Economist Colm McCarthy has poured scorn on a report prepared by PwC for the Department of Communications on the possible benefits of massive state investment in rural broadband.

As outlined so far, the department's National Broadband Plan (NBP) envisages roll-out of 30MB per second broadband to every home and business in the country. The department has refused to state how much the scheme could cost taxpayers, with €500 million the best guess at the moment.

The department, led by minister Alex White, has commissioned a number of reports on the proposed plan. The reports are of the happy-clappy variety and fail to quantify in concrete terms any economic benefit that would flow from the massive taxpayer investment.

According to John McDonnell, chairman of Wireless Broadband Ireland, a group of 36 wireless broadband companies, the National Broadband Plan does not address market design, monopoly regulation and competition issues.

“The recent investment announcement by Open Eir to provide service to 300,000 homes formerly designated as being in the Intervention Area is evidence that the private sector will invest without state aid if conditions are right," said McDonnell. “Our view is that active and effective regulation will deliver a competitive and cost-efficient solution for the consumer and the state, and this is where the government’s focus should be.”

In Association with

McCarthy Analysis

The wireless operators commissioned economist Colm McCarthy to analyse the government’s proposals. In his report, McCarthy states: “A cost benefit analysis (CBA) needs a clear estimate of expected costs, a quantification of benefits and a counterfactual - that is the course of events likely to play out should no policy action take place - and a consideration of alternatives.”

McCarthy said that under the Public Spending Code of the Department of Public Expenditure and Reform, a comprehensive CBA is mandatory for all projects costing €20m and more. He added that on the basis of documentation made publicly available by the department, this requirement has not been complied with.

In his study of the NBP proposals, McCarthy found real information on either costs or benefits flowing from the delivery of the NBP to be absent. “While the department has claimed commercial sensitivity as the basis for withholding information on project costs, there can be no 'commercial sensitivity' arguments for withholding information about project benefits,” says McCarthy.

McCarthy notes that the quantification of project benefits is, along with the articulation of the counterfactual and the quantification of project costs, an essential critical ingredient in any Cost Business Analysis. To date, no quantified counterfactual, assessing the likely pattern of events in the absence of the proposed intervention, has been made publicly available. Nor have any cost estimates been revealed in the available National Broadband Plan documentation.

PwC Report

A lengthy report on project benefits prepared by PwC has been posted on the NBP website. The PwC report begins with an executive summary which contains the following statement: “The CBA report quantifies the benefits associated with the NBP into three main categories: residential benefits, enterprise benefits and eHealth benefits.”

McCarthy observes: “There is no attempt to place monetary values on any of the identified benefits as in a conventional CBA. That is to say, there is no quantification. No residential benefits are quantified, nor are any benefits associated with enterprise or with eHealth.”

The PwC chapter on residential benefits contains an overview of the Intervention Area based on the 2011 Census covering household numbers, population, age-distribution, working population and broadband penetration. It goes on to list residential benefits under the headings of remote working, service waiting, bundled communications and transaction savings.

McCarthy observes: “The chapter concludes with a series of pictograms depicting the benefits accruing to what it describes as 'an average family living in rural Ireland'. The family has five members, as against the average of 2.9 shown in the same chapter as the average from the 2011 Census in the Intervention Area.”

In a chapter on Enterprise Benefits, PwC failed to provide any estimates of benefits under any of the headings discussed. In the eHealth section, there are lists of potential improvements for patients, GPs and pharmacies, but again PwC failed to provide any estimates of benefits under any of the headings discussed, according to McCarthy.

The PwC report concludes with a chapter called ‘Beyond the Numbers’ which commences as follows: “The focus thus far in this report has been on benefits which are capable of credible quantification. There are however a significant number of benefits which the NBP can be expected to deliver but which were not included in the formal CBA model as they are not capable of credible quantification.”

McCarthy observes: “The reference to a 'formal CBA model' hints at the existence somewhere of quantified estimates of at least some of the project benefits. However none of the available reports contains any such estimates. There has been nothing published in the NBP documentation which quantifies the benefits of increased broadband delivery.”

Frozen Out 

McDonnell says that wireless operators, who typically offer a best connection of 8MB, have invested heavily in providing broadband services to over 70,000 customers in rural areas during the past 15 years.

“However, these same companies who provide valuable services to the proposed Intervention Area are being frozen out of the process,” McDonnell said. “Apart from market design issues, the lack of coordination between ComReg and the DCENR regarding the allocation of appropriate spectrum to allow wireless operators to offer next generation speeds in excess of 30Mbps is very worrying.

“In our view, companies providing services over fibre are being favoured by the NBP to subsidise their network rollout, while wireless companies will be required to participate in spectrum auctions to provide the same services over wireless networks. We are finding it increasingly difficult to raise funds to grow and expand our business because there is a fear that the NBP, as promised by the government, may drive wireless operators out of business.

“As current broadband providers in the Intervention Area, it is imperative that these wireless companies are given the opportunity to participate in the roll-out of Next Generation Access networks and services, and they should not be excluded on the basis of a government-backed investment in other technologies.”