What will ESB/Vodafone fibre network do to entice new punters?
Published 20/03/2014 | 02:30
Why are the ESB and Vodafone building a new €400m fibre broadband network in Ireland? What's the thinking behind how it will make money at a time of tanking telecom revenues? And who'll sign up to it when Eircom's 'eFibre' network is now halfway rolled out and UPC is generally crushing its competitors?
Here are some key questions and answers about the project's credentials.
1. What exactly is the business plan?
While neither company will give much detail, a few key facets are starting to emerge. First, sources say that the new service won't be competing against UPC, full stop. This could literally go as far as dividing out neighbourhoods. "If UPC is available in one street, we won't go there but we may do the next street," said one person close to the joint venture. With half the country's homes and businesses covered by UPC – mostly in the profitable, densely populated areas – this narrows the new service's coverage considerably. By contrast, sources say that the ESB-Vodafone network will absolutely compete against Eircom's eFibre service.
2. But if it competes against Eircom, won't Vodafone then be competing against itself?
This is an intriguing marketing question. Right now, Vodafone resells Eircom broadband packages, including its eFibre configuration. So what happens there? Sources say that the operator may ditch Eircom's services and just use the ESB-Vodafone fibre network. However, ESB-Vodafone's fibre services are initially only planned to hit around 450,000 premises (out of around 650,000 eFibre premises now and 1.4 million by the end of the rollout). So is Vodafone going to give up its national reseller partnership with Eircom for a limited deal with its own joint venture network? Or does it hope to somehow keep the two bits of the business separate (ESB-Vodafone fibre in some parts of the country, rebadged eFibre and non-fibre Eircom broadband in other parts)? It's no small consideration: Vodafone is currently the third largest fixed-line broadband operator in Ireland, reselling Eircom network services.
3. Does Eircom (or anyone else who asks) get access to the new ESB-Vodafone fibre network if it wants to resell services from it?
Probably not, although Eircom has said that it will try. Under Irish telecoms law, an operator is obliged to consider a request for access to its network from another operator. If the request is met with a refusal (as this one likely would be), the regulator is required to step in and consider the issue. However, the chairman of Comreg has said that the regulator will treat the new ESB-Vodafone network "like any other operator". In other words, Eircom may not find too much joy in this route.
4. Why are they building this network now, when UPC and Eircom are at relatively advanced stages of rollout?
The thinking in the ESB and Vodafone is that this is a long-term infrastructure project that will win based on the nature of what it is versus what rivals are offering. To recap: the new network is fibre-to-the-home, a significant step above Eircom's eFibre (which is copper wire to the home, connected to a fibre 'cabinet' some distance away). It also easily matches what UPC already offers. Bear in mind that the volume of internet traffic is still booming in Ireland: it rose by 75pc in the last year alone. That requires heavy-lifting pipes in the medium to long run. "The ESB tends to look at projects that can deliver a 30-year timeframe," one source said to me recently.
5. Who will get the service first and how many will get it eventually?
Between 400,000 and 500,000 premises (out of around two million premises in Ireland) will represent the "first phase" of the rollout. The context here is that the ESB has about 1,300km of fibre-optic cable in Ireland (compared with over 10,000km held by Eircom). So it's not clear as to what the joint venture would have to do to launch a 'second phase'.
6. Finally, do we know that this new fibre network is really going to happen?
It looks pretty certain now. The legislation to allow it happen has been quickly passed and a green light from the EU (which needs to sanction the initiative because of the nature of the ESB) is expected. More importantly, the two companies putting up the money – ESB and Vodafone – say they are solidly committed to doing so. Vodafone is freshly flush after its €90bn Verizon stake sale, while the ESB just announced a €415m profit.