Now that the Bill of Quantities (BoQ) of the controversial ZTE National Broadband Network Project by the Philippine government has been released, I was asked to take a look and see what I make out of it. Here are my findings so far.
The Bill of Quantities is an annex of documents which outline the details of the project costing from the equipments to the services and trainings that will be undergone to implement the project. By checking and analyzing some of the data in there, we can make reasonable conclusions if the project were indeed padded or not.
First stop, the topology. This will illustrate how the network will be interconnected and with what. I’ve drawn a diagram below as best as I could to show how they plan to do it.
The primary line of transmission is via the NBN Backbone distributed thru microwave relay stations deployed nationwide. They will reach majority of the WiMax Base Stations and transmitted to the nodes (regional government offices, municipalities and barangays).
The secondary transmission is done via commercial networks — meaning, if the microwave relay stations cannot reach/cover a certain base station, they will hook them up via 2Mbps ADSL from local Internet Service Providers (ISPs).
The 3rd mode of transmission is via VSAT (Very Small Aperture Terminal, via Satellite Internet) which can get access up to 4Mbps to the WiMax base stations. This is a back-up plan for locations where there are no local/commercial broadband service and relay stations cannot reach. They’ve allocated 5% (or 15 of the 300 base stations) of the total base stations that might avail of this. This mode is the most expensive of the 3 in terms of monthly link charges.
Next, let’s look at the breakdown of the costing. The total contract price (TCP) of the project is pegged at $329,281,290PHP 19,324,037,144INR 27,906,523,471EUR 313,574,572CNY 2,396,608,013 or about Php13.5USD 0.23INR 20EUR 0.22CNY 2 Billion at current exchange rates. This is broken down into two — Equipment Sales of $194,051,628PHP 11,388,016,815INR 16,445,836,663EUR 184,795,365CNY 1,412,365,964 and Service Charges of $135,429,662PHP 7,947,757,429INR 11,477,636,769EUR 128,969,667CNY 985,697,709.
The Equipment cost is further distributed as follows:
Transmission Backbone Equipment: $47,649,037PHP 2,796,307,561INR 4,038,246,356EUR 45,376,178CNY 346,803,986
Regional WiMax System: $82,077,545PHP 4,816,761,767INR 6,956,055,523EUR 78,162,446CNY 597,384,996
IP Backbone Equipment: $15,510,251PHP 910,226,835INR 1,314,490,670EUR 14,770,412CNY 112,888,260
VoIP System: $15,175,887PHP 890,604,517INR 1,286,153,388EUR 14,451,997CNY 110,454,658
DC/NOC Equipment: $8,977,882PHP 526,871,494INR 760,873,704EUR 8,549,637CNY 65,343,719
Information Security system: $6,743,012PHP 395,717,031INR 571,468,918EUR 6,421,370CNY 49,077,664
Monitor & Environment Equipment: $3,532,877PHP 207,328,653INR 299,410,619EUR 3,364,359CNY 25,713,339
Uniform NMS: $2,143,540PHP 125,794,717INR 181,664,586EUR 2,041,293CNY 15,601,327
DC Power & Diesel Generator: $11,505,187PHP 675,187,652INR 975,062,297EUR 10,956,390CNY 83,738,203
Total Price: $194,051,628PHP 11,388,016,815INR 16,445,836,663EUR 184,795,365CNY 1,412,365,964
It’s very hard to determine if these equipments were overpriced. Some of them, you can’t even search on the internet — like those Microwave transmitters carrying 4 x E1 to 16 x E1 connections which costs between $1.2PHP 70INR 102EUR 1CNY 9 to $4PHP 235INR 339EUR 4CNY 29.5M each according to the BoQ. So, I looked at a few samples which we can obviously compare to current market prices.
Office Printer : 1 set @ $804.20PHP 47,195INR 68,156EUR 766CNY 5,853
Desktop Computer : 1 set @ $2,055.94PHP 120,654INR 174,241EUR 1,958CNY 14,964
Laptop Computer : 1 set @ $3,440.56PHP 201,911INR 291,587EUR 3,276CNY 25,041
Basic E1 Tester : 5 units @ $7,128.41PHP 418,334INR 604,131EUR 6,788CNY 51,883
MS SQL Server 2005 Standard Ed. : 1 CPU License @ $6,797.73PHP 398,928INR 576,106EUR 6,473CNY 49,476
These items, though a bit pricey, are still within tolerable reasonable levels considering 2007 market prices. I searched on eBay for an E1 Tester and saw one at $3,500PHP 205,399INR 296,624EUR 3,333CNY 25,474 and the current 1 CPU license for MS SQL Server is $5,999PHP 352,054INR 508,414EUR 5,713CNY 43,663 according to the Microsoft website.
