Broadband deal not needed — UP study

‘Gov’t has no core competence for project’

By Tony Bergonia

Last updated 02:18am (Mla time) 08/06/2007

MANILA, Philippines — The strongest argument against an $800-million plan to build two government-owned information technology (IT) backbones to create a Cyber Corridor is that there is no need for them, according to two professors at the University of the Philippines School of Economics (UPSE).


One of the projects is the $329-million national broadband network (NBN), while the other is the $460-million plan to build a satellite-based IT backbone for the Cyber Education Program (CEP).


Economics professors Raul V. Fabella, dean of the UPSE, and Emmanuel S. de Dios listed many reasons the government should not pursue the two projects at the risk of betraying the public interest. The biggest reason cited in the study: The government does not need to own one broadband backbone, much less two.


“The only backbone that the government needs today is a moral one,” Fabella and De Dios said in a paper titled “Lacking a backbone: The controversy over the National Broadband Network and Cyber-education projects,” which was released on Aug. 2.


The paper said one reason the two projects were likely to end up being just a waste of funds was that it was not in the government’s “core competence” to own, maintain and use an IT infrastructure separate from two that already exist — one owned by Philippine Long Distance Telephone Co. (PLDT) and another owned jointly by PLDT’s competitors.


“From the 1990s … until recently, the government seems to have adhered to the concept of ‘core competence,’” the paper said.


It was a strategy that saw canteens, air transportation and power generation being run by private firms, instead of government agencies.


It was a strategy, the paper said, which resulted from lessons the government learned when it threw away hundreds of billions of pesos by generating and distributing electricity through National Power Corp.


“This strategy has clearly yielded more success,” said the paper.


“But the loan-powered versions of the NBN and the CEP require the government to abandon this painfully won strategy and resurrect the zombie of a government-run communications system,” it said.


Details of the $329-million NBN project that went to Chinese firm ZTE remain hazy, although the Department of Justice has ruled that the contract for it is legal.


Transportation Secretary Leandro Mendoza and Yu Yong, ZTE vice president, signed the contract on April 21, in ceremonies witnessed by President Gloria Macapagal-Arroyo shortly before the Philippine copy of the contract was stolen.


On the same day, Trade Secretary Peter Favila signed with Chinese authorities a $460-million deal to build a satellite-based backbone for the CEP on behalf of the Department of Education.


Both agreements were sealed in Boao, China.


More harm than good


While there was no question of the benefits of a broadband connection for the public schools and government offices, the government’s two biggest IT projects are likely to do more harm than good to public funds, and to the people, the paper said.


“It is essential to note that original government plans at no point envisioned a separate backbone to be financed, owned and operated by, and dedicated to the needs of the government,” it said.


“It was completely unexpected, therefore, … when this apparent resolve and consistency crumbled and the government reversed its direction.”


Not only did the government reverse itself, but the cost of the projects also ballooned from P5.1 billion to P19 billion for the NBN and from P5.2 billion to P24.6 billion for the CEP, according to the paper.


“The government has now incredibly ended up batting not just for one, but for two publicly owned government broadband backbones!” it said. “How has this happened?”


Defenders of the NBN said the project was like a gift being handed on a silver platter by the Chinese government to the Philippines so they couldn’t understand what all the fuss was about.


China’s motives


But the paper said a closer look at Chinese generosity would unmask the real motives for China’s eagerness to lend $329 million to the Philippines for the NBN.


“China’s newly discovered generosity is … neither strange nor totally unexpected,” it said. “That country is, after all, sitting on some $1.33 trillion of foreign exchange reserves.”


Generosity is easy to come by if one’s vault was starting to burst open with cash.


China, the paper said, was using loans “as a tool to simultaneously unload” its excess cash and to achieve another goal — entice indebted countries to import Chinese products to keep Chinese workers employed.


The excess cash won’t have to sleep anymore in Chinese government vaults but, in the case of the NBN contract, earn three percent annual interest as a result of the sovereign guarantee that assures payment whether or not the Philippine government benefits from the project.


ZTE also has IT projects in Liberia, Algeria, Ghana and Lesotho. The projects were all funded by loans from the Chinese government.


“But though one may justifiably raise eyebrows at the Chinese … it should really cause no surprise that they should be conscious of their country’s interests and seek to promote these avidly,” said Fabella’s and De Dios’ paper.


Trap of donor nations


“Instead, what should be surprising is if the Philippines and its leaders were sufficiently unaware of, or oblivious to, their country’s own interests to be caught in the trap of donor countries,” it said.


The paper said that while it was clear that hundreds of billions of pesos would pour into the NBN and CEP, their benefits in terms of pesos and centavos were not very clear. It said the government also appeared not to know exactly what it wanted to do with broadband technology, except to connect to the Internet as many government offices and public schools as possible.


