IRELAND'S BROADBAND PARADOX

UNCLAS SECTION 01 OF 03 DUBLIN 001030

SIPDIS

SENSITIVE

USDOC FO 6430/ITA/TD/OTEC
USDOC FOR 4212/ITA/MAC/OEURA/CDD/IRELAND DESK

E.O. 12958: N/A
TAGS: ECON EINV TINT BTIO
SUBJECT: IRELAND'S BROADBAND PARADOX


1. (SBU) Summary: Although Ireland boasts a world-class
information technology (IT) sector and markets itself as an
e-commerce hub, the country has one of the lowest broadband
penetration rates in the EU, notwithstanding recent rapid
increases in broadband use. Eircom, the national phone
company and dominant Internet Service Provider (ISP),blames
this phenomenon on low ownership rates for personal
computers. Industry players, however, fault Eircom for
resisting measures to expand the broadband market, such as
unbundling local phone loops for competitors. The Government
recognizes the consequences of weak broadband performance for
national competitiveness and is adopting corrective measures,
including funding the extension of broadband networks to
smaller urban areas. Success in these efforts will depend on
the extent to which the Government can work with (or on)
Eircom to create a more competitive broadband market, giving
consumers more choices and suppliers, including U.S. firms,
more opportunities for entry. End summary.

Market Background
--------------


2. (U) Internet use in Ireland is rising steadily; the
number of users has increased 163 percent since 2000 to 2.06
million currently, roughly half the population. The main
Internet Service Providers (ISPs) are Eircom, the private
nationwide phone company, and BT Ireland, the Irish
subsidiary of British Telecom, which account for 75 and 17
percent of the market, respectively. Internet access is
predominantly by dial-up modem, but broadband connection is
increasingly popular, in particular via Digital Subscriber
Line (DSL). DSL, however, is not universally available in
the home. Falling monthly subscription fees helped to fuel a
30 percent increase in broadband use in 2004, but Ireland
remains one of the most expensive countries in the OECD for
entry-level broadband services. Basic flat-rate monthly
broadband fees stand at euro 45 for Eircom and euro 47 for BT
Ireland, compared with an average price in Ireland of euro 55
in 2003 and a current average price of euro 35 in Germany.

Penetration Increasing, but Still Bottom of the League
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3. (U) Although take-up of broadband services is increasing
faster in Ireland than anywhere in Europe, Ireland remains
close to the bottom of the original EU-15 Member States
broadband league, with only Greece performing worse,
according to statistics compiled by the European Competitive
Telecommunications Association (ECTA). The statistics show
that 7 percent of lines in Ireland have been upgraded for DSL
services, compared to 31 percent in Denmark and 25 percent in
the Netherlands, the EU Member States with the highest
penetration of DSL broadband in 2004. The ECTA survey
highlights Ireland's continued weakness in terms of
"unbundling the local loop," the process of opening an
incumbent's local access telephone network to competition as
a precursor to expanded broadband service. A mere 2,500
phone lines have been unbundled from the local loop in
Ireland, and firms that have unbundled the local loop provide
less than 1 percent of Irish DSL lines, compared with 24
percent in Sweden and 25 percent in the Netherlands and
France.

Eircom's Ambiguous Role
--------------


4. (SBU) Eircom (a virtual monopoly) has played an
ambiguous, if not unhelpful, role in the expansion of
broadband. On one hand, the company has broadband-enabled
more than 1.5 million customer lines and claims 118,000
broadband connections (of a national total of 130,000).
Eircom has also pledged to roll out broadband to every town
with a population greater than 1,500. On the other hand,
Eircom initially obstructed the development of broadband
because of large profits from per-minute billing on 56k
dial-up. The company introduced flat-rate monthly billing in
2004 mainly as a result of consumer complaints and rival
offerings from BT Ireland. Moreover, in January 2005, when
Ireland's Commission for Communication Regulation (ComReg)
issued Eircom a directive notice to step up local-loop
unbundling, Eircom appealed, saying that implementation would
cost millions and that the primary obstacle to broadband
take-up was low personal computer penetration (only 42
percent of households have a computer). The case went to the
Irish High Court, which ruled in recent weeks that ComReg
could not issue enforcement decisions to Eircom until the
appeals process had concluded, which may take a year.


