national broadband network project

Department of Transportation and Communications

NATIONAL NATIONAL BROADBAND BROADBAND

NETWORK PROJECTNETWORK PROJECT

NBN will be a white elephant as it is unnecessary, overly expensive and will be unutilized.

DOTC did not follow proper procedures and violated the law on procurement.

NBN Supply Contract with ZTE is the most expensive of the three proposals and is overpriced.

IssuesIssues

Two of the major principles underlying the NBN Project -

– intra and inter government connectivity -- reduction of communication expenses

– have been in the statute books since 2000.

Policy and Legal Policy and Legal ConsiderationsConsiderations

Required by the E-commerce Law

Sec. 40 of IRR, RA 8792

… install an electronic online network … to facilitate the open, speedy and efficient electronic online transmission, conveyance and use of electronic data messages or documents amongst all government departments, agencies, bureaus, offices down to the division level and to the regional and provincial offices as practicable as possible, government-owned and controlled corporations, local government unit, other public instrumentalities…


Required by the E-commerce Law

Sec. 41 of IRR, RA 8792… lead to substantial reduction of cost, including, but not limited to, leased lines, land, satellite and dial-up telephone access, cheap broadband and wireless accessibility by government departments, agencies, bureaus, offices, government-owned and controlled corporations, local government units, other public instrumentalities and the general public, to include the establishment of a government website portal and domestic internet exchange system to facilitate strategic access to government and amongst agencies thereof and the general public and for the speedier flow of locally generated internet traffic within the Philippines.


Mandated by EO 269, series of 2004

Sec. 4 Powers and Functions

(c) Establish and administer comprehensive and integrated programs for ICT at the national, regional and local levels

(d) Design and implement an integrated government information and communications infrastructure development program that will coordinate all existing government entities, taking into account all their existing plans, programs, proposals, software, hardware inventory, and the installed systems and programs.

Policy and Legal ConsiderationsPolicy and Legal Considerations

Under the RA 9184. Section 8.3.3

All central and regional offices of NGAs, GFIs, GOCCs, SUCs, and city governments are mandated to use the G-EPS and its available facilities by the end of 2003; all district offices of NGAs and provincial governments, by the end of 2004; all municipal offices of NGAs and all municipal governments, by the end of 2005; and barangays, by the end of 2006: Provided, however, that baangays may produce through the municipal governments.

Note: NGA –National Government Agencies GFI – Government Financial Institutions GOCC-Government Owned and Controlled Corporation SUC-State Universities and Colleges G-EPS – Government

Policy and Legal ConsiderationsPolicy and Legal Considerations


It is It is consistent with MTPDP (2004-2020):

Developing digital infra to provide public access points for delivery of e-Govt services.

Adoption of VoIP that could reduce cost of connectivity.

Rationalization of existing govt network infra to enable sharing & interconnection of network resources.

It is included in the MTPIP & CIIP

Note : MTPDP – Medium Term Philippine Development Plan MTPIP – Medium Term Public Investment Program CIIP – Comprehensive and Integrated Infrastructure Program VoIP – Voice Over Internet Protocol

Government Communications Government Communications ExpendituresExpenditures

Approximately P4B in annual communications expenses(2004 figures)NGA = 1.9B; GOCC=1.1B; LGUs=.7 Projected to increase annually as more agencies get connectivity and implement e-government initiatives

TELCO 1

TELCO 3

TELCO 2

MUN. LGU 1MUN. LGU 1510

Agency 2Agency 2

Regional Office 1

Agency 2Regional Office 2



Provincial LGU 81

TYPICAL NETWORK FOR GOVERNMENT AGENCIES BASED ON INDIVIDUAL SUBSCRIPTION

Government Communications Set-upGovernment Communications Set-upGovernment communications consist of: Voice only landlines Mobile phones Dial-up internet access DSL lines Leased lines PABX and various LANs Retail NDD and IDD No data networkEach agency sources its own communication requirements including its data center capacity.