Then, I looked at connection/link charges that were included in the pricing:
Manila IDC: 100Mbps/155M SDH Link = $30,000PHP 1,760,565INR 2,542,494EUR 28,569CNY 218,349/month
Regional PRI to PSTN: E1 $500PHP 29,343INR 42,375EUR 476CNY 3,639 x 43 = $21,500PHP 1,261,738INR 1,822,121EUR 20,474CNY 156,483/month
Regional Sites DSL: 2MB/128K CIR @ $80PHP 4,695INR 6,780EUR 76CNY 582 x 300 = $24,000PHP 1,408,452INR 2,033,995EUR 22,855CNY 174,679/month
VSAT: E1 (2Mbps) $7,000PHP 410,799INR 593,249EUR 6,666CNY 50,948 x 15 = $105,000PHP 6,161,978INR 8,898,729EUR 99,992CNY 764,222/month (est. 5% of total)
That brings the annual connection cost of $2,166,000PHP 127,112,793INR 183,568,067EUR 2,062,682CNY 15,764,798. The ZTE contract price includes this for up to first 3 years only ($6PHP 352INR 508EUR 6CNY 44.5M). That means after that, the government will have to shoulder it back again. Commercial price of an E1 connection is at $500PHP 29,343INR 42,375EUR 476CNY 3,639 and the $80PHP 4,695INR 6,780EUR 76CNY 582 for a 2Mbps DSL with 128Kb CIR (committed internet rate) seemed normal. The VSAT is obviously very expensive considering it will probably only cover 5% of the total base stations.
So far so good. Now, we look at the breakdown of the Services cost:
Site Prep & Civil Works: $48,571,040PHP 2,850,415,768INR 4,116,385,926EUR 46,254,201CNY 353,514,600
System Implementation & Engineering: $20,607,490PHP 1,209,360,854INR 1,746,480,656EUR 19,624,513CNY 149,987,494
Site Engineering for Remote Office Site: $28,686,840PHP 1,683,501,549INR 2,431,203,953EUR 27,318,478CNY 208,791,428
Service for IDC Construction & Integration: $8,287,281PHP 486,343,229INR 702,345,407EUR 7,891,978CNY 60,317,317
Joint Project Management Office: $5,995,000PHP 351,819,573INR 508,075,051EUR 5,709,039CNY 43,633,409
Link Charges: $6,498,000PHP 381,338,379INR 550,704,200EUR 6,188,045CNY 47,294,393
Training: $1,948,505PHP 114,348,990INR 165,135,409EUR 1,855,561CNY 14,181,804
Managed Services: $14,875,507PHP 872,976,566INR 1,260,696,243EUR 14,165,945CNY 108,268,403
Total Price: $135,429,662PHP 7,947,757,429INR 11,477,636,769EUR 128,969,667CNY 985,697,709
The problem with service costing is that there are no standards and they’re mostly priced arbitrarily. I find it rather interesting that for a huge infrastructural project such as this, services take up 41.1% of the total cost. Take for example the training cost ($1PHP 59INR 85EUR 0.95CNY 7.95M) — it will take $1.3PHP 76INR 110EUR 1CNY 9 M to bring 20 people to China to train how to run the Microwave/WiMax equipments. Each course costs an average $12,000PHP 704,226INR 1,016,998EUR 11,428CNY 87,340 per person. Likewise, they will spend another $600,000PHP 35,211,300INR 50,849,880EUR 571,380CNY 4,366,980 to train 40 people locally on the same courses. I thought if you buy some sophisticated equipment, the vendor will train someone from the buyer how to operate it for free?
So, what’s the verdict? Let me qualify this by answering specific questions.
Is the ZTE proposal a sound strategy for a national broadband plan? IMO, it looks like it. They’ve maximized the WiMax implementation, coupled with local ISP connectivity and a VSAT backup. I think this approach is practical and cost effective in itself.
Does the NBN Project really cover 100% of the country as it claimed it can? Yes, it can — the VSAT backup practically guarantees that.
Is there overpricing in the hardware/equipment costs? Nothing too obvious nor significant — my sample comparison of some listed items with market prices turned out reasonable.
Is there overpricing in the services component? I cannot categorically say ‘yes’, but there’s some semblance of it. Besides, service charging is mostly a guesstimate so you can fairly say that they’ve somehow padded these prices a bit. If by how much, I cannot say. Only way to calibrate that is by asking 2 other suppliers to send in their costing for the same project.
So, where’s the catch? Here’s my theory. This is not your ordinary “where’s my cut” type of underhanded deal where suppliers bid for government projects with overpriced materials like a Php20,000USD 341INR 28,892EUR 325CNY 2,482 toilet seat or Php1,500USD 26INR 2,167EUR 24CNY 186 for an ordinary broom. That’s so amateurish.
For huge projects like this, the “payouts” are drawn from wholesale discounts. So, instead of say a 30% discount to nab the deal, they’ll charge in full and re-allocate the 30% corporate discount to the pockets of those who will guarantee the approval of the project. Incidentally, a 30% discount amounts to $100M so it’s not a bad deal after all, if that were the case. That way, the Bill of Quantities will still pass thru rigid scrutiny.
