Tom McDonnell: It is too easy in these days of high drama on the European stage to forget the fundamentals that will drive our eventual economic recovery. And we will recover provided we make the right strategic decisions.
It was welcome therefore to see this intervention by Google's executive chairman Eric Schmidt. He stated yesterday:
“The thing the Government can actually do that’s hard is [to] work with the telecommunications providers to get more broadband. It’s very difficult for small businesses to do,”
“There are very few things that are better use of your money than long-term infrastructure in information technology that serves the interests of the citizens of the country.”
My own doctoral research has focussed on the development of telecommunications infrastructure in Ireland and there is a wide body of theoretical literature and empirical evidence that backs up Schmidt's claim that 'broadband' matters for a country's growth prospects.
The rate of knowledge acquisition in an economy plays an important role in the long term growth rate of that economy. Broadband internet reduces the costs associated with learning and is a facilitator of knowledge acquisition and diffusion par excellence.
It is what is known as a General Purpose Technology. That is a transformative technology like the steam engine and electricity which affects the entire economy.
And Ireland is a broadband laggard.We are at the bottom of the class with Portugal and Greece.
Fixed (wired) broadband subscriptions per 100 inhabitants in the EU15 and Norway, Iceland and Switzerland (June 2010)
Rank Country Total
1 Netherlands 37.8
2 Denmark 37.3
3 Switzerland 37.1
4 Norway 34.2
5 Luxembourg 34.1
6 Iceland 33.3
7 Sweden 31.8
8 France 31.4
9 Germany 31.3
10 United Kingdom 30.5
11 Belgium 30.0
12 Finland 26.4
13 Austria 23.0
14 Spain 22.2
15 Italy 21.3
16 Ireland 20.3
17 Portugal 18.9
18 Greece 18.7
Source: OECD
A number of factors have hampered broadband development in Ireland, for example, low population density and a geographically dispersed population.
A lack of infrastructural investment by Eircom has also contributed negatively to broadband development in this country. One reason for the lack of investment is that the company was loaded with debt in the years after privatisation. Eircom now has debt levels approaching €4 billion. This was a legacy of Leveraged Buy Outs which the state had made itself powerless to stop.
Eircom's troubled finances will prevent it from investing sufficiently in the future. Although the Government's finances are perilous, the case for state investment in broadband is strong.
Showing posts with label broadband. Show all posts
Showing posts with label broadband. Show all posts
Tuesday, 28 June 2011
Friday, 29 January 2010
Running to Stand Still: Next Generation Broadband in Ireland
Donal Palcic: Forfás published its latest report on Ireland’s broadband performance last week and as usual it evoked a strong sense of déjà vu. At times I feel sorry for the good people at Forfás who work on producing such reports, who must be frustrated at making countless constructive policy recommendations year after year only to see little or no progress on their implementation. Every year, the Forfás broadband reports highlight the positive developments in the Irish broadband market but every year they are forced to concede that we are still lagging significantly behind our peers.
A quick trawl through the introductions of reports from the last few years highlights the difficulty Forfás must have in coming up with a new formula of words to describe the same problem:
Forfás Broadband Report Nov. 2004:
“although there have been a number of significant developments in the Irish broadband market in recent years, Ireland continues to compare poorly for overall take-up of broadband and has slipped further behind the leading countries”.
Forfás Broadband Report Nov. 2005:
“although there have been a number of significant developments in the Irish broadband market in recent years, Ireland’s relative performance has not improved”.
Forfás Broadband Report Dec. 2007 (referring to findings of Nov. 2006 report):
“although there had been a number of significant developments in the Irish broadband market in recent years, Ireland’s relative performance continued to lag that of its competitors”.
Forfás Response to DCENR Consultation Paper on NGN (Oct. 2008):
“despite recent progress, Ireland continues to lag behind competitor regions in the range, speed and cost of broadband services. Critically, we also remain behind leading regions in developing a next generation network that will allow Irish businesses and households access to the advanced broadband services of tomorrow”.
Fast forward to the latest report and we are told that “while progress is being made in improving the cost and availability of basic broadband, Ireland is lagging at least 3 to 5 years behind competitor countries in terms of rolling out infrastructure capable of high speed next generation broadband”.
Part of the blame for our consistently poor performance must be laid at the feet of the Government. While it has (belatedly) intervened in the market through various programmes such as the County & Group Broadband Scheme, Metropolitan Area Network programme and National Broadband Scheme, these initiatives, while welcome, are simply not enough. Given the structure of the Irish telecommunications industry and its market and infrastructural characteristics, the Government needs to adopt a much stronger role in implementing effective policies and actions that will facilitate a more rapid rollout of next generation high-speed services.
