Committee Reports::Report No. 09 - Review of progress on broadband rollout::18 April, 2007::Appendix

Appendix F

Questions posed to Smart Telecom and replies received

Question posed by the Joint Committee to Smart Telecom in regard to

Strategy on Local Loop Unbundling (LLU):

Q1.What are the Smart Telecom plans for offering consumer broadband through unbundled exchanges?

Q2.What is the Smart Telecom progress, so far, in selling LLU products to domestic consumers in exchanges that have now been unbundled?

a)For over 6, but less than 12 months

b)For 12 months or more?

Q3How many of the exchanges in Ireland, whether unbundled or not, are of sufficient scale to be considered by Smart Telecom as a viable business proposal?

Q4In regard to question 3 above will Smart Telecom supply a list of these exchanges?

Strategy on wireless broadband:

Q5.What are the Smart Telecom plans, if any, to offer wireless solutions to Irish consumers?

Strategy on Wholesale Line Rental (WLR):

Q6.Is Smart Telecom satisfied with the current regulatory regime relating to wholesale line rental??

Q7.What reforms, if any, would be of importance in assisting Smart Telecom in boosting consumer take up of WLR products?


Q8.Having considered the current debate about demand and demand stimulation what 2 or 3 initiatives does Smart Telecom believe would be of greatest importance in triggering increased demand by consumers?


Q9.From the Smart Telecom experience of rolling out broadband in Ireland does Smart Telecom believe that adequate infrastructure exists in terms of exchanges and copper in the ground for Ireland to achieve broadly available high speeds through DSL?

Reply of Smart Telecom

1. Introduction

Smart Telecom welcomes the interest of the Committee members in this area and the opportunity to provide our views.

This note is in response to a letter and questions received from the Clerk to the Committee on 24 May. Our response seeks to provide an overview of our views on the particular issues raised. We would be happy to expand on any points of interest to the members of the Committee.

The contents of this note are commercially confidential and should only be provided to the members of the Committee and their team.

2. Local Loop Unbundling [Q1, Q2, Q3, and Q4]

Smart Telecom launched its broadband/voice service at the start of 2005. The service is delivered via the consumer’s telephone line, which has been unbundled at the local eircom exchange.

Smart Telecom’s plan is to be in a position to provide service to 1m telephone lines by Q4 2006. This will involve us covering some 60 to 80 exchanges — in the main urban centres such as Dublin, Cork, Limerick, Galway, Waterford, Sligo, Kilkenny, Dundalk, Drogheda, Letterkenny, Portlaoise, and Wexford.

In the long term Smart Telecom plans to roll out service to all exchanges served by the government’s MANs programme and associated national backhaul (such as from ESB Telecom).

Exchange Roll-Out

Rolling out broadband services is very expensive, with a total cost of around €90,000 to activate each exchange.

To provide service in an area, Smart completes two key stages

Backhaul — Smart must link its own network HQ to the local exchange. This service is typically provided via fibre optic cable.

Co-location — Smart must set up its own equipment in the eircom exchange. This process is called co-location. The typical cost to activate an exchange is €20,000 to €30,000 - which covers rental of floor space, power, air conditioning, and cabling work. These costs must be paid in advance to eircom.

Our roll-out is based on backhaul from our own fibre network in Dublin (known as the ‘T50’) and use of the government’s MANs project, and associated national backhaul, outside of Dublin. Areas where the MANs and a reasonable backhaul solution will not be available are very unlikely to get service from Smart, because of the very high backhaul cost of getting to those areas.

The viability of an exchange is determined by the following factors:

1.Population served by the exchange

2.Proximity to other exchanges and population centres — a grouping of exchanges is more attractive

3.Backhaul cost of reaching the exchange — only exchanges which are served by the MANs network and associated backhaul are likely to be covered by future roll-out

4.Co-location — charges and time taken to complete process

5.Likely consumer uptake of service — this is based on experience to date with other similar exchanges

No exchange is ruled out automatically but, obviously, exchanges in larger urban centres have advantages. As a general rule of thumb, exchanges with more than 5,000 lines are covered in our current roll-out programme. If the cost of backhaul is competitive and co-locations costs with eircom are reduced then many additional exchanges may become viable.

Consumer Response

The response from consumers to Smart’s broadband service has been very positive. Within weeks of launching service in early 2005, thousands of consumers had signed up for the service.

Our target is to win 10% to 15% of the lines in each exchange. Our performance to date in exchanges confirms that this is a realistic and achievable target. We are already close to our target in some exchanges.

Issues to be Resolved

There are a number of significant issues with local loop unbundling which are inhibiting our ability to provide a better choice for consumers:

1.The time taken to get our equipment set up in an exchange is far too long — the typical co-location process takes 6 months from first request to handover of exchange. We also have a strong demand to expand our facilities in some existing exchanges. This process can take 2 months or more. The slowness of these processes inhibits our ability to launch service in new areas and to provide extra capacity to activate extra customers.

