NBN deal: The truth according to DOTC

AS a matter of public concern, we are reproducing in text form the Powerpoint presentation of Transportation and Communications Assistant Secretary Lorenzo Formoso III.

In the Senate hearing today, Formoso said the controversial Chinese company Zhong Xing Telecommunications Equipment Limited (ZTE) “offered the best package in both capability and cost” to the government, contrary to claims that the ZTE proposal for the National Broadband Network (NBN) project was “ridiculously overpriced.”

He explained that with the project cost of $329 million, ZTE will be able to provide a nationwide system for a “seamless connectivity of landline, cellular and Internet services” in all national and local government units, down to the 6th class municipalities. He said losing bidders Arescom and Amsterdam Holdings would need to spend $1 billion and $562 million, respectively, to provide coverage like ZTE’s.

The Truth About the National Broadband Network Project

This report will show:

• The National Broadband Network project will save billions of pesos every year.
• NBN will greatly enhance government communications capability and security, down to the poorest communities.
• NBN’s chosen supplier ZTE offered the best package in both capability and cost.
• NBN is going through all procurement processes required by law.
• In sum, the nation will gain and the law will be followed.

NBN will save billions

• Current cost of government telecommunications: more than P4 billion a year
• NBN amortization cost: Less than P1 billion a year
• Operation, maintenance, and upgrading: P1 billion a year, using current Telecommunications Office budget — hence, no additional cost
• Savings over 25 years: P20 billion in first five years, P60 billion in next 20 years
• Even more, in fact, since current telecom costs will rise when more government agencies get connected

NBN will enhance security and services

• Government information and telecommunications will be kept with a secure system, instead of going into the internet, where copies of documents are kept in outside systems.
• All NBN equipment deliveries will be subjected to security audit, to ensure they are free from surveillance devices.
• NBN will have high-level encrypting and security programs and protocols.
• Using internet protocol for voice, image, data and other information, NBN will enable video conferencing, data sharing, mobile VOIP and other high-grade services down to 6th class municipalities and community e-centers.
• Mirror-image data centers in Manila and Cebu will ensure uninterrupted service.

NBN’s chosen supplier offered the best package

• ZTE will provide a nationwide system serving national and local governments down to 6th class municipalities, plus GOCCs and community e-centers, for $329 million.
• Based on their costs for much smaller systems, Arescom and Amsterdam Holdings would need to spend $1 billion and $562 million, respectively, to provide coverage like ZTE’s.
• ZTE’s package would be fully funded by China’s Export-Import Bank, at 3-percent interest payable over 20 years, with no payments in the first five years.
• Arescom and AHI have no firm financing commitments. At commercial terms of upwards 6-percent interest with no grace period, at cost would be far higher than ZTE’s.
• ZTE is a global name in building integrated telecom systems. Both Arescom and AHI have no track record in such undertakings, and AHI has no clear technical partner.

NBN is following processes required by law

• CICT and DOTC studied proposal since August 2006.
• China designated ZTE as supplier under its soft loan for NBN.
• Government Procurement Policy Board opined that NBN is covered by executive agreement not covered by RA 9184.
• NEDA Board approved NBN project.
• Conditional supplier’s contract signed and reconstituted.
• DOJ opinion affirmed that NBN is covered by executive agreement.
• NBN now awaits forward obligational authority from DBM, loan negotiation by DOF and China-Exim Bank, final DOJ opinion on overall agreement, and Supreme Court decision on ZTE contract.

NBN or no NBN?

• If we don’t build NBN, the government will spend higher and higher amounts on telecom services, and be exposed to security breaches using the public interest.
• If we build NBN, government telecom costs will fall by approximately P3 billion a year, and we will have a secure, government-only system serving the nation down to the poorest communities.

Source: DOTC