Table of Contents

Foreword

Foreword

The Department of Communications, Marine and Natural Resources has policy responsibility for the telecommunications sector, which is a fully liberalised market. Infrastructure and regulatory issues tend to dominate the telecommunications policy agenda. This discussion paper is an opportunity to assess the user’s perspective, or the demand side, of the broadband market in Ireland. It reviews the level of demand in the market, key demand factors for consumers, and lists possible examples of demand measures by Government and industry, if, indeed, any are necessary.

It is estimated that there were approximately a quarter of a million broadband subscribers in Ireland at the end of 2005. This represents growth of almost 120,000 subscribers, or 90%, during 2005. This strong growth is based in both the SME and residential markets.

Therefore, there appears to be substantial demand for broadband services in Ireland, which is in line with or better than the growth experienced in other markets. The current level of take-up is also consistent with the stage of development of the market. The overall broadband market will continue to grow. This should make the market attractive to service providers and encourage investment.

Ireland’s low position on various broadband take-up rankings is mainly a reflection of the delay in the launch of competitive broadband services in Ireland compared to most other countries. It does not suggest that there is a lack of demand per se for broadband services by users. The lack of competition between broadband service providers, such as telephone and cable TV companies, and the reduction in investment in the aftermath of the ‘dot-com’ crash, weakened the initial rollout of broadband by service providers in Ireland.

Views on the extent of demand for broadband services in the market are welcome. However, in light of this paper, it is considered that the policy focus should continue to be on increasing competition on the supply-side of the broadband market for the benefit of the consumer. This includes promoting increased choice of supplier and product for consumers, removing barriers to market entry, and addressing market failure in infrastructure provision through various regulatory and investment interventions.

1. Introduction

The purpose of this paper is to outline the current situation of broadband take-up in Ireland by end-users and to stimulate discussion about the current position of the market and the appropriate policy response to increase broadband take-up, if necessary. A range of questions and examples of possible actions is outlined in Section 6 as an aid to stimulate discussion. In brief, the paper outlines the following:

current take-up of broadband services in the Irish market;

the range of broadband services available;

the main uses of broadband;

factors that affect the take-up of broadband services; and,

demand-side issues and possible actions/initiatives

Underpinning this paper is the rationale that the level of infrastructure in a country affects its competitiveness and economic performance. Inadequate provision and utilisation of broadband infrastructure can impact negatively on Ireland’s productivity and can result in unnecessary higher costs. This not only affects the performance of existing Irish based firms, but also affects the attractiveness of Ireland as an investment location and the general quality of life.

Broadband is strategically important to Ireland because it can accelerate the contribution of ICT to economic growth, which has been identified as a key factor to improve Ireland’s productivity performance. The linkage between ICT usage and productivity was illustrated by research that found that the annual growth rate of labour productivity in ICT-using industries was 1.7% in the EU-15, compared with 5.3% in the US between 1995-2002.[1] In addition, communications infrastructure is identified in the National Spatial Strategy as particularly relevant to regional economic development.

It is recognised that supply-side factors (e.g. the extent and reach of broadband infrastructure, the level of competition and choice between providers, and the regulation of the industry) have significant impacts on broadband take-up. As a result, competitive broadband markets, with a wide choice of suppliers and broadband services for consumers, are prone to faster growth.[2] However, the focus of this paper is on demand-side issues.

2. Current Take-Up of Broadband/Internet

Source: Comreg; * Estimate

By end-September 2005, there were over 208,000 broadband subscribers in Ireland.[3] It is estimated that there were approximately a quarter of a million subscribers by end-2005. [4] Broadband take-up has almost doubled during 2005 – over 90% growth compared to end-2004. This was equivalent to 6.4 broadband subscribers for every 100 inhabitants, or almost 1 in 5 households with a broadband connection by end-2005.[5] Nonetheless, the take-up of broadband

Source: OECD

was low in comparison with other European countries. The EU-15 and OECD penetration rates were approximately 12% by mid-2005.

Take-Up in SME Sector

Widely available and affordable broadband is particularly important for Irish enterprises, as well as effective exploitation of broadband by Irish SMEs, because they buy and sell over the internet to a higher degree than the EU average.[6] According to a 2003 CSO report[7], 95% of all enterprises use PCs and approximately 85% of all enterprises use email and the internet.[8]

By mid-2005, almost 80% of SMEs had internet access.[9] Almost 50% of SMEs accessed the internet by broadband by mid-2005, a significant increase from 10% at end-2003. Dial-up, ISDN and leased lines still accounted for approximately 27%, 15% and 3% respectively of the SME market by mid-2005.[10] Overall, the take-up of broadband by enterprises in Ireland, including SMEs, has been lower in comparison with the EU average level of over 50% in 2004.[11] A reason cited for not upgrading to broadband access was the lack of an available broadband services, rather than the lack of need for broadband.[12]

The SME internet market is highly concentrated with Eircom and BT/IOL accounting for 74% of the market. Only a small minority (13%) of SMEs have switched supplier in the previous year. The likelihood of switching is also low, which suggests that the business customer’s relationship with their service provider is relatively sticky.

