SBPost: Eircom said no to E1.8bn state deal

Eurorunner

31/10/04 00:00
top storyBy Pat Leahy, Political Reporter

Eircom rebuffed government proposals for a E1.8 billion deal to extend the state's broadband network and allow nationwide high-speed internet access.
The deal was revealed in leaked cabinet documents seen by The Sunday Business Post.

This weekend, senior government sources said Eircom preferred to take hundreds of millions of euros out of the company to repay venture capitalist investors and shareholders who funded the takeover of the telecoms company in 2001 than invest in a broadband infrastructure.

Shortly after talks about the broadband investment broke down, Eircom completed a massive refinancing that enabled shareholders, including Eircom chairman Tony O'Reilly and US financier George Soros, to take E450 million out of the company.

Eircom denied the charge, saying that no detailed offers were made by the government. It described the broadband plans as "aspirational'' and the discussions as "not detailed''.

However, the company's claims are contradicted by the cabinet documents. The Department of Communications, Marine andNaturalResources said that it could not comment as the papers were covered by cabinet confidentiality. The papers reveal that the government was prepared to offer price increases on phone charges, tax breaks and debt guarantees to Eircom to assist in the funding of the ambitious programme.

Negotiations on the plans, which were compiled by Ira Magaziner, head of the US government's ecommerce programme during the Clinton administration, collapsed last summer. Government sources said Eircom was unprepared to consider plans on the scale envisaged by the government and recommended byMagaziner.

"They sat on their hands and took E500 million out of their company to pay back their own investors," said one senior government source.

Eircom disputed this interpretation. "There was never an offer made, there was never a deal on the table," saidDavidMcRedmond,the company's commercial director.

"We were only aware of what they wanted in a general way."

neokenzo

Aint that typical of €ircon. I guess we cant expect better or faster broadband anytime soon.

SkepticOne

I thought governments were supposed to tender for things like this, not do deals behind closed doors.

jmcc

Eurorunner wrote:

31/10/04 00:00
"They sat on their hands and took E500 million out of their company to pay back their own investors," said one senior government source.

Typical action of plundering a national resource. The sooner the government cracks down on the Gombeen man and his activities against the interests of the state and the Irish people, the better it will be.

Eircom disputed this interpretation. "There was never an offer made, there was never a deal on the table," said DavidMcRedmond,the company's commercial director.

"We were only aware of what they wanted in a general way."

Sounds like Eircom management were trying to get their story straight before interrogation.

Regards...jmcc

SkepticOne

I wonder why they are now trying to do a deal again. Have they resumed secret negotiations?

damien

Sounds like someone wants to further wreck Eircom's spin on broadband. Whoever leaked this had the very best timing. The week that saw Eircom tell untruths on Prime Time ends with this bombshell.

At least the last time Eircom had the cash to invest, now they don't. From their SEC filing it shows they have sfa to offer unless they borrow more.

Eircom refusing a 1.8bn deal and instead taking out 450million to give themselves as a nice bonus says it all. Someone is out to weaken their position, probably in order to try and start more negotiations.

I think some of the opposition parties need to ask a lot of serious questions of the Minister now, like why were these talk secret and why were no other telcos approached.

SkepticOne

I think the on-off nature of the fibre rings had something to do with negotiations. It appears that just after these negotiations failed that DCMNR announced that they would be going ahead with the original three phases. Previously it had been cut back to the 19 then in progress possibly as part of another deal in which Eircom agreed to upgrade exchanges of 1,500 lines and above.

SkepticOne

More from the story on page 7 of the SBPost:

The consultant company SJS Inc, is led by Ira Magaziner, who was in charge of the US government's strategy on developing e-commerce during the Clinton administration. Magaziner's team reported to the CAbinet on May 14, 2003 following a lengthy period of information gathering throughout the industry, and consultation with the Department of Communications, Marine, and Natural Resources.

It's then minister, Dermot Ahern, was publically impatient with progress on the broadband issue.

Magaziner's report made uncomfortable reading for the cabinet committee. Ireland, it reported was "near the bottom of the OECD in broadband deployment". One of the reasons was that Eircom "has a monopoly antiquated network with little incentive to upgrade".

The NTL and Chorus cable networks, the consultants found, "are in even worse shape".

As the near-monopoly player, Eircom was key to any roll-out of broadband and the consultants from SJS were keen to involve the company in their plans from an early stage.

"SJS held several meetings with Eircom," the report stated, "and then facilitated five meetings between the Department of Communications and Eircom, all of which have been done discretely."

In formulating a plan for Ireland's broadband future, the goal was simple: "Within three years Ireland should be among the two or three world leaders in broadband deployment and should be the leader in Europe."

To achieve this, various plans were studied by SJS, Eircom and the Department, with costs ranging from €900 to €5 billion.

