A report published today by the Telecommunications and Internet Federation (TIF), an industry group for Irish telcos, says a next generation network will cost €2.5bn and State cash support will be needed.

Launching its ‘Building a Next Generation Access network for Ireland’ report, TIF, which is a sub-group of IBEC, said that Next Generation Access networks (NGAs) have the potential to drive economic recovery by enhancing the development of Ireland’s smart economy. The report says that Ireland must act quickly to avoid being left behind other countries that are accelerating investment in NGAs. The report also points out that the high cost of deploying the networks in Ireland poses a significant challenge, as a gap exists between the price consumers are prepared to pay for network access and the cost of building the network.

The report says even in a market characterised by collaborative investments by network operators and a supportive pro-competition regulatory regime, it is clear that the scale of investment is such that it is highly unlikely that a ubiquitous NGA will be built offering 50mbs+
broadband to all people in all areas of the State. In order to make progress towards a vision of widespread NGA, Government needs to support industry by taking what steps it can to reduce network build costs and incentivise investment. In addition, the Government can, through its management of ‘public assets’ including spectrum, public ducts, and other infrastructure, take steps to help operators maximise what they can achieve, in terms of depth and breadth and coverage, from the investment funds available to them. For example, the approach taken to the allocation of Digital Dividend spectrum will be critical to determining the level of investment in 4G broadband capability. Finally, the Government must be prepared to support the development of NGA by allowing state funding to support NGA in those areas that industry will not reach.

The report also says that in common with other countries, the market for broadband services in Ireland evolved on the basis of ‘incremental’ value add. In other words broadband capability was added onto an existing service; be it fixed voice, mobile voice, or Cable TV and the prices set for broadband services tended to reflect the incremental nature of the service. The so called ‘legacy’ services, for example telephone line rental and call charges, contributed most of the revenues of the industry. However, as demand for ‘legacy’ services
declines, the incremental revenues from broadband provision are not sufficient to cover the cost of building or maintaining the underlying network platform essential to carry this broadband capability.

A study by consultants Analysys Mason study indicates that at current prices, it would take over 12 years for a NGA network operator to recover its investment costs - -  not to mention earn a return on this investment. It says such returns are unsustainable to the private investor.

Simply put, extra funding must be found to deliver widespread NGN roll out as envisaged. Three possible sources of such funding can be identified:

1. From consumers and businesses through higher prices

2. From the State who will derive significant benefit from the more efficient and competitive national economy that NGNs deliver

3. From somehow applying charges to online service providers who undoubtedly derive benefit from better communications infrastructure - - the so-called net neutrality debate

Total annual telco-related revenues for 2009 were approximately €4.03bn compared to €4.51bn in 2008; a drop of 10.6%.

Peter Evans, vice-chairman of TIF’s broadband and NGN industry group and product director at BT, said: “NGAs are likely to consist of multiple network platforms, including fibre to the home/cabinet, cable and 4G wireless. In addition to funding this investment, other challenges that need to be considered are aligning the business strategies of multiple operators in the market, competition challenges, declining revenues and the pace of technological changes.”

Tommy McCabe, director of TIF said: “There is widespread agreement that Ireland needs a state-of-the-art telecoms infrastructure. As a nation we need to be ambitious with regard to what we can achieve as we turn our focus to economic recovery and growth. This TIF report will facilitate an informed dialogue with the key stakeholders in the coming months.”