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Wednesday, 02 April 2008 12:27

Government claims 38 percent shortfall in Opel wireless coverage

The Federal Government has found a loophole that has enabled it to extricate itself from the much maligned deal under which the previous Coalition Government commited almost $1 billion to the Optus - Elders joint venture in return for the provision of broadband services to huge areas of regional and rural Australia, but the means by which it has done this seem highly questionable.

The Government said that that Opel has "failed to meet the terms of a contract made with the previous Government...A condition precedent of the contract stated that Opel would provide coverage reasonably equivalent to 90 percent of under-served premises identified by the then Department of Communications, Information Technology and the Arts as being within its coverage area."

According to communications minister, Stephen Conroy,  "A precondition of the funding agreement was that Opel undertake testing and mapping to substantiate the service coverage set out in its proposal." Hhis department: "performed an analysis of the detailed testing and mapping undertaken by Opel, and determined that the Opel network would cover only 72 percent of identified under-served premises."

So how did the department come to this conclusion? "Opel's testing was verified by the Australian Communications and Media Authority and Enex TestLab."  And who, I hear you ask is Enex? According to its web site "Enex TestLab was founded in 1989, originally as part of RMIT University, Melbourne, Australia, and has now grown into a commercial testing facility unparalleled anywhere in the world."

Well that sounds impressive, but the trouble is nowhere on its website http://www.testlab.com.au does Enex claim expertise in field testing or modelling the coverage of wide area wireless networks.

I asked a highly regarded wireless networks consultant how the government might have undertaken modelling and testing to conclude with reasonable confidence that performance of the proposed Opel network would fall so far short of what was claimed. He doubted that it could have done so. And any such testing would have to have been done with the rigour and certainty that would withstand a possible legal challenge from Opel. After all we are talking about $1 billion here and around $16 million in opex and capex that Optus claims to have spent to date, and a similar amount from joint venture partner Elders. CONTINUED

However, according to Optus the issue is not disagreement over the claimed performance of its technology, but over the customers it is supposed to serve. Optus CEO, Paul O'Sullivan said: "Our implementation plan showed, based on detailed field testing, that the Opel network would have delivered broadband coverage to almost 900,000 underserved households in rural and remote Australia – 70 per cent more than the Department had assessed. In our view, the Department of Broadband, Communications and the Digital Economy has now made a flawed recommendation to the Minister – reflecting serious errors in its database of 'underserved premises' which led it to underestimate the number of underserved premises which would benefit.

If the department can't get a fundamental parameter like this correct then something is seriously wrong. O'Sullivan added: "We believe the Department's process was flawed: information was not provided to Opel in accordance with its contract, and there was little dialogue with Opel after it lodged the Implementation Plan in early January... "Three successive written requests from Opel to meet with the Departmental Secretary were ignored."

That's not quite what the minister appears to be claiming. He was quoted in the Sydney Morning Herald on 28 March saying: "There has been still, as late as last week, letters passing backwards and forwards between the department and Opel."

O'Sullivan has proposed an independent assessment, saying "Optus has made an offer to the Government which I repeat publicly today: we are quite happy to have a respected independent expert audit Opel's coverage database and the Department's coverage database. We believe this would confirm that our claimed coverage accurately reflects the definitions in the Department's Guidelines issued in September 2006, and delivers within the agreed 90 percent tolerance levels upon the coverage we committed to provide in our winning bid. We call on the Government to take up this offer of independent expert advice and reconsider its decision."

Given that the current government, when in opposition, was very vocal in its criticism of the Opel contract, such an independent assessment would be warranted. Even if the government's decision is fair, it must be seen to be fair. But the government also seems to the claiming that it has created the conditions that have enable it to cancel the contract. CONTINUED

The statement to the ASX by Elders parent, Futuris Corporation added another dimension to the issue. Futuris said it had been informed by the government that termination had been effected on the basis of the alleged coverage shortfall and "the joint venturers' identification in the prescribed risk management plan that the fibre to the node network subsequently proposed by the Government, if built, represented a material risk of duplication."

In other words this seems to amount to the government saying it is cancelling the contract because the  viability of the project is now questionable as a result of government decisions taken subsequent to the contract being awarded! Sounds to me like a strong case to demand compensation.

Meanwhile, over at Telstra the champagne corks must be popping: the threat of very substantial increase in competitive pressure has been greatly reduced. Optus CEO Paul O'Sullivan said: "As things stand, the 15,000 kilometres of new backbone optical fibre, which would have been available to other operators at wholesale prices 30 percent lower than existing levels, will...now not be delivered."

But Optus is likely to have to build at least some of this if it is to meet its stated commitment (on which it has been very quiet lately) to expand its 3G network to give coverage of around 96 percent of the population. Sharing backhaul costs would have made this much more competitive.

The decision is also a setback for Austar, which had been a member of the unsuccessful AUSalliance Broadband connect bid. It announced in January that it would sell its extensive WiMAX frequency spectrum licence to Opel for $65m. but that deal will not now go through.

 CEO John Porter however, said he remained confident that Austar would be in a position to monetise its spectrum holdings at some point in the future. "A licensed WiMAX network will be critical to the economic provision of broadband services in regional Australia, and we will continue to work with interested parties to ensure that regional Australians are not left behind."

Opel is keeping its option open, O'Sullivan said: "Optus is considering all of its options, in consultation with its fellow Opel shareholder Elders."  Stay tuned for the next chapter in the decade long (and some) debacle of broadband policy development and implementation in Australia.


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