broadband coverage. While I share the Deputy's concern about that matter, significant progress has been made over the last couple of years. We can look at the negatives and it is right to examine carefully what is happening in the market but it is also important to maintain a sense of balance. I am not referring to what the Deputy said, but some commentary can be extremely negative and give a totally false picture.

In the last 12 months alone, broadband has grown by 115%. We have the fastest growing broadband market in Europe. The take-up of broadband has more than trebled since I set the target for 400,000 users by the end of this year. The take-up rate is growing at about twice the EU average. From a poor start, during which the market failed, we are making progress but we need to accelerate that progress.

A question was raised about Eircom's degree of investment and whether it was doing enough. Eircom has given the committee its own figures on this. I will stick to facts rather than getting involved in any kind of crossfire with the company. From 1999 to March 2000, Eircom's capital expenditure on network improvement, maintenance and the provision of new services was €465 million. Up to March 2001, the figure was €504 million, €312 million to March 2002, €200 million to March 2003, €200 million to March 2004, and the same to March 2005. The figure for the period to March 2006 might be in the vicinity of €250 million. The investment figures speak for themselves and the reasons for those figures have been well recited, so I do not think I need to go into them again.

As regards whether the transfer offers opportunities for me to intervene, we are operating in a liberalised market. I can make all the speeches I like, as can the Deputies opposite, and we can cajole and threaten but we are in an open market. As has been outlined to the committee, the responsibility of the regulator is to try to ensure competition and that the local loop is unbundled. We have to act, as Eircom and the regulator do, within the law. I would like to think there is an opportunity with the change in ownership of Eircom.

I have noted with interest some of the comments that have been made by Pierre Danon since the Eircom takeover process started. I will explore some of the comments he has made. I have a habit in politics, and in life generally, of taking people at face value. Sometimes one can get badly scalded by doing so, but everybody deserves a chance. I will certainly take Mr. Danon's comments at face value. If he thinks there are opportunities for a new Eircom under Babcock & Brown, presuming everything goes through, and if he wants to talk in terms of partnership and working this out together, I will have no difficulty in exploring those options with him.

On a number of occasions, the committee has highlighted certain areas for discussion. These include the question of local loop unbundling, LLU, and the remaining 10% to 15% roll-out of broadband. These are the areas we should discuss and in respect of which we should aim to work together and pool our resources rather than moving in different directions. I am open to that type of co-operation.

Deputy Broughan

We have heard a depressing story from the operators, including Eircom. The Minister is responsible for this situation. An increase of 150% seems less impressive when we consider that it means just eight lines per 100 people, leaving us second last in the EU 15 in terms of broadband accessibility. Estonia and other new member states are overtaking us. The increase in the number of lines to 350,000 is still a depressing and deplorable situation in a global context.

Will the Government be held accountable for this? In December 2003, members of the committee were dragged over to the Taoiseach's press office where the previous Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern, announced that there had been total market failure in the broadband sector. We expected some dramatic action the following year but almost nothing was done. The current Minister, Deputy Noel Dempsey, was appointed to his post in September 2004 and one of his first actions was to announce, at a conference in UCD, a target of 600,000 lines for the end of this year. There is no prospect of this target being met. He subsequently assigned a lower target, which, I presume, will be met this year.

If there was market failure, why did the Minister, on assuming his post, not drag us into the Dáil to legislate in respect of enhanced powers for ComReg? He should have recognised that the key factor in stimulating the market is to ensure that the regulator has such powers. He has not yet done so and the current Dáil session concludes in three weeks. The latest development is that co-competition powers, along the same lines as those enjoyed by Ofcom, are apparently finally being assigned to ComReg. This is something my party has advocated for several years.

Previous regimes were completely disastrous in their management of this area and the Minister has been extremely dilatory in not taking the bull by the horns and introducing significant powers for the regulator. Will this be recalled in the future as a major failing of this Government? Will future members of the Committee of Public Accounts examine how the Department of Communications, Marine and Natural Resources failed on a range of policy areas but, perhaps most spectacularly, in respect of broadband enablement? Does the Minister accept that it is a deplorable state of affairs and that he is responsible? He has, at most, ten months to turn the situation around.

The Committee of Public Accounts will certainly be interested in examining the €120 million expended in this area. It is clear that eNet is trying to manage the asset in the best interests of the public, but it is an incredibly difficult task. Is it the case that the Department pursued a white elephant when it should have been concerned with the regulatory issue? The Minister and Secretary General are finally, seven or eight years later, addressing the competition issues. Has there been any payback from this? For example, we heard today that only one of the local group broadband schemes is linked to the MANs. We do not know what will happen in the second phase and whether it will involve another tender.

Does the Minister accept that he went in entirely the wrong direction and that he should have dealt with competition and the problems of the incumbent? Instead, he rolled out a network when a similar network already existed, which was almost like rolling out a second drainage, water supply or road system. Was this not a fundamental policy error on the part of the Department?

We have again been informed that a roadmap is in place and we will avidly check our e-mails from ComReg each month to ensure that milestones are being met and that the scoping plan will go forward. We have heard the same old story in regard to co-location in the exchanges and LLU for months but the incumbent still seems to be dragging its heels. We have heard about the problems in regard to the price of wholesale line rental and those relating to portability. We do not seem to be any further ahead than that afternoon some days before Christmas 2003 when the previous Minister, Deputy Dermot Ahern, told us that the broadband market was a disaster and that he could not save it. I acknowledge the current Minister's efforts in securing an increase to 350,000 lines, but it is still a deplorable state of affairs. We have not taken this issue seriously enough.