2.Customers must take a new phone number when they switch to Smart broadband — this is a major issue and we estimate that, since the start of 2006, an additional 20,000 customers would have signed up for our broadband if this restriction was not in place. Eircom are planning to introduce a limited volume solution by the Autumn but this will not meet the demand created by consumers — the service will allow a maximum of 10,000 consumers to move by the end of 2006.

3.Customers on our wholesale line rental (WLR) service cannot switch to our broadband service — this is a completely artificial and anti-competitive restriction imposed by eircom. Consumers should be allowed to move freely between providers.

4.The switching process takes too long — the standard eircom timescale for activating a consumer onto LLU is 10 working days. Currently 20% to 25% of our broadband orders take longer. These delays are very frustrating for consumers. Extra resource are needed within eircom to ensure delivery is timely.

ComReg published a roadmap for the future development of LLU on 30 May. It covered these issues and provides a way forward on some of them. Smart is committed to working with ComReg and our industry partners to make progress on LLU. However, progress must be rapid and consumers must see real changes in the short and medium term. If further delays are encountered then ComReg must take enforcement action. The issues which are not covered clearly in ComReg’s Roadmap must also be addressed.

3. Wireless Broadband [Q5]

Smart Telecom has trialled Wi-Fi technology at two sites in Cork

Wi-Fi was designed as a wireless broadband solution for single buildings such as large office blocks or airports. Smart has extended the scope of the technology to provide a wireless broadband service over a much larger area.

Smart Telecom won a tender to supply wireless broadband services to Cork City during the European Capital of Culture in 2005. Smart installed a mesh of approximately 40 Wi-Fi base stations to provide a 0.5Mb/1Mb service to the entire city centre, an area of 1.5 square kilometres. The installation cost approximately €250,000. Smart has installed a similar Wi-Fi solution at Ballygarvan, near Cork City.

In both cases the technology has succeeded in providing a wireless broadband service over a wide area and has been very positively received by consumers.

Smart Telecom is not convinced at this time that, as a commercial project, the Wi-Fi solution makes sense. The costs involved in constructing the network are significant when set against the coverage achieved.

Smart Telecom has no plans to deploy Wi-Fi or any other wireless broadband solution on a widespread basis. We believe wireless has a place but our preference is to use local loop unbundling as our primary delivery solution.

4. Wholesale Line Rental (WLR) [Q6 and Q7]

Smart Telecom was the first operator to launch a single bill service for consumers, based on the Wholesale Line Rental (WLR) service. Since we launched the service, we have connected tens of thousands of customers using WLR.

The regulatory regime on WLR is well established and generally works well but there are some issues that we would highlight as needing action by ComReg.

A recent report from consultants Amárach (for ComReg) highlighted a low level of consumer awareness of WLR. ComReg could take a more active role in the promotion of awareness of products like WLR and the availability of choice to consumers.

The big plus expected from the WLR product was that the consumer would get a single bill including both line rental and calls. This is being achieved but, for many consumers, the downsides of the product outweigh this single benefit. With WLR Eircom controls the fundamental pricing and technical parameters — we cannot differentiate on these factors. As a result, some consumers do not see a clear difference between providers.

The current regulatory rules allow a “no contact” period of 4 months. We do not believe this is long enough. In this period, the customer gets 1 or 2 bills from their new provider — which is a limited chance to experience better service and savings before eircom’s sales winback teams hit. To allow for a competitive market to grow and more consumers experience a choice, we believe there is a case for extending the “no contact” period to 6 months.

The main issue for Smart with WLR relates to the commercial terms for the service. The following points should be noted:

We pay eircom a monthly charge per customer (€17.98 excl VAT). This charge is set at 10% less than eircom’s own (retail) line rental charge. Thus, if eircom increased its line rental charge, the cost for each WLR line would also increase.

In addition, Smart must cover its own costs - marketing, sales, customer acquisition, billing, cash collection, bad debt, customer service and fault repair.

The combined effect of the eircom WLR charge (€17.98), Smart’s own costs, and the market reality is that Smart must match eircom’s line rental charge but cannot undercut it. We cannot provide a cheaper line rental to consumers

An improvement in the commercial terms for WLR would lead to savings for consumers and an increased level of competition.

5. Demand [Q8]

We do not believe that the level of demand is a significant issue in constraining broadband uptake in Ireland. With the launch of our service last year, tens of thousands of consumers signed up for the service — 70% of these had not had a broadband service before signing up.

The main factors holding back demand for broadband are (i) high prices (including line rental), (ii) limited availability of competing operators, and (iii) the difficult process to activate consumers onto LLU-based broadband. These issues are covered in the section on local loop unbundling (see above).

6. Infrastructure [Q9]

In general, we have found the quality of exchange sites and local copper lines to be reasonable. We do have an issue with getting access to exchanges, but this is not necessarily linked to quality of infrastructure itself.