Business Technology

Sunday 22 April 2018

Richard Curran: State caught napping as national broadband scheme drags on

French telecoms billionaire Xavier Niel Photo: Marlene Awaad/Bloomberg
French telecoms billionaire Xavier Niel Photo: Marlene Awaad/Bloomberg
Richard Curran

Richard Curran

An old saying is business is: 'You snooze, you lose'. When it comes to managing the process for the National Broadband Scheme, the Department didn't just nod off, but went into a coma.

Deadlines have been missed time and again. Communications Minister Denis Naughten was only in the job a few months when he had to announce that a previous deadline of awarding the contract for the scheme by June 2017 would be missed.

Here we are in February 2018 and there is continued uncertainty about what happens next, following the withdrawal of Eir from the process. It is now nearly six years since this plan was first given the go-ahead and there is still no final tender round conducted, never mind a shovel in the ground.

Eir was quick to blame the regulator, ComReg, for its decision but this looked more like a hard-nosed commercial decision. Relations between ComReg and Eir have been robust in recent years, with the regulator making findings against Eir on governance. Eir, in turn, has issued legal proceedings against ComReg.

Eir executives have been teeing the company up for a sale for several years. And they managed to do just that. The recent takeover of Eir by French telecoms billionaire Xavier Niel seems to have been a factor in Eir's withdrawal. Niel is believed to be more interested in pursuing urban broadband initiatives. However, if the Department had not been so slow in developing the tender process, this contract might well have been awarded, done and dusted before any Niel-inspired change of strategy.

Perhaps Eir wouldn't have won it, or perhaps they would, but at least there would have been a two-horse or even a three-horse race. A one-horse race is not a recipe for taxpayer value for money.

In fairness to Enet, it has shown its commitment to this project throughout and has done nothing wrong. As the last remaining bidder in the current process, it has been consistent. But surely it would have been better to have more than one final bidder.

The government is insisting that the process will go ahead and there will be no loss to the taxpayer. Enet has also suggested that having communicated its views on the rollout of the project, the State has a clear idea of the cost parameters and there simply isn't scope for it to do a major U-turn on price.

However, there are still several unknowns about this process. How much of a subsidy will Enet need to roll out this new network? How much will Eir charge it for using its network over part of the broadband route to rural housing?

Surely, the cost of building this new network is rising by the month, so the longer it drags on the more expensive it will be to build. This in turn will require a larger subsidy from the State.

But what is Enet? It all started in the early Noughties when the government decided to start investing in broadband technology around the country, because a newly-privatised Eircom was not doing enough investment in towns and villages.

The network built by the State was managed by a private sector company called Enet. This business was sold to US investment group Granahan McCourt in 2013 for around €43m. Then, in 2016, the Irish Infrastructure Fund, managed by Irish Life, bought a 78pc stake in the venture while Granahan McCourt and a friend of Warren Buffett, called Walter Scott, retained a combined 22pc.

The Irish Infrastructure Fund was set up in 2012 with €250m from the Irish Strategic Investment Fund, which is run through the NTMA. The fund now has around €400m invested in various projects. So, Enet, the last company standing in the broadband bid process, is 78pc-owned by an investment fund largely funded by the State.

It would be best if the situation can be salvaged with Enet proceeding with the contract fairly soon. But no matter what happens now, questions about value for money and the ultimate cost of the delays will hang over any outcome.

Viridian's big Dublin power play

Eir wasn't the only one talking about pulling out of something this week. Energia parent group Viridian is considering closing its two electricity plants here. This followed the failure of one of the plants to win a contract from Eirgrid, the company which manages the country's electricity requirements.

You win some, you lose some, should be the mantra from Viridian, but it isn't. The company has suggested that it would not be economically viable for it to run just one plant here. According to Eirgrid, any generator chosen to provide supply must give three years' notice before shutting down and withdrawing from the market.

Talks are ongoing between Viridian and Eirgrid but they are likely to generate plenty of electricity if Viridian proceeds with plant closures in just a few months' time.

Recent accounts for Viridian Power show how much the electricity generation market has changed. In 2013 turnover was €163m. This fell to €132m in 2014 and €90m in 2016. Viridian Power, which operates at Huntstown in Co Dublin, made a loss in 2013, 2014, and 2016, but made a profit of €7.5m in 2015.

Viridian Group was bought by US investment firm I Squared Capital for €1bn in 2016 and it obviously isn't happy about the latest development in the market here.

Security of supply will be the challenge for Eirgrid given that Viridian can supply a huge percentage of Dublin's electricity needs. But if Viridian wants to fold up its tent, Eirgrid will just have to find it elsewhere.

How many other outsourcing firms are still to show on radar?

The world of outsourcing is taking quite a hammering in 2018. First came the collapse of Carillion and this week Capita announced that it was raising fresh capital and cutting its dividend.

Capita is seen as well-stretched but not a candidate for liquidation. Analysts believe the outsourcing company, which employs a few thousand here in Ireland, can be turned around. It will take some sale of assets and about two years they reckon. Any change of ownership could lead to job losses.

But how come it didn't show up on the radar before now? The company has not grown organically since 2014 yet its share price soared through 2014 and 2015. It acquired its growth through acquisitions - 17 in 2014 and 16 in 2015. While this was going on, it paid out more than £1bn in dividends between 2011 and 2016. Its pension deficit rose from £86m in 2011 to £380m.

All these acquisitions cost money so its net debt also grew to £1.2bn.

This should have set off alarm bells that it was an emperor with no clothes, or not as many clothes as the market presumed.

Its shares were trading at £132 in July 2015 and are now down to £1.60.

Somebody took a close look under the bonnet and saw what was really there.

It makes you wonder, how many others are out there like that.

Sunday Indo Business

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