STRAIGHT TALK
Straight Talk: Danny McLaughlin, BT Ireland
23-08-2006
by Maxim Kelly
BT Ireland boss Danny McLaughlin talks to Maxim Kelly about broadband, Eircom, and what's ahead for telecoms in Ireland.
ENN: Where are you from, Danny, and how did you start off in BT?
McLaughlin: I'm from a small village called Glenboig just outside of Glasgow and actually left Scotland when I was 16 to work in a brickworks. But my parents quite rightly ripped me out of there and got me to get a "proper" job. I joined Post Office and Telecoms at that time as an apprentice engineer. I qualified as an engineer there but immediately the market liberalised and I went into sales in what became BT. This was in the mid 1980s.
ENN: And how did you end up becoming a chief executive?
McLaughlin: I've always had a career plan but none of the things in the plan ever happened the way they were supposed to. The last three jobs I've had were just because of fortuitous circumstances. I happened to be at a point where I'd done what I'd supposed to have done in a job and was ready to move on to something else; a good couple of vacancies came up; I talked to the people responsible, and I ended up in this job.
I was very keen on this job because it's almost unique in the BT Group.
ENN: How's that?
McLaughlin: In the sense that BT is functionally organised into sales, service, marketing, billing etc, whereas in Ireland [this job] is everything, therefore you run the company end-to-end.
It's like a mini version of the BT Group.
ENN: How do you find doing business in Ireland?
McLaughlin: I find customers in Ireland very receptive to what BT has to offer. I've been really encouraged by the attitude of customers towards us: very open, can get into any board room, customers are interested in what we're doing around the world and how that can help them, and consumers have been very receptive to our new offer for broadband, line rental and calls.
ENN: How do you think the Irish public and Irish businesses view BT?
McLaughlin: Businesses are very rational and the BT story is fairly well known amongst our larger customers here. Ireland has a lot of global multinationals operating North and South. They know what we do and we may have relationships with them in other geographies.
With SMEs I think we've got quite a lot of work to do tell them who we are and what we can do for them. That will be mainly around the broadband and other services we can deliver down that broadband pipe, and looking after their IT requirements.
Consumers break into a couple of camps. There are always the early adopters and they will try other service providers like us. Then there's a group of consumers who are harder to persuade because they're more conservative. You find these in every geography and BT has them in Britain, too.
ENN: And why did BT decide to come to Ireland? There is obviously the state telco legacy in Northern Ireland, but why did you decide to go for an all-Ireland approach?
McLaughlin: At the time there was a very deliberate strategy to expand into all of the developing geographies. You only had to look into the economic profile of Ireland with continuing high levels of economic growth, population growth, and attractiveness to business through low tax rates etcetera to understand that this was an area where we would have to be as part of our global infrastructure.
The only decision was whether to do it organically or to acquire. In the end we acquired Esat which was fairly quickly integrated into BT's global network of companies under the global services brand.
ENN: The Irish telecommunications sector seems to be in a state of flux at the moment at a regulatory level and at corporate level. Is it difficult to keep in touch with exactly everything that's going on?
McLaughlin: Not really. There's that which operates under the Ireland jurisdiction: ComReg and the market here, and there's that which operates under the UK system. The UK sector is fairly stable and predictable given that the strategic undertakings have followed the Telecoms Review. We just get on with it now and [BT's activity] is more of an execution issue. In Ireland we are not yet at that point.
We have a much more dynamic environment here given the historical lack of progress on opening up the markets; the high market share; high broadband price; and the lack of availability thereof.
However, we now have two things: the Industry Forum under the leadership of ComReg which has a great deal more determination to make Ireland look like any other European country in the sense that the market is open; and the change in ownership of Eircom.
ENN: Is that change of ownership under Babcock & Brown encouraging?
