BT Ireland says Eircom needs 'radical change'

viking

Article in the Irish Times

Eircom needs 'radical change'
Jamie Smyth, Technology Reporter

BT Ireland report criticises its failure to 'unbundle' telephone lines, writes Jamie Smyth, Technology Reporter.

Eircom needs to embrace radical organisational and management change or Ireland will face five tough years of stagnation in telecoms and internet provision.

The Government must also create a more coherent strategy to encourage competition and attract investment, the second biggest fixed-line operator, BT Ireland, has warned the regulator, ComReg.

In a submission entitled BT Ireland's Strategic Review of the Irish Telecoms Sector, the firm outlines key bottlenecks in the market, particularly the failure of Eircom to offer equal access to its network that runs into almost all homes and businesses.

Currently, fewer than 3,000 Eircom telephone lines have been fully opened for use by alternative operators through a process known as "unbundling".

Eircom's failure to offer rivals equal access to the firm's local access network is a big disincentive for rivals to invest in new telecoms infrastructure, says BT Ireland, which warns that Irish competitiveness is being undermined.

To promote more investment and a vibrant telecoms sector, BT Ireland recommends that Eircom undertakes substantial internal change, including changes to organisation and management structures.

Changes to culture, transparency of internal policies and processes and better control over information flows are also required for the industry to grow.

However, the paper stops short of asking ComReg to split Eircom into two separate companies in a bid to make it easier for rivals to get better access to its local network.

Instead, BT Ireland suggests that Eircom should set up a access services division to offer competitors wholesale access to its local network.

The BT Ireland paper is part of a consultation process initiated by ComReg to determine future Government and regulatory strategy for the industry.

BT Ireland also severely criticises the Government strategy of investing directly in telecoms infrastructure through its construction of metropolitan area networks in towns.

This type of State policy is unlikely to succeed because it acts as a disincentive to private investment, it said.

"State and semi-state infrastructure development could be in breach of EU obligations, may not be the most conducive way of spending tax payers money and, in addition, could harm investment decisions by private companies," says the submission.

BT Ireland says it could have brought greater change and innovation to the market had Government policy challenged and supported industry and the regulator instead of State and semi-state investment in infrastructure.

The firm also criticises the State's decision to set up an appeals panel to oversee decisions made by ComReg.

ComReg should be given more power to ensure that economic bottlenecks are opened to competition, says BT Ireland, which predicts that Ireland is at a watershed between becoming a "fibre-nation" or a "hiber-nation".

© The Irish Times

Solair

There's one very simple reason that BT Ireland would stop short of calling for eircom to be split up. BT's own UK parent is facing similar calls in the UK.

However, I would assume that's basically what they would like to see happen.

It was insanity to allow either company to have a complete local infrastructural monopoly. I don't think the government really understood what they were doing when eircom was being privatised. DSL wasn't on the agenda and carrier preselect was beint touted as the sollution to everything.

Given the VAST amount sof public money that were invested into Telecom Eireann over the decades and the fact that they had all sorts of state assistance to build out their network over the years. Not to mention, the fact that they inherited buildings, ducting, cabling etc from the old days when it was a Government Department! I think eircom have to be forced to open this infrastructure, which we paid for via tax and enormous phone bills, up to anyone operator who wants to use it.

SparkyLarks

Solair wrote:

Given the VAST amount sof public money that were invested into Telecom Eireann over the decades and the fact that they had all sorts of state assistance to build out their network over the years. Not to mention, the fact that they inherited buildings, ducting, cabling etc from the old days when it was a Government Department! I think eircom have to be forced to open this infrastructure, which we paid for via tax and enormous phone bills, up to anyone operator who wants to use it.

Which the country then sold, for a lot of money. so the public money that was invested no longer gives us any right to demand anything from a private company really

jwt

SparkyLarks wrote:

Which the country then sold, for a lot of money. so the public money that was invested no longer gives us any right to demand anything from a private company really

Sad, but true.

Water under the bridge and all that.

If eircom was split into say eircom retail and eircom networks for example.

eircom networks would still be a monopoly, albeit a monopoly that that couldn't favour a retail customer in theory.

eircom networks would be massively debt ridden, with crumbling assets and limited income streams.

Yes / No ?

John

Solair

I'd like to see eircom off load the local networks to a new semi-state company that could still be publically funded where necessary.

Obviously it would have revenue streams from telcos using its network services.

Solair

How much was eircom sold for ?

I'm pretty sure it was far less than the public investment that went into it over the years.

paulm17781

Eircom was sold for 3.5Bn I think (not certain).

How many countries do BT operate in? I'm sure you all saw how they are splitting into wholesale and retail, I wonder if this is so in all the countries that they aren't incumbents they can now call for the incumbents to be split.