Deputy N. Dempsey

As in all such situations, it is a question of whether one takes the view that the glass is half empty or half full. The Deputy claims to be very well informed and that is sometimes the case. However, he is quite incorrect when he says I addressed the Telecommunications and Internet Federation, TIF, conference in 2004 and set a target of 600,000 lines. I set a target of 400,000 for the end of 2006.

Deputy Broughan

I have a script which shows that the Minister indicated a target of 600,000. I will check, however, whether that indication was given at the conference to which I referred.

Deputy N. Dempsey

The Deputy should check that. Although I challenged the industry to reach 500,000 by the end of this year because I believed that was possible, the target was firmly set at 400,000 at that stage.

The Deputy sometimes talks in terms of intervening in the market as if there were no law, order or Constitution to consider. ComReg was given specific powers and has utilised them to the best of its abilities. It must work, however, within the law. Under the relevant directive and the legal provisions, people have the right to appeal and bring issues to court. One cannot ignore the law or the Constitution, no matter what the legislation. ComReg has endeavoured at all times to go to the limit of the law in terms of stimulating competition and ensuring that we have a free market. It is not as simple as a Minister dictating, at the stroke of a pen, that a certain action must be taken. We must operate within European and domestic law.

Deputy Broughan is usually very clear and lucid in his attacks on my actions and in his policy suggestions. My memory is reasonably good, however, and I do not remember him ever mentioning co-competition powers before I announced the initiative in that regard.

Deputy Broughan

Did the Minister not read my party's policy document? It has been available on our website for a year.

Deputy N. Dempsey

I have not yet had the pleasure of doing so because I am too busy trying to roll out broadband.

Deputy Broughan

I thought the Minister examined the policies of all the other parties.

Deputy N. Dempsey

I am trying to roll out broadband and do not have time for fairytales. I apologise; that was a facetious remark and I withdraw it.

Deputy Broughan and others referred to MANs. I am being attacked, on one hand, for doing nothing, while, on the other, there are those who want to attack me and my predecessor for trying to do something. Little progress had been made in this area when, as Deputy Broughan observed, my predecessor, Deputy Dermot Ahern, acknowledged market failure and set out several actions the Government would take. The MANs scheme was immediately announced. Subsequently, the Department announced the group broadband scheme and thereafter it initiated the schools broadband scheme in conjunction with the industry.

All these initiatives have been rolled out and each has made a difference with regard to the roll-out of broadband. The investment in the first phase came to approximately €70 million. Criticising this investment is similar to criticising the Government decision to invest approximately £80 million in Global Crossing, the cable that now affords Ireland interconnectivity with the world. I was in government when it was decided to buy into infrastructure that it was known might not be used or fully taken up for decades. However, the Government decided that such an investment was good for the country and the metropolitan area networks, MANs, are somewhat similar.

Deputy Broughan

At that time, however, there was not an existing connection. I recall its construction in Coolock and Tallaght.

Deputy N. Dempsey

There was an existing connection.

Deputy Broughan

Yes, but not of the same quality as the connection that was bought.

Deputy N. Dempsey

I know. However, Ireland does not have sufficient quality in broadband. Some of the joint committee's complaints concerned digital subscriber lines, DSLs, the breakdown of lines and so on. MANs networks consist of fibre optic cables that provide speeds up to 100,000 times greater than those available from DSLs. Hence, infrastructure is being provided without duplication, despite what those with a vested interest might claim. I do not refer to the Deputy in this regard. Something that is much better and more effective and efficient is being provided and I never expected to make a profit on it. If I recall the figures correctly, while eNet did not expect to make a profit on it for the first four or five years, it expected that use of the service would grow over time.

We cannot have it both ways. While I accept the Deputy's point regarding stimulating competition, which is very important, it will not work everywhere if one does not have a roll-out of broadband in particular areas. The MANs scheme provides us with the opportunity to provide something in which I strongly believe, although it might not find favour in Merrion Street or elsewhere. I refer to the provision of infrastructure to try to stimulate economic growth in various areas, rather than waiting until there is demand for it or until the rest of the world has passed us by. I defend the MANs scheme from that perspective.

To date, the performance has been good in that 20 of the 27 networks are finished. A further 90 networks will be rolled out, which will provide good coverage. In this context, there is a problem with backhaul that will be addressed. However, it is not true to state that the provision of the MANs is comparable to the provision of second water systems or road systems. Had the private sector been providing broadband in the first instance, this route would never have been taken.

Deputy Eamon Ryan

I thank the Minister. Clearly the role of this joint committee is to invigilate and to ask awkward questions to try to help the Department to set strategy. I have listened to and taken part in many discussions in this committee regarding the provision of broadband. However, today's hearings raise some questions.

Is the MANs investment similar to that relating to electronic voting machines or the PPARS system in that it constitutes a significant investment of State money which has not yielded a return? I supported the concept of the State becoming involved in the provision of fibre-optic networks. However, I refer the Minister to the joint committee's report of March 2004, which was completed before the investment began. The report's eighth recommendation was to "Establish the proposed Management Service Enterprise (MSE) to ensure all existing broadband assets are put to full use". On page 19 of the report, the joint committee noted, "If the MANs and other investments funded by Government give rise to the perverse effect of increasing the amount of duplicated/unlit fibre that sits in the ground in Ireland then they will be viewed as a policy failure."