McLaughlin: I was reasonably encouraged in the early days prior to the takeover by the noises the prospective new owners were making: "Yes, we believe in open markets. Yes, we believe in LLU. Yes, we may even split the company into wholesale/retail." So clearly the statements of the new owners allied to ComReg's determination supported by Minister Dempsey and his statements about increasing the powers of ComReg -- that ought to facilitate a different market context here. But the jury is still out. We will all have to work to make it happen -- it's not just an Eircom issue. We've to play our part, as do others in the Industry Forum.
ENN: You said in April: "Eircom continues to frustrate and we do not see a positive indication that a future change of ownership at the monopoly provider will bring a more positive approach." How do you feel now?
McLaughlin: I think the jury is still out. If you take the comments at face value then it ought to help. Frankly, with the old regime we were never going to get anywhere. They played a very good game of maintaining high share and high price. They did that very well and did a good job for the shareholders. And were all nicely rewarded for it, but things have to change and I think there is a momentum and head of steam built up for change.
I think it would be very difficult to walk back from it now given how public the Industry Forum is. The fact that BT went out of it, came back in and that ComReg are publishing monthly reports is positive.
I think we've had some success in the easy bits such as with manual number portability.
ENN: That's an easy bit of the Local Loop Unbundling (LLU) process?
McLaughlin: Yes. Because you don't have to invest a lot of capital -- it's manual. But it's very constrained because it offers limited volume.
ENN: And you're looking to get this process automated?
McLaughlin: Yes. That's the next phase of the process. The next difficult part is migration: the ability to migrate from an Eircom wholesale product to our own retail [broadband] product, and the ability to do so at scale, which is automation of migration. That's the more difficult outcome to achieve, but that is the only one that will deliver a scaling-up and a change in the structure of the market.
ENN: When this expected equalising of the broadband market occurs so that BT no longer re-sells an Eircom bitstream broadband product, will BT Ireland have to notch up a gear?
McLaughlin: We have actually started to ramp-up our marketing activity in the expectation that these issues will be resolved.
ENN: You were a witness at the recent Oireachtas Joint Committee on Communications. At it you said last year was the first time in your career you'd under spent your investment budget -- only EUR55 million was spent -- because of conditions in the Irish broadband market. I understand you have to pitch to BT Group for your capital investment budget. Is that difficult?
It's a rigorous process because BT is very careful about the allocation of capital. We are very keen obviously to make an account to our shareholders of every Pound or Euro that we invest. The Group has lots of opportunities -- Ireland is not the only one -- so I'm effectively competing with other opportunities for that capital.
ENN: And was it Irish market conditions that forced you to give back some of that capital last year?
McLaughlin: Absolutely. It was frustrating and a little bit embarrassing to fight for something, get it by and large, and go back eight or nine months later and say: "We're not going to use it." Because in all conscience, with my fiduciary responsibilities here, I can't throw capital into something when I know we're not going to get anywhere with it. The rationale is still there to do it, but conditions are still not quite right yet.
Now -- hopefully -- out of the Industry Forum we will have the right conditions. I am again in the position of having to bid next year's money within the next couple of months, but I'm going to bid for it because I have a reasonable belief that ComReg and the Industry Forum will deliver.
ENN: One may infer that you have a personal interest therefore as the representative of this business to go and pitch for this money?
McLaughlin: It becomes a credibility issue, yes.
ENN: And in regard to this continuing broadband process with the Industry Forum, where do you think we are at the moment? There are so-called milestones in the roadmap for broadband.
McLaughlin: We need inchstones. Milestones are too far apart.
ENN: How has the process been so far? And what has to be done in the future?
McLaughlin: If you take the very literal view of the roadmap, we are on track, because the first milestones concerning a manual process for number portability have been delivered.
What's an issue for us is scaling up. That's doubling our volumes and at the same time having the ability to migrate those [broadband] customers to our LLU facilities where we get a decent margin. At the same time we get control over the customer and the product.
Our LLU product has things like class of service so we can deliver different things over it. It's the same product we currently deliver in Northern Ireland which is at speeds up to 8Mbps. That means we can deliver video-on-demand. So for BT Vision, which is a television offering we'll be launching in the third quarter of this year in the North, you have to have that kind of high bandwidth for broadband to make it work.
