As the CEO of a network operator, it’s hard not to have a view on the current state of the incumbent. A recent tweet from John Kennedy accurately sums up the company’s demise, “Eircom in 1999 – 14,000 employees and debt free. Eircom in 2012 – 5,000 employees and €3.7bn in debt. Seven owners later. Nuff said.”

The staggering levels of debt have been well publicised but examinership and the future beyond a debt restructure is bound to be fraught. Commentators are suggesting that upwards of €1.7bn of the debt can be trimmed. The bad news is that that would leave a debt burden in the region of €2bn and as we all know, servicing the debt has been the problem all along. Common sense dictates that money spent on servicing the debt is not being spent of new infrastructure.

The downfall of eircom is particularly badly timed when you consider where the nation needs to be regarding next generation access broadband. With the banks effectively owning eircom, it’s genuinely hard to see them committing the required levels of investment.

Minister Rabbitte has said recently that the nationwide rollout of fast broadband will be the single most important investment needed to secure jobs in local economy. I have always said that State should intervene in a way that supports competition rather than re-enforcing monopoly. Now that eircom is owned by its banks determined to recoup what they’re owed, there is the added risk that State money could end up supporting debt repayments at the expense of driving next generation access.

Telecommunications has, for a very long time now, been a hugely profitable business. In the early part of the last century, fixed copper networks were laid and were connected to every home and business in the developed world by the 1960’s. Though these networks have been upgraded, they have never really been replaced. The result is that fixed line telecommunications operators have long since recovered the cost of investment, but continue to charge as if they hadn’t; making them hugely profitable.

They have been so profitable in fact, that by the late 80’s early 90’s governments (who by and large still owned these networks) and capital markets began to view these networks as perpetual cash cows. The networks were sold to the private sector which paid a price based on this assumption. However, the perpetual cash cow has come under pressure.

However, incumbent telcos such as BT, Deutsche Telecom, France Telecom and Telstra, have faced new competition from mobile and cable for their voice business. Rather than reduce the price of their voice offering, they tried to keep their customers by providing access to the internet at a price that was a tiny fraction, proportionately, of voice. The result, cheap and increasingly fast internet access, has been phenomenal for the global economy and society in general.

The problem with all of the above is that the explosion in internet usage means that these old, copper networks now need to be replaced. However, in protecting the voice cash cow, the industry has created an expectation – users are now used to getting below cost price for the internet!

So where does this get us. We know new networks need to be built to liquidate the economic and social dividends and we know that there is no money (either through increased future revenue or historical provision) to build them.

It appears that there is an impasse, but one that, in my opinion, can be bridged with State intervention. Even putting aside all of the serious research that highlights the economic benefit of next generation broadband, every other major policy area would benefit from this infrastructure build. It’s actually a fairly compelling business case for the State. A report from the OECD makes a strong case for State investment in a national fibre to the home network. The report determines that a 1% saving (over 10 years) in smart grid technologies, healthcare, transportation, education would justify the build of the network.

This is from McKinsey’s “The Internet Creates Job” (May 2011).

All the vital stats still stand.

• The internet accounts for 3.4% of GDP
• The internet accounts for 21% of GDP growth
• The internet creates 2.6 jobs (for every 1 lost)
• The internet increases productivity by 10%
• SME’s grow 2x

You can click here to see the full report.

Around Europe incumbent Telco’s are proposing “Fibre to the Cabinet” as their answer to NGA. Here in Ireland, eircom are following this trend.

“FTTC” or “Fibre to the Copper” as I call it, simply isn’t what Ireland needs right now.

While deploying fibre as far as the cabinet does allow you to squeeze more capacity out of the copper, it still places the old, constrained network at the heart of telecommunications. Additionally, it only offers short term relief to the bandwidth bottleneck. It will inevitably require a second round of  investment when consumers run out of bandwidth and/or when the copper ceases to be fit for purpose. The second round of upgrading and investment will bring “Fibre to the Home” or “FTTH”.

So why wait? Why waste money on an unnecessary interim investment when FTTH is inevitable. Not only will you end up spending significantly more money, you’ll also lose the advantage of being an early mover. FTTC only makes sense for incumbent Telco’s trying to protect declining revenues on an aging network with constrained capital.

We all know the bandwidth demands being placed on networks are growing, so investing in a network that supports fast ADSL, with maximum speed of 40Mbs seems largely at odds with trying to position this country centrally in the global digital age.

As a result of our economic plight, we have to be clever in how we spend any funds available. Bearing that in mind, I’d pose a question; should we invest in a solution that is, at best, short sighted or one that is completely future proofed and would offer us the real possibility of having a truly world class telecommunications infrastructure and position us to reap the rewards.

Click here if you want to see the report for yourself.

I’ve been asked to participate in the Minister Rabbitte’s Next Generational Broadband Taskforce (NGBT) which comprises of the CEOs of major telecos and internet service providers currently operating in the Irish market.

Essentially the NGBT has been tasked to generate a blueprint for the rollout of next generation broadband across the State and ascertain how best to couple private-sector and public sector investment.

