Cash on the Line - The cost of the telephones

To install one phone line it costs the consumer £180 plus an average of one year's rental £118. But the cost to Telecom Eireann of putting that line in is in excess of £1,500.
OVER THE PAST FIVE YEARS one billion pounds has been spent on the telephone service.

Over two-thirds of this capital investment has been paid for out of taxpayers money with the EEC Regional Fund contributing some £40 million and £350 million being raised by the private sector through Irish Telecommunications Investments Ltd.

In real terms the whole telephone programme has cost even more than one billion. Both the Exchequer and ITI's capital has been raised through loans and at present Telecom Eireann, the semi-state body which has taken over the telephone service, is repaying loan interest to the tune of £100 million a year.

Except for the first year of the programme, 1980, none of the yearly installation targets have been met. Last year a target of 90,000 connecctions was set but only 55,000 were actually made. While the plan's targets have gone off the board the spend spree has continued.

Ireland now has the most expensive telephone service in the EEC and Teleecom Eireann are due to increase the barges by as much as 15% this year. ,'illle a French citizen may pay as Ellie as £12 rental, Irish consumers are forking out £118.

The exorbitant charges along with :1:::e recession has killed consumer telephone demand by as much as 20%. T;Ie fall in demand has actually allowed the Department for Posts & Telegraphs

and now Telecom Eireann to clear the waiting list for connections despite not reaching their own projected targets.

The telephone service is actually more expensive than its consumer charges. To install one phone line it costs the consumer £ 180 plus an average of one year's rental £118. But the cost to Telecom Eireann of putting that line in is in excess of £1,500.

While the majority of our exchanges are now automatic the Post Office User Council (POUC) has not moniitored any great improvement in our

telephone service after all this expennditure. In 1981 it found that it took an average 1.8 attempts before an STD call went through. In 1983 the average had gone up to 1.87 showing an actual deterioration in the service. Telecom Eireann, on the other hand, claim that the failure rate for STD calls has gone down and is now under 20%. They also claim they have reduced telephone faults from 17,000 per week to 316, mainly due to the pressurising of cables.

Within the service productivity is still low, with a manpower of over 18,000. Telecom Eireann has already stated that it has a surplus of five thousand people in the organisation. With the introduction of new technology the organisation's manpower requirements has been greatly reduced.

In terms of achievements the capital investment programme has largely ormed the telephone service. Advcanced digital exchanges are now being used throughout the country and these will allow the service to extend to williary facilities such as data networks car phones and visual text. Digital is also much cheaper and easier to maintain than the old manual exchanges and it gives the whole system greater flexibility.

With the new communications nettwork due to be linked up next year Telecom Eireann envisage making their first profits within the next four years. The company will lose around £60 million this year and next but this is largely because it Has had to take over responsibility for servicing the capital debts which the Exchequer incurred during the development programme '79-'83.

The argument behind investing such sums in the telephone service was that if telephones were readily provided there would be a huge demand for them from the public, In July last year the EEC published a report showing that Ireland has only 190 phones per thousand people compared to the EEC average of 136.

The figures point out the potential out there ready to be carved up once the telephone service is modernised. Both the Exchequer and Telecom's boss Michael Smurfit have long feasted their eyes upon that pie but it now appears that the Exchequer's greed has already swallowed it up through inflated service charges.

"The Exchequer has always been the main obstacle to developing the telephones service as a marketing concept," remarks Albert Reynolds. "The Department for Finance has always seen the posts and telephone services as money-raiser - putting up the charges when ever they needed to collect more cash."

Tom Byrnes, Managing Director of Telecom, described the telephone service in a recent interview as a "hidden form of taxation". While the Excheequer, during the development period, '80 -'83, provided £248.4 million out of its own resources for the service, it pocketed an estimated £260 million from telephone charges. Instead of putting the money from the service back into the service for the benefit of the consumer, the Exchequer has consistently redirected the funds for other uses.

Tom Byrnes also accused the Exchequer of pocketing the £118.8 million from the European Regional Fund which the EEC had provided to develop our telephone service. Albert Reynolds agrees saying, "the whole problem with the Department for Posts & Telegraphs was that the Exchequer controlled the purse-strings.