They agreed that the best plan was for a combined investment which would cost €1.8 billion over five years. It was to be "an Eircom investment, in accordance with a government-negotiated contract".

All that remained to be done was to agree the terms of the contract between the Government and Eircom.

The documents state that the government could offer a number of "carrots" to Eircom, including:

• tax rebates on installation of broadband;
• amending buildng regulations to facilitate Eircom works;
• 10 per cent price increases for Eircom which the government was prepared to order the regulator to sanction, and
• guaranteeing part of the Eircom debt through the National Development Finance Agency.

More price rises for Eircom? More stick, less carrot!

nahdoic

"There was never an offer made, there was never a deal on the table"

Did you ever think about making an offer? Of course not! You wanted to plunder the company and get your money now. You never had any intention of investing for the long term.

If there was even the slightest bit of will on eircom's part to invest in its network you would have jumped at the chance. But instead of going for sustained long term profits and growth, you went for the quick buck and diminishing profits. While at the same time destroying Ireland's future. You make me sick.

nahdoic

hasn't a lot of eircom's spin been that they can't do this on our own. They need other people to invest to bring BB out to everyone - well you had the golden opportunity and you weren't interested.

And now you're in the news complaining about the government building a second network, ah guess what ding-dong that's because you didn't want to play ball. You really do make me sick.

dahamsta

10 per cent price increases for Eircom which the government was prepared to order the regulator to sanction, and

This kind of sneaky backroom dealing really flips my winkle. I realise it may have been to the greater good an' all, but it still annoys me.

adam

damien

Didn't they do that already with line rental ?

eircomtribunal

damien.m wrote:

Didn't they do that already with line rental ?

ComReg (on their own or on the government's behest?) intentionally enabled Eircom's 25% line rental increase.

The existing sub-cap regulation (demanding that the bills of the lower quartile of bills could not be hiked above the overall allowed rise of 5%) which would have reduced Eircom's scope of line rental increase to 12% (as they write in their 2004 SEC filing), was removed by ComReg with the intention not to limit Eircom on the line rental hike.
As a fig-leave ComReg replaced the effective sub-cap on the lower quartile of bills with the useless and anticompetitive low-usage scheme = Eircom's vulnerable user scheme.
The bulk of the consequent excessive telephone bill hike hitting the low-usage consumers with an overall price rise of up to 25%, was paid for by the Department of Social and Family Affairs (in form of the Telephone Allowance Scheme), whose expenditure (or grant aid to Eircom) went up to some 92 million a year (and did not even fully cover the line rental hike, as paddy 20 has discovered)

Eircom got the carrot it seems, and ate it – if Noel thinks that the MAN's are the stick, he is mistaken.

P.

Eircom SEC filing page 74
"In February 2003, ComReg changed the retail price cap from a permitted annual change in average prices equal to the Irish consumer price index minus 8%, to a permitted annual change in average prices equal to the Irish consumer price index minus 0%. ComReg also eliminated the sub-caps it had previously imposed on the individual services within the basket, and added fixed-to-mobile traffic to the list of services included in the basket while directory enquiry calls were removed. The new retail price cap, which ComReg has indicated will remain in effect for up to three years, provides us with greater flexibility in setting prices for services within the basket, and the elimination of the sub-caps allows us to rebalance our prices to better reflect our costs. To date we have rebalanced charges through permitted increases, principally to access services as opposed to call charges. Since the elimination of retail sub-caps, we have increased PSTN line rental charges by over 23%. If ComReg had not eliminated the sub-caps it had previously imposed, increases in PSTN line rental charges would have been limited to a maximum of 12.9%."

shinzon

god forget about american politics we should get michael moore over here to investigate the government eircom et al and all these back room dealings

"We were only aware of what they wanted in a general way."

I liked that statement, how vague is well go into partnership with you and well stump up half the money to get high spped BB to the masses

Cmon eircom you cant come up with better excuses then that, youve done it before

Shin

SkepticOne

They've already got the line rental hike as well as tax rebates on broadband equipment.

What the article completely leaves out is what exactly Eircom were supposed to deliver. This whole thing looks like an authorised leak on the part of DCMNR.

I think the deal was that DCMNR do these various things for Eircom and Eircom upgrade the 250 exchanges and get broadband subscribers up to 100,000. Both Dermot Ahern and Phil Nolan referred to the 100,000 as "our target".

bealtine

SkepticOne wrote:

What the article completely leaves out is what exactly Eircom were supposed to deliver. This whole thing looks like an authorised leak on the part of DCMNR.

I think so too, I'd guess it came from very very high up.
I wonder what the endgame is on this one?

Blaster99

Washing of hands.

De Rebel

bealtine wrote:

I wonder what the endgame is on this one?

Could be that eircom are in a stop more bother than was previously anticipated, and that this was leaked to put down a marker in case they turn up at the government's door with a begging bowl....

