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Govt scraps $950 million rural broadband cont -

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ELEANOR HALL: The future of broadband for rural Australia is once again up in the air with the
Federal Government announcing that it has scrapped the $950 million contract awarded to OPEL last
year by the Howard government.

The OPEL consortium, made up of Optus and the rural finance company Elders, was told this morning
that the Federal Government was cancelling the deal because it didn't meet coverage requirements.

The decision leaves the timeline for delivery of broadband to the bush unclear, and a $15 million
bill for the OPEL partners.

Business editor Peter Ryan has more.

PETER RYAN: Broadband was a hot political issue in the lead-up to the federal election.

And last June, the communications minister at the time, Senator Helen Coonan, was busy spruiking
the benefits of the contract awarded to the Optus and Elders consortium.

HELEN COONAN: Basically, what we'll be offering is universal coverage at a fraction of Labor's cost
in two years' time and that will then also allow people living in rural and regional areas to get
metro comparable prices.

PETER RYAN: But nine months on, and with a new federal government and an activist Broadband
Minister in the shape of Senator Stephen Conroy, the deal is now off.

In a statement to the stock exchange, the consortium outlined the Government's reasons for the
joint venture's cancellation.

EXTRACT FROM STATEMENT: The Department of Broadband, Communications and the Digital Economy's
assessment that OPEL's implementation plan did not meet prescribed coverage requirements. And the
prescribed risk management plan that fibre to the node broadband network subsequently proposed by
the new government, if built, represented a material risk of duplication.

PETER RYAN: Some observers say there's an element of political payback in the Government's

But telco analyst Mark McDonnell says there is an element of surprise for OPEL.

MARK MCDONNELL: It comes as some shock. The parties who were directly involved had been telling the
market that they expected a confirmation of the funding arrangements fairly soon. So this is really
quite contrary to that.

PETER RYAN: So it does appear that their expectation was that the contract was a contract?

MARK MCDONNELL: Oh yes and I don't think the Government is denying that it was a contract. In fact,
previously they have indicated that, notwithstanding a change of government, that the contract
would be honoured.

What has actually occurred here is that the Government has decided unilaterally that one of the
conditions of the contract hasn't been met and that therefore they are under no obligation to
provide the $958 million of funding that was previously committed.

PETER RYAN: The obvious conclusion is that this is all about politics?

MARK MCDONNELL: At one level there is a political dimension to it. At another it is a commercial
process and at yet another level, it is about technology choices and policies relating to how
broadband services are going to be delivered outside of the capital cities.

PETER RYAN: The decision has been welcomed by Telstra which pitched for the rural broadband contact
but failed.

GEOFF BOOTH: We think the Government has made a common sense decision which will benefit regional

PETER RYAN: Telstra's regulatory chief Geoff Booth is keen to pitch for the contract again.

GEOFF BOOTH: Clearly the Government has judged that this consortium, the SingTel and Elders OPEL
consortium failed to meet the requirements, fundamental requirements of the contract.

PETER RYAN: So is this Telstra saying "I told you so"?

GEOFF BOOTH: No, no, I think this is just a great opportunity now, Peter, for the industry and the
Government to work together to provide a solution which really is going to serve what regional
Australians but all Australians are well and truly into the 21st century.

And the way that we see it within Telstra is that the industry and the Government's now got a great
opportunity to provide the right technology to service Australians and build a network properly.

So rather than build a piecemeal network, build a network which is going to be rolled out
appropriately and really get out to all Australians. There are so many people that will benefit
from a broadband network which delivers all the health and the education requirements that people
are going to need into the future.

PETER RYAN: Now Telstra took this decision to court and targeted the former communications
minister, Senator Helen Coonan personally. Is this vindication?

GEOFF BOOTH: I guess that is all history now and from our point of view, we just now want to do
what we believe we do best and that is to go out there and look after our customers and build this
network with the Government.

PETER RYAN: And the scrapping of the contract will be a costly decision for OPEL according to BBY's
Mark McDonnell.

MARK MCDONNELL: Yes, both SingTel and Optus have indicated to the market that the costs in the case
of Futuris or Elders are around $15 million and in the case of SingTel, a similar amount 16 split
between operating and capital expenditures.

PETER RYAN: The Broadband Minister Senator Stephen Conroy is yet to comment on the decision to
cancel the contract, but he's expected to expand on the future of rural broadband later today.

ELEANOR HALL: That report from our business editor, Peter Ryan.