ComReg also has a role to play in stimulating investment by private telecoms operators in the market. Key actions to facilitate private investment which were highlighted in the latest Forfás report are: 1) ensuring an appropriate return on investment; 2) examining the potential for infrastructure sharing and co-investment between private operators; 3) enabling wireless spectrum for the delivery of higher-speed broadband; and 4) ensuring wholesale access to Eircom’s products is made available (e.g. full local loop unbundling etc.).
While the above ComReg actions are of obvious importance in terms of the development of higher-speed services, Government actions also have a role in determining the speed at which the required private sector investment takes place. As highlighted in a number of Forfás reports, the State can play a significant role in facilitating investment.
The creation of a ‘one-stop-shop’ for State-owned broadband infrastructure would provide private operators with easier integrated access to core network infrastructure and facilitate further competition in the market. This recommendation was mooted years ago, however progress on this initiative has been painfully slow. As it stands the DCENR has established an Implementation Task Force to oversee the project and there is no indication of when we might expect to see it.
Other policy initiatives which have been suggested on a number of occasions and which have not been progressed quickly enough are: 1) making the provision of ducting in all new premises mandatory; and 2) making the provision of ducting in all relevant public works and State infrastructural development programmes mandatory (e.g. electricity, gas, rail, roads, water, sewage etc.). The latter is one area where the coordination of civil works by one utility network with all other networks would greatly lower the cost of investment for all. Indeed, the millions that will need to be spent in fixing the damage done to the road and water networks during the recent floods and cold snap present a perfect opportunity for installing ducting where feasible.
Even if all of the above was implemented tomorrow, it is far from certain that enough private investment in next generation infrastructure (particularly access infrastructure) will be stimulated, especially in rural areas. It may still be necessary for the Government to provide this infrastructure itself, or at the very least to partner with the private sector in delivering it. Failure to do so will put us at a massive competitive disadvantage to other countries in years to come.
The chief area of concern in the development of advanced high-speed broadband infrastructure in Ireland is the local access network. While investment by UPC in upgrading its cable network and investment by other companies such as Imagine in WiMAX technologies have improved things in this regard, these services are only available in certain parts of the country. Eircom’s dominance of the fixed-line market means that investment in its local access infrastructure will be of crucial importance in ensuring a more rapid rollout of next generation services across the country.
Eircom’s new owner, STT, appears to be establishing a more cordial and cooperative relationship with ComReg and has indicated that it plans to invest in Eircom’s network and intends to stay in Ireland for the long term. The recent move to drop Eircom’s legal case against ComReg’s decision to lower the monthly charge for shared line LLU services from €8.41 to €0.77 reinforces the view that the company will be more cooperative with the regulator than under previous owners. That said it is hard to see how STT plans to undertake significant investment in Eircom’s network given its approximate €4 billion debt burden. Indeed, S&P recently put Eircom’s rating of B on ‘creditwatch negative’ and warned that the company could breach covenants on some of its debt in the next year.
The EU has changed its State Aid rules to facilitate joint public-private investment in broadband infrastructure in both rural and urban areas. Governments in other European countries have recognised the importance of investment in fibre-based next generation networks by intervening in their telecoms markets. For example, last year, Finland (a country with a similar urbanisation rate as Ireland) made universal minimum internet access speeds a legal requirement. The Finnish government committed to a minimum speed of 1Mb/s per second from July of this year and 100Mb/s by 2015. Another example is the UK, where the British Government has set up a Next Generation Access fund (to come from a £0.50 monthly levy on all telephone landlines). The approximate £1 billion in funds that the levy generates will be used to facilitate the installation of fibre-optic cable in rural and suburban areas where it might otherwise have been unprofitable for the private sector to invest.
Further afield, the Australian Government has announced a multi-billion fibre-to-the-home project which will provide 100Mb/s connections to 90% of homes over the next eight years. The project is to be run as a joint venture with the private sector where the State will own a minimum of 51% of the project. In Singapore, the Government is providing almost US$500 million for a joint venture project with a private sector company to construct the passive infrastructure for a national next generation broadband network. A further US$166 million in funding is being provided for a separate joint venture with Starhub, a subsidiary of Eircom’s new owner STT, to build and operate the active infrastructure for the national network and will be competed by 2015.
