The NGN tender trap

29 Oct 2008

Singapore and Australia are experimenting with tenders to get next-gen networks built and boost competition.

On the experience so far, I think it safe to say they're unlikely to be repeated.

Singapore has already completed the first of its two-part tender process, awarding the infrastructure contract, with a S$750 million sweetener from the Singapore taxpayer, to SingTel and its partners.

The only surprise was the participation of Hong Kong's entrepreneurial CTI. But it was no surprise when CTI, seeing the writing on the wall, bailed out a month before the tenders were awarded.

CTI's partners stayed to the end, yet it's hard to imagine Singapore's local champion losing this multi-billion dollar government contract.

Indeed, it is hard to see why the tender was held at all, especially as the IDA has created what appears to be a quite impressive arm's length competitive structure, with three tiers - infrastructure, wholesale (still being tendered) and retail.

It is that kind of separation that Telstra finds objectionable. In its usual surly manner, it has threatened to walk away from the planned tender if the government imposes structural separation.

Telstra has benefited by the apparent implosion of its only rival, the Optus-led Terria consortium, which has lost four of its original nine members.

Telstra has called on the government to skip the tender and award the contract - and a bucket of taxpayer dollars - directly to Telstra itself. Telstra insists on an 18% ROI, however.

This grandstanding has prompted the national union group, the ACTU, to warn Telstra that it is imperiling A$11.9 billion ($7.5 billion) in shareholder value. That figure, from a Citibank analysis, is the value Telstra would lose from not winning the broadband tender.

The ACTU says Telstra's "aggressive and hardline approach is unacceptable", and the company needs to repair the damage with "a more co-operative and constructive approach to its relations with all stakeholders."

Not much chance of that. At this stage, it's not even certain the tender will go ahead.

And even if it does, don't expect it to see other nations falling into the tender trap.

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