Transcript of the joint sub committee on communications IOFFL hearing.

Dangger

The complete transcript of the joint sub committee on communications which hearing IrelandOffline made a presentation to on the 4th of June this year is now available here.

Here is the IOFFl presentation and question session

Chairman: Thank you. I invite Mr. David Long from Ireland Offline to make his presentation.

Mr. David Long: Mr. Christian Cook will give the presentation.

Chairman: I draw your attention to the fact that members of this committee have absolute privilege, but this same privilege does not apply to witnesses appearing before the committee. It is generally accepted that witnesses would have qualified privilege, but the committee cannot guarantee any level of privilege to witnesses appearing before it.

Mr. Christian Cook: I thank the committee for inviting us to share our views on the current situation and the direction forward for Ireland.

Ireland Offline was formed on 13 May 2001 in response to the closure of an off-peak flat rate ISP service earlier that year. Since then it has evolved into a campaign group highlighting deficits in flat rate dial-up Internet access and broadband. Ireland Offline has been successful in lobbying for flat rate Internet access, and these services are due to be introduced at the end of June 2003. Ireland Offline is an independent organisation and has no affiliations with any commercial organisations.

I intend to make a simple argument. Ireland is behind in the development of broadband technologies due to the lack of appropriate supply, not demand. This lack of supply is due to lack of competition particularly at the last mile infrastructural level. To solve the problem, competition in the form of alternative last mile infrastructure needs to be introduced.

I would first like to define the term "broadband". In recent years, the term as it is commonly used internationally has come to mean the sort of high speed Internet access typically available through cable modems and DSL, digital subscriber lines, at a price affordable by homes and small businesses. Speeds offered by these means are usually a multiple from ten to 50 times of that offered by analogue modems over telephone lines. The common usage usually does not include corporate digital communications via, for example, leased lines. In Ireland, "broadband" sometimes refers to the regional fibre infrastructure. However, Ireland Offline is using the term to refer to those services as defined by the common international usage of the term as outlined. In addition, we would not class wireless LAN hotspots as broadband since these do not provide residential or small business access. Hotspots are an example of what can be achieved for a couple of hundred euros once broadband is available at a particular location. They are not considered to be a solution to the problem of providing broadband.

To give a market overview, a number of international reports has highlighted Ireland's poor performance in introducing broadband. In October 2001, the OECD ranked Ireland 27th out of 30 OECD countries in the development of broadband access. In February 2003, the World Economic Forum placed Ireland 51st behind such countries as Namibia, Nicaragua, the Dominican Republic, and Romania . Ireland is lower than halfway down on a list of 82 countries that includes some of the poorest in the world. In May 2003, the Swiss Business School IMD ranked Ireland last of 27 comparable small economies for Suitable Internet Access, which includes availability, speed and cost.

In 2002, ComReg commissioned a report from the market research company MRBI to find out the level of Irish demand for broadband. Without the issue of price mentioned, they found that 46% of respondents were likely to get broadband if it was offered. The survey also found a large degree of price sensitivity in the demand for broadband. There was approximately five times more demand at €30 than at €60, and there was negligible demand at a price of €70 or above. At the time of the survey, the only broadband that was available to most people was DSL, costing in the region of €100 and above.

In the Irish market, there is significant demand once the price approaches European averages of €30 to €40. According to the MRBI survey, if this demand were met, Ireland would lead Europe in broadband take-up.

If we examine the current Irish broadband market, broadband penetration as a percentage of the population shows Ireland coming second last, with Greece last. Ireland is currently second from the bottom in a table of EU countries for broadband per head of population, with Belgium having more than 48 times the broadband penetration of Ireland.

We next consider growth in broadband per 1000 of population. The table supplied to the committee shows that not only is Ireland second from the bottom for broadband penetration, but when compared with figures for the end of June 2002, Ireland is also growing its broadband connections much more slowly than other countries. Ireland continues to fall farther and farther behind, despite modest developments. We have been in contact with our colleagues in Greece, and Greece Offline has already started, so we cannot even be complacent about being second last.

The explanation for Ireland's poor broadband performance is a lack of Infrastructure competition. The low broadband penetration and low growth in that penetration can be explained easily. Apart from cable modem Internet, covering 40,000 homes in Ireland, the vast majority of consumers in the country either had no access to broadband or, where available, broadband based on the incumbent's telephone lines and services was provided by the incumbent telephone company and re-sellers. Until recently, DSL provided by both the incumbent or one of its competitors operating under LLU, Local Loop Unbundling, regulations was only available in limited areas, and the entry level services were priced at more than €100, well above the international norm and outside the range considered affordable by residential customers. Also, the number of exchanges enabled to provide DSL was low, and the line failure rate appeared to be high, with one user group reporting an 80% failure rate. We believe this was due to poor quality of lines and "pair gain" systems, which allow two virtual lines to operate over a single copper pair.

