COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT
OFFICIAL REPORT
(Hansard)
Project Kelvin
12 February 2009
Members present for all or part of the proceedings:
Mr Mark Durkan (Chairperson)
Ms Jennifer McCann (Deputy Chairperson)
Mr Paul Butler
Mr Leslie Cree
Mr Simon Hamilton
Mr Alan McFarland
Mr Gerry McHugh
Mr Robin Newton
Mr Jim Wells
Witnesses:
Ms Fiona Hepper ) Department of Enterprise, Trade and Investment
Mr David Sterling )
Mr Derek Bullock ) Hibernia Atlantic
The Chairperson (Mr Durkan):
Today’s briefing on Project Kelvin will be delivered by officials from the Department of Enterprise, Trade and Investment (DETI) — David Sterling, who is deputy secretary, and Fiona Hepper, who is head of strategic policy and statistics. Also in attendance is Derek Bullock, who is vice-president of network operations at Hibernia Atlantic.
Mr David Sterling (Department of Enterprise, Trade and Investment):
I thank the Committee for the opportunity to come along and set out what the project will do, the benefits that it will bring, and, specifically, to allay concerns that have been expressed about certain aspects of the project, particularly with regard to the location of the telehouse.
Fiona Hepper will give the Committee a brief overview of the project and talk about the papers that members have been provided with. Derek Bullock will chip in with points that you may wish to ask questions about.
Ms Fiona Hepper (Department of Enterprise, Trade and Investment):
Project Kelvin is a joint DETI and Department for Communications, Energy and Natural Resources (DCENR) project, which is designed to bring a direct international communications link from north America to the north-west of the island and to improve our communications links with mainland Europe.
The funding for the project has been provided by the cross-border territorial co-operation fund — the INTERREG IV programme. The north-west is defined as the whole INTERREG region, but the project also contributes to the north-west gateway initiative, and it will deliver on the commitment in the Programme for Government to establish an international telecommunications link in the north-west directly to North America and Europe by 2009.
One of the first steps that we took in pulling the project together was to commission PA Consulting Group to carry out a study and an economic appraisal of the proposal. The purpose of that was simply to provide an indication of whether the project was in any way feasible and affordable and whether it would require any public-sector intervention.
That study confirmed that there was merit in the overall proposal; that it would be economically positive and technically feasible; and that it would, indeed, require a level of public-sector intervention in order to make it happen. The purpose of the feasibility study was absolutely not to produce a final design or to be prescriptive about how the project would, ultimately, be delivered. Therefore, having identified its viability and the approximate level of public funding that would be required, DETI and DCENR jointly sought and obtained €30 million of support under the INTERREG IV operational programme.
We also engaged with the state-aid process, applying on the basis that we were bringing direct international connectivity to the island with the objectives of increasing competition in Northern Ireland’s telecoms market; making access to international connectivity available to businesses on the island — particularly in the north-west — including small- and medium-sized enterprises (SMEs); reducing the cost of telecoms and making the cost of our international telecoms comparable to that in urban areas in the UK and the Republic of Ireland; reducing latency in the telecoms network in the north-west of the island; and increasing resilience throughout the INTERREG region and the entire island. We also seek to mitigate the border’s effect on pricing differentials. However, we must also ensure that we meet the minimum level of intervention that is required; hence we did not accept all of the recommendations in the feasibility study, particularly those that relate to data centres.
In line with the application, the approval for state aid notes that three mandatory access points were to be put in place in Londonderry, Letterkenny and Monaghan. Those access points would be the beneficiaries of the link, with the same range of services and costs available in each location. It also notes that the infrastructure in the three locations is at the minimum level that is required.
Procurement was overseen by the Central Procurement Directorate in line with EU procurement regulations. All specifications and elements of the evaluation of tenders, and so on were undertaken by a joint North/South team that included Ireland’s national telecoms adviser and independent expert consultants. The mandatory requirements are listed at annex A of members’ papers. They include requirements that relate to the resilience and latency of the link, a specified series of products to be delivered at each location, the carrier neutrality of the status of the link, availability, and price.
As I said before, three mandatory locations were specified — Londonderry, Letterkenny and Monaghan. However, the tender also stipulated that the location of the submarine-cable landing point could be along the coast of either County Antrim or County Londonderry, at a point to be determined by the tenderer, but that it had to be west of Rathlin Island. We were quite specific in identifying that coast, because when we were doing the market warming for the project, we had several indications that some companies were quite keen to bring the cable into Belfast or Carlingford Lough, which would defeat the purpose of what we trying to do.
The bidders were awarded extra marks for additional locations. However, it was stipulated that all the features of the offering that were available at the three mandatory locations would also have to be present at the additional ones. Seven companies expressed interest and attended a supplier briefing, during which clarification was sought on several aspects of the invitation to tender, including the location of the tele-house. In total, three bids were submitted. At the end of the process, the winning tender was from Hibernia Atlantic, which met — and, in certain aspects, exceeded — the mandatory requirements.
The main features of Hibernia Atlantic’s approach are as follows: the international link will be operational by the end of 2009; the new submarine cable will run from Portrush to connect to the existing Hibernia north cable, which is approximately 22 miles off the Northern Ireland coast; there are no environmentally sensitive issues with the cable’s landing point; from Portrush, the direct link will go to a site in Coleraine, which is the point where the submarine cable will interface with the existing terrestrial telecoms infrastructure; access to the new link will be available in eight locations — or access points — throughout Northern Ireland and five in the Republic of Ireland; and at each location the full range of products will be available, prices will be the same and performance will be guaranteed.
At each access point, the other telecoms companies will join the system. In order to provide backup in the event of cable failure, there will be a link to a second transatlantic cable, called Hibernia south, which goes into Dublin. The cost of international connectivity will be the same at each location and will be, at least, comparable to that in major UK cities — particularly Glasgow and Manchester — and in Dublin. In fact, the price that is offered by Hibernia Atlantic undercuts the lowest median price by 20%. The latency that will be achieved by the link is 25% lower than that which the tender required. There will also be increased resilience through the Hibernia north and Hibernia south links.
The objectives of the project that are listed in the state-aid approval have been achieved by the project as designed. With regard to the next steps, Hibernia is, at this stage, well advanced in technical aspects of project delivery, and cable testing is scheduled for the end of February. Work will be undertaken in the next few weeks to prepare both the terrestrial and the submarine elements of the project. Hibernia will also be finalising contracts with key vendors, and will be more actively marketing the link. There has already been significant interest in the benefits that the project will bring to Northern Ireland and the north-west.
This is a £30 million Government intervention in a project worth approximately £70 million. For the first time in Northern Ireland, we will have direct access to a billion-dollar, world-wide telecoms network.
We should be aware that the delivery of the project is not without significant risk to Hibernia Atlantic. There are physical risks in lifting the cable and in diverting customers that are already on that link for the time that it takes to lift and cut it. It is also taking a risk that, in diverting part of the cable to Northern Ireland, it will be able to attract business that it would not otherwise get by linking customers directly to Southport.
The project is a very significant opportunity for us, and attention needs to focus increasingly on how we can use the build period, over the next few months, to market the products and the position of the whole region, as well as the sub-regions, to best advantage.
Mr Derek Bullock (Hibernia Atlantic):
Thank you for the opportunity to speak to the Committee today. The last couple of weeks have been very strange for Hibernia Atlantic. We operate in eight countries, and have more than 60 points of presence. We have partnerships which carry circuits from South Africa, Australia, China, around Asia and so on. This project has been receiving a lot of negative publicity. A lot of our multi-national clients have been contacting me, wondering how they can do business in Northern Ireland, and that negativity is extremely disappointing.
We are promoting the system in Hawaii, at a conference hosted by the Pacific Telecommunications Council. It is the largest conference for carriers and customers. All of the major software houses, search engines and financial institutions, as well as various different Governments, attend. We have heavily promoted the whole network going out to those new cities throughout the north-west region and Ireland, and there has been a lot of interest. It would be a shame if those interested parties were to see that negative publicity at the moment.
To be honest, some factually incorrect statements have been made. For example, it has been said that Derry will get less connectivity than other areas. People think that, just because the cable landing station — or tele-house, as it can be called — will be at Coleraine, there will be less connectivity elsewhere. That is completely factually incorrect. We are providing a world-class solution; every single town that we will deliver to will have exactly the same equipment, the same connectivity and the same product services. There will be slightly different latencies, because we cannot change the laws of physics; that is the way that things work. It is the same with pricing. To state that one place will have more connectivity than another is factually incorrect.
The Chairperson:
Does that include the remarks made by your company representative, which were quoted in the ‘Coleraine Times’ this week?
Mr Bullock:
There is lots of publicity going on in Coleraine, and the local business people are embracing the opportunity and saying that they are going to be at the closest point to Europe. That is correct. The cable is coming in at Portrush, and they will have access there. It will be the nearest point. The latency will not change, but everywhere else will have exactly the same connectivity; the same chance to come in, connect and avail of all of the products.
The Chairperson:
We will come back to you on that point. David, do you want to add to that?
Mr Sterling:
No, I am happy to take questions.
The Chairperson:
I have some questions, and I am aware that some members have also indicated that they want to ask questions.
Mr Wells:
Excuse my ignorance, but what exactly is a tele-house? Is it a huge complex, employing lots of people, or is it basically a fuse box? What should we expect to be built in Coleraine?
Mr Bullock:
The tele-house, or cable landing station, that we will put in will be a containerised solution. It is equivalent to six 40-foot containers. It will have no employees. No one will be employed there to directly manage it; it will be remotely operated. It will be a highly secure facility.
Carriers in the region will connect into the tele-house, in the same way that they will connect into every single point of presence in every other town. Carriers will connect where they have the closest access.
Mr Wells:
Are the people of Londonderry — and I mean the city, as opposed to the county — missing out on anything prestigious by not having the tele-house?
Mr Bullock:
In my opinion, no. We recognise the concerns, and we are obviously very aware of the publicity. Over the past couple of weeks, we have engaged heavily with some entrepreneurs in Derry city. We had some very positive meetings with them yesterday. They are trying to attract investment in order to build what could be called an international carrier facility in Derry. That could be turned into something extremely positive.
Mr Wells:
Perhaps the point that the people in the north-west are making is that the tele-house will come to Coleraine, so — presumably — companies in Coleraine will be able to avail of that facility quickly, but it will take several weeks before it gets down the road to Londonderry.
Mr Bullock:
Absolutely not: every site gets turned on at exactly the same time.
Mr Wells:
So there is no time lag?
Mr Bullock:
Absolutely none.
Mr Wells:
Is the tele-house like a transformer?
Mr Bullock:
It is a container. That is a very popular method of construction, because it is convenient and flexible. We are physically limited with regard to where the cable can be brought onshore. It must be brought onshore within a certain distance, and the signals must be re-amplified. A facility is needed in the Coleraine area.
Mr Wells:
In layman’s terms, are you absolutely certain that the strength of the signal in Coleraine will not be stronger than the signal anywhere else that is connected subsequently?
Mr Bullock:
Absolutely not. There is absolutely no difference in the product that is offered to any of the towns.
Mr Wells:
Why has the issue caused controversy in the local press and regional media? Clearly there is a level of misunderstanding somewhere.
Mr Bullock:
There has been a level of misunderstanding. As I said, we are working very closely with businesspeople in Derry to educate people and to highlight that they will have a world-class facility that can be exploited. That is what this project is all about — it is about stimulating the economy and stimulating entrepreneurs to take advantage of the technology to create micro-industries and attract foreign investment.
The Chairperson:
Fiona referred to the ‘Department of Enterprise, Trade and Investment Direct International Connectivity Feasibility Study: Final Report Executive Summary’, written by PA Consulting in 2007. Where did that report recommend that the tele-house should be located?