None of the government agencies have (Virtual Private Network) (VPN) except some GOCCs

Email and file transfers usually done through Yahoo or Google mail.

SOLUTIONSOLUTION

Given the foregoing, a more cost effective and efficient solution is required where:

- demand aggregation;

- economies of scale; and,

- policy and legal mandate can be complied with

NBN as the SOLUTIONNBN as the SOLUTION

The solution is to build and finance a fully integrated single IP-based platform nationwide broadband network to allow seamless voice, data and video connectivity within and among national, regional and local government agencies, including GOCCs and CeCs.

The NBN project has two (2) main components:

NBN Infrastructure Network Transmission Backbone WiMAX Network Cluster (last mile distribution) IP Core Network Integrated Data Center Network Support & Management Subsystems

Network Application Systems/Services VoIP System Intranet capacity Internet access Video Conferencing System

Project ComponentsProject Components

• Integrated Data Center-Network Operation Center with Mirror/Back-up Site

• 300 Microwave Backbone Stations • 30 IP MPLS VPN Network Nodes• 300 base stations• 25,844 CPEs and IAD/VoIP Phone• VOIP Application• Video Conferencing Application• Managed Services for Operation/Maintenance

and Training

Project DeliverablesProject Deliverables

IP – Internet ProtocolMPLS – Multi Protocol Layer SwitchingVPN – Virtual Private NetworkIAD – Integrated Access DeviceCPE – Customer Premise Equipment

TELOF Network (After Upgrading)

• SDH / Microwave Transmission• Better bandwidth, capacity and

performance• 622M/155M transmission

• More service interfaces• STM-1, POS, Fast Ethernet, E3,

T3, E1, T1, etc.• Better broadband IP network support• Centralized network management• Higher availability and reliability

• 1+1 and N+1 redundancy protection

• State of art IP backbone• Broadband services support

• Data, voice, video• MPLS VPN support

• easy expand to NGAs, LGUs, communities, SMEs, schools

• IPv6 support• Easy interconnection with commercial

IP network / Internet• Support DSL/broadband wireless

access • Advanced WiMAX wireless network

• Compared with Wi-Fi, 3G, DSL, dial-up• better coverage, better

performance, better security, lower TCO

TELOF Network (After Upgrading)

• SDH / Microwave Transmission• Better bandwidth, capacity and

performance• 622M/155M transmission

• More service interfaces• STM-1, POS, Fast Ethernet, E3,

T3, E1, T1, etc.• Better broadband IP network support• Centralized network management• Higher availability and reliability

• 1+1 and N+1 redundancy protection

• State of art IP backbone• Broadband services support

• Data, voice, video• MPLS VPN support

• easy expand to NGAs, LGUs, communities, SMEs, schools

• IPv6 support• Easy interconnection with commercial

IP network / Internet• Support DSL/broadband wireless

access • Advanced WiMAX wireless network

• Compared with Wi-Fi, 3G, DSL, dial-up• better coverage, better

performance, better security, lower TCONetwork

Loan Terms:

20-year repayment inclusive of 5-year grace periodLoan interest is at a maximum of 3% p.a.

Item Cost (USD M )

Loan Proceeds from the PROC 329

GOP Counterpart 0

TOTAL 329

Project Cost and FinancingProject Cost and Financing

Whether government pays its communications expenses annually or capitalizes it thru NBN, it will still be government who will pay. The challenge is to determine which is more cost effective.

Capacity of NBN if sourced from private providers will be a multiple of the 4B present expenditures.

Why Government? Why Government? Primarily for Costs ReasonsPrimarily for Costs Reasons

Why Government? Primarily for Costs Why Government? Primarily for Costs ReasonsReasons

• 990 M in annual amortization vs. 4B in annual expenditures (consider as well interest cost of 3% for NBN as opposed to Tbond rates for GAA sourced annual expenditures)

• The benefits are even greater considering the 5 year grace period when no amortization is required

• The difference will be more pronounced in the future as government will have to spend more for additional capacity.