Our intention is to deploy the same technology in Ireland as we do in Northern Ireland so we have the capability to offer a range of ubiquitous consumer products North and South. That just leverages the big investments we need to create these products.
What's been delivered so far by the roadmap is not where the big prize is. The big prize is the ability to mass migrate customers onto the LLU product. And that's still to come.
The rubber has yet to hit the road on the difficult stuff and I'll be the first to acknowledge it is difficult. It's potentially expensive to do, so there lots of debates around how we can do this and how we can accelerate the process, and how do we have a fair way of funding it all. That's where we look to ComReg for leadership.
I'm just holding my breath a bit because I know the next step is still to come and therefore that tempers our euphoria of what's been delivered so far. Had the first bits fallen over, though, that would have undermined confidence in the rest of the process. The cork is still in the champagne.
ENN: You've said there has been an "issue of leadership" for the roadmap on Local Loop Unbundling. Can you expand on that?
McLaughlin: If you look at how this all happened in the UK, the thing that really accelerated the LLU process of opening up the market and delivering genuine infrastructural competition was the position BT Group Chief Executive Ben Verwaayen took. He decided very clearly that broadband was the future core product of the telecommunications industry. At that point the UK would have been behind its peer group in Europe. Ben grabbed the issue and he made it the single most important issue in the company.
He got the top couple of hundred managers together and told them if they weren't on board with that as the agenda then "go and do something else". Then all of the communications, allocation of resources and decision making was about moving that process forward. The success of that attitude is there to see: there are nearly 10 million broadband customers in Britain. It's a very open market and prices are good.
ENN: Is Ireland falling behind its peer group in terms of communications infrastructure because of an interminably slow LLU process?
McLaughlin: Sure, we acknowledge there's been progress and catch-up there at Eircom -- and there's a long way to go to catch-up. Just two hours travel up the road you get a standard 8Mbps product that's available to 100 percent of the population. My gut tells me that the Republic of Ireland is probably two or three years behind its peer group in Europe. So it's going to take that length of time to catch up even given that there is a will, determination and allocation of resources to catch up.
ENN: Do you get questioned when in Britain on the difference between broadband infrastructure in Northern Ireland and the rest of Ireland?
McLaughlin: Absolutely. A good example is a big [European] bank for whom we've just finished a renewal of their corporate communications infrastructure. They decided that they wanted to order 1,000 broadband connections so they could train their staff at home on internet banking products. When we said, "No problem, we can do that in Northern Ireland but we can't do it in the South," they were incredulous that in Northern Europe in 2006, 30 percent of their employees could not get broadband at home.
ENN: In Northern Ireland there was a competitive tender to get access to the last 10 percent of households who couldn't get access to regular broadband. Can you see that happening in the Republic?
McLaughlin: In any State with a significant rural population, you reach the economically viable coverage at a certain point. Say for argument's sake 80 percent. Then you have to be clever about how you get some public sector funding to cover the rest in order to avoid a digital divide and exclusion.
Rather than the public sector pay for it -- because I don't think that's right, they should just pay for the infrastructure -- the question we asked ourselves is: how much would the public sector have to inject for us to bring our plans forward?
So bringing forward the investment is the problem and the cost to do that was much less than people thought it would be in Northern Ireland: less than STG10 million to complete 100 percent broadband coverage for the people of Northern Ireland.
ENN: Can you hazard a guess how much it would cost for the rest of Ireland?
McLaughlin: Let's say it has four times the population of Northern Ireland, therefore it would cost around STG40 million. When you think about some of the other investments the public sector makes in telecoms infrastructure which are much bigger than that figure, do [those investments] really contribute to those digitally excluded by a lack of broadband? That's the question I would ask.
ENN: What about the demand issue?