The reason for the high price is a lack of competition. If we look at the history of our current situation, cable TV companies in other countries have led the way in providing residential broadband. Broadband Internet via DSL was developed initially in the US in the mid-1990s as a means of combating competition from cable companies undermining revenue from dial-up Internet. It is unlikely it would have been offered otherwise. Ireland has very high cable TV penetration, but very little of this is of a standard which supports two-way communication. Historically, cable TV became popular in the late 1960s and early 1970s during a time when only one Irish terrestrial TV channel was available and the public was willing to pay for more choice. What were known as communal aerials were erected so that a large central antenna could be used to receive British terrestrial channels. The signal was then relayed to homes via coaxial cable. These local systems were subsequently amalgamated into larger cable TV companies.

Because the original appeal of cable TV in Ireland was to provide access to a few additional channels, the capacity of the systems remained low. In other countries where multiple terrestrial channels were already available, cable TV developed along different lines. Consumers already had a choice, and therefore the cable TV providers had to provide a multitude of extra specialist channels like film and sport channels in order to make the package attractive. In addition, because the cable networks were developed later, the cable companies were not burdened with legacy infrastructure. Belgium, for example, has the highest broadband take-up in Europe and also has very significant competition from cable TV, with 41 % opting for cable modem Internet access.

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Looking at recent developments, basic broadband has come down in price from €107 to between €50 and €56. This has been made possible by the addition of a new bitstream service at €27. Though that is still expensive by European standards, we expect penetration to increase somewhat. Unfortunately, prices are unlikely to come down further due to the still high bitstream wholesale rate of €27. Excluding Ireland, bitstream ranges from €13.3 in Belgium to €25.4 in Austria, making Ireland's bitstream the most expensive in Europe. We believe this reduction in price by 50% was largely due to the imminent introduction of flat-rate Internet packages at the end of June 2003 as predicted by the Analysis Consulting report for Forfás in 2002.

We believe the price reduction is largely due to the imminent introduction of flat-rate Internet packages at the end of June 2003 as predicted in the Analysis Consulting report for Forfás in 2002. There are plans for 150 exchanges to be ADSL-enabled by 2004, but none for the remaining 950 exchanges, those being outside large urban areas. In addition to those developments, there has been an increase in competition from wireless operators in the Dublin area. Two companies now operate from Three Rock Mountain, offering residential broadband in the €50 region. One is conducting trials of a €30 service in the Tallaght area of Dublin. Also, the companies Net1 and Digiweb have begun offering wireless services in Louth, and Amocom in Cork.
Apart from those welcome exceptions, one company controls most of the market, with several others reselling aspects thereof. The illusion of competition is maintained by the requirement of that company to provide appropriate wholesale services for each of its retail services. Although this allows competitor companies to make money, the services provided depend on innovation by the incumbent telephone company.
ComReg's MRBI demand survey shows that calling for demand-side initiatives, as has been done, is a smoke screen for inaction and high cost. Ireland has as much demand for broadband as other countries. Current measures to solve the problem include metropolitan area networks. Those solve the problem at a local but not last mile level. However, they will be essential for providing cheap back-haul for wireless broadband operators. Unfortunately, current plans seem to be slipping. The original plan outlined on 7 March 2002 was that 123 towns with populations of more than 1,500 would be completed. Sixty seven towns would be provided with fibre rings by the end of 2003. However, more recent announcements seem to indicate that only 19 of them will be completed by this year. That casts doubt on whether the full project will be completed within five years.
In addition, there has been Government funding for wireless projects. Notable among those are Digiweb and Amocom, providing services in Cork and Louth respectively, but there has also been funding for hotspots in hotels and harbours, which we do not regard as a solution to the broadband problem. In addition, it was announced yesterday that the BMW assembly with funding help from the EU, has provided grants totalling €250,000 for wireless projects providing broadband in Counties Roscommon, Mayo and Cavan.

Taking into account the lack of last mile competition and consequent lack of innovation, the solution will require developing alternative last mile solutions. Let us look at the alternatives currently available. Wireless has no ultimate bandwidth limitation, since one is essentially dealing with the radio waves and frequencies. There is no single ownership of the broadcast medium, since individual operators hold or share spectrum allocations. There is plenty of empty spectrum for future development. The only downside is the line-of-sight problems of a few technologies.