Ms Hepper:
The PA Consulting report ranked a series of locations along the coast where it thought that the cable could come onshore. It determined that the best place for the cable to land was in Portrush. It also stated that the first place to which it could connect was the Coleraine exchange, and then it would continue onward to Derry, if a data centre was to be located there.
The report referred to the cable landing in Portrush, connecting at the first point of contact — which was the Coleraine exchange — and then continuing to a tele-house/data centre at Derry. That facility is quite different from the solution that Hibernia Atlantic proposed. That data centre is more like the type of facility that Derek talked to some entrepreneurs in Derry about over the past couple of weeks. However, that is not a tele-house according to the definition of “tele-house” in this project — they are two quite different things.
When I made my presentation, I said that it was important that we ensured that the intervention and the amount of public money that went into the project was at the minimum acceptable level. There is no market failure in data centres, so they were never going to be part of Project Kelvin. There already is a data centre in Derry city, on the Strand Road.
The Chairperson:
What did the report state about the location of a tele-house?
Ms Hepper:
It stated that the first point of contact would be the Coleraine exchange, which is the —
The Chairperson:
What did it state about the location of a tele-house?
Ms Hepper:
That is what I am telling you. The equivalent of what is contained in the Hibernia Atlantic solution was what the report referred to — the first point of access was the Coleraine exchange. The report also states that another option was to bring the cable from there to a tele-house/data centre, which is different from the tele-house that we refer to in the project.
The Chairperson:
The report clearly recommended that there should be a tele-house in Derry.
Ms Hepper:
It recommended a tele-house/data centre.
The Chairperson:
In some references, it was a tele-house and a data centre. In others, it was a tele-house/data centre.
Ms Hepper:
My recollection, from reading the feasibility study, is that it was a tele-house/data centre.
The Chairperson:
Was that the case on every occasion?
Ms Hepper:
I cannot say it was on every occasion, because I do not remember every sentence in the report.
The Chairperson:
Well, it is an important point, because that is where people will regard the controversy as arising. Controversy arises when an initial report says that a tele-house is to be located in a particular place; subsequent applications and proposals state that it will be sited in that place, and then it transpires that it is not located there. That is where one gets controversy.
Ms Hepper:
The feasibility study was exactly that — a study to establish whether there was merit in the Department taking the project forward to the next stage. The Department did not, and never would have, accepted all of the recommendations in the study, because, as I have said, there is no market failure in data centres. Therefore, the Government would never have invested money there. Entrepreneurs have already reacted to needs, and there already is a data centre on the Strand Road.
The Chairperson:
The Department’s feasibility study states:
“It is envisaged that in order to maximise the success of the cable that an international peering point / telehouse would be established in Londonderry, and that a data centre would be collocated on this site.”
Ms Hepper:
That is what I have said.
The Chairperson:
I am making the point that the reference to the tele-house was specific, and freestanding, from the data-centre issue. OK? If you are saying that there is already a data centre, people might say that that is taken care of. I am making the point that the reference to the location of the tele-house was absolutely specific. You appear to be suggesting that it was always a case of tele-house/data centre and that things have changed because that was not the model that was pursued.
Will you say what was stated about the location of the tele-house in the submissions for INTERREG funding?
Ms Hepper:
In the INTERREG application, the Department said that there would be three mandatory locations for access points — Londonderry, Letterkenny and Monaghan.
The Chairperson:
Yes.
Ms Hepper:
That is what the Department was talking about. There were three mandatory access points.
The Chairperson:
Mandatory access points; does the mandatory access point in Londonderry refer to the city or the county?
Ms Hepper:
It was clarified in presentations on the open day that there had to be an access point in the city, but that the tele-house could be anywhere in the county.
The Chairperson:
I am asking you about the INTERREG application.
Ms Hepper:
My understanding is that the INTERREG application referred to the access points. It did not go into the level of detail of the solution.
The Chairperson:
When three locations are mentioned — Letterkenny, Derry/Londonderry and Monaghan —
Ms Hepper:
What the Department is talking about there is access.
The Chairperson:
What does “location” mean? In that instance, does Derry/Londonderry mean the city?
Ms Hepper:
In respect of the access point, it means the city, yes.
The Chairperson:
What was stated about the tele-house location in the INTERREG application or accompanying papers?
Ms Hepper:
I do not recall the detail of what was said about a tele-house, but the Department did say that it was putting forward a proposal to bring international connectivity to the INTERREG region, and that it would bring the same pricing, resilience and latency to three mandatory locations.
It was at that stage in the procurement route that the private sector and the market would have the opportunity to respond with how best to deliver that solution.
The Chairperson:
If you are not clear about, or are unable to say, what was contained in the INTERREG applications; in relation to the accompanying notes issued to the Assembly and the Committee along with the Programme for Government and Budget, what was said about the location of the tele-house?
Ms Hepper:
The target in the Programme for Government is to bring direct international connectivity into Northern Ireland and the north-west by 2009. I do not recall any documents put forward by the Department that specifically mentioned a tele-house.
The Chairperson:
Have you consulted those documents in preparation for this meeting?
Ms Hepper:
I have read the Programme for Government.
The Chairperson:
David, have you consulted those documents?
Mr Sterling:
Yes, and let me try to cut through this; I suspect that you are moving toward the ‘Invitation to Tender’, which did envisage, within the requirements, a tele-house.
The Chairperson:
At last someone remembers something.
Mr Sterling:
The ‘Invitation to Tender’ clearly envisaged within the requirements a tele-house in Londonderry — Derry city. When the tenderers meeting took place in the Everglades Hotel — and I think that there were seven companies in attendance — the question was asked; does the tele-house have to be based in the city, or can it be based somewhere else? Following technical advice, the tenderers were advised that the tele-house did not have to be in the city as that would not have any impact on the services that the project is seeking to provide to the north-west.
Derek has already mentioned the relevance of the tele-house, and it is worth saying from the project team’s point of view that what they were seeking to do — and what I think they have done — is to provide a system that deals with the issues of price, latency, resilience and competition, with regard to international connectivity. I understand your questions about the location of the tele-house; however, in giving the advice to the tenderers that the tele-house need not be located in the city, it was on the clear basis that there would be no detriment to the city of Derry, nor indeed, any advantage to anywhere else. That is the Department’s position on this. Perhaps Derek would like to say something to reinforce the points made earlier.
Mr Bullock:
I do not fully understand the controversy behind this tele-house, but perhaps that is naivety on my part. As I said, we operate globally, and the points of presence are the points that matter, as that is where one connects into the system. What is important is the equipment that is in there, the services that can be offered, and how well it can be marketed and promoted within the regions. Every single town that we are connecting to has exactly the same transmission equipment. The transmission equipment in the cable station — the tele-house — is exactly the same as the equipment that is going into Derry city, Omagh, Armagh, and all the other towns; the products are exactly the same. We are willing to work with every local council, Chamber of Commerce and local entrepreneurs in order to make the most of this. That is something that we are actively trying to do.
The Chairperson:
Can we get a clear answer on what information was provided to Assembly Members last year, in the context of our consideration of the Programme for Government and the Budget, as to where the tele-house was to be located? When this Committee received all its information in respect of the Budget, what was it told about the relevance of the project to the north-west gateway initiative? What was explained about the maps of disadvantage?
Mr Sterling:
The references in the Programme for Government were about bringing international connectivity to the north-west. Our view is that that is what the project is doing; it is fulfilling, indeed exceeding, the objectives that were set out at the time.
The Chairperson:
What were we told about the location of the tele-house?
Mr Sterling:
I do not have the relevant Programme for Government extract in front of me.
The Chairperson:
You know that this is a relevant issue. At the meeting the Deputy Chairperson and I had with you the week before last, we referred to all of these issues. You should have known that these issues would come up.
Mr Sterling:
We have the application for state aid and the ‘Invitation to Tender’, which, I think, is the critical document. The ‘Invitation to Tender’ was prepared in conjunction with our partners in the Department of Communications, Energy and Natural Resources, and was, in a sense, the requirements that we were seeking to meet in order to deliver the commitments within the Programme for Government. I am happy to go back and very carefully check what the Programme for Government states; however, I am satisfied that, in general terms, we are meeting our Programme for Government targets through the way in which the project is being implemented.
Ms Hepper:
The Programme for Government target is specified in the paper that we have provided to members. It was at that high level that we would bring direct international connectivity into the north-west by 2009. That is what we sought to deliver, and we are on track to do so.
The Chairperson:
What was the associated information provided to the Committee and any other interested MLAs last year in respect of that target? What was the accompanying briefing that we got?
Ms Hepper:
I do not recall that the Committee got a detailed briefing on the ins and outs of the project. The Programme for Government target would have been included in documents that were brought to the Committee, but I am not sure that it would have been spelt out in any detail. However, as David said, we can go back and have a look. There is no question that —
The Chairperson:
Was there no reference to the north-west gateway initiative, no reference to the location of the tele-house or to maps of disadvantaged areas?
Ms Hepper:
There is no question that we have always been very clear that the project contributes to the north-west gateway initiative. We have been very clear on that.
Mr Sterling:
Indeed, one of the added benefits of the project —
The Chairperson:
It was presented as a flagship project of the north-west gateway initiative. When were its officials told that what they had been saying about the significance of the location of the tele-house in Derry for the north-west gateway initiative — which covers Derry, Limavady and Strabane council areas in the North, and Donegal in the South — was being changed? When were they told that?
Mr Sterling:
I am not sure what communications there were, but surely the important point is —
The Chairperson:
Were they ever told?
Mr Sterling:
I do not know.
The Chairperson:
Two Administrations are making big statements and big commitments. They have sent Ministers and senior officials to Derry and Letterkenny to make pronouncements. The building of the tele-house in Derry was announced in July 2008 by a Minister in the Dáil.
Mr Sterling:
Surely the important thing is —
The Chairperson:
Did it not occur to someone to think that a Minister might get into trouble for having said something that turns out not to be so? At what point were officials in the north-west gateway initiative told?
Mr Sterling:
The reality is that we have delivered. We are delivering at least one point of presence in Derry city. We are also delivering a point of presence in Strabane, which was not envisaged when the ‘Invitation to Tender’ was launched. There is an added benefit to the north-west gateway initiative.
The Chairperson:
People assumed that there could be additions for Strabane and Omagh as the project reached Monaghan.
Mr Sterling:
It is going to be there immediately. As soon as the system is turned on there will be benefits for Letterkenny.
The Chairperson:
There was always a possibility that tenderers could offer that, because they were allowed to offer more locations than the mandatory three.
Mr Sterling:
We are delivering that. I keep coming back to the point that if someone could show me that there was some way in which the city of Derry had been disadvantaged, or suffered some detriment, or that some other area had gained a significant advantage as a result of the location of the tele-house in Coleraine, I could understand the concerns better.
We are trying to explain that our preoccupation throughout the process has been to deliver the services that we set out to provide to the north-west and to the other areas that are going to benefit from the project. Our preoccupation has been on the major objectives of price, latency, resilience and competitiveness.
The Chairperson:
Let us turn to the ‘Invitation to Tender’ document. Do you accept that that document said that the tele-house would be located in Derry, Londonderry, and that it was to be in the city?
Mr Sterling:
Absolutely.
Ms Hepper:
It said that the tele-house —
The Chairperson:
When David spoke earlier, he did say the city.
Mr Sterling:
It said Londonderry, and I am not going to get into semantics.
The Chairperson:
We can check the Hansard report, but that is what David said today, Fiona.
Mr Sterling:
I am happy to accept that, given the way that the ‘Invitation to Tender’ was structured, it was reasonable to assume that where it referred to the tele-house being located in Londonderry it meant the city. The fact that someone asked at the tenderers meeting whether the tele-house had to be located in the city supports that point.
However, I keep coming back to the point that the tenderers were advised that the tele-house could be located in the county because no technical disadvantage would be caused to the city as a result. In other words, it did not matter. In simple terms, the technical advice that we received was that it did not particularly matter where the tele-house was located with respect to the services that we were seeking to provide.