DonegalMan

De Rebel wrote:

Could be that eircom are in a stop more bother than was previously anticipated

I'm convinced that this is the case. There's been a few markers recently - McRedmond's article in the Sunday Times a few weeks ago, O'Reilly at their AGM.

Looks to me very much a case of last year's dividend being a case of them getting their grubby hands into the bowl before it is completely empty.

jwt

Or maybe the idea of a FIA being set has scared the beancounters in Eircom?

Either way it'll be interesting to see what their predicted dividends will be


John

spongebob

Eircom have also set a price of €100k or so for DSL enabling an exchange. There are 900 outstanding or €90m

M

viking

A followup on the SBP article:

Siobhán Creaton, Finance Correspondence

Eircom and Esat BT held discussions with a Government-appointed consultant on how to accelerate the roll-out of the State's broadband network and allow nationwide high-speed internet access.

Both companies have said they met the consultant retained by the Government, Mr Ira Magaziner - who was head of the US government's e-commerce programme during the Clinton administration - during his research.

A report in the Sunday Business Post claimed Eircom subsequently rebuffed a €1.8 billion, five-year deal from the Government to extend its broadband coverage. Details of this proposal were contained in Cabinet documents, according to the newspaper.

Yesterday Eircom denied that any formal proposal had been put to the company. A spokeswoman for Esat BT told The Irish Times that Mr Magaziner had met that company in the course of his research but that it had not received a similar type offer of Government funds.

A spokeswoman for the Department of Communications, Marine and Natural Resources refused to comment on the contents of the documents, citing Cabinet confidentiality.

The documents were claimed to indicate that the Government was prepared to offer price increases on phone charges, tax breaks and to provide a guarantee on Eircom's debts that would assist its fund-raising requirements as part of the arrangement.

An Eircom spokesman described Mr Magaziner's project as "aspirational" and said it never materialised in a formal proposal to the former State-owned telecoms provider.

Mr Magaziner's company, SJS Inc, was retained by the Government to consider how it could swiftly improve broadband availability, which would allow high-speed internet access - crucial for the Republic's burgeoning information technology sector.

SJS reported to the Cabinet in May 2003 after lengthy consultation within the industry and with the Department of Communications, Marine and Natural Resources, headed by the then minister, Mr Dermot Ahern.

SJS claimed that Ireland could be among the world leaders in broadband deployment within three years with the help of certain incentives and financial assistance.

It was in this context that the €1.8 billion figure was arrived at as a combined investment between Eircom and the Government over five years.

© The Irish Times

SkepticOne

De Rebel wrote:

Could be that eircom are in a stop more bother than was previously anticipated, and that this was leaked to put down a marker in case they turn up at the government's door with a begging bowl....

It does look like it was leaked to close the door on Eircom which is a good thing imo.

However, regardless of Eircom's financial state, it is always in their interest to get money from whatever source. Tax payers money is the same colour as subscribers money and the more the better.

McRedmond is saying that they want solve Ireland's broadband problem but they need help from the Government. There is nothing new about this message. Alfie Kane said much the same thing in early 2001 when there was no DSL.

If course what they really want is simply money and if they have to upgrade exchanges and so forth then so be it. The reason they don't upgrade exchanges is that they make money anyway from dial up and ISDN from non-upgraded exchanges and for the most part, people off these exchanges don't have anywhere else to go. They can't take their business elsewhere.

This situation is totally independent of Eircom's financial state. They will always want compensation for doing stuff that doesn't generate significant additional revenue because they are the monopoly.

This whole episode with DCMNR and Eircom annoys the hell out of me. It demonstrates a complete lack of understanding on DCMNR's part and a total swallowing of Eircom's lies and spin. What is wrong with these people?

tomk

Muck wrote:

Eircom have also set a price of €100k or so for DSL enabling an exchange. There are 900 outstanding or €900m .

M

900 x €100,000 = €90,000,000 or €90m

spongebob

Dearie me you are Right Tom.

Eircom would only charge the government€90,000,000 Euros in Order to DSL enable every exchange in the country that is not already done or to be done by March 2005 . €a$h of course. This does not equate to Universal BB but equates to a Universal distribution of BB as long as you are liucky enough to live near an exchange.

Where did the €1,800,000,000 figure come from , 20 times as much ? The Cabinet would be fully aware of the €100,000 per price as well by now.

M

damien

From Tommy Broughan, Labour spokesperson on Comms:

ABORTIVE EIRCOM/GOVERNMENT BROADBAND DEAL RAISES SERIOUS QUESTIONS ABOUTCOMPETENCE OF FORMER MINISTER DERMOT AHERN AND THE ACCURACY OF HIS DAIL STATEMENTS


The news that Minister Dermot Ahern and the Fianna Fail/P.D. government tried and failed to secure an outrageous deal with Eircom regarding a much faster roll-out of broadband raises serious questions about Minister Ahern's competence and show that he and the government were fully aware of the desperate state of the Eircom landline network and the alarming backlog in broadband provision yet failed to take legislative and regulatory action.

