Thursday 18 July 2019

Eir says its National Broadband Plan pitch would cost up to €1.5bn

Eir chief executive Carolan Lennon. Photo: Steve Humphreys
Eir chief executive Carolan Lennon. Photo: Steve Humphreys

Adrian Wecker

Eir says the taxpayer subsidy it would require to roll out the National Broadband Plan would potentially rise to €1.5bn.

In a letter sent to the government, the firm’s chief executive gave more detail on the public funds it sought under the taxpayer-funded state scheme.

In it, the company indicated that its ‘range’ of public funding required would range from €0.5bn to €1.5bn. The higher figure is €500m more than it recently promised the job could be done for.

But even this might go up, the company suggested. The €1.55bn is a “mid-range” figure that excludes Vat and is set against a government mid-range estimate of €2.1bn excluding Vat. However, Eir has not given a higher range estimate of the type that the government says it was forced to consider when calculating its €2.9bn (including Vat).

It may add to fears among those calling for the company to be introduced to the process that costs may start to creep up once negotiations with Eir started in earnest.

The letter from Eir CEO Carolan Lennon to the government also reiterates Eir’s position that the alternative rollout would be done on the same basis as Eir’s current fibre broadband network to over 300,000 rural homes.

It also promised that additional individual cost to householders would be kept in check, with most not paying more than the additional €70 per home over and above the NBP’s connection charges. This was in response to government claims last week that up to 81,000 rural homes could face charges potentially into thousands of euro under Eir’s looser connection plans.

However, Eir said that one of the reasons it couldn’t accept the government’s “better” prices and access is that it would be forced to then offer those terms to other customers around the country.

“By designing a process that would have forced Eir to offer better wholesale prices and access, better service levels and lower prices for approximately 20pc of our network, it ensured that Eir would ultimately be forced to offer those same elements across the other 80cp of our business should Eir have stayed in the NBP,” wrote Ms Lennon.

“While network competition is relatively sparse in the Intervention Area, it is extremely competitive across the rest of the country and this could have had a catastrophic impact on the rest of our business.”

And Ms Lennon also said that the €2.75bn draft costing that the company initially submitted when it was part of the NBP was different to what it was proposing now.

“In September 2017, Eir submitted a technical solution for the NBP, not a competitive bid,” she wrote. “The financial implications of this solution were based on a number of underlying assumptions which ultimately led to a required subsidy of €2.75 billion. Because of the well-flagged red line concerns and restrictions in the NBP contract at the time, and the nature of the claw-backs in the contract, Eir was not in a position to take commercial risk on any of the uncertain assumptions underlying this solution, as we would normally do in assessing an investment.

"Typically Eir would expect to do better than expected on some assumptions and worse than expected on other assumptions but in this process the uncertainties were almost entirely negative, and any positive surprises would be clawed back by the State, so Eir felt we had no alternative at that stage of the process but to apply conservative thinking to virtually every assumption used in the submission.”

Eir’s CEO also said that the government was factually “erroneous” when it claimed that the removal of the 300,000 homes form the intervention area increased the public subsidy required.

Responding to the letter, a government spokeswoman said that “it is clear that this new approach has not met” the conditions set out by the government in relation to rollout conditions it set in the NBP.

“Eir had previously withdrawn from that procurement process,” the spokeswoman said. “Any new procurement process would delay the project by between 3 and 5 years. Eir has explicitly stated that its letter is not a formal offer seeking to replace the current NBP process.

“The procurement process for the National Broadband Plan was designed to deliver high speed broadband to 100pc of premises in the country, strong protections to the State, with clawback mechanisms for excess profits and full transparency of where the state subsidy is being directed, a guarantee of up-front equity and risk lying with the bidder if certain milestones aren't reached, equal access for all commercial providers to the network so that consumers can get the lowest costs and highest level of services and a level playing field for all applicants in line with state aid rules.

"Eir was one of the bidders for the National Broadband Plan. The company submitted a bid of nearly €3 billion under these conditions. A high level outline was received from Eir on Friday evening. The Department will respond comprehensively to this letter but it is clear that this new approach has not met the above conditions.”

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