The Chairperson:
You have said that the question about the location of the tele-house was asked at the meeting at the Everglades Hotel. On what date did that meeting take place?
Ms Hepper:
We can go back and check that. I do not know the exact date.
The Chairperson:
When was the clarification given?
Ms Hepper:
The clarification was given at the open day that the tenderers attended.
The Chairperson:
Who gave that clarification, and what consultation was involved in giving it?
Mr Sterling:
The project manager gave that clarification following —
The Chairperson:
Is the project manager an official?
Mr Sterling:
The project manager is an official in our team. The advice was given following consultation with a technical adviser to the project and with others on the project team, including our partners in the Department of Communication, Energy and Natural Resources.
The Chairperson:
So, the Irish Government was directly consulted before clarification was given, is that correct?
Ms Hepper:
Yes, the Irish Government were represented at the open day when the clarification was given in consultation.
The Chairperson:
Will you provide us with the date of the meeting?
Ms Hepper:
Yes, we will.
The Chairperson:
I will come back with further questions on that, but I will ask other members if they have questions.
Mr Butler:
Derek asked several times why the project is causing so much controversy. The answer is that when we had other forms of Government here, there have been issues arising over where universities were located — in Derry or Coleraine — and about where some motorways were to be located. That is why it is such a controversial issue. I hope that he will take that on board. He is saying that the location of the tele-house is no big deal, and that it provides no benefits to the area; is that correct?
Mr Bullock:
There are no particular benefits. Where the cable comes onshore will be the shortest exit point, which will have the shortest latency to its end cable. The reason the Portrush region was chosen is that it is the easiest place to bring the cable ashore; it is the least environmentally sensitive. We have a lot of experience in laying submarine cables, and environmental issues are hugely important, particularly in the US, where people talk about protection corridors. We do not go up against environmentalists; we try to take the shortest path — the path of least resistance. We identify the regions. The coastline there is stunning; there are a lot of areas of scientific interest and outstanding natural beauty. We cannot bring a cable into Lough Foyle, because the border line under the sea there is actually disputed. We will not get into that level of consultation and negotiation to try to solve that issue, so we chose Portrush.
There is a physical limitation, because the signal must be regenerated and amplified where the cable is brought onshore. That must be done in the Coleraine area, because that is the first place that the signal gets broken out from the sea. We decided, based on the documents, and as clarified. The tele-house is smaller than the room we are in now. I do not understand the controversy over the tele-house. People can build data centres beside it, just as they can build data centres beside all points of presence in every town in which we will be going into. Everybody has exactly the same equal, fair opportunity.
Mr Butler:
You are saying that it is no big deal where the tele-house is located. If that is the case, why could it not be placed in Derry city, for example?
Mr Bullock:
One of the things that could have been done, at great expense to Hibernia, and going well over budget for the project, would have been to build two buildings — a cable station and a building somewhere else in Derry. However, it was clarified that that was not a requirement of the tender. If that became a requirement now, Hibernia could not financially support it through the funding for the project.
Mr Butler:
Is it cheaper for Hibernia?
Mr Bullock:
It is more economical.
Mr Butler:
Is it the case that high-tech companies will locate close to the tele-house?
Mr Bullock:
Entrepreneurs in the region where the tele-house is situated should promote that. People with points of presence in their towns should be promoting that equally, because it is exactly the same thing; the services are exactly the same; the technology is exactly the same and the pricing is exactly the same. They can all benefit from our global marketing and sales force, and we promote each region equally.
Mr Butler:
Does that mean that there will be more economic benefits to the Coleraine area, rather than furthering the aims of the original project, which were to promote the north-west?
Mr Bullock:
In my opinion, absolutely not. We operate such sites in eight countries.
Mr Sterling:
Derek, you told me that, in a lot of places, the most successful data centres are some distance from the tele-house.
Mr Bullock:
We have very large international exchange centres where submarine cables land — if any member wishes to visit they would be very welcome. Those are huge, highly secure, extremely expensive facilities. They all have large collocation areas in them, but they are all empty. People do not collocate where the cable is.
The most successful tele-houses, data centres, or international carrier centres, are all inland. Dublin’s most successful data centres are around 25 miles away from the nearest submarine cables; they are built up around the business parks, not around the submarine cables. The largest carrier hotels in the world — 60 Hudson Street; 32 Avenue of the Americas; 111 Eighth Avenue — are all in the heart of New York and not near any submarine cables. They all come through terrestrial points.
Derry is a border town, and any network that crosses a border has an advantage in that ingress and egress can be controlled in that area. Carriers are already located there and can easily connect into the system. The system is on the Saturn network, which is an open access network and which any customer can come into and be on at any point. There is no particular advantage to having the tele-house in a specific location; a solution has been designed in which all locations are all equal.
Ms J McCann:
You have said that it should not really matter if the tele-house is located in Derry or Coleraine. A similar cable came ashore in the South of Ireland, in Wexford, but the tele-house was built in Dublin. I am not professing to be an expert; however, people in IT businesses are saying that, for future investment, they locate as close to the tele-house as possible. I second what you are saying, the location might not matter as the tele-house is going to deliver; however, previous cases demonstrate that IT businesses like to be located near the tele-house.
It is very important that we know the date of the clarification meeting as the controversy is around transparency. Project Kelvin was targeted at the north-west, and the 75% grant aid was authorised by the European Commission in order to build greater equality of opportunity into the north-west to help disadvantaged people in that area. It was not suggested, until that clarification meeting, that County Derry was meant; it was always Derry city.
It has been reported in local newspapers that political representatives from the Coleraine area actively lobbied for the tele-house to go to Coleraine. For the tendering process to be transparent, it is important that we find out where that clarification came from. Throughout the tendering process the reference was to Derry city. There is no county Letterkenny; however, there is a County Donegal, and Letterkenny is a town within it. It is important that people see that the process was transparent and that lobbying was not a factor. I would like to know the date of the meeting at which that clarification came, and to see how events unfolded around that.
Mr Bullock:
Regarding your point that IT consultants have advised that data centres and business parks grow around tele-houses; of course they do — that is natural. However, any point of presence on the network creates exactly the same opportunities. Whether the point of presence is put into a business park or a business park is built up around the point of presence; that is where people will connect into. The point of presence becomes a meet-me room, and a meet-me room is where the carriers connect into.
We are not building a 130ft-tall tele-house similar in scale to Telehouse London or Telex at 60 Hudson Street; we are bringing the cable ashore, breaking it into transmission and providing some collocation facilities, if that is what people want. Those facilities are going to be at all the other points of presence. I could understand concerns if we were building a supersized data centre tele-house employing 100 people, and one area got it rather than another. However, this is a very small percentage of the project.
Ms J McCann:
I do not dispute that, but I am talking about future investment in the north-west area; and in Derry city in particular. It is an area of great disadvantage and need, and the entire purpose of the INTERREG programme is to bring prosperity to areas of disadvantage and need.
Mr Bullock:
That will be done by providing the connectivity, which is —
Ms J McCann:
I understand where you are coming from, but I am considering the future. In the South of Ireland, the tele-house was built in Dublin, and other businesses built around it. For transparency reasons, it is important to establish when the reference to Derry city suddenly became County Derry.
Mr Bullock:
Regarding your example about the cable in Wexford, people have used the reverse argument on me, saying that five or six data centres were built around our cable. That is true, but the centres are not connected to our cable. The argument can be used either way, but what matters is where people connect into the network.
Ms J McCann:
I am not arguing with you, because I am not an expert. However, I have spoken to people who are experts, and they tell me something different. You are a businessperson, so you will go to where it is most economically viable. However, this is about people and about EU aid going to areas of disadvantage and need. We are trying to build an economy and provide investment to areas that need it. That is where the issue is.
In the longer term, the issue is about investment. However, it is also about transparency. It must be established how, or where, references to Derry city became County Derry.
Mr Sterling:
I absolutely assure the Committee that the decision about where to locate the tele-house was not influenced, in any way, by any lobbying by anybody at all — the decision was taken on purely technical grounds. I want to make sure that that is well understood. I am certainly not aware of any lobbying that occurred.
Mr Bullock:
I support that statement. At no time was there any lobbying to place anything in any location — it was Hibernia Atlantic’s decision.
Ms J McCann:
I am just going by some of the issues that I read in the media. It was reported that people travelled to Stormont to speak to —
Mr Sterling:
Our Minister has already given a categorical assurance that she received no representations. I can say, on behalf of the officials who were involved, that we certainly received no representations. Indeed, we were not aware of any.
The Chairperson:
OK. On Thursday 20 November 2008, the ‘Coleraine Chronicle’ stated that:
“Last week DUP Assemblyman Adrian McQuillan described a meeting with Arlene Foster as ‘positive’ and following further discussions with officials he said he was ‘upbeat’ about an imminent announcement. ‘There is the prospect of jobs depending on where the cable is brought ashore,’ he told the Chronicle. ‘This could be a real turning point for Coleraine if we can attract some of the highly paid jobs project Kelvin has the potential to deliver. These are exactly the sort of jobs required in Coleraine in this day and age. We have the University on our doorstep turning out graduates, and we should be taking advantage of that.’
Councillor McQuillan confirmed he’d lobbied the minister on behalf of Coleraine and he praised Council officials who also travelled to Stormont to submit a report to Ms Foster’s department.”
Mr Sterling:
I am not aware any report.
Ms Hepper:
Neither am I.
The Chairperson:
Nobody knows anything about that?
Ms Hepper:
I certainly have not received any report.
Mr McFarland:
This is like the Giant’s Causeway.
The Chairperson:
Is that just pure fiction on the part of the paper, or on the part of the Assemblyman?
Ms Hepper:
I categorically assure you that nobody arrived at Netherleigh with a report from Coleraine to lobby us or anything of that nature.
The Chairperson:
In the report, Mr McQuillan goes on to refer to other matters that could result from the proposal.
Mr Sterling:
He is right in one sense; in the fact that Coleraine has a point of presence. That is no different to any of the other 12 points of presence. There are opportunities, and I expect people in all of those locations to say similar things.
The Chairperson:
And rightly so: I make it very clear that Mr McQuillan had every right to lobby in order to make sure that Coleraine could take full advantage of the proposal.
He actually said:
“If it’s passing Coleraine we should be able to take advantage. If as we expect, the coast between Portrush and Portstewart is chosen there is no reason why Coleraine can not reap the same benefits planned for Londonderry.”
I do not think that anyone has an issue with the route coming in.
The newspaper report also refers to the tele-house being in Derry:
“The consultants’ report suggested bringing it ashore at Ballygelagh between Portrush and Portstewart, running it up to the nearby railway line and from there onto a ‘telehouse’ and ‘data centre’ in Londonderry.”
Even the people of Coleraine recognised that the proposed tele-house would be located in Derry.
Mr Sterling:
I have not read that article.
Mr Bullock:
No disrespect to the PA consultants, but they are not submarine experts — we are. We know what is best for our system, and we know how to design such systems. The PA Consultancy report suggests that the connection should run along the railway line. However, it is not a technical or viable solution to bring a powered spur off that cable. That solution would bring so much operational risk to our system that we would not have bid for the project.
The Chairperson:
Some of us are being advised differently on that issue.
Mr Bullock:
I would gladly meet the consultants who gave you that advice to discuss the matter.
The Chairperson:
Jennifer McCann mentioned Wexford. Will you explain the difference between the landing point in Wexford and the situation here?
Mr Bullock:
Everything is possible with money. A powered spur could be brought in off the cable and shot a longer distance. However, we are not willing to put an extra powered spur onto that cable because of the unacceptable operational risk that it would bring to our billion-dollar transatlantic system. We could have brought it onshore, put the cable station into a facility that is the same size as that which is being constructed, purchased another piece of land and built another tele-house elsewhere. There is insufficient money in the budget to build two facilities; it is just not economically viable.