It is clear that other countries realise the strategic importance of high-speed broadband and are taking steps to ensure their countries don’t fall behind. What is worrying for Ireland is that we are already behind many of the above countries as it stands and cannot afford to fall further behind through inaction. While many of the policy and regulatory actions mentioned earlier, if implemented, could do much to facilitate improved private investment in infrastructure, Ireland can ill afford to wait and see if the required investment will take place, and at the required pace. The Irish Government needs to become more proactive and play a stronger role in the development of Ireland’s next generation broadband infrastructure, particularly at the local access level. This requires either direct investment by the State or co-investment with the private sector (Eircom’s dire financial situation could provide an opportunity for the Government to step in and make a deal with the company in relation to its network infrastructure). Maybe then future Forfás reports won’t need to perennially point out that we lag competitor countries in terms of our broadband performance.
A quick trawl through the introductions of reports from the last few years highlights the difficulty Forfás must have in coming up with a new formula of words to describe the same problem:
Forfás Broadband Report Nov. 2004:
“although there have been a number of significant developments in the Irish broadband market in recent years, Ireland continues to compare poorly for overall take-up of broadband and has slipped further behind the leading countries”.
Forfás Broadband Report Nov. 2005:
“although there have been a number of significant developments in the Irish broadband market in recent years, Ireland’s relative performance has not improved”.
Forfás Broadband Report Dec. 2007 (referring to findings of Nov. 2006 report):
“although there had been a number of significant developments in the Irish broadband market in recent years, Ireland’s relative performance continued to lag that of its competitors”.
Forfás Response to DCENR Consultation Paper on NGN (Oct. 2008):
“despite recent progress, Ireland continues to lag behind competitor regions in the range, speed and cost of broadband services. Critically, we also remain behind leading regions in developing a next generation network that will allow Irish businesses and households access to the advanced broadband services of tomorrow”.
Fast forward to the latest report and we are told that “while progress is being made in improving the cost and availability of basic broadband, Ireland is lagging at least 3 to 5 years behind competitor countries in terms of rolling out infrastructure capable of high speed next generation broadband”.
Part of the blame for our consistently poor performance must be laid at the feet of the Government. While it has (belatedly) intervened in the market through various programmes such as the County & Group Broadband Scheme, Metropolitan Area Network programme and National Broadband Scheme, these initiatives, while welcome, are simply not enough. Given the structure of the Irish telecommunications industry and its market and infrastructural characteristics, the Government needs to adopt a much stronger role in implementing effective policies and actions that will facilitate a more rapid rollout of next generation high-speed services.
ComReg also has a role to play in stimulating investment by private telecoms operators in the market. Key actions to facilitate private investment which were highlighted in the latest Forfás report are: 1) ensuring an appropriate return on investment; 2) examining the potential for infrastructure sharing and co-investment between private operators; 3) enabling wireless spectrum for the delivery of higher-speed broadband; and 4) ensuring wholesale access to Eircom’s products is made available (e.g. full local loop unbundling etc.).
While the above ComReg actions are of obvious importance in terms of the development of higher-speed services, Government actions also have a role in determining the speed at which the required private sector investment takes place. As highlighted in a number of Forfás reports, the State can play a significant role in facilitating investment.
The creation of a ‘one-stop-shop’ for State-owned broadband infrastructure would provide private operators with easier integrated access to core network infrastructure and facilitate further competition in the market. This recommendation was mooted years ago, however progress on this initiative has been painfully slow. As it stands the DCENR has established an Implementation Task Force to oversee the project and there is no indication of when we might expect to see it.
Other policy initiatives which have been suggested on a number of occasions and which have not been progressed quickly enough are: 1) making the provision of ducting in all new premises mandatory; and 2) making the provision of ducting in all relevant public works and State infrastructural development programmes mandatory (e.g. electricity, gas, rail, roads, water, sewage etc.). The latter is one area where the coordination of civil works by one utility network with all other networks would greatly lower the cost of investment for all. Indeed, the millions that will need to be spent in fixing the damage done to the road and water networks during the recent floods and cold snap present a perfect opportunity for installing ducting where feasible.
Even if all of the above was implemented tomorrow, it is far from certain that enough private investment in next generation infrastructure (particularly access infrastructure) will be stimulated, especially in rural areas. It may still be necessary for the Government to provide this infrastructure itself, or at the very least to partner with the private sector in delivering it. Failure to do so will put us at a massive competitive disadvantage to other countries in years to come.
The chief area of concern in the development of advanced high-speed broadband infrastructure in Ireland is the local access network. While investment by UPC in upgrading its cable network and investment by other companies such as Imagine in WiMAX technologies have improved things in this regard, these services are only available in certain parts of the country. Eircom’s dominance of the fixed-line market means that investment in its local access infrastructure will be of crucial importance in ensuring a more rapid rollout of next generation services across the country.
