We can deliver rural broadband without trapping future generations into excessive costs

23 October 2019

A well-regulated market economy requires a strong regulator and genuine competition among multiple enterprises.

But when it comes to network infrastructure, whether an electricity grid or, as in this case, a network of fibre optic cables, it is often not possible to have multiple competing firms.

It is simply prohibitively expensive and patently inefficient to have two or more overlapping networks.

There is a natural monopoly situation.

 

When network infrastructure is concerned, it makes sense for the state to own and manage any given network.

 

Networks are too strategically important to be under the control of private sector organisations, and they have so much market power that it is difficult to limit their ability to charge high rates for access to the network.

 

The EU has extensive rules to promote competition and to limit state aid. From a Labour Party perspective, we are sometimes at odds with these rules.

But when it comes to rural broadband, there is no European impediment to state ownership.

There are volumes of specific European reports and policies to promote and support the extension of broadband Internet into rural areas.

 

What Fine Gael have done with rural broadband is completely at odds with sensible economic decision making.

 

What was proposed by Labour ministers at the beginning of this project was a competitive process, with five bidders seeking to build a national broadband network to serve nearly a million homes and businesses.

 

Former minister, Denis Naughten then collapsed the competitive aspect of the bidding process by unilaterally taking some 300,000 premises out of the procurement process and giving them to Eir.

 

This led to all the bidders dropping out, except for Enet, which formed and reformed new consortiums that ended up being led by Granahan McCourt, with various other partners entering or exiting the bid.

 

We all know about the fiasco of informal dinners between the former minister, which led to his resignation.

 

Not only did Fine Gael press on with a grievously flawed process that should have been halted.

But Fine Gael also came to the conclusion that it was OK to pay €3 billion for the rural broadband network – far more than the original cost, and delivered to fewer homes – and to give ownership of the network to an entirely private entity.

 

To add insult to injury, the new entity is to be called National Broadband Ireland, even though it is not a publicly-owned national company.

 

Fine Gael has proposed to spend €3 billion of the people’s money to a private monopoly, which will own the network forever. The proposed contract will last 25 years, but at that stage the private monopoly will then be in a strategic position to charge significantly more.

 

This is a major strategic risk for the taxpayer.

If the network becomes very expensive to maintain, the private operator can just cut and run.

If it is profitable, consumers will be paying more than they need to access the Internet, which will hold back job growth in rural Ireland.

 

It is clearly the best proposition to have the rural broadband network in public ownership.

 

The purpose of Labour’s Motion is to very clearly state that we want rural broadband.

We want people and businesses in small towns and rural areas to have access to fast Internet connections, for all the many positive reasons from education to e-commerce, and from health purposes through to the entertainment industry.

 

Rural Ireland deserves to have this infrastructure, and Labour has no issue with the need to make a major investment to deliver broadband.

But let’s not set up something that is going to cost more money in the long-term.

Let’s not just give €3 billion of public money to a private operator.

It is not as if they are going to then provide broadband free of charge.

They will say thanks very much for the €3 billion, as they then charge people for Internet access.

 

The only way to keep control of the cost of Internet access for rural homes and businesses is for it to be a State-run network.

 

Labour’s view is that the State can create a marketplace using the broadband network.

Internet service providers can compete to offer people their connection to the Internet using the network, and they can compete in terms of different television station offerings or different types of pricing.

But the State will keep ownership of the network, which will provide certainty that the market can be kept well-regulated and focused on serving the public good.

 

Fine Gael can argue all they like about the commitment of those who are proposing a private monopoly on rural broadband.

But the current private venture capital company involved in the Government’s plan will be able to sell its shares in nine years’ time, which means that the Government have no idea who will ultimately own this network. 

The proposed contract will only allow the Minister to block the sale of shares in the first nine years. We know the sole bidder in the National Broadband Plan is a venture capital firm, not a telecoms company. It seems obvious that they sought, and were given, the option of selling Ireland’s rural broadband network at some point in the future.

That is why ownership of the network is so important.

 

We saw what happened when Eircom was bought by vulture funds that stripped that assets from the company before selling it on.

There is no doubt that vulture funds could buy up National Broadband Ireland to squeeze more money out of the quarter of our people who will be reliant on it.

It would be an entirely different matter if the public were to own the network rather than some private monopoly.

 

What exactly are these venture capitalists bringing to the project that could not be provided by a publicly-owned broadband company? 

From Labour’s perspective, we have to restore the confidence and the ability that Ireland had in earlier times when the country was only beginning to develop economically.

There is no reason why we can’t set up a national broadband company as a commercial semi-state company.

That is how we delivered water to every home. It is how we delivered electrification and the national gas network. And it is how we first delivered television and telephones.

 

After 2008, we rescued the public finances so that Ireland can borrow once again on the international market, and interest rates are at an all-time low.

National debt is under control, meaning that we can afford to build and own the broadband network.

 

Given that the private investor is paying significantly less than 50% of the cost, as seems to be the case, and the State is paying over 50%, my understanding is that the project will be on the State books, regardless of who owns the network at the end.

So why on Earth will the people not own the network after the 25-year contract?

 

Almost all previous public-private contracts involved the public ownership of the asset at the end of the period. Why is this project different?

 

This was a purely Fine Gael government decision taken in July 2016, two months after Labour left Government.

 

It is an ideological decision that flies in the face of good economics or good management of the public finances.

 

We have seen that Fine Gael has mismanaged the national children’s hospital and metro. They have mismanaged several mid-level capital investments. And they have certainly mishandled the national broadband plan.

 

It is not just Labour saying this represents poor value for money. Senior officials in the Department of Public Expenditure have said so.

The Secretary General of the Department of Public Expenditure has described the level of profit to the investors as “very high” for the level of risk they are taking with this investment.

 

We established that Department to safeguard the public’s money. And we thought that we had moved into an area of greater political responsibility with the public’s money. 

Labour wants to see high-speed rural broadband delivered as soon as possible, and we are committed to covering the necessary cost, as long as the network remains in public ownership.

 

In 25 years’ time, access to broadband will be even more essential than it is now.

 

When we delivered rural electrification, it was through a public enterprise that has served this country well and faithfully for generations, as a quality employer and as a profitable company that paid €1.5 billion in dividends to the State following the 2008 crash.

 

Modelled on rural electrification, we should have an ESB-style National Broadband Company to retain control over prices into perpetuity and to eliminate the possibility of ruthless investors taking over rural broadband.

 

Labour’s motion state’s simply that public moneys should not be expended on any proposed broadband network unless the network is to be owned by a Minister or public body on behalf of the people.

I hope deputies from across the Dáil will support this important motion, so that we can deliver rural broadband without trapping future generations into excessive costs.

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