The Chairperson:
The invitation to tender clearly envisaged that two facilities would be built.
Mr Bullock:
No; the invitation to tender said — according to the clarification meeting — that a tele-house would be built in County Derry, and that is what we are providing. We are planting the points of presence —
The Chairperson:
That is not how everyone else read the invitation to tender or how Ministers presented it.
I want to address the issue of the material that the Department has given to the Committee. I asked about the Budget and the Programme for Government, but the Department seems to have amnesia about the material that was provided, and you do not have the necessary documentation with you today. Do you remember a draft equality impact assessment (EQIA) paper, dated August 2008, being given to the Committee?
Ms Hepper:
Yes, I do.
The Chairperson:
Paragraph 2·22 of that paper referred to the tele-house in Derry as:
“forming part of the north-west gateway”.
It did not refer to it as contributing, in a general sense, along with other benefits. The draft EQIA paper did not signal to us that there had been a switch from the initial conception.
Paragraph 2·25 also referred to a tele-house being in or around Derry, and a subsequent paragraph referred specifically to targeting disadvantaged areas. That draft EQIA paper was dated August 2008 and was given to us in the autumn. If the change had already taken place, why was the Committee not updated?
Ms Hepper:
The EQIA assesses how the project will pan out in equality terms. We are bringing direct international connectivity to several points throughout the north-west gateway and addressing the various levels of disadvantage. The entire project is about bringing the INTERREG region, and the various subregions, up to the same levels of connectivity and pricing as those in other parts of Europe and the UK.
I do not consider that any statement in the EQIA contradicts what we are doing. We have always said that the project is contributing to the gateway. The project is still contributing to the gateway; it is bringing the benefits that we have discussed this morning to key parts of the gateway, including the city of Londonderry, Strabane and Letterkenny.
The Chairperson:
Originally, officials and representatives from both Governments presented the project in stronger terms than just contributing to the gateway; it was presented as a flagship project of the north-west gateway initiative, and there is so much consternation because people see —
Mr Sterling:
I do not understand why it should not still be perceived in such terms.
Ms Hepper:
Furthermore, it is presented as the flagship project of the INTERREG initiative.
The Chairperson:
Indeed, and all those things specifically referred to locating a tele-house in Derry. What was the INTERREG monitoring committee told in January 2008?
Ms Hepper:
We were told that there would be access points at three mandatory locations, and that they would have the same —
The Chairperson:
What was the monitoring committee told about the location of the tele-house?
Ms Hepper:
The tele-house had to be in Londonderry.
The Chairperson:
If the location of the tele-house is neither here nor there, what was the point of specifying Derry all along? Why specify the tele-house’s location at all, including in the invitation to tender?
Ms Hepper:
We wanted to be specific during the market-warming exercise. The project was aimed at benefiting the INTERREG region, so we were skewing some of the benefits to the north-west. Furthermore, as I said, some of the carriers were talking about delivering the service by bringing the cable in to Belfast or Carlingford Lough. We did not want either of those outcomes, nor did we want the tele-house to be located in the east of the Province. That is why, with the agreement and support of our colleagues in DCENR, we attempted to narrow those options down.
Mr Sterling:
Having seen the controversy that has arisen about the location of the tele-house, if we were to embark on that exercise again, we would make it much clearer that people should focus on the location of the access points, and that they should not attach such great importance the location of the tele-house.
The Chairperson:
People did attach importance to the location of the tele-house, which was sold as being important by, among others, DETI and Invest NI representatives in Derry. I heard them emphasising the significance of Project Kelvin and the opportunities that it would offer as a result of the tele-house.
Mr Sterling:
The point was that the services of Project Kelvin would provide the opportunities. The services, rather than the building, will provide world-wide opportunities for the north-west to exploit through the access points.
I am intensely proud of what we are delivering; it should be celebrated, and the opportunities arising from it should be taken. We are not seeking to advantage any area more than another, but Derry — given its size and population and the fact that it has a university and an existing industry — is probably better placed to exploit the opportunities from Project Kelvin than towns at any of the other access points. Is that fair comment, Derek?
Mr Bullock:
I think that there is something else —
The Chairperson:
Is that part of the reason why it was recommended as the location for the tele-house?
Mr Sterling:
I do not accept that.
Mr Bullock:
People are latching on to the idea of the tele-house, because it is a physical thing that they can understand. However, with no disrespect to anybody here, if I were to start talking about 10G λ waves, 2·5Gs, STM-4s, STM-16s, Gigabit Ethernets, VLANs or multipoint circuits, nobody would know what I meant. Nevertheless, those are the services that Northern Ireland will actually be getting. It will be getting access to that infrastructure, rather than a tele-house. Communities and businesses need those services. People understand what is meant by a tele-house, which is easy to latch on to and to talk about. However, it is the products, services and access to international markets that are important, not the tele-house.
Mr Hamilton:
At times this morning, I have felt as though I have been eavesdropping on some other Committee meeting. Moreover, I noticed that Jennifer McCann could not quite bring herself to say the L-word.
Ms J McCann:
What word?
Mr Hamilton:
The L-word. Some members of this Committee will welcome the Chairperson’s embrace of the word “ Londonderry” and what it refers to.
Mr Wells:
It was used three times.
Mr Hamilton:
And that will appear in the Hansard report.
Like David Sterling, I wish to praise the project and all the companies that took an interest in it, including Derek’s. Those companies are investing significant time and money in a project that will be of advantage to Northern Ireland and the Republic of Ireland, so I thank them for that — God only knows what Mr Bullock’s bosses make of what is going on now.
From what I have heard this morning, and read previously, it seems to me that a scheme that will provide the same connectivity at every point that has what I will call a “box” — like Jennifer, I am not an expert — along with the higher-than-envisaged specification for what you are doing, such as connecting more towns than originally expected, is as much a reason as any for controversy. That is because more towns in Northern Ireland will benefit, not only those in a specific region. No region will have an advantage over the rest of Northern Ireland. That is one possible reason for controversy.
However, if there is the same connectivity, higher specification, and more towns are being connected to the cable, what is the controversy about? In answer to that, the most significant paper presented to the Committee today is not the invitation to tender, or the consultants’ report — it is a letter from Martina Anderson of Sinn Féin. I believe that the Committee has been injected into a local spat over who stands up most for Londonderry, rather than a discussion about whether the advantages are for Northern Ireland as a whole.
I worry about a remark that Derek made earlier, when he expressed concern about recent negative press coverage. Without going too far, will you elaborate on that?
Mr Bullock:
Absolutely. I cannot mention companies’ names, due to confidentiality agreements.
Mr Hamilton:
Of course, but I want the matter to be clear in my mind and in the minds of Committee members and others, because, as you confirmed, there has been negative publicity about Project Kelvin. How worrying is that to you and to the Department? It must have a negative impact on what I regard as a very good project.
Mr Bullock:
I am worried on professional, business and personal-reputation levels. Hibernia Atlantic first engaged with DETI two years ago. We emerged from our first meeting believing that the Department would never pull off the project; it would never get funding to match its phenomenal ambition. I highly commend the people involved for achieving such a high level of connectivity.
I say again that this is a billion-dollar system. It must be understood that the cable that runs off your north shore contains four fibre-cable pairs, two of which are being brought in to Northern Ireland for £29·5 million. What those guys have achieved on this project is phenomenal.
Hibernia Atlantic’s chief executive officer, sales team and I very actively promoted the scheme at the Pacific Telecommunications Council conference. We met with some extremely large software companies, which will remain nameless; financial institutions; and people who are investing in the region at present and want to continue to do so. Those people regard not having to go to the UK in order to gain direct access the US as boost. That opens up the market for many products that are currently unavailable.
I had a very strange meeting recently, during which I realised how disadvantaged certain areas in that region are. The person concerned needed 10 megabytes of connectivity in order to land what was probably a multi-million pound contract. I have 20 megabytes of connectivity in my house. That guy could not get that connection directly to the US, which made the difference between an investment happening or not happening. We are actively working with such people in an effort to provide solutions for them.
Companies are contacting me, saying that they have heard that Northern Ireland is a great place to do business and that the Government are extremely helpful. I reply that they are — DETI is extremely helpful, and Invest NI is very good to work with. The companies ask, “What about all these things that we read in the papers?” My answer is, “That is just politics.” Their response is, “That is what we are afraid of. We do not want to get involved in politics.”
Mr Hamilton:
Therefore, damage has been caused.
Mr Bullock:
Damage has been done. There is no doubt about that whatsoever. I am very keen to stop that by working with everybody, including concerned people in Derry. Obviously, the business people there are very concerned, and politicians must support them. We want to work with those people.
Mr Hamilton:
I hope that the clarity that you have brought to some of the points raised today will assuage some of the concerns that have been expressed about the project. I personally assure you that, as someone whose town, sadly, will not be connected but which aspires to have a spur from the project at some stage —
Mr Wells:
I would like a spur for Kilkeel, as well. [Laughter.]
Mr Hamilton:
Yes, Jim almost blew his top when he heard that Carlingford Lough had been passed over.
However, I assure you of support, and the Committee encourages you to continue with your good work.
Mr Bullock:
Thank you.
The Chairperson:
Before I call Gerry, I want to indicate that I resent any suggestion that I would ever abuse my position as Committee Chairperson for constituency, party-political or any other reasons.
Mr Hamilton:
It just looks like that.
The Chairperson:
I do not do that, and never have done so. I have always given full latitude to the Minister, her predecessor and officials. The questions that I have raised today do not centre only on issues that are specific to Derry. My focus has been to find out how documentation that was provided to the Committee and the Assembly has turned out, as the project developed, to be unreliable. If there are good reasons for changing, why were those changes not signalled and shared in the normal, mature, reasonable, responsible way that one would expect? The Committee has the right to know that if changes are made to relevant information that it has been given, that information will be updated to reflect those changes. That has not happened in this case.
I have asked the Department straightforward and simple questions about what was contained in INTERREG submissions and what information was given to the INTERREG monitoring committees — and we have not been given answers. I asked officials what information was given to the Committee at the time of the Budget, and they seem unable to answer that. That is a straightforward question, and all members of the Committee should be worried when we do not get straight and straightforward answers to questions that are a matter of record. The answers should be to hand; because officials know that the issues have been bobbing about in the media, and they know about them from the meeting that the Deputy Chairperson and I had last week. It is significant that they are not prepared to respond to questions on the record. That is why there are many misgivings about this particular issue. I wish to raise other points, but other members of the Committee wish to ask questions too.
Mr McHugh:
Simon mentioned the L-word. I was travelling to Derry yesterday, and the A5 was completely blocked, so I asked a wee man in Newtownstewart whether there was a short-cut to Derry. He replied, “Oh, you are looking to get to Londonderry.”
Mr Wells:
Hear, hear. Well said.
A Member:
He sent him in the wrong direction. [Laughter.]
Mr McHugh:
I should have gone via the South.
I appreciate that Derek is frustrated with the entire situation, because he is interested in the technology and wants to deliver that side of the project. I accept that he is doing everything 100% correctly, but Jennifer mentioned transparency, and that is the issue. This is not the first time that the Committee has had to deal with a situation in which it has become apparent that certain information differs from what was originally thought to be the case. If tenderers have a difficulty with that, perhaps that has to be dealt with, but the problem is that it is important to send out the right message. When a project is as beneficial to an entire region as this one will be, it is important that the right message reaches that region, because confidence is a vital element of any project.
I am not from the area, but if it makes no difference where the tele-house is located, why have it in Coleraine? Is there a cost advantage to Hibernia Atlantic through putting it there, rather than in the city of Derry? Derek is not on trial here, but who wrote the first invitation to tender? Does anyone think that whoever wrote the tender document did not know that this would happen, or what was meant by Derry in that instance? That person knew exactly where the tele-house was meant to be located. If the intended location changed down the line, people knew about that and were not straight about it.
