Thursday 23 May 2019

Adrian Weckler: 'Separating the myth and reality in big debate over €3bn rural network plan'

Long view: Granahan McCourt chief executive Peter Hendrick says the company hopes to make a long-term business out of offering broadband throughout the country.
Long view: Granahan McCourt chief executive Peter Hendrick says the company hopes to make a long-term business out of offering broadband throughout the country.
Adrian Weckler

Adrian Weckler

1. We're funding an asset that won't be owned by the State.

This is true. And left uninterrogated, it sounds dreadful. What sort of idiot signs off on a multi-billion funding deal where they don't have even a small chunk of equity when it's completed?

As is often the case, the position is a lot greyer when looked at in more detail.

Here's the problem: what will the actual network be? The answer is, mostly, fibre cable and poles (on plots of land). These will physically bring broadband to each of the 540,000 rural premises. But what will the National Broadband Plan bidder own when the 25 years is up? Nothing but the cable: not the poles and not the land. You see, these are owned (or controlled) by Eir. I'm talking thousands and thousands of them. The NBP is merely renting them. If it decided to build its own, the additional cost would probably be staggering: it is already committing to paying Eir close to €1bn to rent them over the 25 year period.

So even if the State did get ownership of the thing it was funding, the fibre cable, it would have to keep paying Eir for using that company's poles.

That is still worth something, to be sure. But €3bn? Nowhere close. To put it in context, Eir was recently acquired at a value of €3.5bn. Eir owns most of the country's (profitable, urban) telecoms infrastructure. So a bunch of cables (without poles) in the most rural, uneconomic parts of the country would be worth a fraction of that.

2. But if the network will be worth so little when finished, why is it costing €5bn to build and run it? Why are we ploughing in €3bn?

Because this is a massive State subsidy to build something that will never be built otherwise. It's not a venture capital investment, expected to immediately pay dividends to government. Economists will argue that it may (or may not) stimulate economic activity in those rural regions or through the ability to substitute home support for otherwise costly medical supervision in hospitals.

But this is a socio-economic intervention. The amount it costs to build and run will cost way more than its initial return. Otherwise a commercial company would do it.

3. If the final network might be worth so little, why is the bidder (Granahan McCourt) interested in it? Why is it bothering to do all this in the first place?

The company's chief executive, Peter Hendrick, told the podcast 'The Big Tech Show' that it hopes to make a long-term business out of it. But this is totally dependent on take-up being medium to high. In this context, National Broadband Ireland (NBI) is betting that some of the recent predictions of 'low take-up' are woefully wrong.

"After 15 or 20 years, we're comfortable that the take-up is going to be 80pc," said Mr Hendrick. If it does hit that level, NBI may see a profitable rural broadband network. The idea would then be that the company would have a good reason to keep investing in its cables, even if it never owns the poles, so that future rural generations retain a modern service.

That said, this debate is not well served by the financial terms of its deal being kept from the public, even if all of it is due to be published when the deal is formally signed in coming months.

4. If it really costs that much, shouldn't we consider something cheaper? Why is wireless or 5G being ignored?

It's not completely ignored: a tiny percentage of the absolute extreme remote rural premises will be connected via wireless technology. But this will be at least as expensive as rolling out fibre directly.

There is a massive misunderstanding about what wireless or 5G technologies can achieve. A wireless service - typically, a large mast in the countryside with a small aerial or box on your roof - can deliver high-speed broadband to a small number of premises. But when applied to every home that wants it, it degenerates. Ask any rural broadband scheme user who depends on wireless or mobile connectivity: the service (which is typically a basic one anyway) slows down at peak times. Sometimes it cuts out if there's a storm. It's simply not as good.

It is possible to boost a wireless service to something approaching a fibre standard. But to do that, under the quality metrics set by the plan, would require up to 20,000 new masts in rural communities. It would also be expensive over a 25-year period to keep upgrading. All three NBP bidders - Eir, Siro and Granahan McCourt - looked at this as an option. All three decided against it for quality and cost reasons.

The irony about wireless solutions is they need a rollout of fibre to work anyway.

Irish Independent

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