Overview of Current Market Position

It is generally accepted by Irish telecoms industry representatives and observers that Ireland has a relatively low number of broadband subscribers compared to other countries because the full-scale launch of broadband services in Ireland took place 18-24 months after its launch in other countries. This resulted in a ‘take-up time lag’ of about 2 years between Ireland and other broadband markets. This ‘take-up time lag’ was due to:

Competitively priced DSL was launched relatively late in Ireland by the incumbent telecom operator.

The cable TV networks did not emerge as significant infrastructure-based competitors (vis-à-vis the DSL telephone platform) in Ireland, largely due to financial difficulties.

The deterioration in the share values of telecoms companies curtailed the scope for additional investment in Ireland that was required to launch broadband services.

Source: Eurostat & Comreg

Average EU broadband penetration exceeded 2 broadband subscribers per 100 inhabitants in the 1^st quarter of 2002, compared to 12 subscribers by mid-2005 (see above graph). By comparison, Ireland’s broadband penetration exceeded 2% in the 3^rd quarter of 2004.

(Sources: Forfas, Comreg)

When compared with the average broadband take-up trend over time in other countries (see ‘Growth Path’ graph above), the Irish market is performing robustly with Ireland’s broadband growth trend appearing to be ahead of the growth trends that have occurred earlier in other countries.[13] The essential difference is that the Irish market is performing well, albeit with a time lag to other European markets. However, a key issue is whether broadband subscriber growth will be sustained sufficiently to ensure widespread take-up of broadband in Ireland rather than to close the gap, per se, with other countries.

Current Range of Products

Competition in the broadband market is increasing with new competitively priced services being launched by different ISP across telephone, cable TV, fixed wireless, and satellite networks. According to information provided by industry for the Department’s broadband consumer information website, there are over 35 different broadband service providers offering over 180 different broadband services.[14]

A standard broadband product, Eircom’s Home Starter DSL service costs €39.99 per month for a download speed of 1 Mbps (and 128 Kbps upload speed). Lower prices can be available on promotion. The modem is free, but line rental is €24.18 per month and there is a once-off connection fee. On this basis, the total 12-month equivalent cost of broadband is €780.03.

A selection of other residential broadband services is given in the above table. Overall, the equivalent 12-month cost of a broadband service is in the range of €420-€780 across DSL, cable TV, fixed wireless access, and satellite services.[15] The marginal cost of broadband can be as low as €130 for 12 months. This suggests that where competition exists, there is significant choice and potential savings for the consumer.

According to Comreg’s broadband pricing information, Ireland’s minimum monthly rental for an ADSL basket ranks Ireland in 6^th place out of the EU-15, five places ahead of the EU average.[16] However, it should be noted that Ireland’s minimum broadband service is based on a 1 Mbps downloading service, whereas some of the lower priced countries are based on slower downloading broadband services. This suggests that, where this lowest price is available, the price of broadband in Ireland has improved compared to other European countries.

(Source: Comreg)

It is also useful to note Comreg’s comparison of broadband prices on a per megabit basis. This gives an indication of the relative value for money of broadband services in different markets. On a per megabit basis, Ireland is ranked 11^th for the price of ADSL, ahead of the EU average.

(Source: Comreg)

3. Broadband Demand & Take-Up Factors

Generally speaking, there is widespread confidence amongst the service providers in the long-term willingness of Irish consumers to purchase and use new technology, despite current broadband growth rates. This is evidenced in the Irish consumer’s high level of use of mobile phones, SMS-messaging, digital gaming, 3G services, and satellite television. It was described simply as ‘Irish consumers will pay for something if they believe it’s worth it’. A caution was aired, however, that Irish consumers do not buy technology per se; as such, broadband should be marketed and promoted as a consumer product and not as a technology product.

A recent Comreg report indicated that 30% of households with dial-up/ISDN narrowband access, or approximately 100,000 households, had considered migrating to broadband.[17] Of the remaining 70% of narrowband users, 32% stated that they would not use the internet enough, 27% stated that broadband was not available in their area, 21% stated that their current internet package was sufficient, and 15% said that broadband was too expensive.

There are four key demand factors that determine the take-up of broadband services in any market. These are:

price of the service;

quality of the service from the customer’s perspective;

the potential size of the market; and,

the stage of the development of the market .

Price

It has been suggested that the price of broadband is not a significant factor determining the level of customer take-up of broadband. However, tests on the correlation between broadband penetration and prices confirm that prices are significant determinants of broadband take-up in the 0.5 – 2 Mbps range of services.[18] As referred previously, a Comreg survey indicated that 15% of respondents who would not get broadband access at home do so because it is too expensive.[19] The same sample indicated that 32% ‘would not use the internet enough’ and 21% have sufficient internet access, as reasons for not getting broadband at home. This would suggest that a significant proportion of respondents had no need for broadband access and were unlikely even to have considered the price of broadband access.

The same Comreg survey identified the three top reasons for subscribing to broadband (as distinct from narrowband access) as (i) high download speeds, (ii) always-on access, and (iii) the flat fee.

