Oireachtas Joint and Select Committees
Thursday, 11 October 2018
Joint Oireachtas Committee on Communications, Climate Action and Environment
Broadband Service Provision: Discussion (Resumed)
I wish to draw witnesses' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.
The opening statements submitted to the committee will be published on the committee's website after the meeting.
Members are reminded of the long-standing practice that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I also ask members to turn off their mobile phones.
I welcome from the Commission for Communications Regulation, ComReg, Mr. Jeremy Godfrey, commissioner, Mr. Donal Leavy, director of wholesale and Ms Barbara Delaney, director of retail and consumer services. I ask Mr. Godfrey to make his opening statement, which the committee has already received.
Mr. Jeremy Godfrey:
I thank the committee. I appreciate it is under time pressure and, therefore, I will be as brief as possible and skip over some of the slides.
I will focus on the wholesale broadband markets, which, unlike retail markets, we regulate. ComReg's objectives in regulating them are to ensure end users get the benefit of choice and competition, as well as the benefit of efficient investment in new networks and services, as my slides will illustrate.
ComReg made a major decision in 2013 about what the rules should be for the wholesale access to Eir's high-speed network, which we are now rolling out. We had the objective of promoting competition and so on. Since then, one can see that the speeds available and taken up by consumers in Ireland have increased. The red line on the slide shows the speeds greater than 30 Mbps. When we made that decision in 2013, it was a little under 30%, whereas now almost three quarters of all users have speeds above 30 Mbps, according to our latest figures. One should acknowledge that while the commercial roll-out that has enabled that increase to happen has been in an area of the country where it is commercially viable, there is another area where it has not been commercially viable for Eir or its competitors to roll out high-speed broadband, which is the subject of the Government's intervention programme and which is a matter for it rather than us.
I mentioned that the provision of competition and choice was one of our objectives. As one can see on the slides, competition has also developed over the same period since 2013. There has been a growth in the market share taken by Sky, which is the dark blue line second from the top, and growth in the share taken by Vodafone, largely at the expense of the two largest players in 2013. Vodafone's and Sky's ability to compete in the market depends greatly on their use of Eir's network. If not for the rules that ComReg had put in place to ensure access to those networks, we would just have the two big players, Virgin Media and Eir.
In terms of the platforms, one can see the roll-out of the investment by Eir. Virgin has also slightly extended its network. It has also increased the speeds over that time. One can see from the chart on slide 5 that the number of customers using the higher-speed service platforms, represented by the light blue section of the chart upwards, has grown while the number of customers using the lower-speed platforms has fallen. Again, it is interesting to note that the two blue sections of the chart both represent Eir platforms. That shows how there has been a shift from Eir's lower-speed services to its higher-speed services in both its retail business and the services used by wholesale customers using Eir's network. The last thing to talk about, which I know was discussed at the previous sessions the committee has had on this topic, is the fibre to the home service, which is represented by the red bar at the very top of the chart. That has really only just gotten going. Some of that is Eir's fibre to the home service in rural areas and some of it is provided by SIRO in some of the second-tier towns.
There was a comment made in a previous session of the committee about whether ComReg might be too pro-competition and not pro-investment enough. We do not think there is a tension between the two. One of the biggest incentives to invest is the need to meet competitive threats. I am sure that Deputies get complaints from constituents about unavailability more often in areas in which there is less competition rather than areas in which there is more. That has certainly been our experience. One can see that the investment figures have held up very well over that time. Investment can be a bit cyclical depending on what is going on in the marketplace, but there is no evidence at all of investment being deterred by regulation. Of course, in the last few months, we have seen an announcement by Eir of a further big investment programme in fibre to the home services in urban areas.
I want to give a little bit of context about how we regulate. The way we regulate the wholesale markets is set by the European framework. There are really three questions we have to answer. We have to look at the wholesale markets and see whether there is any operator in those markets which has significant market power. That means ascertaining whether there is an operator that could do what it likes without having to worry too much about the impact of competition on it. If we find an operator that has such significant market power, we must think about the problems that could cause and how we can remedy them. The way we remedy the problems is by requiring such operators to allow competitors access to their network. We set a number of conditions about how that access is to be granted. One of these, which is very important is a condition on how prices should be set. I will not go through all the steps on slide 7 but I will observe that there are many steps to be gone through. There are a lot of data, it is a very painstaking process, and there are a number of consultations and other people involved. It can take a bit of time to do but once we have made our decisions we move to the box on the right of the slide, which refers to monitoring what is going on, checking that Eir is complying and enforcing when it does not. Those are extremely important tasks for us. We also update the remedies, particularly the pricing remedies, as the data change.
