The Quick And The Dead
Faster broadband speeds and next generation networks are all the talk, along with market consolidation, writes Ian Campbell.
In its latest quarterly report, published last month, ComReg identified 312 fixed-line and wireless operators in Ireland.
Yet the prospects for greater competition were somewhat undermined by the fact that Eircom still had 68 per cent of the entire business. In the consumer market, this has led to fierce competition and giveaway deals.
In the business space, the competition is more subtle, as communication providers look at different ways of targeting customers with their products and service offerings.
Business propositions fit into a number of camps. There are those that simply sell on Eircom’s wholesale product – bitstream – repackaging the incumbent’s ADSL (asymmetrical digital subscriber Line) infrastructure and tailoring it in such a way that differentiates the offering, either in terms of prices or bundled add-ons.
Then there are the service providers who have taken advantage of LLU (local loop unbundling), installing their own equipment in telephone exchanges, which allows them to gain more control over the type of products they can offer. Here we see ADSL2+ providers like BT, Smart Telecom and Magnet Networks carving out a niche for themselves.
Underpinning almost all the service provider strategies is the availability of regional infrastructure, developed through the government’s MANs (metropolitan area networks) and managed by e-Net. There are currently 27 fibre rings around key urban areas that have enabled providers to bring high-level connectivity to businesses that would have previously been beyond their reach. A further 80 towns are planned for phase two in 2008.
Companies such as Magnet and Smart Telecom have been able to build business models on the back of its infrastructure.
“The government MANs and our own fibre network in Dublin are our main mechanism for delivering corporate services,” said Ronan Kelly, Smart’s technical director.
“We can deliver contention-free circuits and speeds of up to 1,000MB if required.”
Smart also has fixed wireless products competing with Irish Broadband and Ice Broadband, companies where wireless is the core offering. Some started out selling their services in places that DSL fixed-wire couldn’t reach, but wireless has emerged as an option in its own right, as it uses a synchronous technology that immediately differentiates it from ADSL products. This means the customer can have the same upload speed as download, which is important for certain types of business.
Irish Broadband does not see itself as filling gaps for DSL and has always competed head on.
“You have to have success in the major towns to get the scale,” said Ruairi Jennings, commercial director at Irish Broadband.
“So we needed strong connectivity and corporate revenues in the main urban areas from day one.” Wireless is the primary infrastructure for Digiweb, although the company, like many other service providers, has made it its business to mix and match the different access technologies.
“We have the ability to go in and ask a customer what they need, where they need it, and deliver it with whatever technology is appropriate,” said Colm Piercy, managing director.
“The customer doesn’t care about the technology. They just want to know its speed, that it’s reliable and how quickly any problems can be solved.”
Piercy believes it is the ability to diversify that will determine which companies survive in such a crowded sector.
“Anyone who is going to stay in the game has to get a converged solution in place, offering the customer everything they want across all the technologies.”
The latest addition to an increasingly complicated broadband jig-saw is the 3G modem from mobile operators – plug-and-play devices that connect laptops to mobile networks at broadband speeds of up to 3.6MB. A boon for any business with a strong mobile workforce, products from Vodafone, O2 and 3 have already affected the national figures – adding 45,000 subscribers to the broadband base, which has now hit the 700,000 mark.
To complicate things further, the market is rife with speculation about takeovers and acquisitions. With so many companies competing for business, consolidation is inevitable. It is a matter of public re cord that the Irish Broadband owners, NTR, has been in discussion over takeover bids, with several other players rumoured to be up for sale.
Digiweb’s Colm Percy predicted that there would be a a number of acquisitions before Christmas.
“We are keeping our eyes open and looking at the ones that have indicated they are up for sale.”
The market has shifted dramatically from the doom and gloom days, when the country had a dearth of competition and was limping behind the rest of Europe when it came to broadband infrastructure.
Now most providers agree that we are into a second wave, with business users starting to demand more from their broadband service.
“Five years ago, when we started out, broadband wasn’t ‘mission critical’; companies were trying to work out what to do with it,” said Jennings.
“Now everyone accepts that the internet is an essential component of their business for connectivity, business transactions or transferring data between their sites.”
That is one side of the coin. On the other, the sobering fact is that there are nearly 200,000 small businesses in the country and just less than half have broadband.
Peter Evans, head of product at BT, said there was a substantial segment of small shopkeepers who had not yet invested in a PC, never mind high-speed connectivity.
“It is a market that is still immature and is hard to crack. Most of them would file their accounts online from home rather than from their business. The trick is to get them using the broadband services, and the only way to do that is awareness.” Yvonne Rooney, managing director of Ice Broadband, said there is also a divide in terms of availability.
‘The growth in broadband has been very good and very positive for the market, but there are still places in the country that have no broadband whatsoever. Those communities are still looking for a basic package, anything above the dial-up speeds they are currently getting,” said Rooney.