Loans which I had personally arranged for the purchase of digital equipment at a very cheap rate didn't in the end benefit us at all. They went through the Exchequer and we then had to pay a 12% interest rate rather than the arranged 3%. That was why it was so important to set up a semi-state. It needed to be run as a business."

The Exchequer's attitude to the telephone service has not changed. In the National Plan Alan Dukes prooposed that the Telecom Eireann should pay the government £180 million over the next three years. Despite the fact that the new semiistate is -already crippled with debt repayments from the government's spending . bonanza of the last five years.

By the end of the year Telecom's debts will exceed £900 million. Any further levies imposed on the commpany by the government will just be pawned off on the consumer in the form of increased charges.

Prices will have to be increased by a substantial amount before Telecom Eireann would be viable. It would mean using telephone charges as a tax to service the debt," says Tom Byrnes. "This may well be in the national interest but is not what Teleecom Eireann was established to do."

The billion pounds spent is dead.

Now it seems that the public and Teleecom Eireann are going to have to pay' for the government's extravaganza.

With charges now expected to rise in excess of inflation the public's ability to pay for the telephone serrvice will diminish. So too will the semi-state's chances of clearing the debts and returning profits.

If the government begin milking this cow before she begins producing, the concept of a marketing philosophy in telecommunications, as projected by the 1978 Review Body will become impossible.

ON WEDNESDAY MARCH 4 1980 Albert Reynolds, Minister for Posts & Telegraphs opened up the Evening Herald.

"MR REYNOLDS," the headline screamed, "my phone is DEAD."

Albert was only five weeks on the job but it didn't take long to realise he had walked into a maelstrom. Phones were dynamite. After the chaos of 1979, when the P&T went on strike from February to July, the public were screaming for blood. With over 90,000 people on the waiting list and a 50% failure rate on trunk calls the phone service was on the verge of breakdown.

"It was incredible," recalls Reynolds.

"It got to the stage that I had to stay in a hotel when I was in Dublin beecause everywhere I went people were coming up to me about phones. The overall system is so impersonal the public needed someone to complain to and I was the natural candidate."

He smiles at the story made famous by Donncha 0 Dulaing about an inciident after communion at mass in Longford. Reynolds was coming back down the aisle after communion when suddenly he heard a loud hiss behind him. "Hey Albert. Any chance of a phone?"

Or the heart doctor who telexed him at 3.30pm on Christmas Eve. PHONE OUT OF ORDER STOP TWO HEART PATIENTS NEEDING EMERRGENCY TREATMENT STOP MUST HA VE PHONE IMMEDIATELY STOP. "Luckily there was a Longford man in emergency repairs and the doctor had his phone back by 4.30pm."

But the general phone chaos could not be fixed up so easily.

On the third of July 1979 the Posts and Telegraphs Review body had reported to the then Minister, Padraig Faulkner, recommending a five-year major investment plan to revamp the communications service. They baldly stared that the structure of the civil service was not suitable for such a programme and suggested that the government create two new semi-state companies to take over the running of the post and telephone services.

Faulkner and the rest of the Cabinet readily agreed. After a year-long strike they badly needed to bring the public good news on the P&T front. They committed themselves to the estimated £650 million investment programme.

With the new year Faulkner had quickly moved to Defence leaving Reynolds to pick up the pieces in the P&T and take responsibility for immplem enting the plan.

"MY head was on the line," says Reynolds, "We had committed ourrselves to this capital programme and it was up to me to raise the necesssary money."

Throughout late January and early February the Cabinet battled it out. The Department for Finance were completely opposed to giving the P&T the £200+ million that Reynolds was looking for. "I argued through several meetings saying, 'look we're committted to this plan, now if you want to see it fulfilled there'll have to be a major financial investment.' What I was saying all the time was that, the plan was there, the phones were a mess and action had to be taken now in order to get the system working again. "

Reynolds got his £235 million which was more in one year than the state had spent on the phones since 1922. But then what the plan was hoping to do was more than had been done in the past eighty years.

Once he had got the money Reyynolds had to start delivering the goods,

In early March he appeared on RTE's Public Account programme, promising that there would be 60,000 installations that year. This figure vastly exceeded anything the P&T had ever managed before. The most phones they had ever installed in any one year had been only 40,000. Pat Kenny, the interviewer, expressed his doubts.