As the Minister noted, fibre has an enormous capacity, which is 100,000 times greater than copper line or whatever. Fibre networks owned by BT, Eircom or the Government all work equally and do not come in different qualities. Hence, the question is whether we have built unnecessarily duplicated assets and whether we should not have developed the metropolitan area networks, as recommended by the joint committee's report in early 2004. The State should invest in fibre-optic cable on the basis of social and regional development, when the market has been unwilling to provide it. The State should spend as much money as possible in this regard, because it is needed in every small town and rural area. However, the joint committee heard earlier that the head of eNet did not even know whether there was duplication. In a remarkable comment, he stated that he did not know where Eircom's fibre is located.

Before asking some specific questions of the Minister in this regard, I will give a general perception of one or two of the thoughts that came to me on foot of today's hearings. One matter to arise was that the likely developing technology will still involve running copper fibre to people's doors. Today, Smart Telecom, which, as the name implies, is, presumably, not stupid in this regard, and BT both stated they would not go down the wireless or satellite routes. Their preferred route to market is to use existing copper fibre. Both companies insisted that with new asymmetric digital subscriber line, ADSL, technologies, the copper network was perfectly adequate to deliver up to 14 megabytes of broadband connectivity. I found that to be remarkable because I had received much criticism of the quality of the network.

Consequently, Eircom's monopoly position appears to be stronger than ever in that it is in possession of the key asset. Did the Minister consider a State purchase of that asset, rather than allowing Babcock & Brown to purchase it? The price of €2.5 billion, or whatever was paid, was a snip compared to what is being paid in an attempt to build a duplicate network that does not reach the customer's door. While the Minister's fibre-optic network may be brilliant, the problem is that it does not lead to a particular destination and one must use Eircom's network for it to be of any use, which places Eircom in a remarkably powerful position.

I have a number of questions in this regard. Did the Minister, as this committee recommended two years or more ago, consult the other operators, such as BT and Eircom, to ascertain whether it would be possible to develop the MANs in a manner whereby one could replicate or use existing fibre? Given the response of its representatives before the committee, BT did not receive any representations from the Department. Eircom's representatives stated, in an inconclusive manner, that there had been some talks. However, I do not believe this to be the case. If I am correct, why is that the position?

What is happening with regard to phase 2? If €120 million has been invested in a duplicated network that only has a turnover volume of €3 million or €3.5 million, is the speed or timing of the roll-out of phase 2 in question? If not, will the Minister provide detailed timings, as well as an investment plan quantifying the amount of money which it is planned to spend on phase 2?

From the evidence of today's hearings, it appears that there is already a clear example of such a co-operative approach in existence in Northern Ireland regarding a slightly different issue. Today, BT made a presentation to the committee to the effect that its ability to deliver 100% coverage in Northern Ireland is on the basis of a competitive tendering system, whereby the incumbent operator can work in conjunction with private operators to provide services to areas to which it would otherwise be uneconomic to provide them. Has a similar tendering process been considered in respect of reaching the very large areas, particularly those of a rural nature, that are still inaccessible for broadband because they are not economically viable? Has the Minister considered a co-operative approach similar to that which exists in Northern Ireland?

Deputy N. Dempsey

I have received mixed messages from members. On one hand, I have been told that broadband has not been rolled out fast enough, that the market has failed and that I should do something about it. On the other hand, I have been criticised in respect of one of the Government's major initiatives in this regard. While it is nice to be able to play both sides of the field simultaneously, unfortunately, it does not resolve any of the difficulties that we face. Is the Deputy seriously suggesting that a better option than trying to stimulate action would have been to sit on our hands and ask the regulator to try to convince Eircom to provide broadband throughout the country or to say that we would do so if it would not?

Discussing duplication is nonsense. Eircom does not have fibre-optic cables in many of the towns. Somebody travelled to Brussels in regard to MANs II when we announced the 90 towns and spent a considerable amount of time and, probably, money lobbying people there to try to convince the Commission that we were duplicating services and that we were involved in providing some type of underhanded State aid by the back door. The Commission spent nine months investigating that. It found that the complaint was groundless and directed us to continue what we had been doing. It did, however, include two stipulations. The first was that we would tender for the management services entities and the second was that we would not duplicate existing fibre-optic cable. There is no duplication, so to state that is nonsense.

Chairman

The Minister said somebody went to Brussels. Was it a politician or a representative of a telecommunications company?

Deputy N. Dempsey

It was a company.

Deputy Broughan

How does the Minister know that?

Deputy N. Dempsey

The Commission is fairly open with its information, so the Deputy can talk to people there who will be able to provide it. The Commission did not suddenly decide to ask us questions about this matter. We received information directly from Commission sources that people were complaining about this. We treated it as a formal complaint, although, to my knowledge, such a complaint was never made. There was, however, quite a degree of lobbying to prevent MANs II. We supplied all the information required, so I do not accept the line put forward by Deputy Eamon Ryan or people elsewhere that we are duplicating and that this is a waste of taxpayers' money. It is a very solid investment for the future.

For the last mile, copper will probably remain a very important part of the roll-out of broadband but it is not future-proof. MANs are open access and available to everybody. None of the other systems that we have discussed and that are provided by other providers are open access. It is open to any provider to take bandwidth on MANs. If other companies involved in this gave open access to everybody, we would not have half the trouble we are having and the committee would not be holding these hearings. If we are to have a debate on this, let us get real.