Some sectors of the industry are already investing and obviously this is to be welcomed. The NBGT aims to accelerate this investment and seeks to encourage would-be investors to work collaboratively to maximise the roll out of next-generation infrastructure. There will obviously be investment gaps where the industry is unwilling to invest (rural regions with low population density) and this is where the State will have a part to play with direct financial support. However, the State also has a vital role in providing access to infrastructure as well as providing a regulatory environment that creates investment certainty.

To my mind any State intervention will be in support of industry investment and not in lieu of it and critically, must not remonopolise the access network. The MANs have helped the telecoms industry move away from network “ransom strips” – so future investment, particularly from the State, must not re-create the problems of old.

Anyone who has been reading my blogs will know that this next generation broadband is critical for economic recovery and growth, as well as providing essential contributions in terms of the green agenda, education, health, public sector reform and other social benefits.

Broadband providers (and their networks) often do a number of things that can reduce the quality of your connection. The three most common are

• Making your upload speed significantly slower than your download speed;
• Making you share you capacity with other network users;
• Networks can vary considerably in the time lag between the signal leaving its point of origin and arriving at its destination.

These three factors known in “techno speak” respectively as synchronicity (I know! As in the Police album from the 80’s), contention and latency and all can have a significant impact on your broadband performance regardless of the headline speeds that you’re offered.

• Synchronicity (in particular low upload speeds) can make certain types of broadband useless for cloud type applications;
• Contention can mean that service quality varies wildly at differing points in time whilst like the roads traffic can grind to a halt at peak times;
• Latency has real impact on real time application such as voice and video, often making them unusable.

You’ll be glad to read that operators aren’t doing this just to rip you off; they are dealing with real challenges presented by their network architecture, in particular with the access layer or last mile. The last mile of most networks is generally a wireless or a copper connection. Both these access technologies have been developed significantly over the past number of years but both suffer physical limits that severely restrict their capacity as the number of users and the capacity they require increases – and these three “tricks” are used to deal with this issue.

The best way of dealing with these issues is to deploy a technology which does not suffer any of the physical limits that impede copper and wireless technologies. Fibre broadband is based on totally different physics – optics. By deploying fibre into the last mile or as close to the last mile as possible you remove the need to contend, to reduce upload speeds and you eliminate any latency issues. Any other solution versus fibre is a compromise that will, at some point, create problems.

To put this in some sort of context, the FCC have made a comparison between copper and fibre and according to them, a single twisted copper pair can deal with 6 simultaneous phone calls. However, a single fibre pair can handle 2.5 million! To my mind, this simple example (without the “techno-speak”) highlights the fact that one is a legacy technology reaching capacity and the other is cutting edge and future proofed.

As we all know, access to high capacity broadband can have a considerably positive effect on our daily lives but in a commercial environment, the technology supporting and delivering the broadband becomes even more critical than it would in a domestic setting. Everyone needs to understand what’s capable over the various technologies and what’s not.

Don’t just take my word for it! There’s a significant amount of research from various sources that pinpoints the impact of improved communications infrastructure on the economy. As you would expect there is no single definitive assessment but, taken together, the research provides a very strong body of evidence that communications infrastructure can deliver significant economic growth.

To see a European Commission report, click here.

To see a couple of Intel white papers, click here and here.

To read an overview of what PwC say, click here.

To see an interesting report by booz&co, click here.

To see the economic benefit of broadband on the German economy, click here.

And last but not least, click here to see where jobs come from.

Last week, Minister for Finance, Michael Noonan, T.D., officially opened our new corporate HQ in Plassey, Limerick. Here’s the speech I delivered to mark the occassion….

“Minister, distinguished guests.

It is my great pleasure to welcome you here today to e|net’s new facility in Hamilton House. I want to thank you all for attending on a Saturday and in particular, I want to thank our Minister for Finance, and local T.D., Michael Noonan, for finding time to do the honours and to officially open our new headquarters.

We are very much aware of the onerous economic times/challenges you are grappling with Minister, and on behalf of all our guests – can I assure you of our very best wishes.

e|net and the progress we have made over the past seven years represents a quiet success story for Limerick and for policy delivery in telecommunications nationally. As a business, we are one of Ireland fastest growing companies on both top and bottom line. e|net’s growth and success is today manifested by the need to move into these new, larger offices and also by our announcement of a €25 million, 10 year investment plan in broadband infrastructure. This investment sees e|net creating 20 jobs, and securing a further 30 construction jobs nationwide during the rollout of the network.

Our investment plan and our recruitment programme points to our successes to date as well as our ambition for the future. As well as commercial success though, it’s vitally important to recognise that e|net and the PPP model we operate has been a policy success, so much so, that the policy issues that the MANs sought to address have, to a large extent, been forgotten.

In 2004, e|net was challenged to overcome the key telecommunication issue at that time – what was known as the “digital divide”. At that time, in the 28 towns where MANs were built, Eircom broadband was not widely available, no Eircom exchanges were unbundled and there was no wireless or cable broadband available. These 27 towns and cities were getting only 20% of new IDA jobs.

