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Australia to build $31B broadband network

Australia's government will build a $31 billion high-speed broadband network, leading a new private-public company, after rejecting bids by companies that it said failed to offer value for money.
/ Source: Reuters

Australia's government will build a $31 billion high-speed broadband network, leading a new private-public company, after rejecting bids by companies that it said failed to offer value for money.

In a surprise move, Prime Minister Kevin Rudd said on Tuesday the government would ask private companies to join the country's biggest infrastructure project to build a network that would be up to 100 times faster than the current network.

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.

"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," Rudd told reporters at parliament.

The center-left government would sell its majority stake five years after the network, which still requires parliamentary approval, was fully operational.

The fiber-optic network, central to Rudd's winning election campaign in late 2007, will be Australia's biggest reliance yet on public-private partnerships and underscores Rudd's preference for government intervention amid a bruising global financial crisis.

A consortium comprising wealthy Australian businessmen and telecoms industry veterans had been favorite 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.

Rudd said the new network would be built with money from a $14 billion national infrastructure fund and the sale of bonds, following an initial government investment of $3.3 billion. Private sector investment would be capped at 49 percent.

Rudd estimated 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," Conroy said, adding Telstra would now be invited back into the process.

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 fiber-to-the-home scheme would support up to 37,000 jobs, Rudd said, as the country teeters on the edge of a recession that could push the jobless rate above 7 percent next year.

Around 90 percent of homes would be connected to a network with speeds of up to 100 megabits per second. The network would add $26.3 billion to the national economy through added productivity, analysts said.

Telstra shares closed up 4.4 percent, clawing back some of a 20 percent drop since mid-December, when the government bumped it from the initial network tender.

In a statement, Telstra said the new plan would have little short to-medium-term impact on its business as it would take years to build. Chairman Donald McGauchie said he looked forward to constructive talks with government.

Analysts said Telstra could work with the new plan, but the longer term outlook was cloudy as the former state monopoly would be up against a powerful new rival and would no longer enjoy lucrative control over lines to homes.

"It looks pretty clear that the government has been very persistent in getting a new network up and running, that will definitely be a competing network. It will be competing directly with the most profitable part of Telstra," said Theo Maas, an investment analyst at Fortis Investment Partners said.

The new network is aimed at reaching end users directly, without relying on Telstra's local copper cable network.

"This could mean Telstra's copper network would eventually become obsolete anyway," said Lucinda Chan, a division director with Macquarie Equities.