US embassy cable - 05DUBLIN1030

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 
--------------------------------------------- --------- 
 
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 
---------------------- 
 
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 
------------------ 
 
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