The sweetheart deal with Eircom is revealed in leaked cabinet papers seen by the Sunday Business Post. The deal included a 10% Eircom price increase to
consumers, tax rebates on broadband installations, amended building regulations to favour Eircom and an extraordinary provision to guarantee Eircom debt through the National Development Finance Agency. The proposed deal followed the catastrophic error by the Fianna Fail/P.D.government in selling off the national telecoms network and the decision of Eircom to pay ?450 million to the venture capitalists led by Sir Anthony O'Reilly who had been facilitated in their take-over of the company by the government in November 2001.

It is shocking that Minister Dermot Ahern answered my regular Dail questions on the worsening broadband logjam month after month in Dail Eireann and never once referred to this abortive deal. It is appalling that Minister Ahern refused to introduce legislation to address the market and regulatory failure in broadband and telecoms which this revealation shows was clearly a deep concern of the government in early 2003.

Between 20% and 50% of telephone land lines fail the Eircom quality test indicator and Ireland has one of the worst broadband take-up rates in the O.E.C.D. (only 85,000 out of 1,700,000 domestic and commercial lines). This results from Eircom's lack of investment in it's decaying network and it's policy of installing split or paired lines for thirty years.

Deputy Broughan and the Labour Party will raise this matter in Dail Eireann on
Tuesday and demand that former Minister Dermot Ahern make a full statement and correct his misleading comments on broadband throughout his time in the Department of Communications.

damien

An Explanation is Essential – Durkan - Released yesterday

Govt and Eircom have failed the consumer by not ensuring full and timely roll-out of broadband

“Today’s disclosures in a Sunday newspaper places a serious responsibility on both the Government and Eircom to come clean on the deficiencies within the Eircom investment programme at the critical time of its privatisation,” said Fine Gael Spokesperson on Communications and Natural Resources, Bernard Durkan TD today (Sunday).

“The fact that Eircom - the subject of a controversial flotation which netted the Government €3.8 billion and subsequently stung many small investors financially - was obviously very much in need of a major investment in infrastructure at the time that it was privatised.

“The failure of the Government to ensure that the necessary investment took place on time now leaves Ireland 13 out of 14 in the European league in respect of broadband availability. This was very remiss of the Government and Eircom, particularly since both were aware of the existing infrastructural deficiency.

“It is now imperative that both parties give a full and frank explanation as to how this situation came about and what they propose to do to address the issue at this late stage. This will be particular awaited by the business sector - especially all the SMEs - which have been screaming for the full roll-out of broadband, who are reliant on this telecommunications service and who should be regarded as just as important as the investors of this country.”

damien

Newstalk Interview with Pat Leahy and Bill Murphy

PRESENTER – DAMIEN KIBERD
But first we want to go to an extraordinary story in yesterday’s Sunday Business Post, a great story indeed. The giant telecoms provider, eircom, was apparently offered a package of incentives worth one thousand eight hundred million euros over five years if it agreed to speed up the rollout of broadband across the country. The extraordinary offer was apparently turned down by the company. To tell us more, we’re joined by the person who wrote that amazing report in the Business Post, Pat Leahy, who’s the Political Reporter with the Sunday Business Post. We’re also joined by Bill Murphy, who’s CEO of ESAT BT. Pat, first to you. Tell us the substance of this. This is an amazing story, it was driven by a guy called Ira Magaziner who is familiar to people who are long students of Ireland’s development.

PAT LEAHY, SUNDAY BUSINESS POST
Yes, that’s right, we obtained, in the Business Post, we obtained copies of, or copy of, a leaked document which had been presented to Cabinet in May of 2003 and essentially what that was laying out was a document produced by Ira Magaziner and a firm of consultants that he heads up in the States, and just for your listeners who wouldn’t have heard of Ira Magaziner, he’s essentially an e-commerce/internet guru in the United States. He ran - - -

DAMIEN KIBERD
He’s one of the authors of the Celtic Tiger. He was brought here to write the famous Telesys report in the 1980s.

PAT LEAHY
Yes, and he also – he has some expertise - he wrote or he co-wrote Hilary Clinton’s Healthcare plan that was abandoned in 1994 but his latest incarnation is as an e-commerce and internet guru and he ran the Clinton White House’s e-commerce and internet policy for several years and he and his consultant were engaged by the Department of Communications, Marine and Natural Resources to review Ireland’s broadband strategy. Essentially, Ireland lags far behind most of it's European competitors in the provision of broadband which as you know is essentially super-duper Internet connectivity and that is viewed as vital for the development of the knowledge economy, e-commerce and that, and by lagging so far behind our competitors we are putting ourselves at a distinct competitive disadvantage.