Therefore, it would seem reasonable to say that the interrelated issues of cost and usefulness/need are still significant factors for an individual deciding whether to purchase a broadband service. This is in line with market research carried out for Comreg in 2002, which showed that more people are likely to subscriber to broadband at lower price levels. In this respect, it should be recognised that the headline price of broadband has improved dramatically over the past two years – it is now possible to pay a monthly broadband subscription charge of less than €16 (as part of a line rental & broadband bundle).

Source: Forfás

However, it should be noted that the total annual price of broadband, which includes cost of installation and ongoing access, is currently in the range of €420-€780 for 12 months, which shows a significant variation between providers. Price/Usefulness remains a particularly important factor for residential and SME consumers who do not have substantial exposure to broadband, and thus cannot see ‘what all the fuss is about’.

In the mind of the consumer, price and usefulness are inextricably linked as perceived value for money. The Irish consumer will pay for something if they believe it’s worth it, then, at this stage, it would appear that broadband services do not represent enough value for money. In other words, broadband is too expensive for what a consumer perceives can be done with it. This is in spite of the potential savings that can be made in terms of telecoms costs and subsequent savings on on-line transactions (eg. airline tickets).

Quality

In terms of broadband services, ‘quality’ relates to the positive experience had by the customer. This can have a technical underpinning of the service itself, as well as a wider customer service element. In terms of speed, the technical quality of broadband is improving in Ireland. Eircom recently doubled the standard DSL package to a 1 Mbps service. However, the upload speed of 0.128 Mbps and the contention ratio of 48:1 remained unchanged. It was not possible to compare upload speeds and contention ratios internationally for this paper. Nonetheless, there are better contention ratios available in the Irish market. Notwithstanding, the 1 Mbps download speed compares well with a number of leading broadband countries in Europe, such as Denmark, Austria and Portugal, where broadband with speeds less than 0.5 Mbps is available.

In terms of the wider broadband customer service experience, three critical factors (in addition to price) affect broadband take-up.

Convenience of broadband access affects demand for broadband. This includes the availability of a service but, importantly, it also includes the ease of use of the service and the equipment for a non-technical market, as well as the ease of finding information about services (eg. prices, promotions, etc) from broadband providers.

Consumer confidence in broadband services also affects take-up. Consumer concerns can relate to managing an always-on service, viruses and firewalls, inappropriate content, and safety of online payments.

Compelling content also improves the quality of the customer experience and supports take-up. Content, such as useful applications or services, give real meaning to the technophile term of ‘high-speed’.

Potential Market Size

It is estimated that there are 1.36 million households and 190,000 SMEs.[20] Taking account of “small office/ home office” (SOHO) users, the maximum number of broadband subscribers (excluding mobile broadband) in the long-term is in the order of 1.5 million. This would be equivalent to broadband penetration of about 39 per 100 inhabitants, or 110% of households. This should be viewed as a maximum long-term goal, in light of the fact that Korea, often characterised as the global leader, had over 25 subscribers per 100 inhabitants by mid-2005 and is considered to be approaching saturation of its broadband market.

Internet access can give an indication of the short-term broadband market. In 2004, it was estimated that 40% of Irish households had internet access, which was close to the EU average of 43%.[21] It is likely that household internet penetration has increased since 2004. However, very few Irish households connected to the internet via broadband in 2004. Therefore, based on 2004 data, there were approximately 540,000 residential internet users that could be described as potential residential broadband subscribers. Put another way, about one-third of the long-term potential broadband market were already using the internet at home. This suggests that a significant segment of the market is already sufficiently making use of the internet and technically sophisticated to adopt broadband. In fact, recent Comreg data suggests that there could be approximately 120,000 flat-rate dial-up internet subscribers[22], 530,000 (per-second metered) dial-up internet subscribers, and approximately 100,000 basic ISDN subscribers by late 2005.[23]

There are a number of limiting factors that reduce the long-term potential market size, such as (i) availability of a broadband service; and (ii) PC availability. (Other limiting factors exist, such as availability of technical skills in households, but are more difficult to measure.) Service coverage and PC availability are limiting factors, as opposed to demand drivers, in the sense that service coverage and PC availability enable take-up of broadband but it is not clear that they necessarily drive broadband take-up.

(i) Availability of Broadband Service Coverage

DSL is the dominant broadband access mode in Ireland. It requires a fixed telephone line to a household to provide a service. However, a recent trend suggests that one in five households does not have a fixed telephone line. Fixed line penetration has levelled off at 79% of households.[24] Eircom has indicated that 90% of its lines will be connected to a DSL-enabled exchange by mid-2006. However, line quality/failure and line distance can reduce the number of these lines that will be able to carry a broadband service. This suggests that DSL broadband could be potentially available to approximately 1.14 million households/SMEs.[25] That implies that a maximum of 76% of the long-term, overall broadband market could be supplied by DSL on the basis of current Eircom investment plans.

In terms of Cable broadband, cable TV networks pass by 1.25 million households, or 90% of households. It is estimated that approximately 140,000 households are cable broadband enabled at this stage, which is about 10% of households. At present, cable broadband is capable of reaching about 9% of the maximum potential broadband market of 1.5m subscribers at present. However, further investment in the cable broadband network has been announced, which is intended to extend the coverage of cable broadband. In practice, cable broadband will tend to be rolled out to areas where DSL is also available, which will enhance competition between broadband services.