Blaster99

Haha, this is classic. At the time everyone moaned about the IPO being set too high, now you're complaining about Eircom being sold off cheaply. If it were sold too cheaply you had every chance to get shares a make a profit so there's very little reason to complain about this. I think if you were to look at this objectively, Cablelink and Eircom were sold at near peak market values. As a tax payer I'm not disappointed. I wasn't part of the Eircom IPO as I have always thought Telecom Eireann was one the most useless of organisations I've ever come across and I figured it would be difficult to change that around any time soon, particularly with the unions holding so much control of the company.

Maybe Eircom should be broken up, but a strong regulator would be a more effective way to deal with any problems. If LLU worked and was priced correctly, then that would achieve the same thing.

Solair

Blaster:

Not everyone complained about eircom being over-priced. Just because it floated at a particular price and the state made a few billion out of it doesn't necessarily mean that it was value for money.

There's a big difference between what was good value for eircom PLCs small shareholders after the initial IPO and what was good value, in a macro-economic sense, for the state as a whole.

Telecom was absolutely typical of any of the European state-owned telcos. It was no more of a disaster than France Telecom, Deutsche Telekom or any of the others in Northern Europe. However, I think the Government went head first into selling it off without thinking it through, just like Thatcher did with various UK state assets. They got burned badly, both by the shareholder backlash, the fact that the company went completely private and now the broadband / infrastructure fiasco. So, I think in this case, lessons really have been learned. That's why you're seeing such a well managed, sensible and moderated approach to the opening up of the electricity and gas markets. Aspects of what was ESB will be privatised, but they arn't so keen to throw the baby out with the bathwater this time.

I do think that the Government continues to treat eircom plc as if it were a public corporation like ESB or Bord Gais. This has been a huge mistake as it's meant that we're being left at the mercy of its shareholders interests. I would reckon that if eircom's value increases you'll see it change hands yet again. It could yet end up part of a large European or US telco a few years down the line. It's an absolute mino in the world market place.

What it comes down to is that competition and open free markets are a good thing. Privatisation however DOES NOT EQUAL competition. That's what went wrong in the UK and it's what went wrong with the Telecom Eireann sale. It was basically FF and the PDs on a bit of a "lads we better sell something! everyone else is doing it!!" type escapade.

There's one other aspect of how things were done that I do not like at all.

ComReg seems to have taken on roles that would normally be part of the Competition Authority's remit. I think it's a huge mistake. ComReg should stick to creating structures, systems etc to open up the market. Meanwhile, the Competition Authority should be there to ensure that everyone plays fair! Given their track record so far, I'm not entirely convinced that ComReg has the competence necessary to do the job of stamping out anti-compeditive practices. The CA, however, does!

Blaster99

TE had the most employees per line in western Europe with the exception of Greece if I recall. And took the longest to install a line. So the most employees and the worst service. If you think state investment in TE was wasted, I would agree. It was clearly mainly spent on hiring staff to make unemployment figures look good, presumably the main political purpose of the semi-state companies in the 70's and 80's.

Privitisation of telecoms works very well practically everywhere except in Ireland, and in Ireland Eircom works a lot better than TE ever did, so even in Ireland it has done some good. With proper regulation it would work even better, but proper regulation or opening of markets isn't something this country seems to be able to master in any walk of life. It's pretty irrelevant to use railways in Britain as an example of why privitisation doesn't work. There are incidently examples of where rail privitisation has worked too if we were to look beyond Britain every once in a while.

jwt

I lived in Manchester during the privatisation of electricity in the UK.

The message being shouted from rooftops was that privatisation would increase competition and drive down prices.

Norweb was the result in the north west of England and immediately prices went up.

Sure, if I wanted to run an extension lead across the Pennines into Yorkshire I could get a competing supplier but otherwise I was stuck.

Where competition did work was British Gas got in on the act and offered electricity as part of their services. Once they were able to supply using Norwebs lines and up to the meter lines(very similar to comms last mile) prices dropped.

Getting British Gas and others to a point where they could "unbundle" electricity supplied took some hard negotiating by the power regulator, but very like Ofcom, there was no messing, "do as your told because you are a monopoly abusing your position or face the consequences."

In every example of state and former state monopolies there have been abuses of market position and monopoly until such time as they are stiffly warned and sometimes sued.

But in other countries, regulators, competition authorities and legislation against anti competitive monopolies appear to work together in harmony. That is something you don't see here. Joined up thinking seems to be a pipe dream.



John

SkepticOne

jwt wrote:

If eircom was split into say eircom retail and eircom networks for example.

eircom networks would still be a monopoly, albeit a monopoly that that couldn't favour a retail customer in theory.

eircom networks would be massively debt ridden, with crumbling assets and limited income streams.