We got to the next-to-last stage, which involves notifying our decisions to the European Commission. Those notified decisions are public. I can tell the committee that just a few hours ago we got comments back from the European Commission. As it has no serious doubts and very few comments, there will be no delay as a result of that process. We expect to make those decisions final within the next week or two. As for what we are proposing, it includes the usual remedy of Eir having to provide access to third parties that want to use its fibre, its copper networks and its ducts and poles. The second proposal, that Eir must act in a way that does not discriminate and must treat its own retail business in the same way as that of third parties, is very important. That was also a big issue in some of the committee's previous hearings on this matter. The other thing I will comment on in respect of slide 8 is that we are planning to remove regulation from some parts of the market. While we will continue to regulate the last mile, the connection from the telephone exchange or from the exchange to the customers' premises, previously we had also regulated the backhaul from the exchanges to the central part of the network. We are reducing the area in which we are imposing that regulation.
I wanted to talk specifically about prices because that was also something that had come up. We are proposing to reduce the prices charged by Eir for the use of the last mile of its network. We are moving the basis of regulation. Previously Eir had a lot of flexibility on the price it charged as long as it left enough room between its retail prices and its wholesale prices for competitors to make a margin. For the fibre to the cabinet service, we are now changing that and setting the precise price Eir is allowed to charge. Those prices will come down in comparison with what Eir is currently charging.
I will talk a little bit about the fibre to the home connection charge, which was raised in the two most recent sessions. At the moment, Eir is free to set that charge as it wishes, again subject only to the rules on there being a sufficient margin between wholesale prices and retail prices. We have been concerned about that charge however. At the last hearing, Eir informed the committee that its cost of connecting a premises was €450 on average. ComReg has not verified that number but we will take it as correct for now. The committee asked a very good question of Eir, which was how long does the asset last. The answer given was that it lasted for 20 years. The problem was that connection charge is the best part of two thirds of the cost of the asset, which will last 20 years, but a competitor might retain the customer and the use of that asset for only 42 months on average. Therefore, there is a real mismatch between the real risk the competitor has to take in paying that proportion of the costs with no guarantee that it would retain the customer for that long. We thought that had a significant potential to inhibit the development of competition. In fact, so far we have not seen any competitors use that fibre to the home network. We think that may be one of the reasons. We are therefore changing the regulation. We are still giving Eir some flexibility about the charge, but we have changed the rules. We think that the amount it will charge might be in the range of €80 to €150. It will still have some flexibility.
The last thing about which I will talk, which again came up in previous sessions the committee has had, was about ComReg's staff and powers. It is quite unusual for regulated entities, that is, organisations being regulated, to ask for the regulator to have more staff and more powers. I have to say that we agree with them. We think that if we had more staff we would be able to move more quickly, do more things and fulfil our remit, which is very broad, a little better. Equally, we think that having adequate deterrent powers is very important. In other sectors and in other member states it is common for regulators to have the ability to directly impose financial penalties. We have been discussing both these issues with the Government. They are both regarded as high priority issues. Of course we recognise that, particularly on the issue of staff, there are wider public policy issues at play in terms of the overall size of the public sector. Therefore, just because we think we need something, it does not mean that it is the right thing for the Government to do. The ultimate decisions on these issues will, of course, be a matter for the Government. The question of powers will ultimately be a matter for the Oireachtas. That was a gallop through the slides.
That is much appreciated. I have one or two questions before I bring in the members. Would Mr. Godfrey consider carrying out an external independent analysis of the regulatory environment, similar to that undertaken by Commission for Regulation of Utilities in Ireland, CRU? It undertook a peer review. That is one question.
On the Stiles report, Eir was found to be in breach of a regulation and subsequently there were investigations by Cartesian and KPMG. I know that Eir expressed surprise that other members of the industry were upset by the breaches found.
I know there are High Court proceedings and I am not asking Mr. Godfrey to get into any detail, but in general would ComReg take these breaches seriously?
Mr. Jeremy Godfrey:
I will talk first about the Stiles report about Eir's regulatory governance model. Regulatory governance is important because if Eir does not have a good way of managing its compliance it will not know whether it is complying, and neither will ComReg or the industry. If the industry does not know, its confidence to invest can be affected. There has been ongoing discussion between ComReg and Eir for many years. In 2013, Eir started a wholesale compliance programme intended to address some of those issues. ComReg stated it would review the programme after it had been running for a while and, based on ComReg's evaluation of how well it was doing, it would decide whether more needed to be done.
The Stiles report was one of the reports produced as a result of that programme and Eircom was encouraged to publish it in the interests of transparency. That report disclosed a number of failings, as well as some good things. Eir had made progress on operational issues like order processing, particularly in respect of its mature products. The report disclosed some breaches, some of which ComReg had already identified and about which we were taking compliance action. It probably speaks for itself that ComReg has taken five compliance cases and has sought penalties from the courts amounting to €10 million.