It has not been possible to estimate the share of the potential broadband market that could be served by existing FWA service providers due to lack of information. However, many urban centres already have a FWA broadband service, which would enhance competition in these areas.

In summary, taking account of DSL, Cable and FWA broadband networks, it would appear that at approximately 75%- 80% of the potential broadband market, or up to 1.2 million customers, could be within reach of a broadband service by mid-2006. As referred to above, this does not take account of gaps at a local level in coverage of service providers. However, it should be recognised that while up to 80% of the population could be covered by broadband on a national basis, local coverage could decline to about 50% in some rural areas due to inadequate networks or lack of infrastructure.[26]

(ii) PC Availability

Similarly to the availability of a broadband service, a PC is another essential requirement for broadband take-up. It is estimated that over half of households have a PC by 2005. As mentioned previously, almost all SMEs have a PC.[27] In relative terms, Ireland’s PC penetration of 46% in 2005 was slightly behind the EU average of 54%.[28] Based on these figures, there were approximately 625,000 households and about 180,000 SMEs with PCs in 2000. Therefore, there could be over 0.8 million PC-ready potential broadband customers – put another way, over 50% of the long-term broadband market could be currently PC-ready. It is likely that PC penetration has subsequently increased since 2000. In addition, games consoles with broadband connections will also become more common. However, it is not clear what proportion of PCs is too old to be capable of using broadband access.

(iii) Market Estimate

In summary, there is a maximum, long-term, potential broadband market of 1.5 million broadband users/customers (i.e. total households and SMEs). The current market could be broken down roughly as follows:

a maximum of 8 out of 10 potential users could be serviced by a broadband provider by mid-2006 (i.e. 80% coverage of market);

over 4 out of 10 potential users already have narrowband internet access (i.e. 650,000 dial-up users and at least half of the 100,000 basic ISDN telephone users); and,

less than 2 out of 10 users have broadband internet access (i.e. 250,000 broadband subscribers).

Stage of Market Development

The end- 2005 subscriber estimate of 250,000 represents almost 17% of the long-term potential broadband market size. Industry representatives and observers expect broadband to follow the normal adoption curve by customers, similar to DVDs, mobile phones, etc. This would suggest that the Irish broadband market has just completed the ‘early adopter’ stage. The focus on technical attributes of broadband (e.g. speed, always-on, etc) as reasons for subscribing to broadband services to date is also consistent with the market being in the ‘early adopter’ phase.

Even if a more restrictive ‘service available’ or ‘PC-ready’ only approach is considered, the immediately addressable broadband market is assumed to be approximately 800,000 subscribers.[29] In this case, current broadband take-up has reached 31% of the immediately addressable Irish broadband market.

Standard Technology Adoption Curve by Market

Stage of Market Development

If complete take-up was achieved in the immediately addressable market, 800,000 subscribers would be equivalent to broadband penetration of 20 per 100 inhabitants, or 6 out of 10 households, which would compare very strongly with leading broadband countries.

In any event, a penetration of 17% of the long-term potential broadband market suggests that ‘innovators’ and ‘early adopters’, such as SMEs and enthusiastic internet/technology users, have driven broadband take-up to date. ‘Early majority’ users are only starting to purchase broadband services.

In order to drive broadband into the mass market, it will be essential to make broadband services attractive to these ‘early majority’ consumers, who tend to be careful buyers that avoid risk but will adopt a service once it has been proven by the early adopters. Their purchasing decision is strongly influenced by:

the degree to which a broadband service will improve what they currently do (e.g. emailing & searching, as opposed to radically new services, such as VoIP);

clear practical benefits of having a broadband service;

the need to see the value of a broadband service in a non-technologist terms (e.g. high speed per se may not have real meaning to justify price, in contrast to ease of use or better experience); and

a positive peer approval (from family, friends, schoolchildren, colleagues) of having a broadband service.

Therefore, broadband services on offer need to address these buying factors of ‘early majority’ consumers, including caution, relevance, value for money, and peer approval. Reaching this stage of broadband market development would be confirmed by an accelerated rate of take-up by customers than heretofore.

SME Demand for Broadband

In relation to the SME market, almost 80% of SMEs already have internet access. However, as referred previously, almost 50% SMEs had broadband internet access by mid-2005. This suggests that ‘early adopter’ and ‘early majority’ SMEs already had broadband access by mid-2005. Broadband would be particularly attractive to SMEs using dial-up and ISDN internet connections, given the faster speeds and cost savings of a broadband service.

Therefore, there is significant SME demand for broadband and further growth can be expected. Over 50% of businesses not currently using broadband to connect to the internet have tried to upgrade to broadband, with almost half of these attempting in the previous six months.[30] Comreg research indicated that over 40% of SMEs without broadband were fairly or extremely likely to subscribe to broadband within 12 months.[31]

Cost certainty appeared to be an important attribute of broadband for SMEs as there was strong demand for a ‘set fee, always on’ internet package by SMEs. In addition, SMEs identified faster and more efficient internet access as the principal advantage of broadband. However, while SMEs are attracted to broadband, it has been reported that 10-15% of SMEs could not upgrade to broadband because it was not available in their location.[32]

4. Usage of Broadband/Internet

According to a CSO survey[33], the ten most popular activities that people did on the internet in 2004 were:

1. sending & receiving emails;

2. finding information about goods & services;

3. travel & accommodation services;

4. obtaining information from public authorities;

5. internet banking;

6. downloading public authority forms;

7. buying goods/services online;

8. education activities;

9. submitting completed forms to public authorities;

10. seeking health information.

