Saturday 18 August 2018

Cost of rural broadband could rise by up to 60pc, internal documents reveal

Broadband is needed in rural communities
Broadband is needed in rural communities
Adrian Weckler

Adrian Weckler

The cost of rural broadband could rise by up to 60pc according to internal government documents.

Internal memos released under the Freedom Of Information Act show a feared National Broadband Plan price hike because of the government’s recent agreement with Eir to move 300,000 rural home and businesses out of the state’s 850,000-premise rollout intervention zone and into Eir’s own expedited rollout plans.

The rise in the scheme’s cost, which is already estimated to be over €500m, could come from Eir seeking fees from any winning bidder of the National Broadband Plan tender.

“The level of subsidy [that] bidders might seek for the reduced intervention area could increase by between 10pc and 15pc if an incremental cost is applied to infrastructure access, and by more than 60pc if the existing regulated price for pole and duct access is applied,” said the internal government memo setting out the government’s position.

“All three bidders have indicated that access to the new infrastructure built as part of the Eir 300,000 rural deployment, will be central to their bids. The cost to bidders of accessing this infrastructure in order to reach the Intervention Area is a critical factor that could significantly impact on the level of subsidy sought by bidders in the procurement process.”

The government wants Eir to charge a reduced price to this infrastructure while Eir insists that it is entitled to charge a market rate.

The increase in cost is likely to be absorbed by the taxpayer, as the government has promised that citizen access to state-subsidised rural broadband will not exceed average prices in urban areas.

The memos also show that the government believes the Eir deal will initially delay some parts of the remaining rural broadband rollout, although it insists that the arrangement will accelerate access to a large chunk of those currently without reliable broadband.

And the documents show that the government put in place a penalty clause of €20m if Eir fails to meet its rollout deadline of the end of 2018.

However, the government was given legal advice to the effect that it had little choice but to agree the deal with Eir, as European state intervention rules guided that there was “no justification for a State Intervention for these premises”.

Nevertheless, documents reveal that the government showed concern about the possibility of one of the three shortlisted bidders, Siro, walking away from the bidding process. Siro, a joint venture between Vodafone and the ESB, vocally opposed the government deal with Eir. It recently restated its position that it has not yet decided whether or not to remain in the bidding process.

The document also shines a light on how much telecoms firms are spending on their NBP bids. One bidder claimed that the cost would eventually be €8m and requested that either the state or the winning bidder should pick up 50pc of other shortlisted bidders’ costs.

However, the document suggests that Eir has agreed only to minimum speeds of 30Mbs, a moderate broadband speed by today’s standards, in the rural areas it has taken over. The company has promised to rollout out fibre broadband capable of 1,000Mbs within these areas. Eir has pledged to complete this rollout by the end of 2018. Company executives recently reaffirmed this target date.

The National Broadband Plan seeks to connect every rural household and business in Ireland to fibre-level broadband speeds. Initially targeted for completion in 2021, a series of delays have meant that it is not likely to be finished before 2023 at the earliest.

Eir, Siro and Enet are the three bidders shortlisted for the taxpayer-funded rollout plan, which aims to provide 542,000 rural homes and businesses with fibre broadband.

These premises are currently cut off from broadband, with internet services that fail to offer access to everyday online facilities.

The genesis of the row between the Department of Communications and Eir is over how rural premises are to be connected up when the tender contract is awarded.

Typically, rural broadband connections start in small towns or villages, where the density of homes and businesses is highest. The fibre is then laid in a manner where it spiders its way out to the outskirts. That’s where the ribbon developments start to get more spread out and where one-off housing, with farms and other buildings, is the norm.

What Eir has done in offering to cover 300,000 of the 850,000 is to take these rural town centres and extend a couple of kilometres out. That means that anyone who wins the contract for the remaining 450,000 homes and businesses (in one-off scenarios between towns and villages) will face a tough choice. Either they duplicate a fibre network build themselves from the town centre (thus replicating Eir’s build and thinning out any returns) or they apply to use Eir’s infrastructure to carry their service out to where the remote rural premises are.

From Eir’s perspective, it’s an aggressive -- but potentially very smart -- competitive chess move. It wins a little no matter what happens.

Siro itself is probably behind on its own stated targets. Its target is 500,000 homes and businesses to be connectable by the end of 2018. To date, it has around 75,000 completed. It will be surprising if it somehow reaches another 430,000 premises in the next 18 months, a rate of some 25,000 premises per month.

The latest internal documents were first brought to light by the campaigning group IrelandOffline.

Online Editors

Business Newsletter

Read the leading stories from the world of Business.

Also in Business