Sunday Business Post: Getting our wires crossed

Snowbat

From the May Computers in Business suppliment...

Getting our wires crossed

So long as Eircom has a grip on the market, we may never have a healthy DSL market, writes Adrian Weckler

Last week, Esat launched a high-speed internet digital subscriber line (DSL) service in Limerick. The service will cost €270 (excluding Vat) per quarter.
The company said it would continue its programme of unbundling the local loop and hoped to have 40 unbundled nationwide by December. Eircom launched its own DSL product, iStream, in Dublin two weeks ago. Its prices start at €89 (excluding Vat) per month.
Meanwhile, Chorus has said it will launch a high-speed internet service for home internet users in June for under €50 per month. However, it said that it would only be available in Clonmel, Kilkenny, Thurles and some parts of Cork.
Currently, NTL is rolling out a similar broadband service targeted at home users for €35 per month.
Some people feel that over €100 per month for a basic DSL product is too much.
"That is likely to be too expensive for home internet users," said Colm Reilly, chief executive of the Irish Internet Association.
Ireland is one of the most expensive countries in the world for DSL high-speed internet. A DSL line is about ten times as fast as a normal phone line. It's good for people who need to send, receive, or download big files.
While Eircom and Esat charge over €100 per month, the equivalent entry-level product in Britain costs £30 (€48.75) per month. The European average, according to DSL analysts PointTopic, is €50 to €74, while in America it generally costs less than €50.
Because Eircom still has a monopoly on local telephone exchanges, which are necessary for DSL lines, its rivals have to rent lines from it and then try to resell them to customers.
Because interest in providing DSL is so limited - only Esat and Nevadatele.com have expressed any interest - it is not surprising that they have followed Eircom's prices closely. Eircom's wholesale price - the rental fee it charges its rivals - has been cut from €85 per line per month plus a €700 connection charge to €49 per line per month and a €350 connection charge.
Eircom had to do all this because the telecoms regulator said that if it didn't, it wouldn't be allowed to launch the service it said it had invested €70 million in.
In the western world about 19 million people or companies use DSL, according to PointTopic. In Europe, only Ireland and Luxembourg do not have it, although there are alternatives. One is satellite broadband. It costs about €150 per month. Then there's wireless broadband DSL.
One company, Leap, has started a service in Dublin and says it will be cheaper than whatever Eircom's i-Stream DSL price is.
The only alternatives for small companies and ordinary consumers are ISDN lines and ordinary telephone lines. But anyone who has tried to explore fancy websites or download large documents or applications knows that these lines are slow and waste a lot of time.
Still, why are DSL lines so dear? Eircom says that Ireland is too small to be directly comparable to other countries and that it has had to proceed with caution with regard to DSL as its business case has not been proven.
However, the company may have been encouraged to think again following British Telecom's recent decision to slash the cost of its DSL wholesale prices in Britain. In that instance, the gamble seems to have paid off. DSL take-up has been given a huge injection among British consumers.
Cynics may well ask how Eircom can now face critics who argued months ago that it was looking for super-profits in its wholesale price, given that it has reduced it by over 40 per cent and still seems positive about the product's money-making potential.
Whatever happens, though, a new threat has appeared: the possibility that there might be only one DSL provider per region in Ireland.
This neo-monopoly scenario may occur because Eircom's rivals still doubt whether they can make any money out of a DSL.
It is important to distinguish between the DSL packages on offer.
Eircom's package is based on its own telephone lines. Esat's is based on unbundling the loop, a different scenario. It effectively means that it may not buy Eircom's bitstream service, which it would need to do if it were to offer DSL in Dublin now.
To offer an ADSL line based on bitstream - which is about ten times faster than a normal internet connection - companies such as Esat and Nevadatele.com have first to rent the line off Eircom.
This costs them €49 (agreed recently with the telecoms regulator) per line plus connection charges and minimum capacity undertakings. But even though Eircom's basic retail price costs €89 plus Vat (€108), leaving an apparent margin of €40 per line in which to compete, its competitors say they don't see how they'll make money. Privately, some of these think Eircom's market position is still too strong to take a punt.
Eircom, on the other hand, has long alleged that its rivals have had a questionable commitment to ADSL, and don't have the kind of money it takes to invest. (It says it has invested €70 million to date in the technology with another €55 million to go.)
"There's no doubt that ADSL is a viable proposition, but you cannot enter a market where you'd face a negative margin. It doesn't make economic sense," said David Taylor, director of regulatory affairs at Esat. Taylor was speaking prior to Esat's DSL launch last week. He said, however, that Esat had still to take a final decision.
"Our initial response is not positive," said Stephen Forsyth of Nevadatele.com, another Eircom rival. "Eircom and the regulator are presenting this as a fait accompli , but we don't necessarily believe it is."
All of this will bring on a headache for telecoms regulator Etain Doyle, who thought she had sorted out a viable DSL market two weeks ago, when her office agreed the €49 wholesale price with Eircom. Now there may be no competition.
However, a spokesman for Eircom, Gerry O'Sullivan, rejected the notion that the market is uncompetitive. "Eircom wants to get a return on investment," he said. "The question is how many other operators are going to put money behind this in the way that we have."

Adrian Weckler is the editor of Computers In Business. (email address snipped)

sceptre

Informative, relevant, truthful.

Best article I've seen from an irish journalist yet on the subject. Plus it puts things simply enough that people new to the issue can understand it.

Pity he didn't finish the article with the first line again though.

carbsy

Superb article, and yes its also the best I've seen to date.

BoneCollector

Our thorn in our Bl**dy side is Eircom..
As long as any competitor has to buy from eircom they are ruled by wholesale prices and other incurred costs that eircom place on them. We do not have a competative market because the company your competing against is the same company that is selling you the product your competing with??
(Whats Wrong with this picture!?)


the only other alternative is for all foriegn investors to get together and set up there own seperate network and then collectively compete on this shared network cuting off eircom interventian and dictatorship (not unlike Micro$oft policies)

Lemming

Originally posted by BoneCollector
the only other alternative is for all foriegn investors to get together and set up there own seperate network and then collectively compete on this shared network cuting off eircom interventian and dictatorship (not unlike Micro$oft policies)

Aren't the ESB planning something like this? And Eircom blasted the plan in public saying we didn't need two networks, etc etc?

"children how do you spell competition"
"M.O.N.O.P.O.L.Y."

That gets my vote for quote of the week

But seriously though, I'd LOVE to see one or two of the big US telecomms companies move in here. Watch Eircom p*ss themsevles as they realise they can't play "My conker is bigger than yours" anymore and have to face rivals who have the financial muscle to square up to them and beyond

dahamsta

But seriously though, I'd LOVE to see one or two of the big US telecomms companies move in here. Watch Eircom p*ss themsevles as they realise they can't play "My conker is bigger than yours" anymore and have to face rivals who have the financial muscle to square up to them and beyond

Uh, BT is one of the biggests comms companies in the world...

adam

Lemming

WAYYYYY!!!! I'm awake this morning aren't I??

Sorry dahamsta, I meant that these companies would agressively compete (in much the way they do state-side), offering better deals, etc, etc.

El_MUERkO

Well BT are feeling the pinch in the European telecoms market and they lost a pactet when they tryed to move into japan. What we'd really want is a telecoms company with nice big profits to move in and undercut eircon so much it shows them up for the greedy buggers they are.

Jambo

I was in malta last year and by the look of things dial up is something of the 1st millenia - they a dsl and t1 as general standard - and the island
is not evan as big as louth - where are we going wrong ??