Thursday, April 03, 2008

That $1 billion contract? Terminated.

It'll no longer be possible to claim that the new government is all talk.

Why Steven Conroy pulled the plug:

In opposition the Communications Minister Senator Conroy called the $1 billion Optus-Elders rural broadband network a “dog of a product”.

In government, he had to put it down.

Steven Conroy has his own much bigger broadband vision.

He wants 98 per cent of us to have access to very fast broadband (12 megabits per second or more) delivered by an optic fibre cable stopping just metres from our door.

He has been given access to $4.7 billion from the Future Fund to do it. As he said last week it was Labor's biggest spending commitment: “bigger than health, bigger than education”.

It would, he said, “rival the Snowy Mountains Scheme in its scale and significance to Australia”.

But there are two big problems...

One is that most of us in cities already have access to broadband. Perhaps not as fast as the Minister would like, and for various technical reasons not extending to parts of Gungahlin in Canberra, but access nonetheless.

The other is that most of the rest of Australia outside of the capital cities was stitched up by John Howard when he signed a deal with Optus and Elders just before he called the November election.

If the “OPEL” consortium had gone ahead and spent the $958 million John Howard had promised to fling its way the business case for tossing $4.7 billion into Senator Conroy's new national network would have begun to look shaky.

The Minister said yesterday that the technical people in his department had analysed the mapping and testing undertaken by OPEL and concluded that it would be unable to provide the coverage it had promised.

This meant that it had failed to meet the terms of its contract.

But there have long been such doubts.

It would be interesting to know what the technical people in the department concluded about OPEL's ability to do what it had been promised at the beginning.

Did they think that the technology OPEL was to use would be incapable of doing the job back then? Did such advice reach their Minister, Senator Coonan?

Or did the Department of Communications bide its time and wait for a new minister who would be receptive to its doubts?

The Minister's decision means that a monopoly will provide broadband in much of the bush, and a partly government-owned one at that.

Whether you think that's a good or a bad thing depends on your point of view.

It will mean that Australians in the bush will wait longer. Senator Conroy's “Snowy Mountains scheme” sized project is likely to take five years.

For the rest of us, it won't mean much. We are generally happy enough with the broadband we have got. We are not hanging out for the Conroy scheme and whether or not we use it when it comes will depend on price and the alternatives available at the time.


In a dramatic exercise of ministerial power the Communications Minister Senator Conroy yesterday canceled the Coalition's $958 million “final failed broadband plan” delaying the delivery of improved internet services to 900,000 rural Australians.

Declaring that the OPEL consortium made up of Optus and Elders had failed to meet the terms of a contract it had made with the previous government, Senator Conroy canceled the deal, freeing up almost $1 billion to add to the budget surplus.

Elders and Optus were to lay around 15,000 kilometres of fibre-optic cables throughout the bush, taking high-speed broadband to places that are at present only served by satellite.

Gaps in coverage were to be filled in with largely-untested WiMAX wireless transmitters in order to reach 90 per cent of the under-served premises in rural Australia.

The Minister said yesterday that his department had analysed OPEL's maps and technical data and concluded that its network would reach only 72 per cent of the under-served premises.

“On the basis of the department's assessment, the government determined that OPEL’s implementation plan did not satisfy the condition precedent of the funding agreement,' Senator Conroy said.

Optus told the stock exchange it had already spent $16 million on the project, and Elders said it had already spent $15 million.

Neither indicated whether it would be suing the government, or seeking recompense for the money it had spent.

The Optus chief executive, Paul O’Sullivan said the department's analysis was flawed.

“There were serious errors in its database of underserved premises which led it to underestimate the number which would benefit,” he said.

“Optus has made an offer to the government which I repeat publicly today: we are quite happy to have a respected independent expert audit OPEL’s coverage database and the department’s coverage database.”

“The implications of this decision for confidence in future competitive selection processes conducted by this Government will need careful consideration.”

A spokesman for Elders, Les Wozniczka said the project had been a “live” one.

“It was there to be done and be operational within two years. The tried and tested way of introducing new technology into Australia is to bring in competition, and that's not going to happen,” he said.

The decision leaves leaves the way clear for the minister to proceed with his promised national fibre-to-the-node broadband network which would service both remote and city customers providing broadband faster than 12 megabits per second to 98 per cent of the population.

The scheme would be funded by $4.7 billion from the government's Future Fund and so would not affect the budget surplus.

A private partner would contribute a similar sum to the consortium.

Telstra yesterday denied that it expected to be that partner.

“It would be not be right for me to propose that we are in the box seat at all, because it's an open tender and we will work with the Government to meet their requirements,”said its spokesman Geoff Booth.

Senator Conroy has given his broadband advisory panel until September to recommend which company will win the $4.7 billion contract.

The network is expected to take five years to build.

Optus is heading the so-called G9 consortium of telecommunications providers which is competing against Telstra for the contract.

The Opposition Leader Brendan Nelson said the decision left regional broadband services in the lurch.

“The average hardworking Australian taxpayer would have have to ask why they have to spend billions of dollars more, when we already had a solution in place,” he said.