OPEL axing: A death well foretold

Nathan Burley/Ovum
03 Apr 2008

The Australian Government has terminated funding for the 50:50 SingTel Optus/Elders joint venture OPEL broadband network rollout.

Last July, the previous government agreed to funding of $869 million (A$958 million) as part of the Broadband Connect program for underserved and rural areas. This comprised A$600 million from the announced Broadband Connect Infrastructure Program and an additional A$358 million in funding.

The OPEL plan included deployment of 1,361 Wimax sites, ADSL2+ DSLAMS in 312 exchanges and considerable backhaul. It aimed to provide affordable broadband services to 889,322 underserved premises in rural and regional Australian at metro comparable prices.

The wholesale network would be completed by 2009 with joint-venture partners also planning to contribute A$917 million towards the project.

Futuris Corporation, which owns Elders, and Singapore Telecommunications, Optus's parent, both told the Australian Stock Exchange of the cancellation of the contract on April 2. According to their statements, the new government terminated the program for two reasons:

"¢ The government's assessment that the implementation plan did not meet prescribed coverage requirements.

"¢ Significant risk that the project would duplicate parts of the Government's proposed FTTN network, identified in the joint-venture's own management plan.

In contrast, Optus and Elders, maintain that all conditions precedent to the funding agreement had been satisfied.

In our view, this announcement is very significant but not too surprising. We are more surprised that it took so long. 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 A$4.7bn in government funding and much duplication of the planned OPEL network. Since the change of government in November 2007, he has launched a $4.3bn (A$4.7bn) tender process for this network. Optus will be a bidder as part of the G9 consortium, in opposition to incumbent Telstra.

Although Conroy stated on a number of occasions that the OPEL contract would be honored, we maintained that if there were a way out he would be likely to take it. In addition, the new government's "razor gang" has been at work cutting public spending where possible. It seemed a matter of time before OPEL became another victim. It was also reported that Elders has been less enthusiastic about OPEL in recent months, as a government decision on funding was delayed.

OPEL could have hardly been more controversial with numerous lawsuits, political positioning, public discussion and attacks. Telstra, which had the most to loose, led the chorus, but it was far from alone.

Many commentators deriding the funding award procedure, technical performance or coverage claims, government-funded duplication of existing networks, competitive risks, poor use of taxpayers money, and lack of focus on real problem areas such as backhaul capacity. However, OPEL did have its supporters as well, and some potential access seekers will now need to pursue alternatives.

Although the loss of the competitive backhaul capacity may be the largest blow, the termination will have the biggest ramifications on the Wimax Industry.

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