Broadband plan may undermine competition, claims expert

Economist Colm McCarthy says proposals will give big players market dominance

Economist Colm McCarthy takes issue with the proposed “gap funding model”, which is likely to mean the State subsidises the cost of a high-speed broadband network for rural Ireland. Photograph: Getty Images

Economist Colm McCarthy takes issue with the proposed “gap funding model”, which is likely to mean the State subsidises the cost of a high-speed broadband network for rural Ireland. Photograph: Getty Images

 

The Government’s National Broadband Plan has the potential to erode competition in the sector resulting in higher prices and poorer services for consumers, economist Colm McCarthy has warned.

In a report, commissioned by a group of fixed wireless operators, Mr McCarthy takes issue with the proposed “gap funding model”, which is likely to see the State subsidise the cost of a high-speed broadband network for rural Ireland.

According to Mr McCarthy, this will afford one or two big players, possibly Eir, the current market incumbent, or Vodafone/ESB’s joint venture Siro, unrivalled dominance in the marketplace.

Likely impact

In most industries with infrastructural monopolies, governments have moved to separate the various parts in the interests of competition, Mr Carthy said, noting that electricity grid companies or airport operators are not permitted to have retail arms.

“Without these separations, the task of regulators in ensuring effective retail competition would be rendered more complex and challenging,” he said.

However, in Ireland, the legacy telecoms operator, Eir, which had been a State-owned and vertically integrated monopoly, is still permitted to operate on both sides of the divide.

The company’s role as a wholesale provider of telecommunications is currently being reviewed by regulator Comreg amid allegations of discriminatory practices against rival operators that share the existing network.

Mr McCarthy says a KPMG consultants’ report – one of nine commissioned by the Department of Communications – which deals with the question of market structure concludes that the funding gap model ensures effective competition without adequate analysis of the likely consequences for retail competition.

“The department is plunging into a market design that it has seriously avoided in electricity,” Mr McCarthy told The Irish Times.

“Markets don’t just happen. They have to be engineered. The historical experience tells us that if the market design is fragile, the regulator won’t be able to patch it up afterwards.” Such a scenario could result in bad service and high prices for consumers, he said.

Mr McCarthy said in Britain telecoms regulator Ofcom had recently concluded a consultation on the market there and had intimated that removing legacy core network provider BT Openreach from the retail business, was one of the options to be considered.

‘Evident unhappiness’

Mr McCarthy’s report was commissioned by a group of 36 wireless internet service providers (Wisps), chaired by John McDonnell of Ripplecom. These providers are likely to be put out of business with the creation of a high-speed broadband network.

Mr McCarthy said an analysis of the project’s benefits and likely cost alongside a “do nothing approach” – prerequisites for a proper cost-benefit analysis, have been withheld for reasons of commercial sensitivity, making it difficult to assess the merits of the scheme.

However, he raised concern that connections to the proposed network are likely to be made available to consumers at no cost. This is likely to impose serious costs on the exchequer, he said.