On the National Broadband Project

The author is dean of the School of Economics, University of the Philippines.  This is an abbreviated version of his remarks before the Management Association of the Philippines on September 4, 2007.  This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld in a two-part series, September 10, 2007 edition, page S1/4 and September 17, page 4.

Even if the National Broadband Network (NBN) deal were consummated completely aboveboard, passed all legal hurdles, and was free of corruption, we should still be opposed to it in principle, simply because it is bad policy.

The concern raised by former Dean Raul Fabella and myself in our paper (Lacking a backbone) relates to two points: the first goes to the substance of the project; the second points to certain failures in the process by which it was arrived at.

On substance

The substantive issue is whether the country actually needs a fiber-optic backbone to begin with. What is known as a “backbone” in this context is a network of fiber-optic cable covering land and sea, though at times using microwave, through which all kinds of data can be transmitted, whether this be a voice call through a fixed or cellular phone, a text message, an e-mail or internet message, or a TV signal.

Note that there are already two such functioning backbones. One is owned by PLDT, the country’s dominant telecommunications company, while the other is effectively owned by PLDT’s competitors through Telicphil (Telecom Infrastructure Corporation of the Philippines). These two backbones are what we use today when we make telephone or cell phone calls, send e-mail messages, use Yahoo messenger, Skype, or some other form of VOIP (voice-over internet protocol). Private telephone companies that use these backbone facilities have consistently upgraded them to accommodate more capacity. Telicphil’s National Digital Transmission Network, for example, has been upgraded and expanded at least three times since 1999, the latest being in 2007. PLDT’s Domestic Fiber Optic Network (DFON), was upgraded in 2004, partly in anticipation of 3G applications. In short, these two private networks do exist, they do function, and they have been maintained and been expanded.

In addition, there are already two other backbones under government control, but which are unused, the French protocol backbone under the office of the press secretary, and that of the National Transmission Company (Transco). This only underscores the redundancy of the NBN project.

What then is the use of another backbone, run by government? As in most aspects of this whole affair, the reason is not entirely clear even up to now.

If the point is to link rural to urban areas – a commendable objective – then what is needed is not another backbone, but rather the means for rural areas to connect to the backbones or national networks that already exist. Why in the first place are rural areas deprived of access to broadband networks? Because they either have no computers, or a network connection to the backbone does not exist in their area. Clearly the solution here is to provide such accessories and connections to the backbone, not to duplicate the backbone itself. We compare digital backbones to high-speed expressways to which rural areas have no access. They have no access, either, because there are no minor roads connecting these small communities to the highway (local networks), or the people themselves have no cars (e.g., computers and peripherals) to make use of the highway. Surely in such circumstances the solution cannot be to build another expressway, but rather to make sure people have access to vehicles and to connecting roads.

It is ultimately the so-called “last mile” problem – the connection from an existing fiber-optic backbone to local communities – that prevents broadband access from becoming more widespread. In this respect, the example shown by one of this year’s Magsaysay Awardees is instructive. Mahabir Pun is a simple high school teacher in Nepal who succeeded in providing broadband services to remote and isolated highland villages, particularly schools and hospitals. This was done quite simply by laying out a wireless network that connected these villages with a private internet service provider in the nearest city. The answer was certainly not providing another backbone, much less one run by government. Despite its Spartan simplicity and modest cost, Pun’s approach has improved the lives of thousands without government assistance. The NBN project, on the other hand, would spend millions without any assurance that people’s lives will truly change.

Some justify the NBN primarily as a government Intranet, that is, as a link among government offices themselves. Yet, cheap communication via the internet is already possible among government offices even today. To the extent numerous government offices are already connected to the internet, they can in fact already replace phone calls with VOIP and e-mail. If they have not done so when they already have access to existing fiber-optic backbones, why would they do so simply because a government backbone has become available? Again the point is that access to a backbone is not the binding constraint but something else. Perhaps government offices even lack computers in general? Or perhaps they have no access to last-mile connectivity? Or are they insufficiently computer-literate? Or are government records not even digitized to permit quick and convenient electronic transmission from one government entity to another? (Many agencies, for example, still use fax machines rather than scanning documents and transmitting these via e-mail.)  The point is that none of these problems – if any of them are at all relevant – will be resolved by putting up a third fiber optic backbone. In turn that means that the much-advertised savings are unlikely to occur.

Even if the project lived up to its hype, the numbers would still make no sense. The purported savings from telecommunications expenses over 15 years is only some P28 billion, an amount less than the value of the loan amortization, interest, and operating expenses, which is in the order of P30-33 billion.