Would the Minister, he asked, come back next year to stand over his promises? On March II 1981 Reynolds returned to the programme. The P&T had exceeded the target by some two and a half thousand.

"I wanted to prove everyone wrong. I wanted to show all the critics that the P&T could do it. Absolutely no one believed me when I made that promise but I showed in the year that if the Department was treated in a business-like manner, high producctivity could be achieved."

But Reynolds was forced to begin the five-year plan without the semiistate which the review body had deemed essential for the success of the programme. While he admits that using the civil service structure has led to financial waste and inefficiency he defends the decision to begin the programme without waiting for estabblishment of the semi-state.

"If we had waited we'd only be starting the plan now, four years later, and we'd have lost considerable money in the industrial sector. We had to act then and begin the changeeover rather than let the old system muddle along."

The system Reynolds inherited was more like a patchwork quilt than a communications network. Consecutive governments had failed to plan even one year im o the future and had perrsisted in regarding the P&T as a connvenient money-raiser. Throughout the sixties the telephone service had been starved of funds and largely ignored once it continued to return profits.

The last year it did this was in 1971. Under the Conor Cruise O'Brien administration, '73-'77, the decision was taken to replace the old and antiiquated Strowger manual exchanges with Crossbar ones but once again there was a complete lack of forward planning and central organisation. Changes were made haphazardly. Bits and pieces were added on to the exissting system at random. The Cruiser was more interested in broadcasting than telephones.

"You had the case where there was a building on one side of the city but no equipment and cables. While on the other side you had stores of cable but no site and no equipment," according to Reynolds.

In other countries telecommuniications had been forward planned as much as fifteen years while in Ireland the five-year plan was the first forward planning in the department.

"The problem had been that connsecutive governments had starved the department of capital in the budget. Cruise 0 'Brien's problem had' been that he was denied cash to do anyything. It was well known that in cuttbacks the P&T came top of the list. The result was that projects remained half finished or weren't carried on by the next government."

In 1980 Reynolds said the cost of the programme would be £800 million at 1980 prices. Soaring innflation and the sinking value of the Irish pound had pushed the original £650 million price tag upwards. By 1984, the year Reynolds had promised us there would be phones on demand, the bill had inflated to £1,000 million.

"There was a lot of money wasted over the years because there had been no planning in the department. It cost us a billion to do in a few years what should have been gradually developed over a much longer period. It could have been done cheaper if we had started planning our communications service earlier."

During his ministry Reynolds set up the vital deals with digital companies for the new equipment needed to uppdate the exchanges. He signed up with CIT Alcatel, a French digital firm, who supplied the equipment through an Irish company Telectron, and a huge Swedish group L.M. Ericsson.

The first digital system was opened at Athlone exchange in December 1981 and the second at Kells the following January. At the Kells cereemony, which was attended by half the P&T ministers for the last decade, a visiting technical journalist was seen to visibly gasp when he was shown around the old manual exchange. "This stuff," he said, "is now only used in Third World developing counntries. "

After the Coalition came into government in 1981 the funding emphasis in the investment programme shifted from the Exchequer to the private sector. Irish Telecommunicaations Investments Ltd (ITI) had been set up as a private company under Albert Reynolds. "The objective was that ITI would secure the development programme. If governments changed and decided that they weren't going ahead with the plan or cut funds, IT! could go ahead and raise its own capital. "

ITI raised some £350 million, bought the equipment or sites needed and then leased them back to the department. ITI is now a subsidiary of the semi-state Telecom Eireann which took over the telephone service last January .

The shifting governments between '81-'82 delayed the processing of legislation necessary to transfer the P&T into two separate semi-states. Originally responsibility was intended to be transferred to Telecom Eireann in April 1981. The delay meant that the P&T Department was left to immplement the five-year plan, a manageement structure which had been judged incapable of just such a task by the Review Body.

The plan was further frustrated by the Exchequer's decision in 1982 to cut overtime in the P&T. Reynolds had established overtime as an essenntial factor in boosting man-hours to meet installation targets. Employing staff would have meant redundancies within a couple of years and mannpower shortages were usually contained in specific areas such as joinery. •