DAMIEN KIBERD
Well, it’s not just – there are whole areas of Dublin for example that don’t have broadband.

PAT LEAHY
That’s right, yes.

DAMIEN KIBERD
So he was saying to the Government, “Listen guys, you’ve got to do something about this if you want to stay ahead of the game”.

PAT LEAHY
Yes, if you want to stay ahead, you’ve got to do something about that.

DAMIEN KIBERD
So the Government then decided to go to eircom and they said, “You are the big guys in the telecomms world, and we are going to give you loads of things”. What did they offer them?

PAT LEAHY
Essentially, what they – they offered them what are described by Ira Magaziner in these documents as carrots. Now, they included price hikes, tax incentive, a scheme which is not quite defined completely in the Cabinet documents to seemingly guarantee part of eircom’s debt that they would accrue by going in with the Government on this investment and the whole spend over 5 years on providing broadband all over the country was to be 1.8 billion, that was to be a joint investment between the Government and Eircom. Eircom initially from my reading of the documents appear to be quite enthusiastic about it and the discussions had reached quite an advanced stage. However, for some reason, after May 2003, they broke down.

DAMIEN KIBERD
Okay, this sounds very strange Pat Leahy, because if you give somebody price increases, tax concessions, debt guarantees, what do the competitors feel about this?

PAT LEAHY
Well, clearly eircom’s competitors wouldn’t have been pleased to see them going with the State. They are the dominant player in the industry. Clearly, eircom’s competitors wouldn’t have been pleased to see the joint venture between themselves and the Government. At the same time, the Government viewed the rolling out of broadband as such a vital public policy area that they were prepared to do that. Now, eircom representatives that I spoke to last week indicated that there might be regulatory concerns with the Government agreeing - - -

DAMIEN KIBERD
Yes, but is this the reason why they turned the whole thing down?

PAT LEAHY
Well, we don’t know why the negotiations ran into the sand. Eircom would say that the proposals were just aspirational, they don’t really know what happened to them. I guess really only the Government and the eircom know exactly what happened between them but one point that we should make at this stage is that two months after this, or just over two months after this document was presented to cabinet which indicated that all that needed to be agreed was the specifics of the contract, that eircom underwent a refinancing, a massive refinancing which enabled the venture capital investors and the shareholders in eircom to take 450 million Euro out of the company in an enormous bond issue.

DAMIEN KIBERD
The O’Reilly-led consortium you are talking about there. Now, if you have got views about what is going on here, you can text us on 086 6000 106. Maybe you haven’t got broadband yet in your particular part of Dublin and you have strong views about this. Bill Murphy, CEO of ESAT BT, good afternoon to you.

BILL MURPHY, ESAT BT
Good afternoon, David.

DAMIEN KIBERD
This is quite extraordinary stuff, Pat is here in the studio and he has seen copies of the documents, the Government was prepared to basically give nearly 2000 million in concessions to your competitor.

BILL MURPHY
Well, it’s a good piece of journalism, I congratulate Pat for it. It’s very worrying if it is true.

DAMIEN KIBERD
Well, he has photocopies of the documents.

BILL MURPHY
I know, I mean, it’s pretty black and white as you say, but you know, we work very, very closely as well with Ira Magaziner to try to actually help shape policy and what was possible to deliver here in Ireland because we have for two years been saying we are at the bottom of the league tables on broadband and we haven’t moved up two years later. You know, at the same time, many of the business community will know, Government will know, I have three responsibilities. I run our business here in Ireland, I run our business in the North and I’m also responsible for broadband rollout in England, Scotland and Wales and what we’ve tried to do is push what was possible and pragmatic using public/private partnership so the private sector along with Government funds, develops, rolls out broadband across England, Scotland, Wales and Northern Ireland and I can sit here and tell you that although this was going on, the Government in the north was tendering, in other words challenging the private sector to say, “You come up with an answer for broadband, and we want 100 percent across Northern Ireland because it’s so important socially and economically”, and by February we will have all of Northern Ireland covered from a population point of view and by next December from a geography point of view. And for every pound the Government put in we put in 5 and that’s what works.

damien

Interview continued:

DAMIEN KIBERD
Okay, but Bill, down here, we’ve had people calling us for months and months and months, people up in Inchicore, they can’t get broadband, you know, there are whole swathes of the city. What has gone wrong?

BILL MURPHY
I don’t think that the Government has challenged industry to actually come up with a solution that will work.

DAMIEN KIBERD
Yes, but Bill, let me interrupt you, according to Pat Leahy’s report and he has documents to back it up, they were offering 300 or 400 million a year over 5 years to eircom to do the job, why do you think they turned this offer down?

BILL MURPHY
Well, it seems from the article and I’ve been in the industry for 25 years, their preoccupation with the debt financing and the flotation probably took their eye off the ball.

DAMIEN KIBERD
That is with their own internal finances?