A second possibility is upgrading the cable system, but that is regarded as prohibitively expensive, and even when upgraded would have bandwidth limitations. There is also the issue of the ownership of the infrastructure. Another possibility mentioned is power line where broadband access is delivered over the electricity cable. More bandwidth is possible with that system, but it will ultimately hit limitations based on delivering broadband over copper. There is also the issue of one company owning the last mile infrastructure. The last and most expensive scenario is fibre optic to the home, with no upper limit to bandwidth. Once again, the problem is with ownership of the infrastructure.

The time for trials is past. Immediate action is necessary, and a proven alternative last mile technology already exists. If one of those solutions is to be pursued exclusively, we believe it should be wireless, because it provides the most scope for competition and innovation, not only between wireless providers and "wired" providers, but between wireless providers themselves. Wireless is not one single technology but a family of technologies.

Wireless is currently the focus of major technological innovation for the delivery of broadband over the last mile regarding range, bandwidth and cost. If the Government committed itself to the roll-out of a nation-wide competing wireless infrastructure, we would stand to benefit directly from that innovation. By pursuing the strategy, Ireland would become not only the equal of, but better than its peers for availability, cost and speed of Internet access. That is because, with a national wireless infrastructure in place, the continued technological innovation in wireless would have an immediate impact on innovation in services and, as a consequence, the other providers of broadband would have to innovate continually to compete, something which would not happen in countries where cable is the competing broadband medium.

We have three recommendations. The first is to support and fund local initiatives. Up to a fifth of households in Ireland not connected to a public water supply are served by group water schemes, with subsidies provided for infrastructure and training. In a similar manner, local co-operatives should be supported for the provision of local connectivity needs. As a footnote to the Irishwan presentation, we have been in talks with DublinWan, which intends to set up a co-operative to do just that. As well as funding for community initiatives, there should be increased funding for commercial ones, particularly outside large conurbations. In this respect, Government funding for Digiweb and Amocom is to be praised and encouraged. However, significantly more needs to be done in that regard.

Our second recommendation is an increase in the availability of affordable back-haul. The Government's metropolitan area networks programme should be accelerated to reach its original target of 123 towns by 2007. The ESB should be instructed to increase the number of points of presence for connecting to back-haul and sell capacity in smaller chunks. Currently the minimum available from the ESB network is 155 megabits per second, whereas chunks of two megabits per second are more reasonable for local service-providers and communities.

Our last proposal is that we raise public awareness of alternative technologies. We should highlight alternative platforms for broadband delivery. That will help combat any consumer inertia that may be present with regard to switching from established platforms. Consumers should be made aware that DSL and cable modems are not the only possible means of getting broadband. Although there are no known health issues with wireless broadband, consumers may be wary of adopting such technologies.

Deputy Broughan: I welcome Mr. Long and Mr. Cook to the committee and thank them for their very concise and interesting presentation. All the members and spokespersons in this area follow your web site and statements fairly regularly. Obviously, with new developments, we look to see what the reaction might be and how far off the pace we are. We had a discussion on this matter at the presentation this morning, and I take it that your overall point is that we are still in a disastrously bad situation, falling behind what might have been targets late last century, and leaving ourselves seriously open to competition and future economic difficulties. The quotes from various tables certainly seem to show that.

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What impact is expected from FRIACO? A very high level of demand has been indicated, which the committee agrees is there. We had been getting significant complaints about the i-stream product offered by Eircom. In urban areas the main locations I got for e-mails were from Waterford city and Cork city, and people who were ready to go, whose exchange they said was ADSL enabled were extremely irate as they were not able to get the actual product. How does Mr. Long see the landscape developing from the end of June?

In relation to the incumbent, one of the Forfás reports argued that we should try to encourage Eircom to separate the national grid from the products it offers in terms of calling, broadband access and so on, Is there any merit in that? The big argument has been that we got into this deficit in infrastructural and competition terms because we did not hold on to a national grid. I note what has been said about getting back on target with the 123 towns, that the Minister is re-establishing a national infrastructure. Support for local systems has been compared to support for a local water supply and it is seen in terms of the fundamental service and making Ireland on line when your campaign becomes obsolete, if it ever does. This is a great national challenge which this Government and this country has failed and it has to be addressed.

There are a couple of other issues but other colleagues may wish to raise them.

Deputy Coveney: I welcome the delegation. It was great to hear its contribution as we try to get a handle on what needs to be said and the recommendations that need to be made. Ireland's Bit-stream price was quoted as €27 and compared to €13.3 in Belgium and €25.4 in Austria. Is that the wholesale price? What is the norm within Europe for a mark-up between Bit-stream price or wholesale price and the retail price that is provided when there is adequate competition in the market place, and there is not here unfortunately?