There is a sixth case where ComReg has formed an opinion of non-compliance but has not yet taken it to court. That speaks to the seriousness with which ComReg sees the breaches.
ComReg commissioned Cartesian and KPMG to review how well the governance model was working following the Stiles report. Those reviews found good things and serious flaws, particularly around strategic decision making and incentives and some information technology issues. ComReg consulted the industry on its views and there have been discussions with Eir about how those things could be remedied. Regulatory action may be taken, but there were also discussions about Eir taking action on a non-regulatory basis. Those discussions are part of settlement discussions relating to ongoing legal action. We were in court on Monday this week and informed the court those discussions were going well and that we hoped that, by 12 November, which is the next court date, an agreement would be finalised. As that is part of the ongoing court proceeding, I do not want to say more than that.
Mr. Jeremy Godfrey:
In time, ComReg might do something similar. One thing that is happening at the moment in the telecoms space is that an entirely new European regulatory regime is coming into force, although many of the provisions will be developments of what is in place at the moment. It will be necessary for ComReg to work out what difference that will make and how it might change how the codes are implemented. It would be more timely to consider an external review after those changes have been implemented.
I thank the witnesses for an interesting and useful presentation.
The presentation showed the retail market becoming more competitive with a reasonable split across the five operators. As Mr. Godfrey said, Vodafone and Sky use Eir on the last mile. Do they use Eir for the backhaul as well? Are they using the entire Eir network in terms of getting that service or do they tend to separate out their retail last mile, to the connection to the customer, and then do separate backhaul, or is that typically an integrated package?
I was surprised at that. From casual conversations with different operators, it does not seem there has been a huge development of backhaul alternatives, certainly using State infrastructure. What ducting is used on roads? I understand the rail network is still with BT. ESB has a figure-of-eight backhaul network. Could Mr. Godfrey outline why the backhaul was deregulated? What are the options for operators?
Mr. Donal Leavy:
There has been an extensive roll-out of backhaul, as would be expected in more populated areas, in the past five to ten years. BT is an important player. Sky makes more use of BT than of anybody else. Vodafone has rolled out infrastructure for its own use. There are players in the high-capacity business market like AirSpeed. The State infrastructure is managed by Enet. Quite a lot of backhaul has been rolled out in the past five to ten years.
Mr. Donal Leavy:
Sky is renting from others to a large extent. It does not use its own infrastructure; it uses BT mainly. I do not know how Virgin's network is configured, but to a large extent it uses its own cable infrastructure into local homes. I could not say its is exclusively using its own infrastructure as I do not have visibility of that. To a large extent, Virgin is independent of Eircom.
Fibre to the home is still very small. Does Mr. Leavy see cable to the home as being equivalent? Have there been difficulties with contention or other characteristics of that cable, or would Mr. Leavy see it as technologically compatible with fibre to the home?
Is the small red sliver on the visual mainly part of Eir's access to the 300,000 rural broadband users who are not in the national broadband plan? Are urban figures coming up? Is that what is accounted for by the red slice on the slide?
Mr. Jeremy Godfrey:
Cable and fibre to the home are different technologies with different characteristics. Fibre to the home is capable of speeds up to 1 Gbps. The highest speed with cable offered by retail at the moment is 300 Mbps. The contention issues are different between the two networks so they will undoubtedly compete with each other but they will have a different proposition for customers.
ComReg has not publically broken down how much of that is on the Eir network and how much is on the SIRO network because of commercial sensitivity. Those would be the two main fibre to the home roll-outs.
I forgot about SIRO.
Lastly, while ComReg welcomes the increase in investment in fixed broadband in recent years, it is quite noticeable that the level of investment in mobile broadband has almost halved. I do not know whether the delegates have an indicative figure for what the spend on mobile broadband will be in 2018. While one can understand, as Mr. Godfrey says, fixed broadband increases and the fact that people are increasingly using Wi-Fi hotspots, it is still rather worrying, given that we should be moving towards next generation services, that many parts of the country still do not have access to 4G or the network coverage is really poor. I have had to stop making mobile calls around here because the network cuts out all of the time. My mobile phone has a radio on it and it is no of bloody use because every now and then I lose the signal. Why is the level of investment in mobile broadband falling when the quality, even for voice and mobile Internet services away from a hotspot or Wi-Fi connection, is really poor? Is Mr. Godfrey even slightly concerned about this?