Derry has been known as an area of high disadvantage for as long as we care to remember. Even during the boom years, it experienced extremely high unemployment. Therefore, even if the location of the tele-house determines where two additional jobs will be based, that is important. However, the message that it sends to the area is vital. It is a matter of boosting the economy and getting people enthused about the project, albeit a highly technical one. I understand Derek’s position, but the Committee must ask questions about the sudden change that meant that the tele-house could be positioned almost anywhere. Am I right in saying that there is a cost advantage to locating it in Coleraine, or is there no advantage at all to the company that delivers the project? What exactly is the purpose of a tele-house, and will any jobs be located on that site?
Mr Bullock:
On the cost-advantage side, it is more expensive to build two buildings than one. That is a simple fact of life.
Mr McHugh:
Do you have to have two buildings?
Mr Bullock:
Yes, we would have to have two buildings if we were to build in the city of Derry. We must have a building in Coleraine; there is no getting around that. I am happy for any of the consultants who are advising you, and who say that a building in Coleraine is not needed, to talk to my consultants, who have designed more than 20 submarine systems.
Hibernia Atlantic does not directly employ anyone in Coleraine or in any of the towns in which we operate. We will probably hire one person to take care of managing the overall network, and remote hands — people from service companies in the regions who will take care of all the sites — who will be based all over the place. The real jobs will come from the entrepreneurs who see the advantages and the strategic importance of the system, embrace it in every region, build around those points of access and encourage the industries to grow with them.
Mr McHugh:
Can I have an answer to my point about the original writing of the tender or the paperwork, which referred to Londonderry or County Londonderry?
Mr Sterling:
I have been frank about that. The location of the tele-house was stated in the invitation to tender as being “ Londonderry”. At the tenderers’ meeting, the question was asked about whether the tele-house had to be in the city. The project manager took advice from his technical expert and consulted his colleagues, our partners in DCENR, who are jointly managing the project, and concluded that it did not matter. That conclusion was based on a technical assessment of whether location would have any impact on the services that would be provided. The response was that the location of the tele-house did not matter. The project team’s objective —
The Chairperson:
The location mattered enough for it to be specified in the invitation to tender and for it to be stated in every version of the proposal that was either submitted or circulated for information. That was not done simply as a technical issue; it was done for wider policy reasons. There were regional policy reasons, including a strong focus on the north-west and an attempt to ensure that the telecoms divide between the east coast and the north-west was not reinforced. There was a strong emphasis on areas of disadvantage and on the north-west gateway initiative.
Mr Sterling:
The location of the tele-house will not impact on those matters. The important factors are the provision of the services and the access points.
The Chairperson:
All of those policies informed the presentation of the project in seeking regional-aid support through INTERREG and state-aid approval.
Mr Sterling:
I do not regard the location of the tele-house as being particularly significant to any of those. State-aid approval was granted on the basis that certain objectives would be achieved, and the Committee has the relevant papers. The objectives are set out in paragraph 34 of the state-aid approval document. It is all about the services. The Department has checked with the Special EU Programmes Body (SEUPB), which is content that the procurement has been properly conducted. We have checked with our own state-aid people, who are satisfied that we have complied fully with state-aid approval. We have checked with our partners in DCENR, who are entirely happy that the project and the procurement have been properly managed.
The Chairperson:
Paragraph 25 of the letter from the European Commission, granting approval for state aid, says:
“In particular, Project Kelvin will require a new direct link to the transatlantic submarine telecommunications networks. The cable will come ashore on the north coast of the island of Ireland. Both the Irish and the UK governments have agreed that Derry is the most suitable location for the direct link to terminate. The new direct link will also be able to interface with the existing Northern Ireland telecommunications infrastructure (BT, NTL, eircom and others) in Derry.”
Mr Sterling:
That is still the case.
The Chairperson:
The document specifically says that the Governments have agreed that the cable should “terminate” in Derry.
Mr Bullock:
It connects to all of those carriers. We are also trying to attract more carriers into the region, so that we can connect to every other town.
The Chairperson:
Footnote 3 of that state-aid approval document states:
“The terrestrial infrastructure comprises, as a minimum, a Telehouse facility to be built in Derry and diverse connections between the Telehouse and the Co-locations Centres of the existing MANs in Letterkenny and Monaghan.”
Again, the state-aid approval document mentions that the tele-house should be located in Derry.
Mr McHugh:
We have now discovered that there absolutely must be a tele-house in Coleraine. If the location makes no difference to the overall working of the project, why must the tele-house be located there?
Mr Bullock:
I have said numerous times — people are not getting my point or, perhaps, I am not putting it across well enough — that there is a technical reason for building the tele-house in Coleraine. It is to do with signal amplification. The signal dies off after a certain distance. Our transatlantic cables have, approximately every 45 km to 65 km, sub-sea amplifiers and equipment that lies on the seabed and provides the power to amplify the signal. We are taking a cable from the mid-point between amplifiers on the northern cable to bring it onshore, and it is approximately 25 miles, or 32 km, to the shoreline. We have a physical limitation of 7 km — a 7 km radius in which we must re-amplify that signal. To do that, I must put in the same equipment that I put in to every other product in every other city. Therefore, we have to build a facility there. If that facility was not called a tele-house, it would be called a cable station. That facility still has to be there. It connects to the Saturn ring, and every point on that ring has the same transmission equipment. Every other carrier, customer and business can connect into exactly the same services.
Mr McHugh:
I know about electrical circuits.
Mr McFarland:
I presume that, on the original specification, it was envisaged that you would tap into the transatlantic line and bring it down Lough Foyle into Londonderry, where the tele-house would be located? I presume that, when the document was written, that was somebody’s original concept?
Mr Bullock:
That is technically impossible. Lough Foyle is a disputed border region, and, as I said, we cannot put submarine cables near disputed border regions.
Mr McFarland:
What if both Governments agreed, which, presumably, they would, given that it is a joint project? I presume that it is technically possible, with your 7 km boosters, to run the cable into Londonderry under the sea, because that would be no different to running it under the sea anywhere else.
Mr Bullock:
That would presume that all the land borders were agreed, that all environmental parties agreed to the laying of the cable, and that all ships agreed to stop dredging in Lough Foyle, which — given that dredging at the mouth of the Foyle is necessary to remove the silt — would not happen, and a cable would go out of service every three days.
Mr McFarland:
I am not having a go at you. However, why did whoever wrote the original invitation to tender not consider the environmental issues in Lough Foyle, the dredging that is necessary to keep it open and the disputed border? Why did that person, either through design or stupidity, write that it should terminate in Londonderry?
The Chairperson:
The invitation to tender stated that the landing point could be situated anywhere along the coast of County Londonderry or County Antrim, provided that it was west of Rathlin.
Mr McFarland:
The point has already been made that it will cost an absolute fortune —
The Chairperson:
The landing point was always considered to be separate from the tele-house. That matter was included in the original PA Consulting report, which envisaged the landing point being basically where it now is, or is proposed to be, but it still sited the tele-house in Derry.
Mr McFarland:
We have already heard that, it would cost an absolute fortune to run the cable along the railway line for that distance, given the 7 km booster sessions.
Mr Bullock:
On our proposed system, it would not be economically viable to build two facilities.
The Chairperson:
How much would it cost?
Mr Bullock:
I am not prepared to divulge that information at this time.
The Chairperson:
Do you know the cost?
Mr Bullock:
Of course we know the cost; we explored that option.
Mr McFarland:
It would be interesting to see a comparison.
I will move on to an issue that involves the Department. Londonderry is — except, perhaps, for west Belfast — the most sensitive part of the Province. Its people have never forgiven the authorities for locating the university at Coleraine, and they are sensitive about the past 30, 40 or 100 years —
A Member:
Since 1688.
Mr McFarland:
Even, perhaps, since 1688. Someone outlined the rules of the game in the invitation to tender. However, they decided — perhaps for very good technical reasons — to change the rules of the game, and they changed the tele-house’s location from Londonderry to Coleraine.
I cannot fully understand why, at that stage, nobody put their hand up and said that there had been a change of plan and that all those people living in Londonderry needed to be briefed because they are very sensitive; that the Assembly needed to be briefed and that the Minister needed to be briefed. Presumably, the Minister was briefed on the matter, so the question is: why did the Minister not think to tell the Committee? We have ended up with a PR disaster, and it will get worse. All of this will hit the press tomorrow, and, no doubt, it will be replicated in the local papers. Why is that happening?
Our previous experience in the Assembly was that when no one was telling us anything, there was usually something that we were not seeing. There was always a reason behind why an issue was not announced or was not open and transparent. Why has this happened: are there things that we are still not seeing? However, we will have to hold that question, because these are unanswered questions.
Somehow, this situation must be resolved shortly. For sake of clarity, the Committee needs to have assurances that all is well. I argue that the Committee needs to have an apology from the Department, whose duty it was to inform everyone that things were changing, and we must work out some way of settling the matter and build confidence again. From your explanation, the current plan is absolutely logical. However, people in Londonderry will not let the matter lie until they work out why things were changed and why they were not told. There is a duty on the Department to settle the issue. There is a serious risk that, in the world’s view, this will be a complete disaster.
Mr Sterling:
There was a duty, and I am convinced that my project team was seized with the duty to deliver international connectivity to the north-west. I am intensely proud of what they have done in delivering that.
Mr McFarland:
I am not arguing with you.
Mr Sterling:
I am coming to your point.
Mr McFarland:
I am agreeing that you were delivering what you were asked to deliver. Nevertheless, two political parties here are going for your throat, on a world stage, because somebody changed the plans and the rules of the game. For some reason that I cannot understand — because you have a PR department that would examine this type of thing — someone thought to deliberately not tell the whole team in the north-west, the Assembly and the Committee that there was a substantial change. It does not affect the outcome, and I am not arguing that you are not producing the goods. However, you have a PR disaster, and I do not understand how your PR department was not concerned about how the matter would play out if things were changed and nobody was told.
Mr Sterling:
If the project team is guilty of anything, it is of being seized with the need to deliver the objectives of the project, and that they have done. With hindsight —
The Chairperson:
Why was it not sharing the good news with the Committee all along? If the project was burgeoning and developing and going so well, why were we not told?
Mr Sterling:
This is good news.
The Chairperson:
Yes; but why were we not told all along?
Mr Cree:
There is no answer to that.
Mr Sterling:
There is an answer, in that the Committee could have asked for a progress report on Project Kelvin at any stage. That option was open to the Committee at all stages. With hindsight, we probably should have come to the Committee and given a progress report.
The Chairperson:
Had that been the case, then each time the Committee had monitoring papers in front of it, Project Kelvin would have been mentioned, and we would have asked if everything was on course, and officials would have said, yes. You would have said: “Chair, you will know the significance of this, because you have constituency interests, etc.” We were not told of any change; we were told that everything was all right and that there were just wee bits of money management.
Mr Sterling:
In reality, the project is delivering international connectivity: it is delivering that at all the access points.
Mr McFarland:
We are not doubting that.
Mr Sterling:
If one looks at the invitation to tender in full, the mandatory requirements go on at some considerable length. The tele-house is only one of those requirements, and there is no particular significance attached to it; no particular benefit is derived from the location of the tele-house.
Mr McFarland:
I am not doubting that either. We have had assurances that it is all logical and technical, etc. That is not my point. My point is that at some stage the plan was changed. Normally, when that happens, one might think to oneself that the people in Londonderry are very sensitive. You know the noise about everything being up there. People were told that they were getting something in that area, and now they are not getting it.
At that stage, someone was either incompetent and did not think, or decided not to tell the people of Londonderry and the Committee, or anyone else involved with this, that there had been a change of plan. I do not understand how that would be allowed to happen. However, I could understand it if it were down to someone’s incompetence.
