Friday 18 January 2019

Tensions abound as broadband scheme enters crucial phase

The increase in cost will likely be absorbed by the tax payer. Stock image
The increase in cost will likely be absorbed by the tax payer. Stock image
Adrian Weckler

Adrian Weckler

Recently, the government inadvertently published some internal government documents revealing extra details on the cost and tension behind the National Broadband Plan rollout.

I say 'inadvertently' because the Government tried to redact the document but didn't do it properly - anyone with a cursory knowledge of computers could unmask the black redacted strips.

One key issue revealed in the private memo was that the deal 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 - will probably end up costing the State money and hit the rollout schedule, too.

"The department's own subsidy modelling suggests that the smaller intervention area could lead to an increase in the overall cost of the state intervention," said the document.

But how can covering an area with 550,000 premises cost more than an area of 850,000 premises?

They're much harder to hook up, return less revenue and might face bridging tolls from Eir along the way.

"While intuitively it could be expected that a reduced intervention area would result in a lower subsidy, there are a number of factors putting upward pressure on the subsidy," says the private position paper.

"The first arises because the reduction in the overall network build cost for the reduced intervention area is likely to be less than the reduction in revenues earned across the smaller number of premises. While there will be fewer premises to be connected in the reduced intervention area, these premises are in the more sparsely populated and hard-to-reach areas.

"The result is that the cost to connect each individual premises from the nearest point on the central network will be higher on average while, at the same time, the cost to build out the central network to reach those premises will also be higher."

As if that's not enough, there's then a question of accessing the rural premises across Eir's infrastructure.

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 taking 300,000 of the 850,000 rural premises 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.

"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," says the redacted document. "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 department's model suggests that under the base case, the level of subsidy 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."

The Government wants Eir to charge a reduced price to this infrastructure while Eir insists that it is entitled to charge the existing regulated rate. "Applying the existing regulated price for pole and duct access, rather than a price based on incremental costs, could significantly increase the level of subsidy sought by bidders."

With no specifics on finances, calculating the overall cost of the National Broadband Plan is still guesswork. The memo suggests the total bill will be a multiple of the €200m earmarked by Eir to build out 300,000 fibre connections.

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.

However, it could now mean delays to some part of the process.

The State-subsidised National Broadband Plan, which aims to provide 542,000 rural homes and businesses with fibre broadband, was initially due to commence construction last year. However, a series of delays has pushed its rollout back by over two years. Many industry experts do not now expect the process to be completed before 2023.

Eir, Siro and Enet are the three bidders shortlisted for the taxpayer-funded rollout plan.

Siro, a joint venture between Vodafone and the ESB, is still considering withdrawal from the process because of a deal done between the government and Eir that split 300,000 homes away from the Government intervention plan and into Eir's commercial rollout zones.

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