Deputy Eamon Ryan

We have invested in open access. BT is turning over approximately €130 million in the type of business that MANs is servicing. It is using less than 0.5% of it in MANs. People are not using it.

We were not playing both sides of the fence by saying that the Minister should promote it and then saying it is a shame that it is not working. We said specifically that if we are to develop it, it should be on the basis that assets should not be duplicated. Eircom said today——

Deputy N. Dempsey

We are not duplicating it. We will be obliged to agree to disagree on this matter.

Deputy Eamon Ryan

——that it had existing fibre in each of the MANs we have developed to date. Is it wrong in that regard?

Deputy N. Dempsey

To my knowledge, it is wrong. I refer also to the quality of the fibre-optic cable, which does not allow open access. Representatives of ComReg appeared before the committee. Did they confirm that Eircom was allowing open access? That is part of the problem.

Chairman

Believe it or not, Eircom is open for business.

Deputy N. Dempsey

Good, I am delighted to hear it.

Chairman

It is open for backhaul business, Government business——

Deputy N. Dempsey

It can deal with the MANs in the north east, where backhaul business is being sought.

Chairman

We discussed the one in Monaghan and the five MANs that are not connected. It is open for negotiation with the Government.

Deputy N. Dempsey

Very good.

Chairman

I was delighted to hear the Minister's opening remarks in respect of meeting the various stakeholders and working out solutions that will work for the country. Before the Minister answers the questions, I wish to place on record the fact that Cork City Council is very happy with MANs. We must be fair in our deliberations. There are 11 companies on the telecoms network in the Cork city MAN and the council is extremely happy with the way it is proceeding.

Deputy Eamon Ryan

A total of €120 million of taxpayers' money was spent digging up the ground. I am not surprised Cork City Council or any other council is happy. However, taxpayers funded this and we must ask if they are getting a good return on an investment of €120 million.

Deputy N. Dempsey

We will not know that until the end of the useful life of this. This is a 20-year roll-out of the plan. Are taxpayers getting good value for spending the £80 million on the global crossing? We have not got the return on that yet. We are not getting back the amount of money we spent on that. However, the Comptroller and Auditor General investigated the position and said that this was one case where investment in advance infrastructure was justified. He was happy. This is the same thing.

Deputy Eamon Ryan

I have no concern about the strategic decision to invest in global crossing. As Deputy Broughan said, that was an infrastructure we did not have which gave us huge international credibility in terms of foreign direct investment. No one is arguing that it was a bad investment. However, to compare the two is not accurate.

Did the EU Commission state, in its quasi-judgment, that no further investment in MANs should duplicate existing fibre? How will the Minister check that in regard to the development of phase 2? When will phase 2 be developed and what is the budget in respect of it?

Deputy N. Dempsey

We have asked the Commission for clarification on phase 2. It is already under way and will finish before the end of next year. When we refer to the value of MANs, it is noticeable that in most of the areas where we have announced that MANs will be put in place, exchanges are being enabled and there is huge promotion from some of the incumbents speaking of wonderful services. I hope that continues. It would be good to achieve some competition.

Deputy Eamon Ryan

What clarification is the Minister seeking from the EU Commission in regard to its judgment that we should not develop MANs where there is duplicate fibre in the ground?

Deputy N. Dempsey

It did not make that judgment. It said that we could go ahead provided there was not similar infrastructure in the towns concerned.

Deputy Eamon Ryan

That is a fairly clear judgment.

Deputy N. Dempsey

There is only one company allowing open access at present, namely, eNet, as a managed service entity.

Deputy Eamon Ryan

It is only turning over €3.5 million per year compared with——

Deputy N. Dempsey

That is all. It has only been in existence for two years.

Deputy Broughan

Will it manage phase 2 or will that be another open tender?

Deputy N. Dempsey

That must be an open tender.

Chairman

I wish to ask about phase 2. The Minister mentioned backhaul was required for some of the MANs put in place. Are there engineering or technology solutions to provide backhaul to phase 2?

Deputy N. Dempsey

Yes.

Chairman

Is that to all of them?

Deputy N. Dempsey

It is part of the design and so on. The solution is either connecting to backhaul by fibre-optic cable or wireless.

Chairman

I understand that but is there a solution in place for phase 2? The reason I ask is that there was not a complete solution for phase 1 with the five MANs that have not been connected to backhaul. What was the difficulty?

Deputy N. Dempsey

I will obtain the details for the Chairman. I understand that it relates to the problem we experienced previously. Some of the incumbents do not want to allow competition. I am very pleased to hear that some of them are now delighted to hook up to MANs. Some of the companies, such as BT, are already connected to MANs in different places, are using it and were using backhaul from a variety of different companies. If the competition is not provided——

Deputy Eamon Ryan

To take the Northern Ireland experience, according to BT today, the main component in giving 100% penetration, on which we all agree so that no area is discriminated against and which it wants to see replicated here, is a tendering process for provision of services. It was interesting that Eircom, also represented here today, stated that was something it wanted. Has the Department considered that and how would we introduce it?