• Projected O&M of 1B is offset by present government expenditure for TELOF

Why Government? For other reasons as Why Government? For other reasons as wellwell

1. Internal communications should be a core competence of government considering its size and the role communications play in the delivery of services.

2. Internal government communications should remain under the control of accountable government entities.

3. Internal government information and data should remain under the control and possession of accountable government agencies.

It will minimize paper transactions.

As an organization, government will become more efficient.

Government communications will become more secure.

Adoption of technology tends to have a positive effect on work attitude and productivity.

Other Unquantifiable Project BenefitsOther Unquantifiable Project Benefits

It is a necessary first step to the implementation of government’s enterprise architecture because:

It will serve a common information pipeline for government.

It will marshal the IT resources of the government.

It will avoid duplication of systems and host all e-government applications.

It will optimize and rationalize use of existing government legacy telecom infrastructure.

Other Unquantifiable Project BenefitsOther Unquantifiable Project Benefits

In the first place, NBN will be a pure government network and for government’s use only as allowed by Republic Act 7925.

The issues of costs, communications and data security as earlier discussed.

More importantly, NBN will allow the private carriers to focus on their universal access obligations considering the underserved and unserved areas in the country.

Why not the private telecom sectorWhy not the private telecom sector

• As the NBN is a fixed network and has no mobile component by design, government will continue to source its mobile telephone requirements from the private mobile carriers.

• Internet access will still be sourced from the private sector but with NBN, the sourcing will be on a wholesale basis as opposed to the existing retail pricing.

• IDD services will still be sourced from the private sector but with NBN, the sourcing will be on a wholesale IDD VOIP basis instead of retail circuit pricing.

• Redundancy and back-up requirements will be sourced from the private sector.

NBN will partner with the Private NBN will partner with the Private Telecom SectorTelecom Sector

Consortium is composed of Arescom, PTNet and Hangcom.

Proposal was a government to government transaction to set up a satellite based broadband network for DILG.

Consortium proposed to charge USD 135M for 21 WiMax base stations and 83 CPEs and a satellite hub station.

Transaction to be financed supposedly by a US Ex-Im Bank loan for a 10 year term at 6% interest.

Why not Arescom?Why not Arescom?

Consortium has no experience in telecom system integration nor does it have experience in the deployment of broadband networks.

It will use an outdated and expensive to maintain backbone technology – satellite and its last-mile coverage is limited to 21 locations.

It has no managed services component nor provision for extensive training and technology transfer.

Loan terms are neither concessional not beneficial. As a supposed g2g transaction, it does not have the endorsement of the US government.


So, other than reasons of the absence of a track record in telecoms integration experience, use of inappropriate and expensive to maintain technology, single user design, a very limited geographical coverage, a more limited last mile provision, no significant training or technology transfer aspect, near commercial loan terms and lack of US government endorsement, there is still the issue of cost ---

If the costing and specifications of the Arescom proposal are extrapolated to national coverage with national last mile connectivity to all govt offices, the NBN if undertaken by Arescom would cost about USD 1B.


AHI submitted an unsolicited BOO proposal to set up a broadband network with government as its anchor tenant.

At a total project cost of USD 240M, AHI proposes a predominantly mobile network consisting of 87 fixed base stations and 500 mobile stations.

In exchange for an Executive Performance Undertaking, AHI will give government 25% discount on telecom services it will get from AHI.

Why not Amsterdam Holdings Inc.?Why not Amsterdam Holdings Inc.?

Under BOT Law, unsolicited proposal not allowed for this project as it is a priority project under MTPDP.

Assuming that the project can be done under BOT, the issues that has to be address are:• Proponent is a holding company with paid-up capital of PhP 625,000.00 increased (reportedly) to PhP 11M.• Proponent has no firm commitments from equity or debt investors.• Proponent has no telecom experience and does not have verifiable technology partners.• As it intends to provide services to the public, it does not have a telecom franchise nor a franchised partner.