Our experience of similar matters suggests that there is something that we are not yet seeing. Perhaps some of the information is classified as “commercial in conference”; however, people often use that classification as a cover to change something without having to provide an explanation. It raises questions about what this is all about. Why has there been an international PR disaster over what looks like nothing — a wee tin box in the middle of Coleraine?
Mr Sterling:
We did not anticipate this level of reaction: that is the simple fact.
Mr McFarland:
You got that reaction because no-one was told. You must now, somehow, reassure all of the people who are continuing to stir this up. The Committee has received a request to hold a public inquiry into the matter. In order to head this off, you must do something pronto to try to assure people that the plan is sensible technically and has lots of benefits. You must also apologise for messing up, admit that you should have told people, and find some way of reassuring everyone. If you do that, this will go away. However, if there are no logical answers to some of the questions, people will continue to suspect that there is something that they are not yet seeing. I am trying to be helpful; I am not trying to have a go at you. You must get yourselves out of this situation, because it is not helpful to anyone, anywhere.
Mr Sterling:
I want to get to a position where we can collectively celebrate the value of this project and work together to maximise the opportunities that it provides. This type of debate is not helping to achieve that. Derek has already said that the noise around this issue is being noticed internationally. I hope that Derek has reassured the Committee that the same services are being provided at all 13 points of presence.
The location of the tele-house in Coleraine is a distraction from the good benefits that the project delivers. I would love to find a way to move on from this. We are here today to answer your questions as fully as we can: tomorrow, we will go to the Chamber of Commerce. Last week, we met the Chairperson and Deputy Chairperson, and we met one MLA separately — we are doing all that we can.
Derek, in seeking to deliver this project, has spent an inordinate amount of time over the past two or three weeks seeking to reassure people in the north-west. Those discussions and engagements are ongoing. He cannot reveal the nature of them, but I am hoping that the outcome will be very positive indeed. I do not think that we have anything to apologise for — however, if you can suggest something that will help, I will be happy to consider it.
Mr McFarland:
It is worrying that the people of Londonderry have decided that there is some skulduggery afoot. Perhaps they feel that the closest point to the location is likely to provide a technical advantage for that particular area and that, as a result, endless international firms will create an entire Silicon Valley between Portrush, Portstewart and Coleraine, while poor Londonderry — which they thought was going to get something — dips out again.
I argue that it is your job to somehow assure those people that that is not the case. I do not know how you should do that. You are better placed than me to find some way to meet and talk to them — however much you have to do it and whomever you have to talk to — to get away from this situation. This could end up being a complete disaster for Hibernia Atlantic. The Americans may decide not to come here because the people here spend their time fighting. I hope that that will not be the case.
Mr Sterling:
No, I remain optimistic. We will get through this, and the project will be a success.
Mr McFarland:
Absolutely — I am simply saying that someone will have a bit of work to do.
Mr Bullock:
Alan makes a good point. There needs to be some education about what we do, what our products are and the opportunities they will bring to each region. I guarantee that I will put in all the time and effort to do that in each region. I will attend council meetings. I will do everything that I need to do in order to promote our work to ensure that people know what they are getting and what advantage they can take of that.
As I said earlier, people latched onto the word “tele-house” and pictured a physical entity in their heads that they did not get. They should not be worried about that. Rather, they should be worried about the services. Hibernia is willing to promote this internationally. It is willing to put in a lot of time, effort, and money to promote this whole thing. The negative PR needs to stop, in order to start minimising the impact. Let us start to turn this situation around.
Mr Cree:
I have listened patiently today, and I feel that I could write a thesis on this subject. First, it is very sad that this matter will appear to most people to be a petty squabble about the location of something. It may well be that the expectation of what that something would be was perhaps overestimated. Certainly, from what I have heard today, and to use an example that I understand, it seems that this super tele-house is something akin to a pressure reduction station on a natural gas pipeline that is coming ashore. It comprises nuts and bolts, and only those. As Alan says, we must get over this issue, and the sooner the better. I agree with most of his comments.
To return to the Chairman’s point, the Committee should have been better informed. We trusted that the Department was working along the original lines. Obviously, there is an issue about the interpretation of what those lines were and what they are now.
To raise a more stimulating point, why are Bangor and the greater North Down areas not mentioned? What are you going to do there? When the rest of us — normal people — look at the map, we see that you could have avoided laying many miles of cable by coming onshore on the County Down coast and then hooking up to Armagh. Seriously, what benefits can I sell to my constituents in the greater North Down area?
Ms Hepper:
You are very fortunate in that that area has the most competitive telecoms exchange in Northern Ireland.
Mr Cree:
That is news to me, I can tell you.
Ms Hepper:
Ofcom would say that it is the most truly competitive exchange in the whole of Northern Ireland. There are more companies accessing that exchange than any other exchange in Northern Ireland. The area is also very close to the Belfast access point — or will be very close to it.
Mr Cree:
We are 13 miles away from it.
Ms Hepper:
Oh dear; well, that is closer than Coleraine is to Derry — sorry.
Mr Cree:
Can I just tell you, Fiona, for your information, about the great communication system that I had: I had a satellite dish for three years, but it had to be scrapped in the end. That is how good the services are in Bangor.
Ms Hepper:
Bangor does have the most —
Mr Cree:
More needs to be done to update the system so that it can deliver the same service to everyone.
Ms Hepper:
Hibernia Atlantic says that it will bring services and products to a number of points around the Saturn ring. That is not to say that, over time, other places on the ring, and other spurs off it, cannot be brought into the equation. However, we must take one step at a time. We have a certain amount of money to invest in this project, and that will go towards delivering those 13 access points. If commercial cases can be made for other points, and breakout points, they can be made to Hibernia Atlantic; that is part of the work that it intends to cover. Not only will the project include the various local access points that are already on the map, but, if people approach the company with propositions, other places, such as Dungannon, Lisburn and Antrim, will be considered.
Mr Cree:
What about Bangor and Newtownards?
Ms Hepper:
We will have to consider all those issues, but we cannot put all our effort into that. We must put our effort into delivering what we are working on at the minute. Work on the telecoms infrastructure will be ongoing, and we must take it one step at a time. Likewise, along with the Department of Communications, Energy and Natural Resources, we will consider what needs to be done in the whole area around Fermanagh, Monaghan and Cavan. Thus, the process is evolving. However, members must appreciate that some investment from Government will be needed to stimulate that development, and it will take the involvement of the private sector to ensure that there is a commercial gain.
Mr Cree:
I am underwhelmed.
The Chairperson:
Has the contract been signed?
Ms Hepper:
Yes.
The Chairperson:
What is still needed in respect of the contract? Is there a deadline for technical specifications to be clarified or determined by the end of March?
Ms Hepper:
There are various agreed milestones within the contract, and payments are triggered in light of those milestones. That is the way the contract is set up.
The Chairperson:
The contract was signed on 22 December 2008, and the announcement was made on 6 January; which all took place during a Christmas recess. The invitation to tender went out in July, and the deadline for submission was August; again — purely coincidentally — during an Assembly recess. That is the sort of thing that adds to the questions that people have about whether information was shared. If the Committee was not told about these changes in the project, was the INTERREG monitoring committee told, either in respect of the location of the tele-house — on which significance was placed in the earlier presentations — or that the benefits of the project were extending more widely?
Ms Hepper:
The Special EU Programmes Body (SEUPB) was kept informed about how the project shaped up after the tenders had been evaluated and we knew who the winning tenderer was. SEUPB would have been briefed on the outcome, and it is entirely content.
The Chairperson:
Who, in turn, did the SEUPB brief? Did it give that information to the north-west gateway initiative, the North/South Ministerial Council, the Department of Finance and Personnel, or the Finance and Personnel Committee? Who did that information go to?
Ms Hepper:
I cannot speak for the SEUPB. We kept our contacts in SEUPB informed. As regards the various approvals that we needed to finalise the budget before we signed the contract, DFP would have been informed that we were at contract signing stage.
The Chairperson:
Were those approvals for the full economic appraisal and the business case?
Ms Hepper:
Yes, DFP had seen the economic appraisal and the business case.
The Chairperson:
Was the fact that the map was inaccurate not a worry? Even the Hibernia map, which was issued, places Derry considerably closer to Coleraine than to Letterkenny, whereas it is actually the other way around?
Mr Bullock:
I apologise for my American colleagues’ lack of geographical knowledge.
The Chairperson:
So, not everything was correct?
Mr Bullock:
I acknowledge that there is an error, and we are reprinting all of those maps to make sure that they are accurate.
The Chairperson:
Were the economic appraisal and business case approved by DFP?
Ms Hepper:
The Department of Finance and Personnel certainly saw the final economic appraisal and business case, yes.
The Chairperson:
So, the necessary approvals were obtained before the contract was signed?
Ms Hepper:
Yes, as did —
The Chairperson:
Who gave the necessary approvals?
Ms Hepper:
The Department of Finance would also have seen that through our colleagues in the Department of Communications, Energy and Natural Resources. They would have had to see the economic appraisal and the various business cases also.
The Chairperson:
How was the value-add of the project measured?
Ms Hepper:
We looked at the benefits that the project would bring in improving business connectivity. We also looked at various aspects of what could be brought in through potential foreign direct investment. All of those issues were built in.
The Chairperson:
Were the only capacity forecasts those that were in the PA Consultancy report?
Ms Hepper:
I believe so, yes.
The Chairperson:
Certainly, those were the only capacity forecasts at the time when clarifications were being sought. Were any additional capacity forecasts developed?
Ms Hepper:
No; not by the internal team.
The Chairperson:
This question may be more for Derek, but what sort of end-user appraisal, or survey, would be carried out?
Mr Bullock:
This should be viewed from the perspective that we operate in Dublin, which, for the island of Ireland is our main connection point. It is a thriving industry there. There are large software houses, financials, banks, multinational banks, algorithmic traders, ISPs, and insurance companies. We have a very wide selection of that type of customer there.
It is envisaged that this is an area that is crying out for economic development and growth. That is the way we see it. It enhances communications within the island. It is a great thing for the whole island of Ireland. That is what we envisage would happen up here. We are working very closely with Invest NI, and we see their clients coming on board. We will encourage that, because having access to direct international activity can only enhance that type of investment.
The Chairperson:
One of the reasons why people thought that the proposed location of the tele-house was Derry was because references had been made to the other telecoms infrastructure already there. People were also considering the capacity of Derry and the number of companies already present there. Other members have referred to the university, for instance; but there are also a number of companies in Derry that are already data-hungry. It was envisaged that there would be a greater multiplier, not just for Derry, but for the region, if it were located there. That is what created a lot of the expectation and understanding that the tele-house would be located in Derry.
In relation to the decision to locate the tele-house in Coleraine, what are the comparative levels of broadband usage in Coleraine and Derry? Who will be able to avail of the facilities?
Mr Bullock:
I have no idea. There is no study on that type of broadband usage in any area of Northern Ireland.
The Chairperson:
Would it not be important to the decision to consider the differences in usage and the difference that it will make to companies? You referred earlier to companies that could not get access.
Mr Bullock:
One of the most important things that a data centre needs is large quantities of power. Wherever that is available on the grid it will attract the location of the data centre. Power is the first requirement; the next is connectivity.
The Chairperson:
Derry has a power station, and a link to Kilroot, so there is a direct line for two.
Mr Bullock:
One of the data centres is being located in Derry, so people in Derry should be very happy with what they are getting. All they need to do is connect into an access point. Microsoft builds very large data centres in the US, in Arizona. That is nowhere near any submarine power stations. It is there because of power requirements.
The Chairperson:
I am not suggesting that a tele-house has to be near a submarine cable station. Other people are making that case, not me.
Mr Bullock:
I am very willing to work with those people; to educate them that that is not necessarily the case. Once people understand what each region will get, they will be less concerned.
The Chairperson:
If you do not look at existing broadband usage, what about the exchange capacity in each area?
