Internet sector gets up to speed

Number of broadband users reaches one million, but quality of service remains an issue.

After years of languishing in the broadband doldrums, Ireland's growth in subscriber numbers was rapid last year. There was a 90 per cent increase in numbers using broadband in the year to last June, and current best estimates put the total number of users at about one million.

Despite the impressive expansion, broadband penetration, at about 23 per cent, is far behind the Netherlands and Denmark, who are at close to 40 per cent.

Although the Government's delayed National Broadband Scheme is designed to provide a service to the mostly rural areas that don't have it, the issue now is quality rather than availability.

Forfás and others have pointed out that higher speeds, better pricing and innovative services are needed if we are serious about being a "knowledge economy". Forfás chief executive Martin Cronin said: "Optimum development of the enterprise sector and of e-business will require a wider range of higher speed broadband services."

Yet again, lack of competition to Eircom was cited as the reason the market has been slow to develop. During 2007, there were signs of change as the long delayed local loop unbundling - the EU-mandated process by which other operators can connect their equipment to Eircom's network - was finally delivered.

"Job done," said Eircom chief executive Rex Comb, but the other operators said that Eircom meeting the September deadline was only the start of the process. Certainly, the relatively low level of take-up suggests other operators remained to be convinced of the service's economic viability.

All of the mobile operators, with the exception of the Eircom-owned Meteor, got in on the act with their own broadband products which run over their third-generation networks. Despite consumer complaints about the quality of these services, Eircom said it would look seriously at offering mobile broadband when Meteor's 3G network has been built out. Given that in other western European countries mobile broadband is a niche product, it was surprising that 100,000 people signed up for the products. Money has been flowing into the broadband market.

Eyebrows were raised when Vodafone announced its acquisition of telephony and broadband provider Perlico for up to €80 million. It was a good result for its 30-year-old founder Iain McDonald, his father Malcolm and investors Dr Michael Smurfit, Kingspan founder Eugene Murtagh and technology entrepreneur Jim Mountjoy.

The same month a triple-play (telephony, TV and broadband) service Homeview was launched by 3PlayPlus, a new player with up to €45 million in funding from private backers. Brendan Murtagh also rescued Smart Telecom, leading a €65 million refinancing that will enable it to aggressively go after consumers with an interactive TV offering launching this month.

The irony of all this activity is that no company in Ireland has ever made a profit solely from selling broadband to consumers.

Even Perlico, which has no infrastructure but resells Eircom services, has yet to turn a profit, booking a net loss of €7 million last year. Big bets are being placed on Ireland's broadband future.

3 did its best to shake things up in the mobile space, with aggressive pricing and innovative products such as the Skypephone, which provides free internet calling. Tesco became the first mobile virtual operator courtesy of O2 and it is likely more high-profile brands will follow suit next year. Other than that, it was business as usual, with Irish mobile users facing some of the highest bills in Europe. The European Commission did its bit with a cap on the price that mobile users can be charged while roaming within the EU, while ComReg also brokered a deal on wholesale mobile costs that should go some way to keeping end-user costs in check.

2008 will also see Babcock & Brown reveal its plans for the split-up of Eircom into up to four entities, including a retail division that it may try to sell to another European player.

Alto, the representative body for the alternative operators, is opposed to the move because it believes it would be bad for competition.

"While a functional separation of Eircom's two operational arms is desirable, a physical legal separation with different owners would create a wholesale monopoly which would be detrimental to competition," said Alto chairman Liam O'Halloran.

Regulator ComReg and the consultants it appoints to review Eircom's plans, faces tough decisions to keep all sides happy.