No feasibility study


This, the paper said, was obvious from the start — there was no feasibility study made on the NBN project, in particular, because no lender wanted to finance it.


“To begin with, if the government seriously believed the NBN backbone was a vital project, then it ought first to have completed the preliminary work … of identifying the magnitude and urgency of the need, the technology and equipment required to fill it, and a ballpark figure for its cost,” the paper said.


“Since it did not set its own minimum conditions beforehand … the government effectively allowed bidders and loan pushers to write their own terms,” it said.


The paper did not identify who these bidders and loan pushers were, but the NBN project came about after telecommunications firm Amsterdam Holdings Inc. (AHI) sent an unsolicited proposal to build a broadband network with the government as its main, but not exclusive, client.


Shortly after AHI sent the proposal, US firm Arescom and ZTE came in with their own.


The AHI proposal apparently was driven by Ms Arroyo’s 2006 State of the Nation Address in which she identified the Cyber Corridor as one of her priority projects.


But to do this, the President needed full support from Congress, a goal that was then, and probably is now, not difficult to meet because the House of Representatives was under Ms Arroyo’s ally, Speaker Jose de Venecia Jr., whose son Jose III owns AHI.


Fabella and De Dios said the absence of a feasibility study led to confusion on the part of officials who were pushing for the NBN and the CEP, and those who had been vacillating.


“No common basis can … be laid for a comparison of options, since deliverable features will always vary with costs,” they said.


“This situation is as absurd as calling for a bid to supply government with ‘fruits in general,’” they added.


Turnaround artists


With government not knowing exactly what it wanted, “the technical upper hand is abdicated … to project proponents such as turnaround artists in unsolicited bids and ODA [official development assistance] merchants.”


The paper said the Philippine government should have learned its lessons from past, and ongoing, foreign-funded projects like the Light Rail Transit 1, Metro Rail Transit 2, MRT 3, the NorthRail and Terminal 3 of the Ninoy Aquino International Airport (NAIA).


It said the absence of choices, as required by lenders and uncontested by debtors, “was why the rail gauges of the LRT 1, MRT 2 and MRT 3 are all different, and why the nonfunctional NAIA 3 is irrationally still in the heart of the metropolis.”


“The situation is pathetic in one sense since it vividly illustrates the adage about beggars not being choosers,” said the paper.


It said the fundamental IT problem that the government had to address was to find the “last-mile connectivity” to link government and public school computers — from as far north as Batanes to as far south as Tawi-Tawi — to the Internet.


But it said that simply building a backbone to serve as an invisible technological highway would not serve the purpose.


No links to final users


“In short, even as information highways might connect various islands, provinces, cities and indeed the world, there are few, or no links, connecting them to final users,” said the paper.


“It is as if expressways had been built but not the municipal or barangay roads that would connect people to such high speed lanes,” it said. “A related problem is, of course, few people own the ‘vehicles’ (read computers and peripherals) needed to travel such roads.”


What needs to be done, the paper said, is just for signals carried by fiber optics or wireless technology to reach the farthest of government computers.


“There is no need to reinvent the wheel,” it said.


If the government wants to save on costs, the paper added, it simply could use its leverage as a “bulk buyer” to obtain lower rates from private telecommunications firms.


“For this, one does not need an NBN,” the paper said.


Proponents of the NBN had said during Cabinet meetings the project would save the government as much as 50 percent in telecommunications spending.


It was to be the NBN’s single biggest selling point, but nowhere in letters or transcripts of meetings discussing the project was it made clear how much in savings were to be realized from the project. Not one of its proponents had certain answers.


Why then pursue the project?


The paper said one reason could be “poor ethos” taking its toll.


“Just as a slave can get used to his chains and actually fear freedom, it is said that poor countries cannot afford to be rich,” said the paper. “That is, poor countries are too engrossed in the ‘poor ethos’ and find it difficult to escape from it.”


“Their short-term horizons prevent them from discerning the large future payoffs of postponing consumption. Thus, they tend to splurge today … poor nations are poor because they cannot handle affluence,” the paper said.


Irrational shopping binge


“If a credit line prompts an irrational shopping binge, that is a sure sign of the poor ethos in action. That person is destined for bankruptcy,” Fabella and De Dios said.


Another reason that could be driving the Arroyo administration into pursuing these two costly projects, according to the paper, was its newfound confidence in fiscal reforms and the increase in revenue that these brought.


“But more revenues make sense only if additional resources are spent judiciously and effectively,” said the paper.


“Unfortunately, many in the political establishment have taken these promising numbers as a license for them to take what they believe is their well-deserved share,” it said.


One Response to “Broadband deal not needed — UP study”

  1. Civilization of Love No go for broadband deal–Palace adviser « Says:

    […] professors at the University of the Philippines’ School of Economics said there was no need for the NBN and CEP […]

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