Telecoms experts discover NBN price discrepancies

GOTCHA, Published in The Philippine Star, Wednesday, January 23, 2008

Telecoms men are proving to themselves that the national broadband network contract was grossly overpriced. Comparing the price quotations of favored supplier ZTE Corp. with prevailing industry rates, experts add up the overpricing to almost $200 million. This upholds earlier exposés of irregularity in the award of the deal by the Dept. of Transportation and Communications in April 2007.

In one such contrast, technologists noted overpricing of P98 million in equipment and P99 million in services, for a total rip-off of P197 million. It is more than half of the contracted price of P329,480,941. The study has been submitted to the Senate (see table). Similar studies are underway.

Three Senate committees had subpoenaed the contract and annexes, and ZTE demanded confidentiality of proprietary info. The tri-com turned it down for transparency in public transactions, and issued the documents to the press. Telecoms specialists in turn browsed newspaper websites to compare ZTE/DOTC prices with known industry rates.

In Equipment, the first major incongruence was the ZTE/DOTC price of $47,649,037 versus the industry estimate of only $12,000,000.

Also sticking out is the price for WiMax, the microwave system that transmits wireless data over long distances. The contract stipulates 300 WiMax sites. Taking out the modules, telecoms reviewers divided the balance of $27,236,577 by 300, and came up with about $90,000 per site. The usual cost of a site is only $35,000 to $40,000, depending on configuration. The ZTE/DOTC price is 2.3 times higher than industry rates.

The WiMax CPE cost of ZTE/DOTC totaled $54,840,968 for 25,844 units, or about $2,122 apiece. This is again way above — about seven times more than — the industry average of $300 to $400.

In all, the Equipment discrepancy was between ZTE/DOTC’s $194,051,628, versus industry estimates of $96,078,246.

In the Services apparently were hidden the “soft monies.” Site preparation of $48,571,040 was quoted by ZTE for the 300 sites (80 greenfield, 150 rooftop, 70 co-located). This comes up to about $161,000 per site. The industry average is only $40,000 per. This shows the ZTE/DOTC price to be four times the usual.

Engineering and Management Services in all ran up to $118,695,527 — or 36 percent of the total project cost. At 300 sites, this translates to $395,652 per site, before equipment costs come in. But industry rates range from only 10 to 15 percent of total project costs. Assuming the higher ratio of 15 percent, then the ZTE/DOTC price was 2.4 times the usual.

The discrepancy in Services was ZTE/DOTC’s $135,429,313 against an industry average of $36,733,786.

ITEM	ZTE/DOTC	INDUSTRY
Equipment
A. Transmission Backbone	$ 47,649,037	$ 12,000,000
DC Power & Gen Set	11,505,187	11,505,187
Information Security System	6,743,012	6,743,012
Monitor & Environment	3,532,877	3,532,877
Network Mgt. System	2,143,540	2, 143, 540
IP Backbone	15,510,251	15,510,251
Subtotal	87,083,904	51,434,867
B. Regional WiMax
Data Bridge Outdoor Module	4,186,728
CPE Outdoor Radio Module	46,105,696	7,753,200
Baseband cable	4,548,544
Others	27,236,577	12,000,000
Subtotal	82,077,545	19,753,200
C. VoIP
CPE	3,876,600	3,876,600
Others	11,299,287	11,299,287
Subtotal	15,175,887	15,175,887
D. Data Center/NOC	8,977,882	8,977,882
E. Freight	649,636	649,636
F. Transport Insurance	86,774	86,774
Subtotal	736,410	736,410
Total	194,051,628	96,078,246
Services
Site Preparation & Civil Works	48,571,040
System Implementation & Engineering	20,607,490
Site Engineering for Remote Office Sites	28,686,490
Project Mgt Office	5,955,000
Managed Services	14,875,507
Subtotal	118,695,527	20,000,000
Services for IDC Construction & Integration	8,287,281	8,287,281
Link Charges (3 years)	6,498,000	6,498,000
Training	1,948,505	1,948,505
Subtotal	16,733,786	16,733,786
Total	135,429,313	36,733,786
Total Project Cost	329,480,941	132,812,032