My next question is of a more general nature. The delegation has made a number of recommendations. I presume it is aware the Government is about to award a contract to an independent body to manage the fibre rings across the country and, as Deputy Broughan said, that is an attempt to try to get some kind of national infrastructure in place. Is the delegation in favour of the Government looking at offering a management contract to provide wholesale services to the regions across the country, whether via satellite, via wireless, via power lines or via cable, and separating the provision of a wholesale infrastructure across the broad range of mediums, whether satellite, wireless or cabling, and promoting aggressively competition for the service provision from that wholesale infrastructure to the customer or would it like to see competition in the infrastructural provision also?

There are different models in different countries. Some countries have been very successful at having a state infrastructure. The state pays a private company in some instances to provide the infrastructure, prohibits that body from providing a retail service and encourages competition for service provision from that infrastructure. Would the delegation prefer competition in the provision of infrastructure as well as the retail service? I am interested to hear the views on that matter because there are areas within Ireland where there will never be competition for infrastructural provision because it is not economically viable to provide it and the State needs to step in in those regions.

Mr. Long: In the presentation it is noted that FRIACO has been critical of the recent movements in the DSL market because what FRIACO has done is to break the metered model of services that have been in place for a long period. The incumbent would not have been likely to move on its own. It could have introduced FRIACO but has held off doing so for quite a while. Another operator attempted to have a wholesale version of FRIACO introduced and failed. That resulted in the formation of our organisation.


FRIACO is hugely important in the roll-out of DSL. We are aware that DSL has been on trial as a technology since 2000. Eircom, the incumbent had various trial projects and trial areas with ADSL in operation for a long time before we eventually had it rolled out at that high cost. FRIACO is important in that it breaks the metered model and removes the time restraint in place for people to go on line. We have fantastic educational resources. The school.ie website for schools, is aimed primarily at those taking examinations such as the leaving certificate and the junior certificate. With such a resource, the current situation is that people had to wait until after 6 p.m. If one wanted to use it in conjunction with one's homework in a primary school one would have to wait a long time. To be able to go on line before 6 p.m. for this flat rate is hugely important.

I mention here the line failure rate of the ADSL service and the feed back we have been getting from members in urban areas in Dublin and also in Waterford and in some of the exchanges that have been enabled. In his presentation Mr. Cook mentioned the presence of a pair gain device. Pair gain devices are in place in various parts of the country because at the time new phone lines were required it was easier to put in one of these devices and turn one regular phone line into two phone lines. Only a small piece of the phone line is needed to carry voice. In many places these splitters are in place and prevent DSL working over the line. The DSL technology actually means the whole line and if a splitter is on this line it prevents it. The use of splitters in particular areas is a contributing factor to the high line failure rate and it also raises questions about the quality of the network in particular areas where those who live close to exchanges should be able to avail of DSL yet they are failing this test.

On the LoopCo - that is the term for the separation of Eircom's network - I attended the eighth telecommunications hearing in Brussels last year. This was a big topic of discussion at that hearing in relation to competitors seeking the possibility of the infrastructure being separated to a greater extent. At present we have a separation in incumbents between the retail side and the wholesale side but there is no direct separation with the actual infrastructure. The committee mentioned that the Government gave away the network with Eircom. Obviously, expertise and knowledge are required in looking after such a network. It is an interesting possibility but I am more hopeful with regard to the development going on with the metropolitan network. The LUCO idea would be the best possible choice but it is quite unlikely at this stage.

Another question arises. If there are such problems with the line failure of DSL, what guarantee do we have as to the state of that network? Questions could arise about its quality. I will hand over to Mr. Cook who will address the rest of the questions.

Mr. Cook: I agree with the question of separating the network. It is our opinion that the horse has bolted and we must make plans, considering the status quo.

To answer the shorter questions before I get to the main question, the €27 we referred to is the wholesale bitstream price. As far as acceptable mark-up is concerned, we are not in a position to say. As for a wholesale bandwidth re-seller, it is our understanding that the future plan of the managed services entity is to light dark fibre after the initial metropolitan area network is functioning. We would welcome that as a future objective of a managed services entity.

On the question about competition in the provision of infrastructure or the provision of retail services, given the current state of the market and the lack of an alternative last mile infrastructure, if asked I would have efforts concentrated on competition at an infrastructural level rather than competing in retail services, considering that existing retail services are not competition in the real sense of the word.