Eircom’s new owner, STT, appears to be establishing a more cordial and cooperative relationship with ComReg and has indicated that it plans to invest in Eircom’s network and intends to stay in Ireland for the long term. The recent move to drop Eircom’s legal case against ComReg’s decision to lower the monthly charge for shared line LLU services from €8.41 to €0.77 reinforces the view that the company will be more cooperative with the regulator than under previous owners. That said it is hard to see how STT plans to undertake significant investment in Eircom’s network given its approximate €4 billion debt burden. Indeed, S&P recently put Eircom’s rating of B on ‘creditwatch negative’ and warned that the company could breach covenants on some of its debt in the next year.
The EU has changed its State Aid rules to facilitate joint public-private investment in broadband infrastructure in both rural and urban areas. Governments in other European countries have recognised the importance of investment in fibre-based next generation networks by intervening in their telecoms markets. For example, last year, Finland (a country with a similar urbanisation rate as Ireland) made universal minimum internet access speeds a legal requirement. The Finnish government committed to a minimum speed of 1Mb/s per second from July of this year and 100Mb/s by 2015. Another example is the UK, where the British Government has set up a Next Generation Access fund (to come from a £0.50 monthly levy on all telephone landlines). The approximate £1 billion in funds that the levy generates will be used to facilitate the installation of fibre-optic cable in rural and suburban areas where it might otherwise have been unprofitable for the private sector to invest.
Further afield, the Australian Government has announced a multi-billion fibre-to-the-home project which will provide 100Mb/s connections to 90% of homes over the next eight years. The project is to be run as a joint venture with the private sector where the State will own a minimum of 51% of the project. In Singapore, the Government is providing almost US$500 million for a joint venture project with a private sector company to construct the passive infrastructure for a national next generation broadband network. A further US$166 million in funding is being provided for a separate joint venture with Starhub, a subsidiary of Eircom’s new owner STT, to build and operate the active infrastructure for the national network and will be competed by 2015.
It is clear that other countries realise the strategic importance of high-speed broadband and are taking steps to ensure their countries don’t fall behind. What is worrying for Ireland is that we are already behind many of the above countries as it stands and cannot afford to fall further behind through inaction. While many of the policy and regulatory actions mentioned earlier, if implemented, could do much to facilitate improved private investment in infrastructure, Ireland can ill afford to wait and see if the required investment will take place, and at the required pace. The Irish Government needs to become more proactive and play a stronger role in the development of Ireland’s next generation broadband infrastructure, particularly at the local access level. This requires either direct investment by the State or co-investment with the private sector (Eircom’s dire financial situation could provide an opportunity for the Government to step in and make a deal with the company in relation to its network infrastructure). Maybe then future Forfás reports won’t need to perennially point out that we lag competitor countries in terms of our broadband performance.
Monday, 20 April 2009
Eircom: topsy-turvey economics
Paul Sweeney: The bid last week for Eircom is yet another nail in the coffin of the Anglo Saxon model of liberal economics. Even Fine Gael called for its nationalisation. In the same week, 20 economists, some of them on the hard Right, called for all Irish banks to be nationalised!
The bid of a mere €95m for Eircom is in stark contrast to the market value of €8.4bn when it was privatised almost ten years ago. The taxpayer got €6.2bn on an investment of only €562m (plus a pension contribution of €1bn)
The low offer price is because Eircom is now laden with debts. This is in stark contrast to the debt free, rapidly growing and heavily investing state enterprise which Mary O’Rourke stupidly privatised. Of course, O’Rourke was not alone in 1999. The whole country was gripped by the privatisation hysteria. Nearly everyone with money wanted to make a profit from the sale of the company they already owned. Nearly all got badly burnt and so learned a hard lesson about stock markets.
But the real lesson was strategic. Sadly, it has not yet been absorbed by official Ireland, constrained as it is by ideology. Eircom, as a state company, was investing massively. Broadband was vital for the knowledge economy. The second set of new owners, private equity firms, led by Tony O Reilly and George Soros, sweated the company and used its cash to pay off the cost of buying it. (The new bidders are proposing similar moves, hence the opposition by the unions). The rapidly growing mobile arm was flogged off to Vodafone.
On an investment of €676m, the private equity firm (and the ESOT) made a gain of €954 in a few years (for the details see Chapter 3 of my book Selling Out? Privatisation in Ireland). These gains included huge dividends on losses. Investment was cut to one-third of its peak when it was a state enterprise.
