Australia to build $31 billion broadband network

CANBERRA, AUSTRALIA: Australia's government will build a A$43 billion ($30.7 billion) national high-speed fiber-optic broadband network, rejecting bids in a controversial tender involving some of the country's top telecoms firms.

In a surprise decision, Prime Minister Kevin Rudd said on Tuesday the government would ask private companies to join a new private-public firm to build the network, which would be up to 100 times faster than the current network.

Australia has slower and more expensive Internet services than many developed countries, raising concerns about competitiveness, but the project will be made more difficult by the country's vast distances and inhospitable terrain.

The government would sell its majority stake after five years when the network, which still requires approval from parliament, was fully operational.

The center-left government had been expected to announce the winner of a tender to build the network, which was central to Rudd's winning election campaign in late 2007.

"It's time for us to bite the bullet on this. The initiative announced today is a historic nation-building investment focused on Australia's long-term national interest," Rudd told reporters at parliament.

A consortium comprising wealthy Australian businessmen and telecoms industry veterans had been favorite to win the project ahead of Optus, which is owned by Singapore Telecommunications, and Canada's Axia NetMedia.

The tender process was enveloped in controversy after the country's largest phone company,Telstra Corp, was dumped from the running in December, after the government panel overseeing bids said its proposal did not fit requirements.

The network will be Australia's biggest reliance yet on public-private partnerships and underscores Rudd's preference for government intervention amid a bruising global financial crisis.

Telstra shares were up 3.1 percent at A$3.31 by 10:20 p.m. EDT after rising to as high as A$3.37 amid expectations the company could bid afresh to be part of the project, though communications and business strategy analyst Ross Dawson said the decision was a blow for Telstra. The broader market was off 0.8 percent.

"This is not good news for Telstra. Essentially up until now Telstra has had a monopoly on access to the home and connectivity," Dawson said.

"Telstra will need to reposition, as indeed will other telcos, to say what value-added services they provide."

In Singapore, SingTel shares rose 0.8 percent, beating a 2 percent drop on the broader share market.

Telstra looks forward to talks

Telstra Chairman Donald McGauchie said in a statement the company expected little short to medium-term financial impact on its business and looked forward to "constructive discussions" with the government as soon as possible.

Rudd said the new network would be built with money from a A$20 billion national infrastructure fund and the sale of bonds, following an initial government investment of A$4.7 billion. Private sector investment would be capped at 49 percent.

It adds to A$78 billion in economic stimulus measures announced by the government since September to help shield the stalling economy.

The network would operate on a wholesale-only, open access basis, separating retail operations and allowing Optus, Telstra and other companies to build services into the system.

The fiber-to-the-home scheme would be the largest infrastructure project in Australia's history, Rudd said, and would support up to 37,000 jobs as the country teeters on the edge of an expected recession that is likely to push the jobless rate above 7 percent next year.

Around 90 percent of homes would be connected to a network with speeds of up to 100 megabits per second. The network would add A$37 billion to the national economy through added productivity, analysts said.

Rudd estimated building the network would take 7-8 years, presenting a risk that voters could be alienated by the long delay as the government faces re-election late next year.

"We've delivered an enhanced election commitment. We're actually delivering faster speeds to more people," Communications Minister Stephen Conroy told Reuters, shaking off concerns that the scrapped tender could anger voters and big telcos.

"The global financial crisis impacted right in the middle of the process. The crisis landed right on top of (telcos), the money dried up for everyone," Conroy said, adding Telstra would now be invited back into the process.