Deputy N. Dempsey

We are considering it and I have not made a decision on it. When one is faced with a situation such as here, where in most cases there is only one company that can do what we need, it causes difficulties in the tendering process. A number of suggestions have been made to us to resolve this particular difficulty. There are a number of options that might overcome that difficulty. We are considering it and that is part of the conversation I will be having with Eircom and others on the last 10% or 15%.

Deputy F. O’Malley

I welcome the Minister. Given that the Government has assessed that the availability of broadband throughout the country is important to both economic and social development and prosperity, what is the Minister's view of a universal service obligation?

What analysis was done of the success and shortcomings of MANs I in modifying and redesigning MANs II? As an example of how to improve it, the witness from eNET mentioned this morning that public buildings should be connected directly to MANs. Will these kinds of improvements be guaranteed in the roll-out of MANs II?

Deputy Eamon Ryan stated that there seems to be much duplication and today we spoke to the witnesses about it. The Minister stated we are not duplicating but then qualified this in terms of quality. Does he accept that we are running a parallel system but the difference is the level of quality and open access?

The Minister possibly deals much more with domestic customers than with corporate ones in his clinics. Does he agree that the last mile issue is important to us all as public representatives? It is a real problem. What policy directives can he issue to get that delivered because it is he and I who will suffer in the next general election if we are not delivering broadband? While, of course, corporate Ireland needs to be serviced, residential Ireland equally needs to be. What policy directions has the Minister issued to ComReg on local loop unbundling?

Deputy N. Dempsey

The provision of broadband is not subject to USO anywhere. While I am not a legal person, I understand we could unilaterally decide that. That would need to be cleared through the EU.

On Deputy Fiona O'Malley's second point, of course eNET wants to be in a position to provide direct connections, whether to Government Buildings or high users. One of the conditions under the MANs applying to eNET is that the company may not be directly involved in the retail business. The company provides on an open-access basis the fibre-optic cable, which others retail. The company's suggestion would not meet with the approval of the EU. Were it adopted, one would be in the position, mentioned by a member, of direct competition in that context.

On the question of duplication, one is not comparing like with like. The difference is that while one involves top quality open-access facilities for the use of people and service providers, that is not the case in many competing networks.

Deputy Eamon Ryan

Is the Minister unable to regulate to ensure that companies must make their backhaul network an open-access system? Is that backhaul network unbundling?

Deputy N. Dempsey

That is what local loop unbundling is about. It is what ComReg is trying to achieve. It is the subject of an EU directive. We have been trying to implement and impose that here for three or four years.

Deputy Eamon Ryan

Would that be a cheaper way of doing it?

Deputy N. Dempsey

It is one way of doing it but we have not had remarkable success to date because of the system we must put in place to be able to achieve it. I am sure ComReg gave the full details of what it must do. Everything it does can be subject to appeal and to court cases, etc. I am not prepared to wait for more court cases. I hope that the current negotiations are successful, the milestones of which Deputies Broughan and Durkan spoke are met fully, and local loop unbundling is delivered in the timescale envisaged. I am not prepared to wait another two years.

Deputy Eamon Ryan

A regulator's report in April 2000 stated local loop unbundling should be in place in Ireland by April 2001. When will it be in place?

Chairman

Whose report was that?

Deputy Eamon Ryan

The report of the regulator, ComReg, in April 2000.

Deputy N. Dempsey

We all, including ComReg, wish that. We have not been able to achieve it, despite ComReg's best efforts. We are still trying to achieve it.

Chairman

Have other countries transposed the EU directive on local loop unbundling?

Deputy N. Dempsey

It is in place and transposed here.

Chairman

Have other countries then been successful in unbundling the local loop? Is that the model which the Minister was also using but with which he is having all these difficulties such as legal challenges?

Deputy N. Dempsey

Britain, Denmark and France would be three of the best examples where there has been reasonable progress but I venture to suggest that one of the factors in the successful roll-out of this would be full co-operation from the incumbent.

Deputy Broughan

If one goes back to 2000 or 2001, there are deep questions about why the Minister's predecessors did not take action. For example, it could have been controversial because there was a general election. It is interesting that Deputy O'Malley referred to the big milestone that we all will face next April or whenever.

Deputy N. Dempsey

There is an extra month, it will be June.

Deputy Broughan

Okay, then it will be in May. That is the biggest milestone.

We in the committee have tried hard. My colleague referred to the report in question. We have published two major reports on it and have held endless, day-long hearings. Is the central failure that the Minister and his predecessor did not bring in legislation to provide a regulator which could do the business? Here is the Minister speaking about it in the dying months of the Government. Is this the real issue? If the Minister used the MANs as a stick with which to threaten the incumbent, could he have done it much more cheaply and effectively by simply bringing in the Ofcom-type regulation? However, is it not the case that the Minister did not have the political will?

Deputy N. Dempsey

That is not true and it is simplistic. The legislation was transposed and ComReg was set up. ComReg went about——

Deputy Broughan

But did the Minister not weaken ComReg's powers? For example, the OTDR, ComReg's predecessor, had the power to levy significant fines but the Government watered that down. In the run up to next May, health, education, crime and so on will be major issues for the public but should broadband not also be an issue? The record of Fianna Fáil and the Progressive Democrats in the provision of broadband should be examined. Did they fail us?

Deputy N. Dempsey

EU legislation was introduced in 2003, with which we had to comply, and that is why the change happened. ComReg has outlined its efforts to the committee to deliver local loop unbundling. We are still trying to do that. The same position pertained in the UK for a long time but, suddenly, the incumbent decided that rather than defending its patch, it would try to grow its market share. It opened up its system and took its chance.

