Siro’s exit poses serious questions for State broadband scheme

A significant wheel came off the Government's National Broadband Plan (NBP) this week with Siro, arguably Eir's chief rival for the State contract, deciding to exit the process at the last minute.

After spending more than €3 million on its bid, the ESB/Vodafone joint venture claimed the "business case" for its continued participation no longer existed.

But that was just company-speak: its real beef was with the Government’s decision to farm out 300,000 premises originally covered by the scheme to Eir.

By allowing the State’s incumbent telco effectively cherry-pick the cheaper-to-service customers, the Government negatively skewed the cost base for Eir’s rivals.

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The move is also likely to hike up the cost for the taxpayer as connecting the remaining 540,000 homes, which are located in the hardest-to-reach places, will require a bigger per unit State subsidy.

As the ESB’s telecommunications arm, Siro is the only company with access to a network that connects every home and business in the State. Its arrival on the scene in 2015 and subsequent entry into the NBP process posed a serious challenge to Eir’s legacy monopoly.

Either way, its departure means we have now only two firms – Eir and Enet – left in the process, one with a high-speed broadband network of nearly 1.7 million premises and the other with a fledgling network that promises to connect 100,000 premises by the end of next year.

Does this meet the definition of a competitive tender?

Minister for Communications Denis Naughten’s press release announcing the latest stage of procurement on Tuesday was revealing in its wishful thinking. “We are one of a few countries in the world that has a compelling competing operator to the incumbent,” he said.

Big backers

Doubtless, Enet has some big backers and is growing its wholesale network, but describing it as a serious challenger to Eir’s near monopoly is farcical.

After five years of dithering and what will now go down as the longest tender in State history, we find ourselves on the brink of giving the market incumbent a subsidy to connect rural Ireland to high-speed broadband, a solution that might have been arrived at some time ago.

The UK found itself in the same scenario several years ago when BT was awarded all 46 State-subsidised lots to supply rural homes with broadband, a process that is now mired in difficulties because of the costs of connecting homes in remote areas.

As a private company beholden to shareholders, Eir cannot be criticised for failing to invest in uneconomic rural broadband schemes. Rural Ireland’s broadband woes are a product of a botched Government telecommunications policy that can be traced back to the privatisation of Eir’s predecessor, Telecom Éireann, in the late 1990s, a process that choked off investment in the State’s network, which ultimately left rural communities in the dark, digitally speaking.

Many will, of course, say who cares about the competitiveness or otherwise of the current tender as long as broadband is delivered and the digital divide bridged. The department will also point to the 300,000 homes formerly earmarked for intervention that will now receive fibre broadband via Eir’s commercial rollout earlier that under the proposed NBP, which is now unlikely to proceed before 2019.

Nonetheless, Eir’s rivals remain convinced the company’s U-turn on these premises was an attempt to game the process, by making it unwinnable for anybody else.

The company counters this by legitimately asking if it was supposed to avoid connecting these rural homes in deference to the Government’s procurement process.

Conspiracies

Whether or not you indulge in such conspiracies, Eir is now in a prime position to solidify its position in the market, this time with the aid of a Government subsidy.

If it wins both State lots on offer via the NBP, a serious possibility at this stage, it receives a cheque from Government to continue retiring its legacy copper network and build out a new fibre one while securing its position at the head of the telecoms market.

If it loses one of the lots , the company will still control a significant portion of the market and receive rent from Enet,which will be forced to transit Eir’s network to get at the homes, an upshot of Eir’s decision to carve out the 300,000 homes from the original intervention plan.

Another upshot of this scenario is that the company won’t have all of its manpower and capacity stretched with trying to rollout fibre in difficult terrain, allowing it compete better with Siro and Virgin Media in the race to connect rural towns.

In the unlikely event of Enet winning both lots, Eir will still be paid for Enet’s use of its network and will, as mentioned before, have greater capacity to focus on more commercial parts of the map.

Finally, in the event of the whole process collapsing, Eir’s dominance will remain intact without any financial outlay and the Government and rural Ireland will be back where they started, trying and failing to bridge the digital divide.

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Eir

Eir remains top dog in the Irish telecoms market, but its post-privatisation trajectory has been anything but smooth. Since its IPO in 1999, the company has changed ownership six times, racked up €4.1 billion of debt, been restructured several times and taken in examinership, resulting in €1.8 billion of its borrowings being written off.

Its now on an aggressive expansion path, spending millions on its new fibre rollout ahead of being brought to market for yet another sale in the coming months.

Enet

Amid all the hullabaloo of Siro exiting the NBP this week, Enet quietly announced that British energy firm SSE had joined its bid for the NBP, adding heft to the company’s growing footprint in telecoms. The company, which is backed by specialist telecoms investor Granahan McCourt, was recently sold to the State-backed Irish Infrastructure Fund for between €150 million and €200 million, and is Ireland’s largest wholesale-only carrier with offices in Limerick and Dublin.