Published April 8, 2009

Australia scraps massive IT tender, but telcos still hopeful

It now invites private firms to join it in building A$43b broadband network

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(CANBERRA) The Australian government has decided to build a massive A$43 billion national high-speed broadband network itself, rejecting bids in a controversial tender involving some of the country's top telecoms firms.

In a surprise decision, Prime Minister Kevin Rudd said yesterday the government would ask private companies to join a new private-public firm to build the network.

A little-known consortium comprising wealthy Australian businessmen and telecoms industry veterans had been favourite to win the project ahead of Optus, which is owned by Singapore Telecommunications and Canada's Axia NetMedia.

The tender process was enveloped in controversy after the country's largest phone company, Telstra Corp, was dumped from the running in December, after the government panel overseeing bids said its proposal did not fit requirements.

Telstra shares jumped 4.3 per cent yesterday to close at A$3.35 amid expectations the company could bid afresh to be part of the project. But communications and business strategy analyst Ross Dawson said the decision was bad news for Telstra.

'This is not good news for Telstra. Essentially up until now Telstra has had a monopoly on access to the home and connectivity,' he said. 'Telstra will need to reposition, as indeed will other telcos, to say what value-added services they provide.'

Australia has slower and more expensive Internet services than many developed countries, raising concerns about competitiveness, but the project will be made more difficult by the country's vast distances and inhospitable terrain.

The government would sell its majority stake after five years when the network was fully operational.

The centre-left government had been expected to announce the winner of a tender to build the network, which was a centrepiece of Mr Rudd's winning election campaign in late 2007.

'It's time for us to bite the bullet on this. The initiative announced today is a historic nation-building investment focused on Australia's long-term national interest,' Mr Rudd told reporters at parliament.

Mr Rudd said the new network would be built with money from a A$20 billion national infrastructure fund and the sale of bonds, following an initial government investment of A$4.7 billion. Private sector investment would be capped at 49 per cent.

The network would operate on a wholesale-only, open access basis, separating retail operations and allowing Optus, Telstra and other companies to build services into the system.

The fibre-to-the-home scheme, which still needs parliamentary approval, would be the largest infrastructure project in Australia's history, Mr Rudd said, and would support up to 37,000 jobs as the country teeters on the edge of an expected recession that is likely to push the jobless rate above 7 per cent next year.

Around 90 per cent of homes would be connected to a network with speeds of up to 100 megabits per second.

Mr Rudd estimated that building the network would take 7-8 years, presenting a risk that voters could be alienated by the long delay as the government faces re-election late next year.

'We've delivered an enhanced election commitment. We're actually delivering faster speeds to more people,' Communications Minister Stephen Conroy told Reuters, shaking off concerns that the scrapped tender could anger voters and big telcos.

'The global financial crisis impacted right in the middle of the process. The crisis landed right on top of (telcos), the money dried up for everyone,' Mr Conroy said, adding that Telstra would now be invited back into the process.

Mr Rudd said the tender process was being scrapped because none of the submitted bids offered value for money.

'(The tender) has not produced an outcome which we believe, and we have been advised, makes the best use of the taxpayer's dollar. This does, and at the same time provides a fundamental reform for the way in which broadband services are delivered to the economy at large,' he said. -- Reuters