Stories
National Broadband Ireland’s chairman David McCourt, along with his co-investors in the company that won the state’s National Broadband Plan (NBP) contract, have formed a new business set to provide outsourced IT services to telecommunications companies including NBI itself, according to company sources and documents.
Three Irish companies called X3T Broadband Ltd, Granahan McCourt Capital X3T Holdings Ltd and X3T Broadband Management Ltd have reported recent activity linked to the establishment of the X3T business in Ireland. X3T’s new website says it offers technology forming the interface between infrastructure owners and telecommunications retailers, through which “ISPs [internet service providers] can now connect to a single platform and gain access to multiple networks, while retaining complete control over the reliability and performance of the networks they’re selling services on”.
X3T Broadband was incorporated by McCourt in 2018 under the name EDG Opco (Ireland) Ltd. It was intended as the Irish presence for a proposed US-based business called Emergent Data Group, but had never started trading. A decision to strike it off the companies register was reversed earlier this year and it was instead renamed in April, before receiving a capital injection in October.
The other two X3T subsidiaries were shelf companies supplied by the law firm Arthur Cox and activated in July and August. McCourt is a director of all X3T companies in Ireland and chairman of the overall business.
On October 24, X3T Broadband raised €5 million through a share issue, both directly and through its intermediate holding company Granahan McCourt Capital X3T Holdings. The shareholders who made this investment mirror those who had backed NBI just before its bid won the NBP contract in 2019.
The largest initial investors in X3T are vehicles for US investment funds managed by Oak Hill Advisors (OHA) and Twin Point Capital, together owning three-quarters of the new business. Tetrad, the investment firm of the late Walter Scott, comes next, followed by McCourt’s own firm Granahan McCourt Capital. Telecommunications investors Brian Thompson (through his US vehicle UTI Ireland) and London-based Bruno Ducharme have smaller stakes.
These are the investors who, after advancing €120 million (nearly all in unsecured intercompany debt) to get the NBP roll-out off the ground, decided, for the most part, to exit NBI last year while the company sought to raise long-term equity instead, as revealed by The Currency at the time.
In a deal announced last July, Spanish investment firm Asterion Industrial Partners acquired an 80 per cent interest in NBI from existing investors except for Granahan McCourt and Tetrad, who have stayed on, along with a minority stake for senior management.
A spokesperson for the Department of Communications said: "The Department and its external legal and commercial advisors have undertaken a detailed due diligence on the transaction which concluded that there was no reason to withhold consent. The Minister approved the Change in Ownership on October 18."
Following the Government's green light, Asterion’s takeover closed on November 11, with multiple NBI holding companies previously used to hold the interests of former shareholders going into liquidation last month. The Spanish firm’s executives Winnie Wutte, Sebastián Urbán Muñoz and Kate-Lynn Gordey are due to join the boards of NBI companies.
Company filings show that the investors who sold out to Asterion are now reinvesting part of the proceeds into X3T, closely replicating the respective stakes they previously had in NBI with Granahan McCourt and Tetrad. NBI chief executive Peter Hendrick told The Currency that Asterion, too, had agreed to make a significant investment in X3T.
So, what are the partners in X3T hoping to achieve separately from their successive common investments in NBI?
Open access
McCourt is a big advocate of wholesale open-access telecommunications networks, where the companies that own and maintain the infrastructure are not those that deal directly with end users. So are his co-investors – Thompson, “in the mid-90s, was somebody who was pushing hard for wholesale open access infrastructure across the US and Europe,” according to Hendrick.
Open access, for example, is how Open Eir operates Ireland’s existing telephone network, acting as a wholesaler to the retail arm of its sister company Eir as well as competitors such as Sky or Vodafone, who in turn sell telecommunications services to consumers and businesses.
This means that ownership of the network (and changes such as Eir’s recent deal to transfer its modern fibre infrastructure to a joint venture with the French private equity firm InfraVia) is not related to the contractual relationships between end customers and their communications service providers (CSPs). The idea behind open access is that some companies are better at running large infrastructure assets, and others at tailoring packages to different types of demand or dealing with frontline billing and customer service tasks.