Mr Bullock:
A typical BT exchange may be on more of the local tail-circuit types. BT exchanges are located all around the Saturn ring, so we can access any of those existing exchanges if we want tail-circuits out.
The Chairperson:
Do you know that BT has opposed Project Kelvin?
Mr Bullock:
I am aware of that.
The Chairperson:
BT has argued that the money would be better spent on third-generation broadband connectivity. Have you any comment on that?
Mr Bullock:
I have absolutely no comment on whether BT thinks it is a good idea or not.
The Chairperson:
As I understand it, two of six of BT’s exchanges in Coleraine are unbundled. Do you know if that is correct?
Mr Bullock:
I have no idea. Hibernia is not in the unbundling game. Our sister company, Magnet Entertainment, which is the first —
Mr Durkan:
Five of the seven exchanges in Derry are unbundled.
Mr Bullock:
OK. As I was saying, our sister company down South, Magnet Entertainment, was the first company to bring fibre to the home in Ireland and was the first company to make internet protocol television (IPTV) available — all next-generation services. The company has a large customer base and has done extremely well. It shook up the market down there, and made it extremely competitive. It can enter the market up here on the back of this infrastructure.
They are the people who go into the exchanges and unbundle them and offer next-generation services to people. Hibernia does not do that.
The Chairperson:
Does that not mean that more work needs to be done on those exchanges, which would involve infrastructure and capital expenditure?
Mr Bullock:
No.
The Chairperson:
Who would have to do that? Would it be up to BT?
Mr Bullock:
If it is a BT exchange, it is up to BT what it does with its infrastructure.
The Chairperson:
Should the public purse not contribute to it?
Mr Bullock:
I have no idea.
The Chairperson:
David, do you know?
Mr Sterling:
The broad rule is that where there is a market failure, we will determine whether there is need for an intervention. If there is a value-for-money argument then the Government, providing the solution is affordable, might well intervene. I am not aware that there is an issue in this case.
The Chairperson:
Would it not be more likely that there would be a need for such an intervention in Coleraine than there is in Derry?
Mr Sterling:
I have never heard that. No one has ever said that there is a deficiency in the local infrastructure that needs to be addressed. That is news to me.
The Chairperson:
Well, was it looked at? Was it considered that there could be a consequential demand? That is money that could otherwise be spent on third-generation broadband in some of the locations that are feeling left out and underserved at the moment. We could be making a choice as to whether we have to put further investment in to shore up the significant commitment in Coleraine or use the money elsewhere.
Ms Hepper:
The system that Hibernia is tapping into is called the Saturn ring. Hibernia is tapping into that facility because it is sitting there fully fibred and able to take the demands that Project Kelvin will place on it. That is not to say that BT will not tap into it as well, but I do not think that there are any consequences for the Star network or for BT’s exchanges. We are already considering what to do about next-generation networks and what we must do in order to obtain the extra broadband speed that you have talked about.
That does not necessarily mean that Government has to increase their investment in BT’s exchanges. There are different ways of delivering next-generation networks; not all of them have to use fibre or landline technology. There have been significant developments in wireless and satellite solutions, and all of that will be examined as part of the work that we do in going out to the next-generation market.
The Chairperson:
Is it not better that more exchanges are unbundled?
Ms Hepper:
Unbundling is a good thing for exchanges, because it brings competition into the market. That is what I was saying to the folks from Bangor. The reason why the exchange in Bangor was so competitive was because it was the first one to have the most unbundling. That means that there are more ISPs at that exchange. As you say, Chairperson, that is happening elsewhere, and the exchanges in Derry are becoming increasingly competitive.
Ms J McCann:
What is the current position? Is this ready to go?
Ms Hepper:
The project is up and running. Hibernia has been working to prepare the cable, which will be ready for full factory-acceptance testing before the end of February.
Ms J McCann:
So it will be in motion then, more or less at the end of February?
Mr Bullock:
The project is in motion and on schedule. There are no technical difficulties on that front.
The Chairperson:
How does benefit sharing work?
Ms Hepper:
At the end of each year, if the net revenue of the 13 exchanges exceeds the service provider’s forecasted operating costs, we call that excess annual revenue. The contract allows for 37·5% of that excess revenue to come back in one of two ways: either directly back, in a proportionate manner, to the Departments that paid for this project, or invested back into the infrastructure with the agreements of the relevant Departments.
The Chairperson:
Reinvested by whom?
Ms Hepper:
It can be reinvested by the Departments in a way that is appropriate and on which we agree.
The Chairperson:
What do you mean? Is the excess revenue reinvested with the agreement of the Departments?
Ms Hepper:
It is reinvested with the agreement of the two Departments. This project is funded by the Department for Communications, Energy and Natural Resources and our Department. We have to jointly agree how that excess revenue will be reinvested in Hibernia’s infrastructure. Alternatively, we could take it back as a consolidated fund extra receipts note (CFER) that would go back to the respective Exchequers.
The Chairperson:
Are all 13 locations the mandatory locations?
Ms Hepper:
Yes.
The Chairperson:
Will the revenue-sharing calculations take into account all of the business of those 13 locations?
Ms Hepper:
That is correct.
The Chairperson:
Do you have you any projections?
Ms Hepper:
The economic appraisal’s conservative estimate is €5 million over the lifetime of the contract, but that is only a calculation; it depends on how the private sector reacts to Project Kelvin. The better the reaction and the more business generated, the more revenue there will be for Hibernia Atlantic, and the Department will get a proportion of that.
The Chairperson:
What effect will that have on pricing?
Ms Hepper:
It will not affect pricing.
The Chairperson:
What will affect pricing?
Ms Hepper:
The Department looked at the median price of each of the nine products across the three locations of Dublin, Glasgow and Manchester, and took the lowest median price. Hibernia Atlantic examined the figures, and its tender came in at a price 20% below the lowest median price; it will maintain that differential. The natural market fluctuations of each product’s price in those three locations mean that pricing will go up and down monthly. The Department will examine the prices regularly throughout the year to determine whether the contract price is still 20% below the lowest median price.
The Chairperson:
Is that price guaranteed to be the same in all 13 areas?
Ms Hepper:
Yes.
The Chairperson:
The price may vary due to the other variants that you mentioned.
Ms Hepper:
Yes, but it will not vary across the 13 areas; the price in Armagh is guaranteed to be the same as that in Omagh, Derry, and so forth.
The Chairperson:
Is that guaranteed for the life of the contract?
Ms Hepper:
Yes; for the 10 years of the contract.
The Chairperson:
What happens after that?
Ms Hepper:
The price will depend on market forces.
The Chairperson:
What do you mean by that?
Ms Hepper:
The Department is capping the prices for 10 years, but after that it will be market pricing.
The Chairperson:
After 10 years, will whoever owns the network be free to set the price?
Ms Hepper:
They will set the price according to the market.
Mr Sterling:
We hope that there will be strong competition by that stage. One of the objectives of the project was to increase the opportunities for competition, and thereby drive down prices.
The Chairperson:
Will asset revaluation happen at that point?
Ms Hepper:
Asset revaluation will happen at the end of the 10-year contract. Similarly, the current valuation will be agreed by Hibernia Atlantic and the two Departments. It will be determined whether the asset has increased in value, and, if so, the Department will receive a share of that increase.
The Chairperson:
Would the Department’s share be 37·5%?
Ms Hepper:
Yes.
The Chairperson:
Does the Department, therefore, want the asset to increase in value?
Ms Hepper:
We would like it to increase.
The Chairperson:
The taxpayer would want the asset to increase in value.
Ms Hepper:
Yes, but there will be wear and tear on the system and, therefore, an increase cannot be guaranteed.
The Chairperson:
The wider reach of the project that has now been achieved will, as has been reflected by many members in the Committee, be welcome to the wider public, as would anything that adds to better connectivity for different parts of the region and across the border. I want to make it clear that although some members have questions about the location of the tele-house, and so forth, we are in no way dismissive of the wider benefits of the project.
The Committee resisted and dismissed the efforts of BT and others who argued against the project on the basis that something different was required. Before anyone tries to counterpose the benefits of the project against the concerns that have been raised, that is a false contest, because the benefits of the project are widely appreciated. However, there is disappointment and concern that some benefits that were promised to a particular locality, based on the location of the tele-house, will not accrue.
So, in that sense, people in the north-west feel that there is an opportunity cost. That impression of an opportunity cost will be reinforced when they see that the location of the tele-house has been trumpeted and paraded in Coleraine. This week, the ‘Coleraine Times’ has articles and quotes from the executive vice-president of Hibernia Atlantic, Eric Gutshall, and yourself, Derek, all melodeoned in and saying that Coleraine will have a unique selling point and an advantage.
Mr Bullock:
Of course they would. When the contract was announced, the people of Coleraine actively engaged with us in a positive manner, and asked whether we could run some education sessions and tell them what the project would do for the region. They said that they would bring all the entrepreneurs, businesspeople and stakeholders together and asked us to educate them, and we agreed. That is what we are trying to do in other places, such as Derry. I am trying to engage actively this week with clever entrepreneurs in that region to do that type of thing. I would love to sit down with the councils and chambers of commerce and do exactly the same thing. If people approach us positively, we will actively engage with them.
The Chairperson:
Yes, people are engaging in a positive manner, and did before — even though they were then told that they should not approach the company. Derry City Council was told that it should not contact Hibernia Atlantic, and that people should talk only to the Department.
Mr Bullock:
There was a bit of tension there, but things have got a lot better.
The Chairperson:
It seems strange that the Department was very precious that the people in Derry should not talk directly to you, and had no problem with there being free-range communications in Coleraine.
Mr Bullock:
A lot of things were going on in the press at the time that had been very negative. Also, I did not want to get involved in politics.
Mr McFarland:
There is a technical point that I do not understand fully. Presumably, the PA Consulting report triggered the invitation to tender, and so on. PA Consulting envisaged the submarine cable landing and there being a section between the landing site and the local exchange or switching point. I understand what the local exchange is; but what is the switching point? It then had three options for the third section, which was between the local exchange or switching point — probably Coleraine — to the tele-house. Clearly, the consultants understood that the tele-house was not simply a junction point; it was something particular at that stage. What do we think the consultants understood “tele-house” to mean at that stage? Had they not done their homework as regards it being a junction box, or did they think that was it something else when it was written in?
The consultants’ report recommends that the choice — presumably between Coleraine and Londonderry — was of purchasing a “dark fibre pair”, which I am sure is some technical term, running from there, which did not seem to indicate booster stations or anything else. It was simply tacking into somebody else’s fibre optics that existed on the ring. If the consultants envisaged the cable coming ashore at a point, going into Coleraine, and shooting up someone’s fibre optics to the tele-house up in Derry, that is a different scenario to the one that is being painted now, which is that we must have booster stations all the way in, the tele-house has to be at the closest point to the coast, and it has to be taken on to the ring from there. I am not clear whether PA Consulting had not done its homework on how it all worked, or are we misunderstanding how it all works technically?
The Department’s experts presumably took this from PA, and presumably talked to PA —
Mr Sterling:
I want to make a general point about procurement of this nature. Government are encouraged not to be overprescriptive about the solutions that they want to procure in order to solve problems. Therefore, our invitation to tender is very much about the level of services that we are seeking to provide, leaving the market to come up with the most cost-effective solution.
A feasibility study is very much as it is described. It is designed to test whether something is feasible. The invitation to tender is a different beast; it says that these are the services that we want, and we then leave it to contractors to compete with each other and come up with the best and most cost-effective solution.
Mr McFarland:
What is described in the report is the base case for an economic appraisal. Presumably, you had to carry out an economic appraisal before that could get anywhere near off the ground.
