Cantillon

Inside the world of business

Markets more focused on one-year budgets

IF YOU know of a bond dealer who thinks in terms of four-year plans you should shoot him, skin him and have him stuffed.

Not simply because he is a bondholder and thus intrinsically evil – the jury is still out on this regard – but because he is a very rare beast indeed.

Potential buyers of Irish Government debt will no doubt read with interest the four-year plan that the Government has to send to Brussels next month. They may also take some comfort from whatever sort of fudge emerges from the current efforts to build a political consensus around the plan’s targets.

But it would be something of an exaggeration to claim that our future sovereignty rests on the plan and the willingness of the Opposition parties to sign up to it.

Fundamentally you have to assume the bond market is focused on Budget 2011, due in seven weeks’ time. That will be the point at which they will pass judgment on whether the concerns they have about the economy are being addressed in a meaningful way.

It is for this reason that the Government has decided to opt out of the bond market until January and the presumed passing of the budget, rather than return next month following the publication of a non-binding plan that will have to be revised over the coming years as circumstances change, both for the better and for the worse. Bond yields may continue to tick down but don’t expect any early return to the market by Ireland.

That's progress, broadly speaking

IRELAND RANKED 13th out of 72 nations for broadband quality, ahead of both Britain and the US, in a study published yesterday by the Saïd business school at Oxford University, and sponsored by Cisco. Minister for Communications Eamon Ryan was predictably quick out of the blocks to proclaim the progress as “a reflection of the Government’s progressive broadband policy”.

Ryan is right to welcome Ireland’s progress. His Government’s policy is in tune with that of the European Commission: create the right regulatory environment to support investment and let the private sector get on with it.

Ryan estimates that €1.5 billion of public and private money has gone into broadband in the last two years with subscriber numbers doubling from 600,000 to 1.5 million as a result.

The State investment has largely been its €79.8 million contribution towards the €223 million National Broadband Scheme.

Cable company UPC has invested €460 million in its cable network since 2004 and will be launching truly high-speed 100MBit/sec broadband by the end of the year. BT doesn’t break down its investment in Ireland but it is understood to have increased its capital spend by about 30 per cent this year.

The one noticeable industry laggard is Eircom. Last week at the Telecommunications and Internet Federation’s (Tif) annual conference, Eircom boss Paul Donovan said the former State telco had made capital investments of close to €1.4 billion over the past four years. But after a decade of under-investment, can an annual spend of €350 million do much more than keep the lights on?

As Donovan told the Tif gathering, the copper-based telephone network which was once Eircom’s jewel in the crown has a “limited lifetime and relevance”.

He’s looking for changes in regulation and industry collaboration – ie sharing of the costs – before he commits to investing in next generation technologies.

Yesterday’s survey shows we are making progress, albeit more slowly than all involved might like. Eamon Ryan would be wise to think carefully before changing the rules of the game in a bid to get a heavily indebted Eircom to invest.

TODAY

US Secretary of State hosts a special conference on the Northern Ireland economy in the State Department in Washington.

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