This model is the opposite of closed networks, such as the cable assets in Irish urban areas used exclusively by Virgin Media.
As NBI’s network becomes available – at the cost of a maximum €2.97 billion state subsidy – the company operates an open-access model. Rural customers who previously used Eir can improve their service by switching their line to NBI’s fibre network while keeping their contract with Eir if they want to – even though they no longer use Eir’s infrastructure. The same goes for any other service provider.
While open access introduces competition and choice, this comes with complexity. The infrastructure operator must let multiple service providers coexist on the network, welcome new ones as needed, provide them with the data they need to run their business, charge each of them appropriately and keep them and regulators informed of performance and maintenance issues. This all requires a robust set of IT systems and processes.
“We are bringing together all of Granahan McCourt’s experience in operating world-leading open-access networks, and for the first time providing a purpose-built platform called X3T.”
David McCourt
“Technology has failed the industry,” McCourt said in an advertisement he took out with the industry publication Capacity Magazine in October. “With 30 years of owning and operating networks, I speak first-hand when I say the only options to build a best-in-class open-access platform usually prove to be cost-prohibitive if you build it yourself, or simply lack the functionality if it’s bought off the shelf. This is a challenge for all network owners world over.”
McCourt believes he can crack it – that’s the purpose of his new business.
“We are bringing together all of Granahan McCourt’s experience in operating world-leading open-access networks, and for the first time providing a purpose-built platform called X3T to enable network operators and communications service providers to capitalise on the trend towards open-access wholesale,” McCourt said in the advert.
Hendrick has been working with McCourt since the mid-2010s, when the Irish-American businessman and a similar group of co-investors invested in Enet, a state-sponsored network providing higher-level broadband connectivity in Ireland’s towns and cities. It became clear to them at the time that “one of the key aspects of telecoms is about software and open-access wholesale,” Hendrick said. At the time, they had to build a platform letting multiple service providers operate seamlessly across infrastructure owned by Enet, Open Eir and other owners such as Siro, he added.
According to Hendrick, the development of a similar platform for NBI is now largely complete, with multiple service providers already selling packages through the network. He said there were up to 90 people involved in this work, most of them external contractors, with around 20 directly employed by NBI.
“Once that’s done, there isn’t a job for them in NBI,” he explained. Yet he added that it was in the interest of NBI to have those specialist workers around for short-term projects and future developments. “X3T is this environment,” Hendrick said. Instead of losing the skills among NBI’s platform development team, the new business aims to create a “centre of excellence” for open-access telecommunications networks management capable of serving overseas markets.
He likened the new business to ESB International, the state utility’s successful global engineering and consulting business.
For the moment, X3T’s track record is limited to the NBI experience. The firm’s website and McCourt’s advert both claim “60 global and specialist CSPs accredited and connected”, which is also the number McCourt quotes for NBI. “This platform, X3T, is now being made available as software-as-a-service to unlock opportunities across the telecoms industry, helping infrastructure investors, network operators and Internet Service Providers to capitalise on the prosperous trend towards open access wholesale,” the website offers.
Despite X3T’s claim to the platform developed by NBI, the latter has clarified that “no contract has been entered into between NBI and X3T. NBI will always retain ownership of all of its own proprietary systems, which have been developed since launch and which support the delivery of the NBP. There will be no transfer of these assets to anyone, including X3T”.
Hendrick added that X3T retained no intellectual property from NBI, and NBI would continue to hold licences directly with the vendors of software used on its open-access platform.
NBI “outsourcing to X3T”
While not formalised yet, there are, however, plans for a relationship between NBI and X3T.
X3T Broadband started to do business with NBI companies last year, but the new IT company was the one purchasing “consultancy services” from NBI at the time, with a €50,000 bill owed to NBI Infrastructure DAC at the end of December. It was the only activity reported in its annual accounts.
Now business looks set to flow the other way.
In recent weeks, NBI has been assembling a team specifically for the purpose of managing the outsourcing of technology functions to X3T. A job offer for an IT operations manager, live on NBI’s website since October 7, explains that “this role is part of a new function being created within the NBII [NBI Infrastructure DAC] COO team after the creation of the X3T organisation”.
