State subsidy for broadband plan could be 60% higher than predicted

The State subsidy required for the National Broadband Plan (NBP) may be 60 per cent higher than originally anticipated because of the Government's decision to farm out part of the scheme to Eir, according to an internal Government memo seen by The Irish Times.

Earlier this year, the Government controversially agreed a deal with the telecoms firm, which saw 300,000 homes removed from the State scheme and placed back into Eir’s commercial rollout plans.

According to the Government memo, the reduced NBP intervention area, which now covers 542,000 homes, is likely to increase the overall cost of the plan for the taxpayer.

This is because the remaining homes are located in the most remote locations, which increases the average per-unit connection costs, and ultimately the subsidy required by the successful bidder.

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In addition, the successful bidder will now have to transit through Eir’s new infrastructure to access the homes, incurring additional costs.

If the current regulated price Eir charges for pole and duct access is applied, the Government estimates the increase in the State subsidy required may be as high as 60 per cent.

Alternatively, if access to Eir’s network is granted at cost price, or what the Government calls “incremental cost”, the subsidy hike would be more in the region of 10-15 per cent.

The price Eir charges other companies for access is one of the issues that the Department of Communications, which is overseeing the procurement process, needs to iron out before the long-awaited plan can proceed.

According to a spokesman for the department: “As this is an ongoing competitive process it would not be appropriate to comment any further on the potential subsidy levels that will be sought, as ultimately the final subsidy will be down to the competitive process.”

Telecoms regulator Comreg is examining Eir's pricing structure and is expected to make a recommendation in the coming weeks, which may have an impact the cost of the NBP.

Eir has previously stated that its wholesale prices accurately reflect the costs involved and were agreed with the regulator as recently as last year.

While the overall cost of the Government’s broadband scheme is not known, figures of up to €1 billion, with the Government paying half, have been mentioned.

The Government’s memo, which was circulated to Cabinet at the time of the department’s deal with Eir, also outlines the potential legal threats faced by the State arising out of its decision to change the intervention area.

“The change to the intervention area is not without legal risk,” it said, noting the potential for challenges from the two consortia that did not qualify to the current stage of procurement.

“The Department is of the view, however, that while legal challenges are possible to the process from different entities for different reasons, some of which may be strategic, the actual risk, coupled with the likelihood of a challenge, is no more than moderate,” it said.

Commenting on the contents of the document, Ronan Lupton of Alto, the umbrella group for non-Eir firms, said: "Clearly there is a serious amount of work going on in the department on the NBP and officials appear to be tiptoeing around the threat of legal challenge in event of an error or omission within the process."

“It appears to be an uncomfortable working environment for the minister and his officials,” he added.

While most premises targeted under the NBP are expected to receive high-speed broadband within the first two years of the contract, many may have to wait until 2022.