Under the National Broadband Strategy, the Department of Communications recently announced the setting-up of a consortium of providers to address the need to deliver broadband to the remaining 10 per cent of Ireland’s population currently not being served.
The trend in more developed areas is for companies to upgrade their connectivity and look for a better quality of service. Providers have responded by delivering faster speeds and uncontended lines.
Contention ratio describes the number of users sharing bandwidth from a local exchange or wireless base station, which some providers have used to differentiate themselves by selling uncontended products. They ensure that the customer gets the speeds they expect. Others, like Eircom and BT, argue that the whole issue is something of a white elephant.
“We do not receive customer complaints or issues over contention ratio,” said Eoin MacManus, marketing director at Eircom.
“While some companies use it as a way of differentiating themselves, we see it more as a ruse. The key differentiation is the quality of service that you provide. It is more likely to give you competitive advantage than contention, which I don’t think is a major issue in the DSL space.”
Eircom’s business broadband products provide a 24:1 contention ration, which means a user is sharing bandwidth with 24 other users. Its bitstream wholesale customers can offer the same service or a cheaper one based on 48:1. In terms of speed, Eircom has a 6MB download product as its fastest offering, while other providers are offering 8MB, and even up to 10MB.
‘That may change and we may well be giving faster upload and downloads but I can’t give any timelines,” said MacManus.
Competitors such as Smart Telecom, Magnet Networks and Digiweb claim to be doing very good business from the gaps in the Eircom product range. They all sell SDSL products, which have the same speed for upload and download.
Donal O’Hanrahan, sales and marketing director of Magnet Business, said his company was now dealing with customers who see real value in next-generation broadband products.
“The people who really get the difference are media companies; graphic studios, for example, that have to trawl through extensive online photo galleries while looking at hundreds of images,” said O’Hanrahan.
Magnet’s research around productivity studies suggests that an average office employee can lose 30 minutes a week waiting on slow connections.
“We’re trying to explain to businesses that there is a real productivity loss and a financial hit to the company with slow download speeds,” said O’Hanrahan.
“It’s like in the early days of PCs, when the 286 was upgraded to the 386. No-one wanted to work on the 286 after they had experienced the latest machines. And that’s the way it’s happened with broadband.”
Give a company a taste of faster speeds and they invariably want more, he said. This change is very real but has not happened overnight, according to Pio Murtagh, chief operations officer at Smart Telecom.
“In Ireland, there has been a level of catch-up. The last four or five years has been all about getting broadband out there. Quality and speed has not been a great issue. That education is only beginning now,” said Murtagh.
Both companies made the point that Eircom was wary of the new, faster products because they posed a threat to its leased line business. Launching such services would only cannibalise a lucrative revenue stream.
The same argument has been levelled at BT, an accusation that Peter Evans of BT refutes. In a rare sign of accord with Eircom, he agreed that the differentiator between leased line and broadband products was more to do with the quality of service.
“The reason why people buy leased lines as opposed to SDSL is predominantly to do with the SLAs [service level agreements]. Typically you get a four-hour SLA on a leased line, as opposed to five days on SDSL. If you are a bank with multiple branches, you cannot afford to lose a line. Four hours is just about acceptable, five days isn’t.”
Evans said that BT was working hard to reduce broadband SLAs to two days, with a further option to reduce it to one, but it would remain a key differentiator for leased lines. On matters of contention, he also agreed with Eircom that it was a misleading discussion.
“We find that customers are getting fed up with talk around contention. In Britain, the fastest broadband product we have is an 8MB broadband and there is never any issue. Customers get what they pay for.”
Evans said that when a business suffered slower speeds, it was usually symptomatic of another technical problem.
“There is nearly always a reason for a slow connection – whether it’s down to the PCs, a problem on the network or a congestion issue on the backhaul.”
Quality of service was also the reason why BT had restricted its ADSL2+ service to 8MB, while competitors like Smart, Digiweb and Magnet all have 10MB offerings.
“As you go up to higher speeds, it introduces additional levels of complexity and fault process handling,” said Evans.
“You have a bigger proportion of customers ringing up and saying they are not getting the full 24MB, and you have to explain that their copper is not of a good enough quality or their line length is too long. Rather than jump straight in and have to deal with a huge service wave – which would definitely cause customer issues – we’re locking the lines at a maximum of 8MB.”
BT’s broadband business encompasses bitstream – bought from Eircom – but the real drive is to migrate its customers to the services it runs out of the 45 exchanges where it is has unbundled the local loop.
“It gives us full control over the network, right down to the customer, which is definitely advantageous, said Evans. “
Migrating customers over from bitstream had been stalled because of a dispute between Eircom and ComReg that hampered number portability.
This has just been resolved, allowing customers to take their number with them to another service for the first time.
While Smart and BT put the onus on LLU, others, like Strencom, argued that bitstream is the better way forward in a crowded market.
Ian Campbell, The Sunday Business Post