Business Technology

Saturday 19 October 2019

Adrian Weckler: How Eir says it would save €2bn on the National Broadband Plan - and why the government may not trust it

Eir CEO Carolan Lennon
Eir CEO Carolan Lennon
Adrian Weckler

Adrian Weckler

Yesterday, Eir CEO Carolan Lennon gave a somewhat explosive testimony to TDs and Senators about the National Broadband Plan at a joint Oireachtas Committee. Her words were damning.

She said:

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1. Eir could replace the National Broadband Plan for under €1bn of taxpayers' money;

2. Eir had repeatedly told the government this, before and after it pulled out of the NBP Tender in early 2018, but Ministers and department officials had not responded;

3. If the current NBP was scrapped, Eir would consider going again with this plan, connecting most (but not quite all) of the NBP 'intervention area' homes for under €1bn.

Two of the TDs present, Green Party leader Eamon Ryan and Fianna Fail spokesman for communications Timmy Dooley, were visibly struck by the testimony.

Ryan now believes it should lead to a basic rethink by Taoiseach Leo Varadkar. (Dooley has long looked for a deeper review or postponement of the process for various reasons.)

It leaves the whole thing with two new questions:

(i) Is the current NBP process simply overpriced?

(ii) Should the government scrap it and proceed on the basis that Eir is suggesting?

The first of these questions is probably the one that will linger. Listening to Eir's CEO, one takeaway might be that the bill faced by the taxpayer for connecting 540,000 (mostly) rural homes and businesses is just too high.

So how can there be such a big difference between the €3bn taxpayer subsidy currently on the table and the €1bn touted by Eir?

HOW THE €2BN WOULD BE SAVED

Eir won't publish its initial draft NBP bid -- which it admits was closer to €3bn -- but Lennon did give some indication of where the savings might be from that figure to its new ¢æ1bn price.

The biggest one, by far, is a €900m savings on poles and ducts. Basically, the current NBP plan needs to rent poles and ducting from Eir to deliver the physical fibre to these remote homes. That will cost the process (mostly the taxpayer) €900m in rent to Eir over 25 years. This money goes to the upkeep and replacement of those poles.

But Eir says that if it got the gig, it would absorb that €900m cost itself. It could do this, Lennon said, because it would switch its copper line business (which currently plays for the poles) over to fibre.

The problem the state faces is that this is a saving that only appears to apply if the contract is given outright to Eir. Because only it owns all of those poles. In other words, no matter who else you award the tender to, at least some rental to Eir would probably be outstanding. There is a possibility that the ESB, if directed to provide rural broadband somehow, could also lessen this outright cost. But the ESB don't want to get involved. And even if they did, it's likely that other costs would accrue there.

There are other bits and pieces of savings suggested by Eir, but most of these mean a dilution of the quality, terms of the service, a slightly lower footprint and a higher contribution from households themselves. These are:

1. Higher cost to homes: Lennon said that Eir's plan would see individual households pay more (€170 per home) to initially connect up to the broadband. It may also cost a little more per month. She said that this was in line with Eir's existing fibre-to-the-home service standards.

2. Customer service relaxed: She also said that customer service guarantees would have to relaxed from NBP standards. In particular, she said that it's financially unrealistic to expect fault repair times to be at the level allocated under the state contract. "You'd end up having engineers sitting around in Donegal just waiting for a fault to happen," she said.

3. Fewer homes connected: Lastly, she said that the actual number of homes to be connected would be less than the 540,000 outlined. In fact, she put this as low as 420,000. This is partially based on Eir’s own ‘overbuild’ into the NBP intervention area, where the company exceeded its 300,000 fibre-to-the-home target by 40,000. But it’s also based on Lennon’s view that “urban infill” -- where stranded individual homes or streets in suburbs or even cities are connected -- would not be done by Eir as part of the subsidised rollout. The rationale, she said, is that eventually those streets and homes will be covered by commercial operators.

Eir would still own the network, Lennon suggested.

4. Eir’s long-term dominance: It wasn’t brought up by anyone in the Oireachtas Committee, but there may be a further reason why Eir might charge less than any current NBP winner for such a rural rollout: a lesser-regulated network would be far, far more valuable. If you look at what Lennon and Eir outlined, it is a very different setup to what is required right now. It’s mostly all on Eir’s terms. Eir would run the whole thing from its existing company. Standards would be relaxed.

Charges could be higher. Eir would own the network from the start. And it would still get €1bn in taxpayer cash to do the whole thing. Put together, this means that the network that Eir would be handed would be a lot more valuable than the one being passed to the current NBP preferred bidder after 25 years, because that current NBP network is subject to much more onerous and costly rules and conditions. So it’s a much better long-term bet. And one that would ultimately prove to be very attractive as the population increases.

………..

Even with these compromises, a saving of up to €2bn is a tantalising one. And Lennon responded positively to a direct question about whether Eir would be willing to roll this alternative rural network out if the current NBP process was abandoned.

So should the government now do this? Or should it ditch the current NBP tender and try to go again in an attempt to get some of the cost savings Eir has outlined?

The government has a few big problems if it is to seriously consider Eir’s ideas.

1. Eir’s structural and political risk: Whatever one thinks about the difficulties with Granahan McCourt as a tender-winner, they’re at least as high with Eir. Many, including some of the NBP’s harshest critics, have called out Eir as a key factor in why Ireland’s broadband situation was allowed to fester for so long. It has lengthy and ongoing issues with regards to corporate governance and how it treats competitors and customers. In short, it has a reputation issue among the Irish political class.

2. No guarantee of Eir commitment: Lennon’s case was strong in the Oireachtas committee. But she’s not formally proposing it. Would the government abandon years of contract preparations, EU approval processes and tender competitions on the hope that Eir might follow through on an unpublished proposal? The only actual details that the government has from Eir is the draft bid it submitted (as part of a technical costing exercise) before it left the NBP process -- that was close to €3bn. Eir insists that this figure was only because it was prepared under the auspices and service level conditions of the current NBP process, many of which it would cast aside.

3. Further delay: Even if the government decided to ditch the current process to court Eir for its alternative rollout, it’s very hard to see how this would not mean a further delay of several years. Whether or not fresh EU approval (which can take a long time) would be needed, it’s likely that a new tender process would have to be prepared in painstaking detail. While Eir is now a more aggressive, fast-moving company, the government is not. It has to line everything up slowly and carefully. There is no way that an alternative Eir process would start up in the next year. And Lennon says that the build-out time would be about the same as the current NBP estimate -- up to seven years from when it starts.

READ MORE: We withdrew bid for National Broadband Plan because of a deal between the government and Eir, Siro executive to tell Dáil 

 

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