BILL MURPHY
Exactly, and I can only speculate. At the end of the day, eircom’s management will have to answer that. There are two key issues here, you don’t have local loop and bundling that has been done effectively here in Ireland. I know it’s on the Government agenda but we’ve got to get on with it because no-one will invest in the local loop to provide an alternative at current rates. Current costs, you just can’t afford to do it and the second thing is that there has been a distinct failure to develop a wholesale marketplace like you have in the UK, the United States, which would allow service providers to come in to actually drive the uptake of broadband. There are 55 competitors in Northern Ireland today offering broadband services. We have close to 70,000 connections in the North and there is only a population of 1.5 million.

DAMIEN KIBERD
Okay, Bill, how many people are there in the south?

BILL MURPHY
4.5 million population wise. There is only really 4 operators offering broadband.

DAMIEN KIBERD
Well, Bill, this has to be a disgrace.

BILL MURPHY
Well, as I said, I’ve said this before, you know, we are at the league table with Greece and Peru and it’s great for football
but it’s bad for broadband.

DAMIEN KIBERD
(Laughs) Pat Leahy, come back in here.

PAT LEAHY
Just to add at that stage that it is made quite clear in the – in Ira Magaziner’s report to the Cabinet and perhaps Bill Murphy might dispute this, but it was Ira Magaziner’s and the American consultants, it was their conclusion that the scale of the job was so great that it couldn’t be done by anyone except eircom as the near monopoly player.

DAMIEN KIBERD
Yes, this is very old-fashioned civil service thinking, you know, what Bill is saying there is that there are 55 companies busy at work in Belfast providing broadband and we have four down here, why is that?

PAT LEAHY
Yes, and only 80,000 people in the country hooked up to broadband. The effects of this are going to be that unless there is a major reform of this area, unless there is a major investment - - -


DAMIEN KIBERD
Who is in charge of all this, Pat, on which side? Communications?

PAT LEAHY
Well, the Minister at the time was Dermot Ahern, it’s now Noel Dempsey but the Minister whom this report would have been presented to before it went to Cabinet was Dermot Ahern. I know that Dermot Ahern has been publicly very impatient with the industry on the roll out of broadband as to whether he has done enough to ensure that broadband is rolled out or to what extent he can do that barring a massive – barring the State bearing the cost for this entire thing. I’m not sure but I know the Government were tearing their hair out over the - - -

DAMIEN KIBERD
Dermot Ahern is a close friend of Bertie Ahern and no relation but he can’t exculpate himself completely in this. We have got messages coming in already. A listener says, “Re broadband. I live in Dalkey, I cannot get broadband, I can’t get NTLTV and I can’t get mobile coverage”. Out in Dalkey! A listener says, “Don’t move outside the Pale. If you are finding it difficult to get broadband in Dublin, it’s near impossible outside the Pale”, says Connor. What’s the story here?

PAT LEAHY
Well, the story quite clearly is that the availability of broadband in the country as a whole and in parts of Dublin is clearly not what it should be. Now, that’s something that we will pay the price for economically in our country as we go forward.

DAMIEN KIBERD
Yes. Bill, we have loads of Ministers who get up regularly at political meetings and they say we have the best computer graduates in Europe and we have the most advanced technological infrastructure. Last week, Jones Lang Lasalle said the reason why rents were so high in Dublin was because we had such high technology infrastructure. This is crap, isn’t it?

BILL MURPHY
Well, the good news and the bad news. The good news is if you look at the amount of people employed by the ICT industry in Ireland, it is you know, massively disproportionate to population. It's a great story, it’s a huge success story, but if you then look underneath it, do we have the networks to underpin a knowledge economy which we all want if we are going to remain competitive with China, India and the rest of the world and the answer is, we don’t. And this has been the issue, and I have been here for 2 and a half years, it has been the No. 1 issue and remains the No. 1 issue. I will tell you right now, if the Government wants to challenge industry to come up with an answer to provide 100 percent broadband, we will, and if we work in partnership we can do it and we can do it within 2 years. I can promise you that.

DAMIEN KIBERD
What, 24 months?

BILL MURPHY
24 months.

DAMIEN KIBERD
And who’ll do it? eircom?

BILL MURPHY
Well, to be honest with you, I think eircom plays a part, we can play a part and there are other companies in Ireland that can certainly rise to the challenge of delivering.

DAMIEN KIBERD
Okay, Bill, what is the cost, Pat was asking there?

BILL MURPHY
I suspect what has to be done now can be done for a couple of 100 million Euros or less.

DAMIEN KIBERD
What, about 10 percent of what the Government was offering eircom?