This is consistent with more recent research by Comreg.[34] It is noteworthy that people are using the internet principally for emailing, finding information, and simple transactions/exchanges with banks, public bodies. Broadband-dependent uses, such as downloading music, videos, gaming, or voice & video communications, do not register highly. However, this may also reflect the low take-up of broadband by mid-2004 and these bandwidth-intensive uses may be likely to increase in popularity in future.

Usage by SMEs

The main purposes for which Irish businesses use the internet are to search for information (75%), for online banking and financial services (65%), and for market monitoring (37%). Just under two-thirds of enterprises have a website, which are mostly used to publish product information and price catalogues. Therefore, there is a low level of sophistication in ICT usage among Irish enterprises in terms of integrating the internet, ordering systems, and finance systems.[35]

Similarly, a 2005 Comreg report indicated that the main types of internet applications that SMEs were using were email with suppliers/customers (83%), booking travel/accommodation (79%), finding competitor/market information (69%), online banking (68%).[36] More complicated applications such as online purchasing and online payments were used by only 50% and 38% of SMEs respectively. Nonetheless, as mentioned previously, Irish enterprises are more likely to have bought or sold online than the European average. This emphasises the importance of broadband for Irish SMEs.

As the overall broadband customer base grows, it appears that the telecoms industry terminology of ‘high speed’ will have less meaning from the perspective of the majority of potential customers, who focus their attention on usefulness and/or applications. In addition, there is no single ‘killer application’ for broadband, which would be comparable to ‘mobile contactability’ for mobile telephones when they were launched.

Future market development will be dependent on broadband becoming relevant and convenient to everyday lives of consumers, just as TVs, DVD players, or telephones are nowadays. Such broadband applications are now emerging, such as the following:

voice & video telephony at greatly reduced costs;

expanded range of online entertainment offerings;

convenient, tailored education and training;

telemedicine, such as remote monitoring and check-ups from home;

remote home security monitoring while people are at work/away;

enhanced communications for people with disabilities (eg. impaired hearing).

5. Key Broadband Demand Issues

Previous sections have outlined the current state of play of he Irish broadband market, demand factors for broadband, the stage of development of the market, and the use made of broadband and the internet. This section identifies a number of key issues that need to be addressed on the demand-side of the broadband market.

Improving Value for Money of Broadband from Consumers’ Perspectives

The value for money proposition of home broadband for customers needs to be improved. Either the cost of broadband or the usefulness of broadband needs to adjust in order to convince consumers that the service represents value for money. Early majority customers are cautious, seek practical benefits for current activities and are not attracted by technology per se but by usefulness or applications. Further price reductions will improve the value for money proposition for these consumers and drive further take-up. Similarly, more useful applications or services included with broadband access at existing price levels will also improve value for money. Broadband service providers need to address these issues as part of their business plans.

The price of broadband and value for money are likely to remain a significant buyer factor due to the availability of other information & entertainment services, such as satellite television, and due to the availability of effectively free internet access at a person’s place of work or education.

More Transparent Pricing of Broadband Services

There is an increasing range of broadband services and bundled (e.g. voice+broadband) services, which can be difficult for potential buyers to compare. This may be making it difficult for consumers to decide between different services and service providers. Any uncertainty or confusion will delay or deter cautious consumers from buying broadband services.

A standardised price benchmark could be developed to help consumers to compare and contrast different broadband services and pricing. The Department has developed the http://www.broadband.gov.ie/ website, which compares all broadband services on the basis of price, speed and contention. In addition, Comreg is in the process of developing an interactive tariff guide that will rank broadband service providers based on an individual’s usage details.

It is also important to improve the price awareness of existing ISDN users. It is estimated that there are approximately 100,000 basic rate ISDN users. Both an average home internet user and a home-based worker can make significant savings by switching from ISDN to broadband internet access (see table on following page).

Improved mapping to indicate broadband availability could also assist the consumer when considering purchasing broadband services. While this is partly a supply-side issue, it could have a positive impact on broadband take-up if better information increases the likelihood of a consumer purchasing a broadband service.

Increasing Broadband Awareness

Service providers have taken the lead in increasing the level of awareness of broadband services. Advertising/awareness campaigns are increasingly focusing on promoting the practical benefits of using broadband. Proactive and targeted marketing by service providers of the broadband value proposition, which strike a chord with potential customers, will be a significant driver of broadband take-up.

There is scope for awareness raising by Government in the market. An effective Government supported awareness campaign could consider specific target user groups and their needs (e.g. SMEs, elderly, etc) rather than a generic awareness raising campaign, as well as promoting the consumer’s awareness of increased choice of service provider and type of broadband options.