Proposed network coverage is not national in scope but only up to 3rd class municipalities. Network configuration is geared more towards commercial operations thus concentration in urban areas instead of government requirements where need is most pronounced in the 4th to 6th class municipalities.

Constitutes unfair competition and undue advantage as AHI will leverage its government contract to raise funds and enter the private telecom market to the detriment of existing private telecom carriers.

Commercial imperatives not always consistent with government mission.


The use of predominantly mobile technology ensures less cost effective solutions for fixed applications. Network design and specifications are not optimized for government’s intranet with its fixed and bandwidth requirements.

Risks abound that there will be no government broadband network because of the following contingencies:

AHI will not be able to raise funds.

AHI will not be able to build their network in time.

AHI will not be able to provide the services required.

AHI will not be able to afford the 25% discount.

As a start-up, if AHI fails, then what.


While the promised 25% discount for services to government is tantalizing, it is highly unrealistic. Consider the following:

Its initial debt to equity ratio will be 11:1.

Debt will be on a commercial basis

Financials do not include O&M nor working capital.

In a competitive market, user acquisition costs and

investment returns are not factored in.

Given the above, where will AHI get the money to subsidize government?

Thus, if AHI BOO proposal is approved, renegotiation on pricing in the future is inevitable. If AHI, as a start-up goes out of business, then What?


ZTE was nominated by the Chinese Government in consideration of the concessional loan.

The network coverage is truly national in scope and the technology and specifications appropriate for a government broadband network.

Pricing is reasonable and within industry range. In fact, considering network coverage and specifications, ZTE’s proposal is the cheapest of the three proposals.

ZTE is a recognized player in telecoms and telecoms system integration.

Why ZTE?Why ZTE?

Comparative Evaluation of the NBN Comparative Evaluation of the NBN Proposals Proposals

Proponent

Amsterdam Holdings Incorporated

China Government through ZTE

ARESCOM

Cost vs. Deliverables

Cost to Cover the same requirement using the total cost of each proposal

US $ 240 M

87 Base Stations

500 Cell Sites Note: Government will have to buy or rent equipment forward of the Wireless Service Points of ORION.

US$ 562M

US $ 329 M

300 Backbone Stations

30 IPMLS VPN Network Nodes

300 Base Stations

25,844 CPEs with IAD/VOIP Terminals

1 IDC/NOC with back up.

18 Months Managed Services & Trainings

US$ 329M

US $ 135 M 21 Base Stations

83 CPEs

Satellite Central Hub Station

US$1B

ZTE Corporation, the NBN Project proponent, submitted their proposal August 2006.

After the appropriate review and evaluation, the CICT endorsed the NBN Project proposal to NEDA for approval.

PROC thru Chinese Ambassador communicated their offer to support NBN Project and nominated ZTE as prime contractor.

After the appropriate review and evaluation, the DOTC endorsed the NBN Project proposal to NEDA for approval.

NBN Approval ProcessNBN Approval Process

The NEDA Investment Coordination Committee reviewed and evaluated the NBN Project proposal and endorsed it to the NEDA Board for approval.

The NEDA Board approved ZTE Corporation’s NBN Project proposal.

NEDA Secretary Neri acting under authority of the NEDA Board accepted the PROC Offer.

DOTC signed NBN Supply Agreement with ZTE conditioned on favorable DOJ opinion and DOF execution of Loan Agreement with China Ex-Im Bank.



DOJ issued favorable opinion last 26 July 2007.

RP-PROC NBN Loan Agreement in process.

NBN will NOT be a white elephant as it has been declared necessary by law. Neither is it overly expensive as cost savings will in fact be realized. Nor will it be unutilized as it is a government operational requirement.

DOTC strictly followed proper procedures and complied with the law on procurement.

NBN Supply Contract with ZTE is the least expensive of the three proposals and the most advantageous to the government. It is reasonably priced.

Summary Responses to Issues RaisedSummary Responses to Issues Raised

Thank you!

national broadband network project

Documents

government departments

government connectivity

local government units

existing government

government website portal

colleges geps government

provincial offices

regional offices of