Mr. Jeremy Godfrey:
As I said, the level of investment in mobile broadband is cyclical. There was a large investment when 4G was being rolled out first. There is continuing investment to improve the quality of 4G by operators. We are concerned about the mobile broadband customer experience. I think we have discussed this matter with the committee most times we have been before it recently. We have done a number of things to improve the mobile broadband customer experience. There are some things users could do to help themselves. We have been testing handsets in order that users in marginal coverage areas who experience a poor service can identify whether they might be able to improve their experience with a better handset. We have liberalised the use of mobile phone repeaters in order that people can have better coverage and a better service inside their own homes. Towards the end of the year we will produce a coverage map. It will be the first time there will have been authoritative independent information on how people can expect different networks to perform in different locations. These things can all help the mobile broadband customer experience. In the longer term, towards the beginning of 2020, we will assign further spectrum. I know that coverage obligations will be front and centre of our consideration of how to run the assigning process.
I wish to follow on the theme about which we have been talking, that is, mobile phone coverage and where ComReg sees the level going. There is a proposal that local authorities map black spots. I think it was announced last year that this process would happen and that local engineers were testing main roads to see where the black spots were. How extensive will the map ComReg will produce be? Will it be at the level of minute detail, showing the gaps in coverage along roads? There is talk that local government infrastructure will be used to increase the level of coverage. Has ComReg been involved in that process to any degree?
Mr. Jeremy Godfrey:
ComReg has been a participant in the Government's mobile phone coverage task force. To answer the Senator's question about the level of detail, I will give a little information on how we are producing the map. We have obtained from all of the operators information on where their masts are, the technology and antennas used on the masts and the level of power. We are using this raw information and standard engineering rules to predict signal strength. I think our model is based on a 10 m square which provides a fine level of detail of signal strength. The map will, therefore, be of that resolution to allow people to see what the level of coverage is. These are engineering predictions and the actual experience may differ because of the leaves growing on trees - it can be affected by all sorts of things - but the prediction will be very finely grained. The prediction model is also calibrated by on-the-ground drive tests. I think in putting the model together there have been 96 drives in different circumstances to ensure we finetune the prediction in order that it will match the reality. It will be a very good piece of information for people to have.
I think the Senator talked about local authority infrastructure. One of the things that has certainly proved difficult for mobile broadband operators in improving coverage for various reasons has been finding sites on which to place masts. It has been a very good initiative to have mobile broadband offices in the local authorities to help tjo address that issue.
I understood the commission was taking enforcement proceedings because of the delay in publishing the notification and that there had been delays in a number of similar items or reports coming through. Rather than beating Mr. Godfrey up about this, I will put it the other way and ask if ComReg has sufficient resources to deal with these items, given the delays in publishing the review and others?
Mr. Jeremy Godfrey:
In common with every other public body, when the financial crisis came, we reduced our headcount and had a moratorium on recruitment. It, of course, made a big difference to our ability to deliver the reviews. They are very complicated, but there is no question that if we had more resources, we would have been able to deliver them more quickly. We need more resources in the area of market analysis. We have also taken steps to improve our productivity and redeployed resources within ComReg, but we have also sought more resources from the Government. We are in discussions with the Department, for which I know that it is a high priority, but as I said, there are wider Government policy issues about the overall size of the public sector and so forth, which are not specifically issues for ComReg. However, they need to be taken into account when the Government makes its decision on whether to authorise us to increase our headcount.
I understand from the budget figures that came out this week that ComReg returned €62 million in receipts back to the Exchequer in 2018. Would it have been an option to retain some of this money within the organisation to manage some of these projects?
Mr. Jeremy Godfrey:
The way our headcount is controlled is such that we need the consent of the Government to decide what our numbers should be. We are funded from levies and charges, from which the headcount is almost a separate issue. We do not have the right to spend the money on extra staff without separately obtaining sanction from the Government.
Does the power to expand its activities lie within the organisation? I am just trying to understand what funding is available to it. I know that some semi-State organisations behave in a similar manner, but does ComReg have executive control? Can it make a decision, for example, that some of the €62 million will be spent in fast-tracking the broadband market review instead of returning the surplus to the Government?
I watched some of the initial presentation in my office, but I did not catch all of it. I appreciate that this may be a sensitive or difficult matter, but the national broadband plan has been mired in difficulties on many levels. Does Mr. Godfrey have a view on it that he is in a position to share?
Yes, it is. Is Mr. Godfrey confident that it will deliver? We have seen timelines come and go. We are seven years on and many of my constituents in rural Kildare do not have broadband. The position is the same throughout the country. There was something in the presentation about the last mile, for example. Was Mr. Godfrey expressing an opinion that things could be done in a different way? What was the gist of it?
Mr. Jeremy Godfrey:
When I spoke about the last mile, I was talking about the way we regulated access to last mile infrastructure provided by the operator with significant market power - Eir. As I stated, the national broadband plan mentioned by the Deputy is really a matter for the Government. It is its programme. We are not involved in the procurement process.