I want to get back to the point about comparing the group water scheme to what I would term a group data scheme. In the United States, the department of agriculture runs a rural utility service and, together with the federal communications commission, it is engaged in a $1.4 billion scheme to assist rural areas to provide for their own communication needs. It is that model, in conjunction with the setting up of communities on the model of the communities within IrishWan, that we envisage as being the way forward in meeting rural connectivity needs.

Chairman: Deputy Ryan has a question on this module following which we will move on to the next module.

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Deputy Eamon Ryan: Most of the competitors probably achieved wide access to broadband via DSL on a cable network. If that is correct, do the representatives believe DSL technology is sufficient for the immediate future in terms of needs or are they of the view that broader broadband technology would be preferable if we are investing in infrastructure?

Mr. Long referred to the network horse having bolted after privatisation. It appears the horse does not want to be harnessed at this stage. What would he say to the main incumbent who said recently that any attempt to introduce lower charges would lead to a cancellation of investment in that network?

Mr. Cook: DSL was developed in response to alternative last mile infrastructure competition. If we were to encourage a national alternative wireless network, increasing levels of DSL roll-out would occur but to compare and contrast the technological developments I referred to in the presentation in terms of wireless, delivery of broadband is far outstripping technological developments in the delivery of broadband over copper. We see wireless as being the future of telecommunications in Ireland, if we choose to take that route. The response I would give to the incumbent threatening the removal of investment in infrastructure is that it should focus our minds on solving this problem once and for all, and the only way that will happen is for us not to be reliant on one infrastructure for our telecommunications needs.

Chairman: We thank you for your presentation which we will examine in detail when preparing our report. As you are aware, costs are currently €50 per month for the user. What should be the appropriate level of costs? Is cost the only factor encouraging consumers to take up the use of broadband? In America, for example, where we visited earlier in the year, the cost is $20 per month depending on who the consumer is dealing with. What does Ireland Offline recommend in relation to wireless prioritisation? Will the flat rate make a difference when it is available? Will there be a huge uptake by consumers?

Mr. Long: To go back to the FRIACO point, people's first experience of the Internet may be through the FRIACO product. They may have been holding back because of the charges. When FRIACO was introduced in other countries it was noted to be a catalyst for demand for higher services. When people in businesses tell somebody about the benefits of a higher speed connection, they become curious if they are on a slower connection. If somebody moves from a dial-up product to a wireless broadband offering or a DSL-wired broadband offering, there is no going back and with the software they are using, many businesses will find themselves in a position where they require broadband connection. That is another whole aspect of the development of products. Microsoft, for example, might push out patches for common software products that would mean businesses can only use that software if they have a connection. Therefore, there is an attraction for the home user and also for the companies using future software.

Mr. Cook alluded to a price in the MRBI poll carried out at Christmas and delivered at ComReg's conference. It stated there was a tripling of the demand for broadband services once the price was around the €30 mark, which we are still considerably off at the moment. We were asked a question about the acceptable mark-up but if we look at the Belgian price of €13, the actual retail offering is around €30 or €35, that is in a country where there has been a rapid uptake and availability.

The price of the product is important but availability is the key. Currently only 150 out of almost 1,100 exchanges are enabled and if that is combined with the high line failure rate, that is a major issue. It is not available in a sufficient number of areas. Availability is hugely important, as is the price.

Chairman: Should the wireless system be prioritised in the same way as the manned system, which will provide the national network?

Mr. Cook: The managed services entity and the loop project have enormous benefits if we look at it together with the wireless operators. I had the experience recently of attending a seminar in Sligo with regional business and community groups and it is interesting to note that these people decided that they will not be served by the fixed line operators. They are actively looking at the wireless technology and they were very interested when we discussed the potential for using the MSE model in conjunction with the wireless technology. For example, they could have a localised ISP outside, say, Castlebar. They will not be served by fixed line. They can take a point off the MSE. They can put their equipment into another point in the MSC, the co-location space, where there is open access. Anybody who wants to get access to the back-haul can have their equipment serviced accordingly. Wireless, taken with fibre technology, provides a huge potential and is something on which we should remain focused.

Chairman: I thank Mr. Cook and Mr. Long. If we need to, we will contact you again.

dahamsta

Excellent work men.

adam

Moriarty

I agree, great work. Intresting to see that a number of the committee members keep a watching eye on the site and forums.

sceptre

Great job lads. Managed to address all the major points as far as I can see and put them on public record.

De Rebel

David/Christian

A job well done, congratulations. And some very interesting contributions from other bodies as well.

Its up to the joint committee now and hopefully their report will appear within the anticipated timeframe. The standard of the questions form the committee members certainly bodes well.