It is likely that broadband awareness among children will rise as the joint Government-Industry ‘broadband for schools’ initiative brings broadband to every school in Ireland during 2005/06. Broadband service providers are likely to benefit significantly from this initiative in terms of increased residential broadband subscriptions. On average in Europe, households with children are 50% more likely to have broadband than those without children.[37]

Improved Customer Relations

Service providers need to continue to improve their interactions with cautious, potential broadband consumers, for example in providing accurate information about the availability of broadband services and the delivery time of broadband orders. The overall quality experience by the customer is also significant. Given the importance of peer approval in encouraging consumers to purchase broadband services, negative peer comments will deter significant numbers of potential ‘early majority’ consumers.

In addition, broadband customer mobility will provide customers with greater reassurance that they can switch service provider easily if they wish. To this end, improved arrangements should be put in place between service providers so that it is possible for consumers to switch providers seamlessly without experiencing ‘offline time’ between service providers. While this may contribute to some customer churn, it will reassure cautious consumers.

More Compelling Online Content/Services

More compelling online content or services would improve the value for money proposition of broadband services. However, it needs to be recognised that the most popular current uses of the internet are relatively simple but useful activities, such as email, searches, and simple purchases. Richer interactions, involving audio/video downloading, will need to be encouraged, such as is already occurring in some music downloading services and in mobile broadband services.

Increasing PC Ownership

Access to a PC within a household is a prerequisite for residential internet and broadband access. As identified earlier, Ireland’s PC penetration slightly lagged the EU average. On the other hand, with about 5 out of 10 households having a PC only 2 out of 10 households having a broadband connection, PC availability would not appear to be a short-term limit on the take-up of broadband. It has been estimated that currently 74% of the key early broadband users group of 17-25 year olds have access to a home PC.[38] However, as mentioned previously, it is not clear what proportion of PCs can support broadband access. Another uncertainty is that it is not clear what number of new PCs would translate into new broadband subscribers because there is no evidence of a strong relationship between broadband take-up and PC-penetration.[39] For example, Northern Ireland’s PC penetration is similar to Ireland’s and Portugal’s PC penetration is lower than Ireland’s, but broadband penetration is higher in both countries.

Market research has indicated that Irish households are expected to spend €45 million on PCs in 2006.[40] In addition, the cost of PCs has improved in recent years and is expected to fall by 10% in 2006. Broadband compatible PCs are available in the price range of €550-€800, which is comparable with the 12 month cost of broadband of €420-€780. A targeted incentive scheme to assist certain disadvantaged groups may be appropriate, as well as being cost-effective, as the broadband market matures from an e-inclusion perspective.

Increasing ICT Usage by SMEs

At the end of 2004, the Department of Enterprise, Trade & Employment published ‘eBusiness Strategy – Optimising Usage of ICTs by Irish SMEs and Microentreprises’, which focuses on three challenges: (i) building ICT-management skills and ICT user skills in Irish SMEs; (ii) building confidence in trading online, and (iii) preparing SMEs for e-procurement opportunities. A Working Group was established to address these issues, which will have a positive impact on SME demand for broadband.

Consideration could be given to a more targeted initiative directed at SMEs to identify practical benefits of broadband, cost savings for SMEs associated with broadband, and to demystify issues, language, services and prices of broadband. The SME sector already has a higher level of broadband take-up than the overall market. More SME broadband users could act as peer champions in spreading the word of the benefits of broadband access.

6. Broadband Demand Discussion Points

The primary role of the market and effective competition in the expansion of broadband use in Ireland must be recognised. In addition, supply-side issues, particularly the availability of a broadband service and the degree of competition and choice for consumers in broadband services, impact on the take-up of broadband.

Competitive broadband markets are prone to faster growth. Facilities-based competition and open access provisions on incumbents’ networks (e.g. local loop unbundling) can deliver benefits in terms of the price/performance ratio and increased choice for consumers.[41] On the supply side, Ireland lacks strong facilities-based competition in terms of the absence of significant cable broadband provision to date, and also lacks effective provisions for open access to the incumbent’s network in the form of full local loop unbundling. However, on the positive side, new fixed-wireless broadband services have been launched recently. In addition, the announced consolidation of the cable TV industry in Ireland presents an opportunity for further investment to expand and enhance cable broadband provision. Further actions to enhance competition between service providers and to increase competition pressures are essential to improve the roll-out and take-up of broadband in Ireland.

In relation to the demand-side, a number of questions and possible measures, with pros and cons, are set out below with the aim of stimulating debate.

Overall Approach

(1) Is there a fundamental problem with the level of demand for broadband? The current take-up rate for broadband in Ireland is lower than many other countries. This mainly reflects the Irish market being at an earlier stage of development than others. It is normal that customer numbers increase gradually over time, rather than all at once. However, if there is a fundament issue that deters households and enterprises from purchasing broadband even where it is available, thereby reducing consumer and SME demand, it would be an appropriate public policy response to address it. The same question could be posed in relation to a specific group of potential users, e.g. users in a particular region or a particular type of SME, rather than the market in general.