Yes / No ?

I agree that splitting Eircom separately owned wholesale/retail would be a waste of time from the consumer point of view.

The idea originates with OAOs and resellers who believe (correctly) that the incumbent favours their own retail arm. Things like pre-announcing retail product that have not yet had regulatory improvement would be eliminated. OAOs would have a fairer chance of getting these customers.

From the consumer point of view it would probably make things worse though. Despite this people will continue to call for it here so long as it is repeated elsewhere by vested interests. I think it is a case of "something must be done, this is something, so lets do this".

Moriarty

SkepticOne wrote:

From the consumer point of view it would probably make things worse though.

Why?

SkepticOne

Moriarty wrote:

Why?

Because investment decisions will then be made purely on the basis of wholesale returns, not wholesale+retail returns. All the problems of monopoly infrastructure remains.

Solair

I've said it before, and I'll say it again : just look at how the ESB is being split up into units if you want to see how eircom SHOULD be structured

Its now made up of the following businesses:

ESB Power Generation operates 19 major power stations covering hydro-electric generation, and stations powered by coal, oil, gas and peat
(In eircom's case.. this would be perhaps eircom's carrier services business)

ESB Customer Supply is a major supplier of power to final domestic and business customers. The Commission for Energy Regulation (CER) oversees charges published by the Public Electricity Supplier for final customers.
(eircom retail which directly sells communications products to end users (residential or business)

ESB Networks is the owner of the high voltage transmission system and is the owner and operator of the medium and lower voltage distribution system. It provides services to all 1.7 million electricity customers and all generators and suppliers of electricity in the Republic of Ireland.

(This is the equivilant of eircom's local exchanges and the copper cables that make up the local loop!)

(there are a few other units too but, those are the parts that are directly comparable to eircom and the telecommunications sector)

They way the Irish power market's being opened is the perfect model for eircom. I can't understand why something like this wasn't done when Telecom Eireann was sold off.

Mr_Man

Anecdotal evidence suggests that the split in the ESB has caused some serious turf wars within the ESB and as a result the consumers are suffering. One contractor I know who does a lot of installations which require power told me recently that it is getting back to the old days where consumers were waiting months to get connected.

And the reason, one part of the ESB is blaming the other for the delay and the poor customer gets moved from pillar to post.

This would point up the need for effective regulation to go in a slap some heads to-gether to ensure that the consumer does not suffer, but do we have one example of decent regulation in Ireland?

M.

SkepticOne

Although you have the problems Mr Man mentions with the ESB, I think it makes slightly more sense for the a split of some kind in electricity generation and distribution.

I would go for state owned electricity distribution network with competing generating companies. The regulator would buy up electricity starting with the cheapest and taking into account regional demand. Any company capable of generating competitively priced electricity would get a fair chance. Keep the distribution network in public ownership to avoid cost-cutting and network failure.

With telecoms the situation is different. Innovation in telecoms involves innovation in infrastructure. There is no one network that provides for all future developments. The infrastructure is tied to the technology in many cases. It is not a simple commodity like electricity.

Possibly the nearest thing to the electricity model would be a future-proof state owned fibre backbone that providers could plug into.

viking

Solair wrote:

I can't understand why something like this wasn't done when Telecom Eireann was sold off.

According to Dermot Ahern on the "Last Word" radio programme last year, eircom was sold with the network in order to maximise revenue for the state so pension fund payments could be made. The network was also sold with the company as it would have been far less attractive for potential buyers if the network was not included.

I'm paraphrasing but that was the gist of it.

leoc

SkepticOne wrote:

Because investment decisions will then be made purely on the basis of wholesale returns, not wholesale+retail returns.

But that's a Good Thing, at least in some regards. After all, the main reason that BT (in the UK) and latterly Eircom here were so slow to bring in unmetered calls and ADSL was that it threatened their nice little earner from call charges. In a split market, none of the telephone service companies would be able to hinder a competitor from offering an unmetered service, and the line operator would have no incentive to do so, precisely because it's just collecting the same flat line rental charge in any case.

SkepticOne

leoc wrote:

But that's a Good Thing, at least in some regards. After all, the main reason that BT (in the UK) and latterly Eircom here were so slow to bring in unmetered calls and ADSL was that it threatened their nice little earner from call charges. In a split market, none of the telephone service companies would be able to hinder a competitor from offering an unmetered service, and the line operator would have no incentive to do so, precisely because it's just collecting the same flat line rental charge in any case.

But in the case of dial-up, it was the wholesale arm that was raking in the dosh from metered calls before FRIACO with small margins going to the ISPs. In a split situation, this wholesale arm would still lobby in the same way to retain per-minute wholesale charges.

