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Conroy Cancels OPEL Contract: Updated |
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Written by Adam Gosling
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Wednesday, 02 April 2008 |
The Australian
Government has cancelled its Broadband Connect Infrastructure contract
with the Optus/Elders joint venture company OPEL terminating the nearly
AUD$1 billion in funding promised by the Howard Liberal Government.
Senator
Stephen Conroy, now Minister for Broadband, Communications and the
Digital Economy strongly opposed the deal while in opposition, so there
is little surprise the funding has been withdrawn for the highly
contentious deal.
According to a statement
issued to the Australian Stock Exchange (ASX) the contract has been
terminated because the Government "considers the conditions have not
been satisfied". While Optus says it believes the "OPEL network was
capable of meeting the objectives of the Government's Broadband Connect
Infrastructure Program" it has stopped short of issuing an early threat
to challenge the decision.
The new Federal Government is currently working toward a grand scheme to build a major National Broadband Network using fibre to the node (FTTN) which may offer a bigger funding prize to the successful bidder.
Following
the former Government's announcement of the OPEL deal incumbent telco
Telstra took the Federal Government to court in an effort to gain
access to documents explaining why an original funding promise
ofAUD$600 million was extended to nearly AUD$1 billion without industry
notification.
While
it failed in this quest, Senator Conroy agreed to make some documents available to the telco.
Industry concerns over the proposed network's
coverage, the use of WiMAX and significant duplication with existing Telstra and proposed FTTN networks have led many industry pundits to predict that this, coupled with the potential for legal action by Telstra over the original tender process, made today's announcement a certainty.
Nathan Burley, a research analyst with Ovumsays the decision is significant but not too surprising. "We are more surprised that it took so long," he said.
"The new minister for Broadband, Communications and the Digital Economy, Stephen Conroy, had attacked the funding, the award procedure, OPEL coverage claims and its chosen WiMAX technology when he was in Opposition. Instead, he advocated an FTTx network to 98% of Australia households. This included AUD$4.7billion in government funding and much duplication of the planned OPEL network."
Burley said that the government's belief that the OPEL implementation plan did not meet the prescribed coverage requirements and that there was significant risk the project would duplicate parts of the Government’s proposed FTTN network were the reasons for the cancellation despite Conroy'srepeated statements that the OPEL contract would be honoured.
Ovum always believed that "if there were a way out he would be likely to take it," said Burley. Coupled with the new Government's ‘razor gang’ working to reduce Government spending to curb inflation it "seemed a matter of time before OPEL became another victim."
"Although the loss of the competitive backhaul capacity may be the largest blow, the termination will have the biggest ramifications on the WiMAX Industry. WiMAX has received considerable bad press recently in Australia, and this will not help.
Although it means Optus can now concetrate its efforts on its 3G HSPA roll-out and putting together a bid for the proposed FTTN roll-out, it means it will no longer be able to leverage the OPEL funding for backhaul, tower sharing and the like, explained Brumby.
"Additionally, sale of Austar spectrum to the OPEL consortium will not proceed," ventured the analyst.
Optus share rose on news of the contract cancellation.
The Optus statement to the ASX reads:
"On
10 September 2007 SingTel announced that OPEL Networks Pty Limited
(OPEL), a 50% owned joint venture of Optus Networks Pty Limited (a
wholly owned subsidiary of SingTel) with Elders Telecommunications
Infrastructure Pty Limited (a wholly owned subsidiary of SingTel) with
Elders Telecommunications Infrastructure Pty Limited (a wholly owned
subsidiary ofFuturis Corporation Limited), had finalised a funding
agreement with the Australian Government under which OPEL would be
eligible to be paid agreed funding of A$9598 million to construct a
network that would deliver broadband services to rural and regional
Australia once certain conditions were satisfied. On 1 April 2008 the
Government advised that it considers the conditions have not been
satisfied and has terminated the funding agreement.
The joint venturers,
Optus and Elders, maintain that all conditions precedent to the funding
agreement have been satisfied. The OPEL network was capable of meeting
the objectives of the Government's Broadband Connect Infrastructure
Program and delivering improved broadband services to 889,322
undeserved premises in rural and regional Australia within 2 years at
metro-comparable prices.
As previously announced the
equity accounted results for OPEL and other commercial arrangements
that Optus would have had with OPEL were no expected to have a material
impact on the financial statements of the SingTel Group for the year
ended 31 March 2008.
For the year ended 31
March 2008, Optus had incurred approximately A$7 million in operating
expenses and A$9 million in capital expenditure relating to the
Broadband Connect Infrastructure program. In the absence of recoveries
from the Government, the capital expenditure of A$9 million will be
written off in the quarter ended 31 March 2008."
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