5. (SBU) Industry players uniformly blame Eircom for the
slow pace of broadband take-up. While they agree that low
personal computer penetration is a problem, they believe that
Eircom,s unwillingness to unbundle the local loop is the
principle obstacle to broadband expansion. They therefore
support ComReg,s regulatory/court actions against the
company to compel unbundling. A source at BT Ireland told
Emboffs that full unbundling would bring new broadband
products, more competition, and lower prices, creating a mass
market for broadband. The Alternative Operators in the
Communications Market (ALTO),an industry lobby, also
conveyed to Emboffs the organization's frustration with
Eircom, saying that the company had "retained its dominance
and has been able to frustrate the efforts of competitors."
According to ALTO, this level of market dominance is bad not
just for the telecommunications market, but also for the
economy, since competitive modern telecoms is a key factor
for inward investors.

Government support
--------------


6. (U) The Irish Government is promoting broadband as part
of a strategy to boost national economic competitiveness.
The Government's goal is widespread availability of
affordable, "always-on" broadband by 2006 ) or, in practical
terms, 500,000 connections by next year (a goal that many
industry watchers believe is unrealistic). The comprehensive
National Development Plan (NDP) for 2000-2006 set aside euro
80 million for Metropolitan Area (broadband) Networks (MANs)
in 26 towns covering roughly 12 percent of the population and
euro 18 million to broadband-enable all of Ireland's 4,200
primary and post-primary schools. The Department of
Communications, Marine and Natural Resources has set up
"Broadband Ireland" as a service to inform the public about
broadband and to channel demand towards service providers.
There is also the Group Broadband Scheme, in which the
government will provide 55 percent of capital funding needed
to deliver high-speed broadband to communities of less than
1,500. Under the first phase of the Group Broadband Scheme,
euro 800,000 has been invested in 23 broadband projects,
reaching roughly 20,000 people.


7. (SBU) Eamonn Confrey, Communications and Electric
Commerce Division Chief, Department of Communications, Marine
and Natural Resources, told Emboffs that the targets set by
the Department were "ambitious, but achievable." He sees
tables placing Ireland at the bottom of EU and OECD countries
for broadband access as "blunt instruments" that do not take
into account different measures for different countries. He
also noted that programs put in place by the Department
(MANs, the Group Broadband Scheme, and broadband for schools)
were long-term projects to "facilitate regional investment
and a balanced regional development." (Ireland has
significant regional variances in broadband take-up; over 50
percent of small and medium-sized enterprises (SMEs) in
Dublin have broadband, compared with less than 30 percent in
the rest of the country.) Confrey also stated that Ireland
was the lowest-cost country in the OECD for international
connectivity and that broadband pricing was fast approaching
the EU average.

Business Opportunities
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8. (SBU) ComReg sources view Ireland as an ideal location to
test-market new technologies and told Emboffs that there were
opportunities for innovative companies to supply equipment
and network solutions to existing broadband providers. A
number of U.S. firms have developed strategic relationships
with Irish companies in the broadband market. For example,
Netopia supplies modems to Eircom, and Navini Networks
provides networking services to Irish Broadband, an Irish
ISP. Clearwire, a U.S. ISP, will provide broadband in
Ireland starting in September. Earlier in August, GigaBeam,
another U.S. firm, finalized an agreement with WiFi Projects,
an Irish company, to make available wireless fidelity (wifi)
products. (Currently, access to the internet via wifi in
Ireland is virtually non-existent, compared to dial-up modem
and DSL.) This agreement follows ComReg's recent issuance of
a trial license for GigaBeam's WiFiber technology, the
company's first such authorization in Europe.

Comment: A Paradox
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9. (SBU) The broadband situation in Ireland is paradoxical.
Ireland boasts a high-tech economy and world-class IT sector
and markets itself as a European e-commerce hub. A steady
stream of Government reports and speeches also stress the
importance of innovation and technology in maintaining
economic growth and national competitiveness. Yet, Ireland
has performed poorly in the broadband sector, with the blame
mostly borne by Eircom. The Government, albeit belatedly,
has recognized this contradiction and has set in train a
number of initiatives with a view to putting Ireland in the
top ten percent of OECD countries for broadband connectivity
by 2007. The positive results of this effort are reflected
in the growing number of broadband users. Further progress,
however, will depend on the extent to which the Government
can work with (or on) Eircom to create a more competitive
market, giving consumers more choices and suppliers,
including U.S. firms, more opportunities for entry.
KENNY