BILL MURPHY
Well, again, I’m not exactly sure what was being offered there was a purchase or investment, but the fact of the matter is, for a couple of hundred million euros we can deliver 100 percent broadband across Ireland and there is no doubt in my mind that it can be done within 2 years if we all got together, both regionally and at a national level, industry and Government, we can make this thing happen, make it happen and then it’s – and quite frankly, there are some discussions going on that we want this all done by 2010 – too late, far too late.

DAMIEN KIBERD
Okay, Bill Murphy of ESAT BT, thank you for joining us. Now, Pat, I believe your story, I think it’s absolutely accurate. Where is this going to go from here?

PAT LEAHY
Well, it remains to be seen. Clearly there is a new Minister, Noel Dempsey, in the Department at the moment. The – if what Bill says is true, that this – that 100 percent broadband activity could be rolled out in a couple of years, for a cost of 3 to 400 million - - -

DAMIEN KIBERD
No, he said 200 million.

PAT LEAHY
Well, it seems insane that - - -

DAMIEN KIBERD
Yes, it’s nuts.

PAT LEAHY
That it’s not being done. I mean, when you consider how likely this Government say entered into a deal with a religious orders – for 1 million - which is going to cost between 600 million and a billion by the time it’s finished, it seems simply bonkers that this sort of thing hasn’t been sorted out.

DAMIEN KIBERD
Okay, Pat Leahy, well done on your story. Pat Leahy is political reporter with the Sunday Business Post, he broke the story about how the Government offered 1.8 billion euros to eircom to sort out the broadband situation. A listener says, “I’ve had to wait two months to get broadband with Irish Broadband”. Another listener says, “I’ve tried to get broadband connections with Irish broadband, the guys arrived, took one look at the house and said that it couldn’t be possible without testing everything in the house.” Lots more messages coming in as well.

shinzon

This is just like an old scratched record caught in a groove

Its all, we could do this, eircom can do that, government has to do this

When in actual fact 2 years down the line were going to be in the same boat, listening to the same arguments over and over, Eircom is a cash cow to its investors, it exists solely to line the pockets of the shareholders nothing else, and it has not, will not and never will invest the money in the crumbling network to bring it up to Specs, and if were deluding ourselves into thinking otherwise then more fool us

A good report but nothing new

Shin

viking

Excellent interview and a facinating read.

Kudos to Bill for getting out there and responding and well done to Pat Leahy for breaking the story (most defo a leak if he got photocopies of the document).

I'm amazed that NI has about the same amount of broadband connections as the whole of the south. Bill is right when he says that the Government needs "to challenge industry to come up with an answer to provide 100 percent broadband" as they did in the North, not make stupid deals with eircom that would be not doubt held up by EU objections about market interference.

Jaysus, at the moment, things are really fúcking bad in Ireland Inc.

Whats the betting Minister Dempsey wishes he back dealing with the teachers and leaky roofs?

Viking

dahamsta

Great interview, and great to see Murphy so bullish on the whole subject. He couldn't commit fully to it though, had to use the term "challenge industry" for "give us some feckin money like". Old habits die hard I guess.

Keep it up Bill. Get nasty.

adam

spongebob

damien.m wrote:

Interview continued:
BILL MURPHY
I suspect what has to be done now can be done for a couple of €100 million Euros or less.

Universal (or thereabouts )

Muck wrote:

Eircom have also set a price of €100k or so for DSL enabling an exchange. There are 900 outstanding or €90m

All exchanges DSL enabled only and technically equipped to supply 5mbits (the Government plan) up to about 3km using ADSL2+ ......and up to 512k at up to 5km - 6km on Eircoms wiring.

€1.8Bn me arse

M

jwt

Can someone explain to me why Eircom would throw 1.8bn in cash, tax breaks etc. away in order to realise 450mn in dividends?


I can see the short term cash grab opportunity, even director bonuses but in the medium term the Gov offer would have solved most ot Eircom's debt and cash flow problems in one fell swoop.

Or is my class 101 accountancy lesson leading me astray?

And has SBP given any indication who new about this? i.e. Cabinet level, ComReg, opposition, Director of consumer affairs, Europe?


John

SkepticOne

jwt wrote:

I can see the short term cash grab opportunity, even director bonuses but in the medium term the Gov offer would have solved most ot Eircom's debt and cash flow problems in one fell swoop.

It would probably have been structured in phases and Eircom would have had to contribute towards the total investment. I think the phrase used was Government contracted Eircom investment. The full details may never emerge as DCMNR used the cover of cabinet confidentiality (handy that) to hide them. The journo on the radio who recieved the leaked documents wasn't clear on the exact nature of the details so we may never know.

I'd like to know whether some of the Government's side of things was delivered but Eircom renagued ("it was never in writing") and this is why it is being leaked now.

MarVeL

The 450m went to the shareholders right away whereas the 1.8bn would only eventually (if at all) have filtered down to them.

damien

From today's Irish Times:

Dempsey rejects charge of €1.8bn incentive for Eircom
Mark Hennessy, Political Correspondent

The Government has sharply rejected charges that it offered a preferential €1.8 billion deal to Eircom to speed up the supply of high-speed broadband internet services.

