NBP bidder must meet €2.5bn rural network cost

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NBP bidder must meet €2.5bn rural network cost

Adrian Weckler talks to new NBI chief executive Peter Hendrick


David McCourt
David McCourt

The company behind the National Broadband Plan will have to spend €2.5bn to cover the cost of rolling the rural network out to 540,000 premises.

The body’s chief executive, Peter Hendrick, told the Irish Independent’s ‘Big Tech Show’ podcast the network will cost almost €5bn to build and maintain over the next 25 years. National Broadband Ireland (NBI), the entity’s new name, can receive a maximum of €3bn in State subsidies including VAT and “contingencies”. This leaves the company needing to make at least €100m per year through rural subscriptions.

However, Mr Hendrick said he is “comfortable” that take-up of the service will reach 80pc and expects to see several existing broadband retailers such as Eir, Sky and Vodafone using the network to market high-speed packages to rural residents.

“We estimate [the State subsidy] will be around €2.1bn,” Mr Hendrick said. “But the life cost of the network is closer to €5bn. So we have to make sure we deliver the network.

“Up front, we’re building the network and taking a risk. It’s only upon delivery of key milestones such as connecting premises and contributing capital costs that we receive a subsidy.”

Mr Hendrick declined to give more detail about how much capital NBI is putting into the initial capital phase of the rollout. Most of the project’s contractual information is being withheld by the Government until the 1,500-page contract is signed and published, leading to some criticism over a lack of transparency.

However, it is understood the company is being substantially financed by Walter Scott, the business partner of the American billionaire Warren Buffett. Mr Scott is a long-time business associate of David McCourt, founder of Granahan McCourt, which is the principal company in the bidding consortium.

Other commercial backers are understood to be Mr McCourt himself and Oak Hill, a New York venture capital firm which sold its 47pc share in the Irish telecoms firm Enet a year ago.

Asked why the last premises will not be connected for six or seven years, Mr Hendrick said that was partially down to choosing fibre as the technology solution for every last rural home.

“We’re looking at 106,000km of road and 146,000km of actual fibre cable,” he said. “It’s a significant project and it just takes time.”

A wireless alternative, he said, may not be quicker to roll out and would need to be partially replaced every few years according to significant upgrades in the technologies.

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Mr Hendrick also suggested a wireless network may require more than 20,000 masts and base stations around rural areas.

The first connections to Irish homes are expected to go live “in the first half of next year”, he said, and will cost roughly the same as similar urban services.

Separately, Eir’s chief executive has said the State’s largest telecoms company will see close to €1bn in fees and revenue from rental of its telephone poles and infrastructure to the National Broadband Project.

But Carolan Lennon said knowledge of this income stream did not influence the company’s decision to withdraw from the bidding process. “That’s a strictly regulated price,” she said. “We’re allowed to make just over 8pc on that. I was actually very disappointed when we pulled out [of the National Broadband Plan tender]. I always felt that we could win. But when we started adding things up, there was just no business case for us.”

To hear the full interview, download the Big Tech Show podcast on iTunes, Soundcloud or independent.ie/podcasts.

Irish Independent