In the meantime, there are more straightforward ways to reduce government telecommunications costs even absent a government-run backbone project: (a) digitize government records and provide electronic access to these (of course taking into account levels of security); (b) train government personnel in the effective use of computers through VOIP and e-mail; (c) provide last-mile connectivity to remote areas, both for government and non-government users; and (d) consolidate  government’s telecommunications demand and the negotiation of favorable rates with private ISPs and telephone companies, using government’s bulk buyer status as leverage.

The last substantive argument against the project is the government’s own dismal record in running infrastructure facilities, as can be seen in past fiascos such as the Napocor and the Metro Manila water system – both of which either have been or are slated for privatization. The very inflexibility of government budgets makes it unlikely that a government digital backbone – if it were ever constructed – would be efficiently run, responsibly maintained, and diligently upgraded, and modernized to keep pace with changing technology and usage. Nor does this even factor in the almost inevitable corruption and entrenched interests that are likely to populate such a government creation.
On process

We disapprove of the project in principle, quite independently of the possible corruption that attended it. But this also means we do not support its implementation even as a BOT (build-operate-transfer) project, so that when we criticize the loan-powered ZTE proposal, we do not necessarily endorse that of its competitors. We believe the government would be ill-advised to venture into this project in any form.

However, this project highlights several disturbing trends in the government’s current infrastructure program. First is the increasing impunity and lack of accountability of executive agencies. In view of how the business of Congress has degenerated into the petty division of spoils, no major infrastructure initiatives can be expected from it.  The most significant infrastructure in recent years has come either through ODA (official development assistance) or BOT. While this is an avenue that prevents undue congressional interference and the super-fragmentation of projects, it allows executive agencies wide discretion in concluding deals, which also opens the door to corruption. In the case of ODA projects, the stratagem of entering into “executive loan agreements” evades congressional scrutiny, even as it commits the country to repaying future loans. The non-standard Chinese practice of dispensing with any sort of bidding and simply assigning a project to a company of its choosing is a major factor that clouds transparency.

The NBN is the second major project using this ruse; the first was the North Rail project. Owing to the lack of checks-and-balances at the administrative level, many of these projects will end up on the Supreme Court’s plate.

BOT projects are not beyond reproach either. In particular those that come in the form of unsolicited proposals have rationales, technical specifications, and costs that are controlled entirely by their proponents. The one thing BOT implementation has over ODA is that in principle, taxpayers do not have to be involved. In practice, however, proponents have always found some way of entangling government in what ought to be purely private-sector risks (e.g., in the form of loan guarantees, take-or-pay provisions, foreign exchange risks, etc.). In the national broadband proposal, the BOT proponents want at the very least to tie down government to it as an “anchor” customer. During the time this lasts, this restricts the government choice of ICT provider and therefore may tie it to an inefficient or substandard provider.

This leads to the second point: since the explicitly political process has failed to function, and the technical details of the project are complex, the public interest is in most instances completely dependent on the performance and professionalism of government bureaucrats. Unfortunately, in recent years, people’s confidence in the objectivity and professionalism of the bureaucracy, their capacity to withstand underhanded political pressure, has not exactly been reinforced. The bureaucracy has allowed suboptimal projects to pass and not said a word. Part of this is intimidation, but part of it is also the government’s failure to allocate sufficient resources to make a complete study of its priorities. The NBN proposal, for example, resembles a moving target, therefore allowing all manner of vested interests to manipulate the terms to accommodate favored suppliers.

Apart from the legality issue, we think the government bureaucracy itself has become increasingly unable to define priorities objectively and competently, which is the reason that policies and plans are often easily upset by transient vested interests and political pressures. Again the NBN project serves as a cautionary tale.

There are systemic reasons for the emergence of ill-conceived projects like the NBN. The scary part is that there are no effective mechanisms or checks built into the government itself to prevent it, which is why the matter has had to be dragged and slugged out in the media – and ultimately the courts. I dread the day that ordinary citizens and academics must spend most of their waking hours being on the look out for anomalous projects and ill-conceived, poorly motivated schemes. Government should not have to be this tedious. The NBN project became prominent and noticeable only owing to the egregiousness of its claims. But I am realistic and I am certain other projects, though of a less blatant character but ill-advised and corrupt nonetheless, are being hatched and escape our attention.

The significance of objecting loudly and openly to this project is a symbolic one: If the public cannot stop such an obviously wrongheaded scheme from being forced down their throats, then what can be stopped, what else is the public’s collective wisdom worth?

As academics we would rather this scheme was defeated based on reasoned argument, policy debate, and past precedents. That would at least show we were thinking of a long term, reforming our institutions and decision-making processes, and resolving never to commit the same mistake twice. On the other hand, one will also recall how Al Capone – a murderer, bootlegger, gambling lord, and extortionist – was ultimately nailed on a simple tax-evasion charge. If the only way to stop this impending crime against the public interest it is to cite the corruption and sleaze attending it, then I would settle for that, too.

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