Deputy Broughan

But BT faced a strong regulator and a Prime Minister who was upset about the lack of progress over four or five years. He would take no more bull from the telecommunications company whereas our Taoiseach forgot to appoint a Minister with responsibility for this area in 2002. We had to remind him there was a Minister of State with responsibility for e-government, Deputy Kitt.

Deputy Kelly

I welcome the Minister and his officials. He is promoting broadband and if everybody worked with him, the take-up of broadband would increase. I look forward to the next election, as it presents us with a great opportunity to secure the endorsement of the people again to run the country. The election will be the first week of June 2007.

Broadband was a priority in the Fianna Fáil manifesto for the 2002 general election. The Government and the Minister have given a lead in this area and I welcome the funding of many community groups though MANs I and II. We have led the way in broadband in my constituency with the encouragement of the Minister and the Government. Crossan Cable provided broadband in Longford, which was the first town in the State to have it. I welcome the funding of €1 million allocated to Longford County Council to provide broadband elsewhere in the county. All my constituents are happy with the Government and the broadband facilities provided. I am asked by most people to say well done to the Minister and they are delighted to have broadband. However, I would like broadband to be provided throughout the county and, in particular, Ballymahon as the people there are looking for it.

More could be done to encourage people to take up broadband. While it may not be marketed or promoted enough, some people may not realise the benefits of broadband, including its speed and efficiency. Recently, I was contacted by a constituent who was visiting Europe. He said he would not e-mail until he returned to Longford because the e-mail service was too slow where he was. When will broadband be provided in Ballymahon? On behalf of the people of Lanesboro, Granard and other rural towns and villages of Longford, I thank the Minister for providing funding for broadband. I have broadband in my house and office in Longford and I am delighted with the service. I hope the Minister will continue the good work. I look forward to working with him and between the two of us, if nobody else will help us, we will ensure broadband is in place throughout the State.

Chairman

Ballymahon is probably on the list.

Deputy N. Dempsey

It might be connected but I will not contradict the Deputy. I will double check that.

Chairman

Deputy Kelly touched on an important issue, which is driving demand. Even if every telephone line in the State was enabled, we would still face a major problem encouraging people to migrate to Internet and broadband use. I am concerned that not enough is being done to educate people, to make communities aware and to improve content, which could drive the use of broadband. Many young people use broadband to download songs and so on. Only a few weeks ago the clerk to the committee and myself discussed digital audio broadcasting, DAB, with Ofcom and the BBC in the UK. The main driver of that medium is content. Even if every line was enabled, how could Internet penetration be increased?

When the census results are published, we will know where broadband is provided. According to our report, even though there is 100% broadband coverage in Northern Ireland, take-up was only 12% among households and 20% among businesses by the end of 2005. Eircom informed us earlier that it has 1.8 million lines of which 350,000 are broadband enabled, which is approximately 20%.

Deputy Eamon Ryan

In the Republic in 2005, 6.7% of households had broadband while it is 12% in the North.

Chairman

Is there interdepartmental co-operation on the roll-out and use of broadband and the Internet? For example, is a working group in place? Do the Departments of Education and Science and Finance engage with the Minister's Department? Is the Minister of State with responsibility for e-government, Deputy Kitt, involved? Is a stakeholders group in place? Does the Minister meet stakeholders? ComReg confirmed that all the telecommunications companies that need to be involved are involved and they are interested in the road map. Who is responsible for the roll-out of this technology? Is it the Government's responsibility or that of the Oireachtas? Eircom, ComReg and others have said it is not theirs, in the sense they do not have a directive in that regard. However, they are working towards its roll-out.

I am also disturbed by something else. I sent the Minister a copy of a letter I wrote to the chief executive of the National Roads Authority. Did he get it?

Deputy N. Dempsey

Yes.

Chairman

There does not seem to be joined-up thinking. For example, a new town, comprising 1,500 houses, is being developed in Blarney, County Cork. The councils of Cork city and county and many county councils around the country are forward looking and visionary. Cork County Council asked the NRA if it could put a fibre cable in a duct which was put in place when the Cork-Mallow line was being built in 1994. The engineer at the time had the vision to put in these ducts, but the NRA has said it is sorry but it must discuss the matter with the Department because it does not know whether there will be a difficulty due to safety matters and other excuses, which are there in black and white for the Minister.

Is there joined-up thinking between the different Departments? We have the opportunity to connect into the MANs the Department funded at a point at the bottom of Fitz's boreen, an area the Secretary General would know well as he is from Cork. The fibre cable is at that point, ready to go to Mallow, but the NRA, which is a national agency, will not co-operate. Will the Minister throw some light on these issues and answer Deputy Kelly's questions?

Deputy N. Dempsey

No disrespect to the Chairman, but I will start by referring to Deputy Kelly's question. Ballymahon group broadband scheme was approved in July 2005. As last Mile Wireless is providing it, it should be up and operational. The Deputy can let me know if it is not.

Deputy Kelly

I welcome that news and thank the Minister. That is quick.

Deputy Durkan

At least it will be in time for the election.

Deputy N. Dempsey

The first issue raised by the Chairman was an excellent question. There is much talk about broadband. Where we have broadband available, the demand is not significant, but where it is not available people make a big fuss about it. Demand at this stage is not significant. I am of the view that we need to stimulate demand and for that reason a number of initiatives have been taken. Members of the committee are welcome to attend a conference on broadband demand that will be held at the end of this year. This conference is designed to highlight the use to which broadband can be put and to sell the concept.