McLaughlin: We've heard a lot of nonsense that there's not a real demand for broadband here, and I fundamentally don't believe that. The problem has been lack of stimulation and lack of education and leadership. If you look at the UK's 10 million users, average time online is 27 hours per week. Regular users are now spending more time on the net than watching TV. The evidence is also that advertising is moving from television onto online. Are you going to tell me the people in Ireland are that much different? I don't believe it.
We launched a new consumer offer four weeks ago and it's had a tremendous response from consumers here. We've been getting three times our normal volume of calls at our call centres. That's an extra 25,000 calls in four weeks. Over 70 percent are new to broadband so we're not just churning people from one service provider to another -- this offer has demonstrated that if you get the offer, right customers will come.
ENN: Maybe 70 percent are new to broadband, but in terms of LLU how many can you actually supply with broadband?
McLaughlin: Yes, that's the issue. About 60 percent of them.
ENN: So 60 percent -- a bit more than half -- of that 70 percent?
McLaughlin: Yes. So we are still saying, "Sorry, you can't have it" to some people because their exchanges have not been enabled or they are too far from the exchanges. We've offered something they want to buy but we can't supply it because it's not suppliable. It's like trying to sell a car but there is no road to drive it on.
ENN: So if you can demonstrate that demand, does that mean you can pitch for more capital from BT Group?
McLaughlin: Yes and no. Where the capital will go is on the LLU exchanges. This latest EUR45 offer is actually on bitstream. But where the answer is yes is that we can obviously grow our customer base, therefore the potential is there to migrate these customers over. It's only when we get the migration LLU product sorted that can we flip them over, and the capital goes into taking the number of unbundled exchanges up to about 150 from only 45. That means we could migrate over 80 percent of our customers to our broadband product proper. We'll never be able to migrate 100 percent.
We've got 35,000 customers growing rapidly on Eircom's bitstream and our business plan states that at a certain point we have to flip those customers onto our LLU product, because we make no money on them by reselling Eircom's bitstream. But we keep building that base in order to have something to migrate. Therefore the real prize in terms of what our business wants -- and also what opens up the market and creates a more competitive market profile -- is an automated migration product. That's still to come, will be more difficult and will be a test of ComReg's leadership to get it done.
It will also test the will of the new owners of Eircom that they can grow their business in a more competitive environment. They say they can, and actually Monsieur Danone did that when he was formerly at BT.
ENN: Have you met the new ownership of Eircom?
McLaughlin: Yes. The new chairman Pierre Danone was my old boss at BT.
ENN: And what's your impression of what he and his team are going to do?
McLaughlin: Speaking for BT, I was encouraged in my early meetings with [B&B] because they were saying all the right things. BT is a very big customer of Eircom's worth over a EUR100 million per year to them. They are determined to treat us like a big customer in the wholesale business, therefore we should work closely to deliver things we want to do for our customers, but we need them to create products for that. I am encouraged that that will go better.
The statements around how they can grow Eircom by separating wholesale and retail and work on their mobility products like Meteor show they are confident they can grow their business and work toward an open market, therefore early signs are quite encouraging.
The litmus test though will be what comes out of the Industry Forum. Therefore I think the jury is still out, but the noises they are making are the right ones.
ENN: And are you lobbying Government and opposition parties on these issues in the run up to next year's election?
McLaughlin: Yes. We have distributed a document about how Northern Ireland came from nowhere to taking a leading position in this, not only in the supply side but also in the demand side. Northern Ireland is now climbing up the league of regions quite quickly.
ENN: What new policies would BT like to see after the next election here?
McLaughlin: Any policies that continue to encourage investment and support customer choice. I hope the upcoming election does not slow down or derail the Industry Forum. Continuity is actually the best thing. Especially the execution of policy.
I'd like to see open markets, improved customer choice, the ability to operate our business fairly as in other European countries. I want to proceed with reductions on line rental in relation to where Ireland sits with its European peers. I expect the new owners at Eircom will want to see that go up but I would argue vigorously against it.
ENN: Do you think they will ask for a regulatory holiday to achieve that?
McLaughlin: I would admire their cheek if they did that. What does the Government of Ireland owe the new owners of Eircom?
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