(2) How should the Department prioritise broadband demand-side issues, relative to supply-side issues? In light of both demand and supply side issues being important, on which issues should public policy focus? This is largely determined by where you believe the more serious issues lie in the broadband market. Supply-side or industry issues include service coverage, infrastructure roll-out, effective competition, pricing, while demand-side or user issues include consumer awareness of broadband, understanding of different broadband providers, technical capability to use broadband.

(3) What sectors should the Department prioritise as part of a broadband demand initiative? Public policy could address demand at a general level, such as awareness raising. An alternative approach could be focus on specific segments of the market such as a specific user group. An additional matter to be considered is whether the Department should prioritise a cross-departmental approach or focus on immediate actions for which it has direct responsibility.

Examples of General Measures

(4) ‘Broadband service providers could continue to reduce the total cost of broadband to customers.’ This would improve the cost-benefit balance of broadband and thereby increase broadband take-up. While this would increase the attractiveness of broadband to consumers, it could also affect the revenues of service providers. However, the growth in the number of paying subscribers could offset the effect of the reduction in prices on vendors’ revenues. Notwithstanding, it should be recognised that increased competition is the single strongest incentive for a seller to reduce price.

(5) ‘Broadband service providers could improve the quality of broadband products without increasing prices’. Examples of improved service quality include increasing the downloading and uploading speeds of broadband, reducing the standard contention ratio, improving/removing any time limits on the service, and improving/removing download limits. This would improve the value for money of broadband from the consumer’s perspective. However, it would have cost implications for the service providers. Again, increased competition and scope for product innovation is likely to lead to improved broadband offerings.

(6) ‘Broadband service providers could publish more transparent and comparable pricing of broadband services in a standard format.’ This initiative would clarify the cost of the different services for potential customers. This would make costs easier to understand and to compare for consumers but would increase competitive pressure on service providers.

(7) ‘Broadband service providers could provide pricing and availability information to the Department’s http://www.broadband.gov.ie/ information website in a consumer-focused format.’ This would increase the amount of impartial information available to consumers but would involve additional work by service providers.

(8) ‘Broadband service providers could include a link or reference to the Department’s http://www.broadband.gov.ie/ information website on their broadband advertising/publicity.’ This would improve consumers’ understanding of broadband pricing and competition but would require main service providers to agree to include a link/reference.

(9) ‘Broadband service providers could improve the flexibility for customers to switch between service providers, including a Code of Practice for switching provider.’ A code for switching between providers would make it a hassle-free process for the consumer and minimise any break in broadband service. This would reassure consumers by preventing ‘lock-in’ but would require agreement and cooperation between main service providers as well as possibly increasing competitive pressure/customer churn.

(10) ‘Broadband service providers could introduce special ISDN-to-Broadband switching promotions.’ Pricing discounts or special offers could target existing Basic Rate ISDN users. ISDN subscribers demonstrate a clear demand for faster internet access. A special ISDN switching promotion would target the existing 100,000 Basic Rate ISDN subscribers. The ISDN subscribers would benefit from a faster broadband service and reduced costs. However, this would also impact on revenues of existing ISDN service providers.

(11) ‘Broadband service providers could introduce special Dial Up-to-Broadband switching promotions.’ Pricing discounts or special offers could target existing dial-up users (both standard and flat rate dial-up subscribers). A special dial-up switching promotion would target the estimated 640,000 dial-up subscribers. All dial-up subscribers would benefit from a faster broadband service and many would also benefit from reduced costs. However, this could also impact on revenues of existing dial-up service providers but could be more marginal than an ISDN switching initiative.

(12) ‘Broadband service providers could continue to improve their customer support arrangements.’ Service providers should recognise that most consumers are not technophiles and find any technical problems particularly difficult and irritating. This improvement would enhance the quality and experience of a broadband service for consumers and would have cost implications for service providers. Negative ‘word of mouth’ experiences can deter many people getting broadband.

(13) ‘The Department could develop a more informative, image-based map of broadband service availability than is already available on the http://www.broadband.gov.ie/.’ This would provide more information for consumers but would also require detailed information to be provided by the service providers.

(14) ‘The Department of Communications, Marine and Natural Resources could publish regular “best broadband buys” on the basis of a typical user and the services currently available.’ These could be recommendations by consumer/user bodies. The ‘best broadband buys’ could be integrated into the Department’s http://www.broadband.gov.ie/ information website on broadband pricing and availability. This would increase the amount of information available to consumers but could alienate service providers.

(15) ‘The Department of Communications, Marine and Natural Resources could publish public information leaflets/booklets for SME and residential broadband consumers.’ This could demystify the range of broadband options, which can be confusing for potential customers as differences between broadband services may not be impartially explained by vendors seeking to sell their own broadband offering. It could address issues such as what is broadband; explanation of technology options; reasons to upgrade; comparison of services; basic requirements to be able to get broadband; questions to ask a service provider; buying tips; and PC security recommendations.

(16) ‘The Department of Communications, Marine and Natural Resources, in conjunction with service providers and other partners, could increase the number of public free broadband access points to enable people to try broadband for free in convenient locations.’ Current Government initiatives have focused on providing free internet access in libraries, and on rolling broadband out to schools. Consideration should be given to extending, possibly temporarily, free access points to locations that people frequently visit by competitive tender. This would increase the opportunities for consumers to ‘test’ broadband without having to purchase a broadband service but may compete directly with existing internet cafes.

