NATIONAL BROADBAND NETWORK PROJECT

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• NATIONAL BROADBAND NETWORK PROJECT

Department of Transportation and Communications
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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.

• Issues

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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 Considerations

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Required by the E-commerce LawSec. 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

• Policy and Legal Considerations

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Required by the E-commerce LawSec. 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.

• Policy and Legal Considerations

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Mandated by EO 269, series of 2004Sec. 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 Considerations

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Policy 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

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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
Policy and Legal Considerations
Note MTPDP Medium Term Philippine Development
Plan MTPIP Medium Term Public
Investment Program CIIP
Comprehensive and Integrated Infrastructure
Program VoIP Voice Over Internet
Protocol
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Approximately P4B in annual communications
expenses(2004 figures)NGA 1.9B GOCC1.1B
LGUs.7 Projected to increase annually as
more agencies get connectivity and implement
e-government initiatives
Government Communications Expenditures
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TYPICAL NETWORK FOR GOVERNMENT AGENCIES BASED ON
INDIVIDUAL SUBSCRIPTION
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Government 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
GOCCsEmail and file transfers usually done
through Yahoo or Google mail.
Government Communications Set-up
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SOLUTION

• 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

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NBN 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.

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Project Components

• 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

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Project Deliverables

• 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

IP Internet Protocol MPLS Multi Protocol
Layer Switching VPN Virtual Private Network IAD
Integrated Access Device CPE Customer Premise
Equipment
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• 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
• 11 and N1 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

Network
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Project Cost and Financing

• Loan Terms
• 20-year repayment inclusive of 5-year grace
  period
• Loan interest is at a maximum of 3 p.a.

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Why Government? Primarily for Costs Reasons

• 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.

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Why Government? Primarily for Costs Reasons

• 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 OM of 1B is offset by present
  government expenditure for TELOF

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Why Government? For other reasons as well

• Internal communications should be a core
  competence of government considering its size and
  the role communications play in the delivery of
  services.
• Internal government communications should remain
  under the control of accountable government
  entities.
• Internal government information and data should
  remain under the control and possession of
  accountable government agencies.

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Other Unquantifiable Project Benefits

• 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.

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Other Unquantifiable Project Benefits

• It is a necessary first step to the
  implementation of governments 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.

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Why not the private telecom sector

• In the first place, NBN will be a pure government
  network and for governments 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.

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NBN will partner with 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.

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Why not Arescom?

• 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.

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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.

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Why not Arescom?

• 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.

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Why not Amsterdam Holdings Inc.?

• 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.

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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.

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Why not Amsterdam Holdings Inc.?

• 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.

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Why not Amsterdam Holdings Inc.?

• The use of predominantly mobile technology
  ensures less cost effective solutions for fixed
  applications. Network design and specifications
  are not optimized for governments 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.

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Why not Amsterdam Holdings Inc.?

• 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
  111.
• Debt will be on a commercial basis
• Financials do not include OM 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?

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Why ZTE?

• 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, ZTEs proposal is the cheapest of
  the three proposals.
• ZTE is a recognized player in telecoms and
  telecoms system integration.

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Comparative Evaluation of the NBN Proposals
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NBN Approval Process

• 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.

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NBN 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 Corporations 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.

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NBN Approval Process

• DOJ issued favorable opinion last 26 July 2007.
• RP-PROC NBN Loan Agreement in process.

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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 Raised

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• Thank you!