In a written Dail reply yesterday, the Minister for Communications, Marine and Natural Resources, Mr Noel Dempsey, told Fine Gael TD, Mr Bernard Durkan: "These claims are untrue." The Sunday Business Post has alleged that Eircom had been offered a range of incentives such as tax breaks, subsidized loans, building regulation changes and price increases.

"At no stage were negotiations entered into with Eircom or any other party. At no stage were terms such as postulated in the Sunday Business Post article on offer nor did the Government offer to fund Eircom directly or indirectly through subsidised loans, tax breaks or any other means. This has also been publicly confirmed by Eircom," said the Minister.

Both Eircom and Esat BT held discussions with a Government-appointed consultant, Mr Ira Magaziner, about ways of accelerating the sluggish roll-out of the broadband network.

Mr Magaziner's company, SJS, reported to the Cabinet in May 2003 after consultations within the industry and with the Department of Communications, Marine and Natural Resources, headed by the then minister, Mr Dermot Ahern.

The consultants claimed that Ireland could be among the world leaders in broadband within three years with the help of certain incentives and financial assistance.

In his Dail reply, Mr Dempsey said consultants' advice to "a Government subcommittee, agency or a Department should not be misconstrued as Government policy. The telecommunications market is a regulated market and thus any action by Government has to be consonant with national and EU regulation. Accordingly, Government is not in the business of entering exclusive contracts of the kind inferred by the article with any market entities," he said.

dahamsta

The Business Post shouldn't let this lie. If they really have evidence, they should publish it, Cabinet confidentiality or not; the person that leaked it to them knew the risks. If the leak was malicious towards the Post, then they need to be outed. It's black and white to me.

adam

damien

A badly scanned in copy of Noel Dempsey's answer is available from here (1mb PDF)

Eurorunner

07/11/04 00:00

By Pat Leahy Political Reporter
Opposition politicians repeatedly questioned the government in the Dáil last week about what deals it was prepared to do to secure a broadband agreement worth E1.8 billion with Eircom in the summer of 2003.
Eircom has denied a story publishedin lastweek's Sunday Business Post which cited cabinet documents revealing proposals to offer Eircom significant incentives - or "carrots'' - to secure a deal. "Eircom did not walk away from any discussions with the government," said an Eircom spokesman, although he acknowledged discussions had taken place. "The thrust of the story doesn't reflect what happened."

In answer to a parliamentary question last Thursday, theMinister for Communications Noel Dempsey, said that while "discussions'' had taken place with Eircom, no "negotiations'' had taken place. No "offers''were made to Eircom, he said.

Eircom refused to say if it had contacted the minister at any stage last week.

The Sunday Business Post understands that Eircom contacted the department last Monday and that the chief executive, PhilipNolan, spoke to the minister by phone last Wednesday. There was also a prearranged meeting with the minister last Thursday, at which the matter was briefly discussed. The documents presented to the cabinet sub-committee specifically show that the talks had not reached a formal, contractual, legal stage. They do, however, reveal a degree of detail and involvement in the talks between Eircom and the government on the subject of a new departure for broadband in the period beforeMay 2003. Headed "The Eircom Discussions'', they state: "The Eircom discussions focused on two issues: what would be the best way to upgrade the Eircom local network to meet the government's broadband objectives. . . and how much would it cost to doso?

"How can the government and Eircom structure a new company or an appropriate contract between themselves to ensure that these investments get made and the objectives are accomplished in a timely fashion?" The documents go onto say: "TheDepartment of Communications, Eircomand SJS [the US consultancy firm which is led by Ira Magaziner] examined three di f ferent approaches to achieve these goals and one approach that achieved lower goals. These options ranged in cost from E900millionto over E4 billion. "Al l three groups have agreed that the best solution is the one that will cost E1.8 billion over 5 years. SJS, the Department of Communications and Eircom discussed two models for structuring the broadband local network: a new company that would pool assets [or] an Eircom investment made in accordance with a government-negotiated contract."

The documents go onto say: "The department has made a decision to proceed with attempting the Eircom alternative first." The report to the cabinet specifically envisages that agreeing a contract between Eircom and the government for rolling out broadband will be "a complicated and difficult negotiation'' which "should have a 3 to 4 month deadline that is strictly enforced." Both sides had reached the stage of negotiations where formal contractual discussions were ready to start. Shortly after that, the talks, in the words of an Eircom executive, "petered out''.

SkepticOne

I'd still love to know what Eircom were supposed as their side of this arrangement.

Moriarty

Yeah, I've been wondering about that too. 1.8bn seems like far too much just to get exchanges upgraded.. so was there meant to be an investment in repairing the access network.. or was there meant to be limited ftth/c rollout.. or what.