(17) ‘The Government could continue to rollout online Government services, such as tax payments, licensing, etc.’ The expansion of eGovernment services will provide useful applications for residential and business users. However, as many Government services are irregular, information-provision or intermittent, simple transactions, eGovernment may encourage more use of the internet but may not be sufficiently important or regular to encourage people to purchase broadband access.

(18) ‘The Government could continue to support the development of online information/content by local community/voluntary organisations.’ This will provide more relevant online information for local people. However, by its nature, this information may not be broadband dependent and is likely to be accessible by dial-up services.

(19) ‘The Government, in conjunction with industry, could continue initiatives to raise awareness of PC security and protection against computer viruses.’ This will reassure business and residential users that its is possible to use broadband and to effectively protect a PC.

(20) ‘The Government could develop educational content that is linked to the curriculum and provide support training to teachers to use it.’ This would provide useful source of material that schoolchildren could use in school and at home. However, it would need to avoid disadvantaging socially excluded groups.

(21) ‘The Government, in partnership with industry, could introduce a PC & broadband subsidy/voucher scheme for schoolteachers.’ This would enable teachers to become familiarly with computers, broadband, and online content resources at home so that they would encourage its use as a classroom/learning tool for their schoolchildren.

(22) ‘The Government and service providers could provide a fund to support individual schools developing their own websites for information, scheduling activities, school-parent communications, study information, and locally produced student & teacher content.’ This would provide relevant online information for households with schoolchildren. However, it may result in relatively uneven benefits between different schools.

(23) ‘The Government could support the provision of more downloadable TV and radio programming by RTE.’ This would be a useful application of broadband by providing interesting content that is best viewed/listened to over a broadband connection. However, establishing a digital archive could be costly and involve digital rights issues.

(24) ‘The Government could digitise Irish cultural material from the National Gallery, Library and Museum.’ This would provide a source of content that could be of interest to many people, particularly schoolchildren, that would be best accessed over a broadband connection. Issues of cost of development and digital rights management would need to be address.

(25) ‘The Government and service providers could promote the use of cheaper VoIP telephone services by SMEs and households.’ This would promote a broadband application that is immediately useful for consumers and provides financial savings. However, it could be considered unusual for a Government department to promote a particular application.

Examples of Measures for the SME User

(26) ‘The Department could conduct a broadband awareness campaign for particular sets of consumers.’ For example, the Department could target SMEs to identify and clarify the benefits and issues related to broadband for SMEs. As early adopters, SMEs could act as broadband champions spreading word of the benefits that they got from a broadband service. Consideration could be given to working with some of the larger ICT companies to promote SME broadband take-up.

(27) ‘The Department, in conjunction with industry, could organise regional roadshows/seminars with business groups to provide information to SMEs about getting broadband and profitably exploiting broadband.’ This could provide relevant and impartial information to business groups at a local level.

(28) ‘The Government could establish a fund to support the development of innovative services/applications for SMEs that use broadband.’ This fund could provide a dedicated source of funding for the development of new commercial applications that bring broadband-related benefits to SMEs. On the other hand, it could displace new applications that are being developed by the market (via start-up companies and venture capital, as well as R&D by large established companies).

(29) ‘The Government could provide a subsidy/tax credit to SMEs to get a broadband connection.’ This could incentivise SMEs to get broadband, however, the deadweight effect of a subsidy/credit would also need to be considered.

Examples of Measures for the Residential User

(30) ‘The Government, in conjunction with industry, could introduce a residential customer subsidy/voucher scheme for new broadband connections, which is targeted at low-income or e-excluded groups.’ This proposal has a direct link with broadband take-up and targeting it at particular income groups could make it more cost-effective.

(31) ‘The Government, in conjunction with industry, could introduce a incentive schemes (e.g. vouchers, subsidy or tax credit) to promote PC purchases by residential consumers.’ This would encourage more households to purchase a PC but other issues would need to be considered, such as the effectiveness of such a scheme in increasing broadband take-up, the deadweight effect of the scheme, and social inclusion.

(32) ‘The Government, in conjunction with industry, could implement a scheme to provide low-cost PCs to low-income families.’ This would have similar issues to a PC purchase incentive scheme but it would also focus enabling low-income schoolchildren to get broadband access.

(33) ‘The Governments could provide IT awareness/training courses to particular e-excluded groups, such as elderly, homemakers and disabled.’ This would encourage these groups to experience broadband and ICT and increase the likelihood of getting broadband. However, given that these groups are least likely to use ICT/broadband, the initiative’s impact may be limited.

These discussion points should be seen as starting points for your comments, debate and alternative suggestions about the appropriate manner to address take-up of broadband in Ireland. Therefore, they are an aid to promote discussion and should not be interpreted as an outline of any possible or proposed actions.

Your submissions should be marked ‘Broadband Demand’ and emailed to the Department of Communications, Marine and Natural Resources at information@broadband.gov.ie by 1st March 2006.