UPDATE 2-Australia to build $31 bln broadband network

Tue Apr 7, 2009 1:18am BST

Quotes

   

* Private-public project to cost A$43 bln ($31 bln)

* Govt to sell majority stake after five years

* Scheme will be country's largest infrastructure project * Project will support 37,000 jobs

* Telstra shares up 4 percent (Adds details)

By Rob Taylor

CANBERRA, April 7 (Reuters) - Australia's government will build a A$43 billion ($30.7 billion) national high-speed fibre-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 join a new private-public firm to build the network.

The government would sell its majority stake after five years when the network was fully operational.

The government had been expected to announce the winner of the tender to build the network, which was a centrepiece of 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 said, announcing the decision, which caught markets by surprise.

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.

A little-known consortium comprising wealthy Australian businessmen and telecoms industry veterans had been favourite to win the project ahead of Optus, which is owned by Singapore Telecommunications (STEL.SI) and Canada's Axia NetMedia (AXX.TO).

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

Telstra shares jumped 4 percent in early trade amid expectations the company could bid anew to be part of the project.

In a statement to the Singapore stock exchange, SingTel noted the Australian government announcement, but made no comment. 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. 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 fibre-to-the-home scheme would be the largest infrastructure project in Australia's history, Rudd said, and would support 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.

The network, which will be more comprehensive than systems outlined by bidders in the original tender process, would connect 90 percent of homes to a network with speeds of up to 100 megabits per second.

Rudd estimated that building the network would take 7-8 years, presenting a risk that some voters could be alienated by the long delay as the government faces re-election late next year. The tender process, Rudd said, was being scrapped because none of the submitted bids offered value for money to the taxpayer.

"(The tender) has not produced an outcome which we believe, and we have been advised, makes the best use of the taxpayer's dollar. This does, and at the same time provides a fundamental reform for the way in which broadband services are delivered to the economy at large," he said. ($1=A$1.40) (Editing by Jonathan Standing & Ian Geoghegan)

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