Business World Cries Out For Help

Press release
02nd Apr 2006

Just a few weeks ago, this column predicted that it wouldn’t be surprising if some new owner decided to sell Eircom back to the government at a price.

But we didn’t expect to hear the calls for re-nationalisation of the former state-owned telecommunications company to come from two private sector economists better known for their embrace of free markets.

Eircom executives are likely to have been taken aback when they saw Friends First economist Jim Power and Bank of Ireland economist Dan McLaughlin calling for the nationalisation of Eircom last weekend.

For while Eircom’s bosses would stand to gain financially in any sale of the network back to the government, even they must find it a tad embarrassing to be seen to have presided over such a perceived market failure that the country has to turn once again to the taxpayer to build an adequate telecommunications structure.

But we should not really be surprised at this outcome, as the business community has been complaining loudly about the poor state of the country’s telecommunications infrastructure in recent years.

Chambers Ireland has called on the state to invest €2 billion in developing a modern telecommunications structure, arguing that Eircom’s infrastructure is in any case outdated.

Eircom repeatedly insists that it is investing adequately in its broadband service, but the very people that it is seeking to persuade beg to differ.

Take, for example, the chairman of the Oireachtas committee on telecommunications, Noel O’Flynn.

O’Flynn, who is also a businessman, told the Insider he had to turn to SmartTelecom after Eircom failed to meet his deadline for supply of broadband services for a business park he was developing.

O’Flynn said he was in the fortunate position of being able to ask SmartTelecom to provide him with broadband because he had taken the precaution of laying proprietary ducting when he was constructing Kilnap Business and Technology Park.

Smart used these ducts to install cable to connect O’Flynn’s business park on the Mallow Road in Cork to the Cork Metropolitan Area Network (MAN).

The Cork MAN is a state-funded network which also provides broadband services.

e|net, the company that has the contract to manage the state’s rival broadband infrastructure, was also involved in installing the cable, according to O’Flynn.

Eircom doesn’t currently allow rivals to use its ducts to supply competing services.

This means that if O’Flynn hadn’t laid his own ducts, he and his tenants would have been forced to wait until Eircom was in a position to supply him.

O’Flynn claims he informed Eircom and other telecoms suppliers in January last year of his need for a broadband service, but when he contacted the firm in November to say he was ready, Eircom told him he would have to wait two or three months.

O’Flynn credits Eircom with putting in ducts on time, but said: ‘‘unfortunately, when it came to the crunch, they couldn’t put in the lines by Christmas’’.

He said his tenants, some of whom were moving into the park in December, would have been left with no broadband services for two months if it had not been for e|net and Smart.

An Eircom spokeswoman responded that ‘‘there was no actual deadline as far as we are aware’’.

She said Eircom got the first order on October 27 last year. She said at that point Eircom: ‘‘hadn’t put our pipes in the duct’’.

She added that Eircom had serviced two customers by January and can provide broadband for the other customers. ‘‘We are not talking about a long time-frame.

“From the time of the first order you are talking about two months.” Eircom is highly critical of the government for investing hundreds of millions in its own networks round the country. It argues that the government is effectively duplicating Eircom’s existing networks.

SmartTelecom said that in November last year, it was contacted by O’Flynn in relation to the provision of broadband for his incoming tenants after Eircom said it would be unable to supply the service for three months.

SmartTelecom said it proceeded to wire the entire park, connect it to the MAN and conduct successful live tests in under three weeks so that the tenants had broadband when they moved into the park.

It is understood that SmartTelecom now supplies the vast bulk of the tenants in the office park with telecommunications services even though Eircom is now providing a service as well.

One Kilnap tenant said Eircom was ‘‘all over us’’ now that he was up and running, but that it was ‘‘too late’’.

O’Flynn and Eircom are locked in a bitter row after O’Flynn’s Oireachtas committee published a report which was critical of Eircom’s record on the provision of broadband services.

It is unfortunate for Eircom that O’Flynn’s personal experience would appear to lend support to the views expressed by the committee he chaired.

Eircom has been anxious to play down suggestions that O’Flynn’s experience showed there was a need for a rival network to Eircom’s in the absence of adequate investment by Eircom itself.

Some observers agree that while Eircom may have caused the problem, duplicating its infrastructure may not make sense either because it would be so expensive.

They argue that one way round the problem would be to have a national audit of the existing telecommunications infrastructure, to include Eircom’s infrastructure, the state-owned MANs and other telecommunications infrastructure owned by private operators such as BT and Smart and by state-owned companies such as the ESB.

The idea would be to identify any shortfalls and create a holding company that would plug the gaps in the infrastructure. The holding company for the infrastructure would be owned by the operators who contributed to the infrastructure, while competition would take place at retail level.

Despite his experience of the benefits of competition, even O’Flynn thinks there is merit in such a proposal.

But some industry observers say that in practice it could be technically difficult to knit together the various bits of telecommunications infrastructure.

There is also the risk that the new company would turn out to be just another monopoly that would exploit its customers.

It is a measure of the despair felt in the business community about the state of the country’s telecommunications infrastructure that the idea of re-nationalising Eircom is even being considered.

The despair stems from the experience that the Eircom monopoly in private ownership has, if anything, been worse for customers than when it was in state ownership.

But that is no argument in favour of monopolies. The call for the re-nationalisation for Eircom is probably best understood as a cry for help.

By Kathleen Barrington, The Sunday Business Post