Members of this committee and people involved in industry talk about broadband, but people with no direct experience of it have not——

Deputy Broughan

In that context, does the Minister remember——

Chairman

Please allow the Minister to continue without interruption. The Deputy may return to the point later.

Deputy Broughan

He might forget. The Minister was going to do a roadshow which would show people how wonderful broadband is or at least the Department was thinking along those lines. What happened that proposal?

Deputy Kelly

If I could answer that, we had a roadshow in Longford.

Chairman

The Minister to continue without interruption.

Deputy N. Dempsey

I am not sure to what the Deputy is referring. Perhaps he is referring to the fact that we decided to use the regional authorities and appoint and pay for regional organisers for the group broadband scheme. Towards the end of this year, September, we plan to have a broadband conference on the issue of demand.

I have a fundamental view on broadband. Some time ago, when I was Minister for Education and Science, I supported the initiative of broadband for schools and worked on it with the then Minster for Communications, Marine and Natural Resources, Deputy Dermot Ahern. I believe that if children see the value of top quality broadband in their schools, this will stimulate demand significantly. This will happen.

The Chairman will be happy to know that earlier today I launched some new products for a telephone company, one of which was mobile broadband. The 3G network intends rolling out a 3G broadband network and this will also stimulate demand.

The Chairman is right on the issue of content, which is very important. We are deeply involved with the Department sponsoring the digital hub and we have promoted and sponsored the idea of a national digital research centre there. Many of the companies in the hub are involved in content and in developing content, which is the other area the Chairman identified as of major importance. When we were visiting companies on the west coast of the US recently, part of what we were doing was trying to interest them in the fact that ComReg, our regulator, provides licences for the use of the spectrum for testing. It is much easier to do that here than in the US and we are trying to attract this type of business to Ireland. If we had more foreign companies here, it would be a significant benefit.

On the question of whether there is any joined-up or interdepartmental thinking, the answer is "Yes". The broadband policy we are pursuing reflects the work of a number of Departments, including the Department of Enterprise, Trade and Employment on e-business projects, the Department of the Taoiseach, with the Minister of State, Deputy Kitt, and the Department of Education and Science.

To return to the MANs debate we had earlier, a number of Departments and State agencies advocated we go down this particular route.

Deputy Eamon Ryan

What does the Minister of State, Deputy Kitt, do in this area?

Deputy N. Dempsey

He deals with e-government projects and their roll-out. He also has responsibility for the information society and is involved with e-democracy and this committee and the consultation process on the broadcasting Bill due before it.

Deputy Broughan

He is fairly visible in that regard. The previous Minister, Deputy Hanafin, was invisible with regard to the issue. The Minister of State, Deputy Kitt, is just a nearly invisible man with regard to e-government.

Deputy N. Dempsey

I am tempted to make a comment about cyber space.

Deputy Broughan

Does the Taoiseach ever chair that committee?

Chairman

The Minister to continue without interruption.

Deputy Broughan

The e-Minister is actually the Taoiseach. This is an important point.

Deputy N. Dempsey

The interdepartmental committee that operates in this area is a Cabinet sub-committee on infrastructure which meets on a monthly basis. We have meetings on all topics relating to infrastructure, including broadband. We met quite recently, in the past three to four weeks. The committee is chaired by the Taoiseach.

On the question relating to stakeholders, there is no formal forum for this area. My officials or I, as we are doing today, meet regularly with the stakeholders as issues arise. Even without issues arising, we would have frequent contact.

I was asked who has responsibility. The roll-out of broadband is primarily a market issue. It is a service that is in the private sector. Obviously, the Government is concerned about the issue, as are the members present. I see it as my job at some stages to stimulate the players in the market to try to respond to a very important national need. We also try to support the market. We have made grants available to companies mentioned earlier to try to facilitate a roll-out in the market. That is how I see our role. One can talk about having joint responsibility if one likes. I am accountable to the House in respect of what is happening on broadband. However, it is largely private sector forces that operate on it.

Deputy Broughan

On that point——

Chairman

The Deputy will have an opportunity to intervene shortly. He should allow the Minister to conclude.

Deputy N. Dempsey

I saw the letter from the Deputy and was rather surprised. I have not had an opportunity to go into it in any great detail. In the event that there is any confusion between the Department and the NRA, I have no difficulty with the latter making available that duct for fibre optic cable for the local authority and would encourage it in that regard. I spoke to representatives of the NRA when I served as Minister for the Environment and Local Government some years ago and asked them to install ducting that could be used at a later stage. I presume that the authority acceded to my request. If there is a difficulty, it is one we will solve fairly quickly.

Chairman

Will the Minister follow the matter up?

Deputy N. Dempsey

I have put it in.

Chairman

I know the officials also have the letter.

Deputy N. Dempsey

I also saw the letter go through.

Chairman

It is exactly as the Minister said, namely, the ducts are in place and the fibre optic cable should be installed through them.

Deputy N. Dempsey

Yes.

Chairman

Before I call on Deputy Broughan, do we agree that broadband is a key economic enabling technology and vital for the country?

Deputy N. Dempsey

Absolutely.

Chairman

Did the Minister have an opportunity to read our report?