Ms Hepper:
Absolutely. The consultants took an approach: it is not that they did not do their homework. We commissioned them to examine whether the proposal had legs; what its economic benefits would be; whether any issue needed to be dealt with; whether Northern Ireland and the South would benefit; and whether it would be affordable. Therefore, all that they did in that process was to test those broad concepts. One way in which they did that was to examine maps and to test the option of using the Hibernia cable that goes past Northern Ireland’s coast: it looked like a feasible option, so they worked through that. Their solution was to bring the cable on to land at Portrush and to bring it to a Coleraine exchange. The model that they then had in their heads was built around data centres. They saw opportunities for data centres, which is why they mention them.
Mr McFarland:
Why do they mention a tele-house? Clearly, what they understood a tele-house to be is different from what we understand it to be.
Ms Hepper:
Yes. Their understanding of a tele-house was that it was a facility that would have all, or many, of the facets of a data centre. It is a much bigger thing than the solution that Hibernia Atlantic came up with when we put it to the market.
Mr McFarland:
Therefore, when you went to tender —
The Chairperson:
The invitation to tender did not ask for a data centre in Derry; it asked only for a tele-house.
Mr McFarland:
Yes, but Fiona said that the understanding at the time of the tender was that the tele-house was a data centre.
Ms Hepper:
No.
Mr McFarland:
You have just told me that that PA Consulting —
Ms Hepper:
PA Consulting’s proposal for how the project might work was to bring the cable onto land at Portrush and bring it to a Coleraine exchange. The next opportunity was for data centres. They picked Londonderry/Derry because, obviously, it is a city and has the necessary space.
Mr McFarland:
They call it a tele-house in the document.
Ms Hepper:
Part of the problem is people’s understanding of what the words “tele-house”, “data centre”, and so on, mean. It is a variable feast.
Mr McFarland:
I am trying to find out what you and they understood and whether, when they talked about “tele-house” in the tendering document and in that document, they meant “data centre”.
Ms Hepper:
They are talking about a data centre.
Mr McFarland:
That is all that I need to know. Therefore, when the tender went out, they were talking about putting a data centre in Londonderry.
Mr Sterling:
No, we were not. That was an additional requirement.
Ms Hepper:
If you go back to what I said in my presentation, we did not take all of the feasibility study’s recommendations forward, because there is no market failure around data centres.
Mr McFarland:
When they talked to you about taking a line inshore to the exchange at Coleraine, there was no concept of booster stations, and so on. Therefore, clearly, they had not done their technical research. They were feeding it into the network at Londonderry, where there would be a tele-house. You have just said that at that stage, both of you understood a “tele-house” in the tender document to be a “data centre”.
Ms Hepper:
Yes.
Mr McFarland:
Following that, when it went to tender for a tele-house in Londonderry, was there no sense that that had changed its meaning insofar as it was likely to be a data centre?
Ms Hepper:
No. We were still using the term “tele-house”. We had never used the term “data centre”. Our definition of a “tele-house” is —
Mr McFarland:
Is it written anywhere that your understanding of a tele-house is entirely different to that of PA Consulting?
Ms Hepper:
In the invitation to tender, we specify what should be the facets of the tele-house. That is laid out in one of the —
Mr McFarland:
And are they the same as what we are talking about — a simple junction box at Coleraine? Was that your definition of a tele-house?
Ms Hepper:
Our definition of the tele-house was what was required to get the submarine cable to interface with the terrestrial infrastructure.
Mr McFarland:
Why did PA Consulting — who, presumably, took technical advice on that — not mention anything to do with that when they described exactly how the cable would be brought ashore? They actually said that option one was to bring a cable to Londonderry, and they said that digging was the most expensive option. Therefore, they had, presumably, done some financial research.
Mr Bullock:
With the greatest respect to PA Consulting, there is no way that we would ever have shared the electrical and optical characteristics of our systems to allow it to say what is or is not possible. Nobody would give out such commercially sensitive information to a consultant who is doing a feasibility study.
Mr McFarland:
No, but, when they did this —
Mr Bullock:
Without that information, they could not say that it would not be totally feasible to dig up the —
Mr McFarland:
No, but there must be some world-wide information on how the system works across the world; not just with your company. There are companies that have these under-sea networks all over the place. Presumably, when the consultants were advising the Department on how this project would work and its cost — because it is quite clear that they are talking about economic appraisals and costings — they had some idea in their heads of a preference for one option over another option. They had some idea of a ball-park figure. They may not have had Hibernia’s exact data, but they may have had information on how such systems operate. My question is, did they know how the systems operate, or were they just winging it?
Ms Hepper:
No. PA Consulting had expert advice. They put forward the proposal of using the Hibernia cable for a new dig, but they could not have had the level of detail about the actual workings of the network that Hibernia Atlantic, or indeed Cable and Wireless, have. We had commissioned them to take a view on whether there was enough of a concept to explore, whether it was worth putting it out to the market, or whether we could even afford it. They were not getting into the minutiae of whether a booster would be required to take the cable from place to place.
Mr Sterling:
We were not asking them to design a technical solution.
Mr McFarland:
No, but you were asking them to do an economic appraisal on whether it was worthwhile or whether it would cost a fortune. I am not sure that I am any the wiser.
The Chairperson:
Just to clarify, reference has been made to the PA Consulting report, and Fiona, you are giving the impression that PA Consulting only referred to a tele-house in Derry as being synonymous with a data centre; that all the references were to the tele-house and data centre. Page 9 of the feasibility report states:
“to maximise the success of the cable that an international peering point/telehouse would be established in Londonderry, and that a data centre would be collocated on this site.”
That shows that they were able to differentiate between the two.
Ms Hepper:
They were collocating them on the same site.
The Chairperson:
They were collocating them, but they were able to differentiate between the two; they were not confusing a data centre with a tele-house.
Ms Hepper:
I am not suggesting that they were confusing them, but, quite often, people lump the two things together.
The Chairperson:
Yes, but they did not just always lump them together. Page 11 refers to:
“connecting back to a collocated telehouse and data centre in Londonderry.”
Page 12 refers to:
“a telehouse/data centre (most likely in Londonderry)”.
On page 13, the report states that:
“There are essentially three sections to between the existing Hibernia Atlantic cable and a telehouse in Londonderry.”
So, the reference is to a “telehouse in Londonderry”; there is no reference to anything else. Page 13 of the report also states that:
“Section 3: The section from the local exchange (probably Coleraine) or switching point to the telehouse.”
That refers back to the tele-house in Londonderry. Page 14 states that —
“However, given that the ‘purchase fibre’ option enables infinite capacity to be provided on the terrestrial link between the landing site and Londonderry telehouse, as well as affording more control over the terrestrial link”,
— and so on. So clearly, there are freestanding references to the tele-house in Derry; even in the report.
Ms Hepper:
From the Department’s point of view, the feasibility study was done for a purpose. It was to see if there was any mileage at all in us, as a Government, bringing direct international connectivity to the North of Ireland.
The Chairperson:
It was just to clarify that point.
Ms Hepper:
Absolutely. Through the procurement route, one then decides what issues one is trying to address, and we did that through the idea of trying to improve latency. We wanted to drive down costs, and we wanted reliability. That is what we put out to tender. At that point, the PA Consulting report was a report that informed us, but it was not the blueprint for what we were doing. There are aspects of the report that are interesting, because it gave us enough knowledge and enough of an economic appraisal to show us that the project was going to work, but then one puts it out to the market to get the best solution. That is what our approvals were based on.
The Chairperson:
When was the European Commission notified of the change?
Ms Hepper:
The European Commission has not been notified of any change, because we have complied with our state-aid approval. We submitted what we wanted to do —
The Chairperson:
The approval for state aid from the Commission reminds the Irish authorities — or, in the other version, the UK authorities — that:
“pursuant to Article 88(3) of the EC Treaty, they are obliged to inform the Commission of any plan to extend or amend the measure.”
The measure has been amended and has, certainly, been extended.
Ms Hepper:
It has not been extended, because the state-aid approval mentions the requirement for a minimum of three mandatory locations. We have 13 locations, and although that is more than three, the approval specified a minimum of three. We are delivering the competitive advantage that the project and the measure were designed to deliver. We are delivering on cost, latency and reliability, and we are within the —
The Chairperson:
Who advised that the Department did not need to notify the Commission?
Ms Hepper:
Our state-aid unit examined that issue.
The Chairperson:
The state-aid unit said that it is not necessary to inform the Commission?
Ms Hepper:
It said that we are operating within the terms of the state-aid approval.
The Chairperson:
Even though the state-aid approval, on several occasions, refers specifically to the tele-house in Derry?
Ms Hepper:
We were not addressing the issue of the tele-house in Derry.
The Chairperson:
The tele-house has a major effect on bespoke regional benefits in the north-west.
Ms Hepper:
The state aid approval measures whether our intervention was proportional and competitive, whether it affected trade, and so on. The document covers all those matters. Our state-aid approval is measured against those considerations. The tele-house is a means to effect the project; it is not what we were trying to achieve. The state-aid approval considers what we were trying to achieve and —
The Chairperson:
Even though the location of a tele-house in Derry is referred to several times in the state-aid approval document?
Ms Hepper:
Yes.
The Chairperson:
But that fact is neither here nor there?
Ms Hepper:
I did not say that it is neither here nor there. The tele-house is a technical requirement that is needed to deliver the project. It is not the end point of the project.
Mr Sterling:
It is about delivering services.
The Chairperson:
Will you provide written answers to the questions that you did not answer earlier? What information on the project did the Committee and MLAs receive at the time of the Budget and Programme for Government? What was included in the INTERREG submissions, including the information to the INTERREG monitoring committee? What was included in the application for state aid as well as the approval? What is the status of the contract? Is that publicly available?
Ms Hepper:
The contract is a commercial document. The Committee has requested a copy, which we will examine. If it were to be released, some parts would be redacted.
The Chairperson:
Were there two other tenderers?
Ms Hepper:
Yes.
The Chairperson:
Where did they propose to locate the tele-house?
Ms Hepper:
One tenderer did not make a proposition. I am unsure about the other, because I no longer have the documents. I will check.
The Chairperson:
Will you respond to the Committee on that matter?
Mr Sterling:
Yes.
The Chairperson:
The change of location is significant for a variety of reasons. It is different from what was outlined in all the presentations, documentation and submissions and, therefore, different to what people expected. Some people consider it to be more than simply a technical adjustment. The project manager gave a clarification on behalf of the Department during the summer. At what stage did the Department corporately become aware of the change? What action did you take?
Was the Minister notified? Did it occur to anybody to notify the Committee and other organisations? Was any further contact agreed? Did the Department decide that because DCENR knew about it at official level, nothing else needed to happen? Did it not occur to somebody that the North/South Ministerial Council secretariat and people from the north-west gateway initiative might be interested? Given that it is broadly responsible for EU representation, the Office of the First Minister and deputy First Minister should have been informed, but it seems that it was not.
Mr Sterling:
If the Committee Clerk provides us with a list of those points, we will respond very quickly.
The Chairperson:
The questions about the issue will continue, and it is unfortunate that one dimension — the apparent switch or shift from what people had been led to expect with regard to the location of the tele-house — has eclipsed some other issues. We are not blind to the other issues, but we will not fail to pursue the questions.
What I take from this situation is that I can no longer rely on anything that the Committee is told. We will have to frisk everything, almost every week, if we are to believe anything. If people do not tell us when things change, we must boringly and annoyingly check every week to ensure that something has not changed. It should not work like that.
Derek said that people told him that this was not the way to do business. This is no way to do the business of democratic accountability. People who should be informed of changes were not informed of those changes. If there was nothing undue or untoward about it, people should have been notified in a normal, mature and reasonable way, but that did not happen.
Mr Sterling:
I will respond to that point.
The Chairperson:
It was not only the Committee; people in the Government system were not told. The Office of the First Minister and deputy First Minister should have been told on at least three counts, and it was not.
Mr Sterling:
I will pick up on that point in our reply.
The Chairperson:
I thank all three of you.