Moriarty

That's presuming the wholesale division was just spun off to become another publicly owned company. Would there be any reason you couldn't make it a not-for-profit style company with a remit to provide what was wanted by the government?

SkepticOne

Moriarty wrote:

That's presuming the wholesale division was just spun off to become another publicly owned company. Would there be any reason you couldn't make it a not-for-profit style company with a remit to provide what was wanted by the government?

On paper this appears to make sense. The reality is that a public sector body is just as effective in lobbying for its own interests. It was under the state owned Telecom Eireann that metered local calls were brought in the early 90's just when people were starting to use modems. The same problem with waiting times for phones were also there if not worse. Windy-up telephones and manual exchanges still existed into the 80's in Ireland. It was only when the state intervened and pumped a load of cash that these were got rid of. Telecom Eireann themselves had no interest. Even after the upgrades, the state owned company had little interest in making full use of the digital technology and ISDN lines were prohibitively expensive.

I think the problem is that the body itself has little interest in innovation. What is in it for them? This leaves the politicians to intervene. But these politicians are not experts on technology and rely on the state telco to inform them.

SkepticOne

We can explore various types of ownership and ways of running the legacy telephone infrastructure but none of these really solve the problem. Each of them create as many problems as they solve.

jwt

SkepticOne wrote:

We can explore various types of ownership and ways of running the legacy telephone infrastructure but none of these really solve the problem. Each of them create as many problems as they solve.

Every solution will have its problems; I suppose I am more interested in exploring the scenarios and their associated problems to get a good handle on it now rather than after some pie in the sky political announcement.

John

SkepticOne

That is a fair point. We should generate the various scenarios and see what the merit in them is.

shoegirl

Solair wrote:

Blaster:
What it comes down to is that competition and open free markets are a good thing. Privatisation however DOES NOT EQUAL competition. That's what went wrong in the UK and it's what went wrong with the Telecom Eireann sale.

Hit the nail on the head there.

Same went for the water privatisation in the UK, not to mention public transport. Both have left consumers with soaring prices and almost no state control - not to mention safety issues. Telecoms usually do better in most countries because they are cheaper to run and more of a commodity. Also there are less barriers to entry.

However most of the problem in Ireland is that mentality that Ireland is "big enough" to attract competition. Its is not. Since January the electricity market is "deregulated" and so far not a single company is truly competing with ESB. Its slightly better in the health insurance market - but this may end if risk equalisation goes ahead. (Also the Irish health insurance market is very different to most in Europe as there is no compulsory health insurance and there is a large gap in the market since most people don't qualify for free healthcare). At the same time effectively Irish consumers are paying over the cost for health as they are paying twice - through taxes to (mostly) subsidise services they are not eligible for and again to cover private insurance.

I don't think Ireland has the kind of market required to be truly competitive. Perhaps in Leinsteir but only just. The population of Ireland is tiny in comparison to most European countries. As a result there is a need to protect consumers who are more vulnerable to predatory pricing in less competitive markets.

jack_christie

SparkyLarks wrote:

Which the country then sold, for a lot of money. so the public money that was invested no longer gives us any right to demand anything from a private company really

If I remember correctly, orginally all the telco's got millions on €'s in subsidies for adsl rollout, eircom getting most. Value for money? I think not.

Wonder are they still getting any subsidies, there always whining about getting more money from the gov in interviews.

JC

juliuspret

I dont know how much the telcos are getting in subsidies now...but everytime McRedmond is quizzed on eircoms BB rollout I hear him DEMANDING government sudsidies in the same BT got subsidies for getting 100% coverage in N.Ireland.

Wasnt the government hinting that they would take actions against eircom if they didnt stop acting the maggot???

What were those hinted at actions going to be anyway???

bealtine

juliuspret wrote:

What were those hinted at actions going to be anyway???

Hit them with Mary Harney's handbag?

SkepticOne

shoegirl wrote:

However most of the problem in Ireland is that mentality that Ireland is "big enough" to attract competition.

The small size doesn't help, but there are other, imo, far more important factors. A load of bad decisions were made prior to privatisation of Eircom (and some after) that left Eircom with total monopoly. This need not have been the case. Small operators do seem to provide genuine competing services in Ireland (e.g. cable companies in Waterford and Longford). Their markets are absolutely tiny.

juliuspret

SkepticOne wrote:

The small size doesn't help, but there are other, imo, far more important factors. A load of bad decisions were made prior to privatisation of Eircom (and some after) that left Eircom with total monopoly. This need not have been the case. Small operators do seem to provide genuine competing services in Ireland (e.g. cable companies in Waterford and Longford). Their markets are absolutely tiny.

What cable company operates in Longford and what type of connection is offered??
Yeah Cablesurfs 10Mbit connection is incredible!!!