The successful candidate will “provide valuable input into the agreement being drawn up, which is key to ensuring the success of the outsourcing to X3T. Having established the Function on Day 1 of X3T being formed they will manage the day-to-day interaction with X3T for all outsourced IT systems & application operations”.
Other recent recruitment adverts from NBI, now expired, included an IT enterprise architect, a service delivery manager and an IT operations lead, all expected to form part of the same new team tasked with collaborating with X3T contractors. “Although NBI are outsourcing IT solution delivery and IT operations, NBI will retain both accountability and responsibility for the IT architecture and strategy for systems evolution,” one job description explained.
Others specified that NBI would monitor the work of X3T at monthly and quarterly performance review meetings, while the NBI team would “ensure X3T plans are aligned with forecast transaction volumes and numbers of users”. One document described the developments outsourced to X3T as “a portfolio of business-critical technology initiatives”.
Although this language suggests significant collaboration between the two businesses, Hendrick played it down as “minor developments”, such as new functions NBI is currently considering around automation and payments, or technical changes that may occur when software licences expire in around five years.
“Anything X3T develops for NBI will be for the the benefit of NBI. If X3T develops systems for customers in the UK or Europe, it’s not NBI-specific.”
Peter Hendrick
The purchase of services from X3T by NBI would raise a number of questions under the NBP contract. First, could the common ownership of both companies interfere with the competitive procurement built into the contract for supplies eligible to state subsidies?
The IT Operations Manager job currently advertised by NBI includes ensuring delivery of services supplied by X3T “within the agreed opex envelope” and producing “Department Service Level Reports” for issue to the Department of Communications, highlighting potential interactions between the payment of state subsidies and the work to be performed by X3T.
Hendrick doubted any contract with X3T would fall under a subsidised category but assured that it would be “envisaged within procurement rules”. A statement from NBI to The Currency added: “Entry into any contract with X3T will be subject to the usual governance arrangements that NBI has in place with its Board and sub-committees, as well as ensuring that any such contract meets the requirements of the Project Agreement, including any approvals required from the Department. The Department has significant oversight in respect of key contractual areas (including in respect of passive works contracts, connection works contracts and key materials).”
Second, could the establishment of X3T generate financial gains for the sole benefit of private investors, which would otherwise be shared with the state under the NBP contract if the same business was run internally at NBI?
According to Fergal Mulligan, NBP programme director at the Department of Communications, if NBI returns profits higher than certain – confidential – margins agreed for various periods of the coming 25 years, the state will be entitled to claw back 60 per cent of NBI’s excess gains. In addition, the Exchequer will collect 40 per cent of the final value of NBI as independently valued after 25 years.
Hendrick acknowledged that the NBP contract already envisages projects outside its subsidisied rural connectivity mission where NBI will make profits included in any clawbacks the state may be entitled to, such as the provision of backhaul capacity for mobile operators. However, he said that this was not relevant in the case of a contract with X3T. “Anything X3T develops for NBI will be for the the benefit of NBI. If X3T develops systems for customers in the UK or Europe, it’s not NBI-specific,” he differentiated.
“In its establishment of X3T, Granahan McCourt is continuing its publicly stated objectives, which is to invest further in developing its centre of excellence and capabilities to serve open-access networks globally,” the NBI statement added. “The establishment of X3T, the new centre of excellence, is not a matter governed by the Department and the Department does not have a stake in X3T or its technologies.”
In a response to questions from The Currency, a spokesperson for the Department of Communications said: "With regard to X3T, we understand that this is a commercial entity. Any queries in relation to X3T and any services it may provide to NBI should be directed to its owners and/or NBI. There has been no request for approval from NBI in relation to X3T. Should NBI seek approval it will be processed in line with the requirements of the NBP contract.
"With regard to the wider query on whether the Minister has any interest in technologies developed by NBI, we can confirm that as NBI is a commercial company any intellectual property developed by that company would reside with it."