Deputy N. Dempsey

I did.

Chairman

Did he find it helpful?

Deputy N. Dempsey

Yes. Any support I can obtain, at any stage, from——

Deputy Broughan

Did the Minister not find it very boring?

Deputy Durkan

Like the Wexford against Meath match.

Deputy Broughan

In the context of the upcoming general election and what our constituents might expect, many people in various parts of the country complain about the quality of the service. Since 1997, it has been Government policy to privatise our national telecommunications grid. That privatisation has been completed. In light of the recent negotiations regarding the future of Eircom, did the Government consider revisiting the decision by effectively buying back the network? Our colleague from the Progressive Democrats has left the meeting. When a like-minded party was in power in New Zealand, it privatised everything. It was subsequently required to buy back the national airline because, as an island nation located some distance from Australia, it had fundamental issues regarding connectivity. Did the Government consider that it might be cheaper to buy the network back and in that way facilitate competition?

My colleague referred to Eircom. The Minister has met the new owners and the executive chairperson. Did he outline what he wants them to do? Are they clear about what the State needs Babcock and Brown and Mr. Pierre Danon to do for us in this vital infrastructural company?

Deputy Durkan

The Minister indicated his intention to speak to the new owners of Eircom at the earliest opportunity. It is critical for the future of the telecommunications industry here that he starts as he intends to continue. Modernisation of telecommunications infrastructure only has a certain lifespan. It is an ongoing process. I presume the Minister will monitor the matter closely. Modern technology goes out of date in a very short time. It must be obvious the degree to which on an annual basis an investment is made in the infrastructure which would be of benefit not only to the investor but also to the consumer.

Deputy N. Dempsey

Deputy Broughan asked whether we considered buying back the networks. I might not have shared this information with many people, but it fleetingly passed through my mind at one stage.

Deputy Broughan

Did the Minister mention it to the Minister for Finance, Deputy Cowen?

Deputy N. Dempsey

No, I did not. Eircom had total debts of approximately €2.5 billion. It had cash of €400 million, giving a net debt position of approximately €2.056 billion. It was bought for €2.4 billion, which represents an overall cost of almost €4.5 billion. It was not considered. It would not have been possible to buy back the networks on their own. We would have been obliged to buy everything. Transfer of undertakings, etc., would have come into play. It would not be an attractive proposition for us at present. We would be better doing what we have been doing, which is providing support, where necessary, and perhaps at some stage trying to drive the private sector to provide service in the liberalised market.

Deputy Broughan

Does the Minister regard the arrival of Babcock and Brown as an opportunity for a fresh start?

Deputy N. Dempsey

I outlined that I am prepared to take the statements made by Pierre Danon at face value. He appears to be genuine in what he is saying about building the company and ensuring the roll-out of broadband. He said he wants to do so in a spirit of partnership. I look forward to meeting him and discovering exactly what that means. I certainly carry no baggage in this regard and will not do so. I will listen with an open mind. I will offer every opportunity, by means of support and active co-operation, to roll out the broadband network as quickly as possible.

At one stage, I contacted some people in BT who were difficult enough customers in the context of the UK. They did a complete about-turn by rolling out the system as effectively as we have seen in Northern Ireland. I do not agree with Deputy Broughan's figures in that regard. I asked someone at the highest level in BT to state what happened to get the company to change its position. I was told that the policy changed when the personnel at the top changed. I hope we will have a similar experience here.

Chairman

Like some Opposition members, I met Pierre Danon. I am prepared to take what he said at face value. BT engaged in discussions with Eircom's senior management before it took over the operation. BT instructed and encouraged Eircom to roll out the operation. Mr. Danon sees it as a huge deficit and as an important area if business is to be developed. As the Minister said, he expects that there will be co-operation with the other telecommunications companies, which will use their assets to sell wholesale capacity. We will have to wait and see. My final question relates to the schools broadband scheme, 50% of which is satellite-based. Somebody said that the satellite-based system is expensive and does not work as well as a fibre-based system or DSL.

Deputy N. Dempsey

I do not want to damage anybody's business. The satellite-based system is not the broadband system of choice. We have indicated our ambitious target of providing broadband for every school in the country. As the Chairman is aware, Ireland has a large number of schools — approximately 4,500 — for a country of its size. As far as I recall from my time as Minister for Education and Science, between 40% and 50% of those schools are small two-teacher schools in rural areas. Such schools experience the same problem that is generally encountered in respect of broadband. As there are no enabled exchanges within a reasonable distance in many cases, options such as wireless and satellite-based systems must be considered. The satellite-based system is not as good as the system based on fibre optic cable. This technology which is improving is used in certain areas to ensure that nobody is left behind.

Deputy Broughan

What is the timeframe for the legislation that the Minister would like us to help him to bring through the Oireachtas? There are just three or four weeks left in this session. What is the timeframe in respect of getting the legislation to upgrade ComReg on the Statute Book and signed by the President?

Deputy N. Dempsey

I am waiting for the Office of the Chief Parliamentary Counsel to complete its work. I would be delighted to bring the Bill to the House before the summer recess, with the co-operation of Deputies on all sides of the House. I appreciate that Deputies have indicated they will support the Bill. If that is not possible, I would certainly like to bring the Bill through the House in the first couple of weeks of the autumn session.

Chairman

I thank the Minister and his officials for attending.

The joint committee adjourned at 6.05 p.m. sine die.