Today citizens in these cities and towns have, in essence, the same choice and cost of broadband as anyone in Dublin. The MANs are being used by Magnet, Smart, BT and Vodafone to unbundle Eircom exchanges, by Vodafone, O2 and Three to provide mobile broadband, by UPC to provide “Fibre Power” cable broadband as well, by Imagine to provide Wi-Max and a whole host of wireless operators, including companies such as Limerick’s own Ripplecom.

In terms of jobs and foreign direct investment, after four years of the project, the first 27 MAN towns had quadrupled their share of new IDA jobs to almost 90%. The most recent announcements by the IDA in McAfee in Cork, NPD in Athlone and Gilt here in Limerick are all located in buildings supported by MAN fibre. This is not a coincidence.

So although the issue of broadband availability remains in some rural areas, the market for and availability of telecommunications services in our key regional towns and cities is up to, and in some cases ahead of, our capital city. And I hope you can see how the MANs and e|net have been instrumental in making that happen.

So e|net and the MANs have been successful in resolving the policy challenges of 2004 – but what of 2011’s challenges? You don’t need me to tell you that our country, and in particular this great city, is in the grip of a vicious recession that threatens to undermine the quality of our lives for a generation. There is no more important objective than growing our way out of recession. The programme for government shows, Minister, that this administration understands that potential for high quality communications infrastructure to generate growth.

Only yesterday I received a report from the Economic Journal suggesting that a 10% improvement in broadband can increase annual per capita growth by between 0.9 and1.5% and there are a range of other studies and analysis that also demonstrate that high quality communications can drive growth at this level – which, if you are interested Minister, I can supply you with.

This stands to reason when you think of the productivity, connectivity and market benefits that broadband can bring to business and commercial life generally.

The Minister may well be aware that the likelihood of the private sector delivering such infrastructure to the coverage and quality that the country needs is remote. Why? Because the business case is, at best, weak. However, I would strongly contend that the business case for the state is persuasive because, as well as generating significant economic growth, there is barely a policy area where having world class communications wouldn’t be a great benefit…

• In transport – getting one in 20 working days to be worked from home would reduce peak traffic loads by 5%
• Similarly the use of remote working and video conferencing can significantly reduce air and land travel and thus cut down emissions
• In healthcare – remote monitoring and diagnostic technologies are key to allowing patients to be treated in their own home and in tackling one of healthcare’s biggest issues – bed blocking
• In education – online learning resources transform the educational experience and allow different schools and institutions to work together and collaborate at deep and meaningful level
• Smart metering for water and other utilities is dependent of communications infrastructure.

It’s also clear to me that this investment needs to commence immediately – the longer we leave it, the less of a competitive advantage that Ireland will derive from it. Like physical infrastructure, every country will get there sooner or later but the real winners will be those countries that are pioneers and get there first. Ireland can and should be a pioneer in Digital Infrastructure.

The crucial next step is to clearly identify how policy and industry can combine to ensure that return is maximised for all stakeholders. I believe strongly that the sort of economic bounce that Next Generation networks can give will only be achieved with significant State support State support in the form of access to infrastructure, in the form of the provision of investment certainty and in the form of strategic co-investment with private sector.

It is poignant to note that, with Dr Fitzgerald lying in State in Dublin today, it was during his government in the 80’s that the first moves were made on our last great leap of faith in this area, digitising the Telecom Eireann network and, according to many, creating the technological platform for the Celtic Tiger.

When making the next great leap in telecoms infrastructure, we all must, however, be mindful not to re-monopolise the access network. The MANs have helped the telecoms industry move away from network “ransom strips” – so future investment, in particular from the State, must not re-create the problems of old.

e|net believes that the PPP structure used for the MANs is the ideal structure through which the State can provide the support that is needed and we also believe that the team here at e|net is the ideal partner for the State. My team has shown an ability to sustainably meet and resolve the policy challenges of 2004 and we can be relied upon to work in partnership with industry and the State to meet the policy challenges of 2011.

So once again can I thank Minister Noonan for his attendance here today, any friend of Limerick is a friend of e|net.”

Eircom and O2 should be congratulated on their network sharing agreement, the first in Ireland, which will see collaboration across site equipment, power supply and transmission sharing.

It’s true to say that such initiatives are becoming the norm internationally (UK, Spain and France) but that’s not to say that they’re easy to bring over the line. Not surprisingly, there’s a tendency to be suspicious and distrustful of your competitor’s motives. Previously, the prevailing corporate culture has dictated that these deals have never gotten off the ground.

So what’s changed? The reality is that network sharing has always been a cost-effective way to deploy and operate a telecoms network but now telcos are operating through a recession and the likely savings of up to 30% on network costs are just too good to walk away from.

Importantly, Meteor, emobile, O2 and Tesco Mobile (which carry traffic on the network concerned) will continue to compete with each other in the mobile market – so you have a single infrastructure facilitating multiple operators – this is something that we in e|net know to work very well with 40 operators providing services over the MANs.

Sharing networks really does work for all concerned – customers and operators. I for one, hope that the Eircom and O2 deal is not the last such arrangement in the Irish market.