When Forfas, the intellectual arm of the Department of Enterprise and Employment, made a study of the deficiencies of Irish broadband, the strategic error of the privatisation was not mentioned, even in a footnote! This indicates that official Ireland does not learn lessons which are not ideologically acceptable. With mass nationalisations, will Forfas and this government now learn to put aside its out-dated ideas?
The ideology of privatisation and marketisation has collapsed as a panacea for economic efficiency. The state was portrayed as inefficient, plodding and bureaucratic. Commercial State companies, which have contributed much to Ireland’s economy and society since 1927, are not perfect. But they still have a major role to play in the economy, especially given that it is small and open. Ireland, unlike some countries, has some very fine and well-run state enterprises. With some minor changes, the lagging state companies can be made much more efficient.
With the collapse in the Anglo-Saxon model of Capitalism, will a new government learn that commercial state enterprises still have a major role to play in our future economic well being?
Fine Gael, in addition to nationalising Eircom, recently proposed setting up a State Holding Company, (remarkably similar to Congress’ proposal of some years ago). This shows that some Irish politicians are finally shaking off the defunct Anglo-Saxon economic ideology and are being innovative.
One thing is sure. We have seen clearly that banking, as the artery of capitalism, is too important to ever again to be left in the hands of the private sector. When this crisis is sorted out, it is vital, in my opinion, that one substantial Irish bank must remain in state ownership, run at arms length from the government.
In the meantime, we should re-nationalise Eircom. It’s a steal at €100m. We are spending more on subsidies to private firms on haphazard broadband provision.
The bid of a mere €95m for Eircom is in stark contrast to the market value of €8.4bn when it was privatised almost ten years ago. The taxpayer got €6.2bn on an investment of only €562m (plus a pension contribution of €1bn)
The low offer price is because Eircom is now laden with debts. This is in stark contrast to the debt free, rapidly growing and heavily investing state enterprise which Mary O’Rourke stupidly privatised. Of course, O’Rourke was not alone in 1999. The whole country was gripped by the privatisation hysteria. Nearly everyone with money wanted to make a profit from the sale of the company they already owned. Nearly all got badly burnt and so learned a hard lesson about stock markets.
But the real lesson was strategic. Sadly, it has not yet been absorbed by official Ireland, constrained as it is by ideology. Eircom, as a state company, was investing massively. Broadband was vital for the knowledge economy. The second set of new owners, private equity firms, led by Tony O Reilly and George Soros, sweated the company and used its cash to pay off the cost of buying it. (The new bidders are proposing similar moves, hence the opposition by the unions). The rapidly growing mobile arm was flogged off to Vodafone.
On an investment of €676m, the private equity firm (and the ESOT) made a gain of €954 in a few years (for the details see Chapter 3 of my book Selling Out? Privatisation in Ireland). These gains included huge dividends on losses. Investment was cut to one-third of its peak when it was a state enterprise.
When Forfas, the intellectual arm of the Department of Enterprise and Employment, made a study of the deficiencies of Irish broadband, the strategic error of the privatisation was not mentioned, even in a footnote! This indicates that official Ireland does not learn lessons which are not ideologically acceptable. With mass nationalisations, will Forfas and this government now learn to put aside its out-dated ideas?
The ideology of privatisation and marketisation has collapsed as a panacea for economic efficiency. The state was portrayed as inefficient, plodding and bureaucratic. Commercial State companies, which have contributed much to Ireland’s economy and society since 1927, are not perfect. But they still have a major role to play in the economy, especially given that it is small and open. Ireland, unlike some countries, has some very fine and well-run state enterprises. With some minor changes, the lagging state companies can be made much more efficient.
With the collapse in the Anglo-Saxon model of Capitalism, will a new government learn that commercial state enterprises still have a major role to play in our future economic well being?
Fine Gael, in addition to nationalising Eircom, recently proposed setting up a State Holding Company, (remarkably similar to Congress’ proposal of some years ago). This shows that some Irish politicians are finally shaking off the defunct Anglo-Saxon economic ideology and are being innovative.
One thing is sure. We have seen clearly that banking, as the artery of capitalism, is too important to ever again to be left in the hands of the private sector. When this crisis is sorted out, it is vital, in my opinion, that one substantial Irish bank must remain in state ownership, run at arms length from the government.
In the meantime, we should re-nationalise Eircom. It’s a steal at €100m. We are spending more on subsidies to private firms on haphazard broadband provision.
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