Note: There are so many other stuff I haven’t covered here, esp. the details. You may download a copy of the Bill of Quantities here so you can see it for yourself and make your own personal assessment.
YugaTech.com is the largest and longest-running technology site in the Philippines. Originally established in October 2002, the site was transformed into a full-fledged technology platform in 2005.
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Lyle, RN says:
What kind of printer does a government office need? $804.20 or a whopping Php 32,168.00 for a government office printer is hardly reasonable in my opinion.
The laptop and desktop units are also somewhat expensive for a government office. Can’t generic computers, which will only cost Php30,000 or below, meet their (government) needs?
Abe Olandres says:
B&W Business HP Laserjet Printer costs between $179.99 to $2,799.99.
An HP Pavillion dv2700t is around $2,500 (fully upgraded)
An HP Compaq PC Desktop dc7800 Series costs between $800 – $2,500, fully loaded.
I believe this *single unit* will be used in the Remote Office during implementation. These will not be bulk orders for each offices.
McBilly says:
Normally I would brush off articles regarding the ZTE controversy mainly because nagsasawa na ako sa mga useless news about it. But yours is worth reading Abe. Great job on breaking down the prices. The costs of services looks very jacked up to me. Also, your bulk discount theory is top notch.
I just can’t believe how these politicians sleep at night. Or do they?
BrianB says:
ZTE Phone enters US market.
http://www.cellphones.ca/news/post002981/
Alan Tan says:
Forget about the columns of an obviously paid hack like Mr. Jarius Bondoc. And to hell with the theatrics of the adulterous thief Mr. Jun Lozada, and the addle-brained Mr. Joey de Venecia. To truly and soberly assess if there was overpricing in the contract, the Senate should have brought in techies to assess the Bill of Quantities of the contract. That Messrs. Cayetano, Lacson, Escudero and Madam Madrigal did not do so was intentional – they would not have gotten any publicity mileage and their destructive partisanship would have tripped them up to the Filipino people.
At last, an honest look at the pricing of the contract. Although not totally conclusive, it shows that the dunderheads at the Senate have been making fools of the Filipino people all along. All of them should hang by their balls a million times over!
Thanks for this post.
Dexter | Techathand.net says:
” I thought if you buy some sophisticated equipment, the vendor will train someone from the buyer how to operate it for free? ”
Well in this case as if they have asked for a big discount price for the equipment.. That is why equipment manufacturer opt not to includ this item in their price..
Your post was indeed a great source of information.
Well if there is a padding in this kind of contract it will always be at at the engineering side of the project. This is where nobody can question since this is not physically visible.
BrianB says:
Guys, brian gorrell’s blog is up and he’s getting really good at it.
excerpt:
“Because you are just another carbuncle on Manila’s ballast tanks.”
edwin says:
quote:
Is there overpricing in the hardware/equipment costs? Nothing obvious nor significant — my sample comparison of some listed items with market prices turned out reasonable.
You failed to point out that ZTE manufacture those products. And the plus side is what? Even if they sold this at negative or zero profit they earned a free marketing material that everyone will say ZTE. That’s more profitable than what they are getting from us filipinos.
quote:
Is there overpricing in the services component? I cannot categorically say ‘yes’, but there’s some semblance of it. Besides, service charging is mostly a guesstimate so you can fairly say that they’ve somehow padded these prices a bit. If by how much, I cannot say. Only way to calibrate that is by asking 2 other suppliers to send in their costing for the same project.
Site Prep & Civil Works: $48,571,040
System Implementation & Engineering: $20,607,490
Site Engineering for Remote Office Site: $28,686,840
Service for IDC Construction & Integration: $8,287,281
Joint Project Management Office: $5,995,000
Link Charges: $6,498,000
Training: $1,948,505
Managed Services: $14,875,507
Total Price: $135,429,662
take a look at system implementation and engineering. HOW MANY ENGINEERS DO YOU THINK IT WILL TAKE TO CONFIGURE THOSE ROUTERS AND SUCH? The things should come pre configured from china. Plus remote access cost 20m? and link charges? 8million? why would they ask for link charges IF THEY ARE ALREADY CHARGING FOR IMPLEMENTATION? and links from what? :)
Plus The network design is a security nightmare from the start. Government Network piggy backing the internets!?!?! I dont presume being even adept at security but common sense requires to be used at a times like this.
lastly that alan tan is an idiot. please use common sense next time before posting anything. or better yet ask somebody who knows a little bit about the price difference from buying in VillMan from buying in gilmore and buying directly from a supplier to buying directly to the factory who made that stuff.
Abe Olandres says:
@ edwin, it’s the same as any vendor (say competitor Huahwei) so I discounted that marketing aspect. And it’s hard to put a solid price there. If you look at the BoQ, not all materials will come from ZTE. There are microwave transmitters, sensors, UPS, generators, McAfee softwares, cables that are quoted by other 3rd party vendors. I was not able to further break them down which ones came from ZTE and which ones came from other vendors because pages of the BoQ docs were blurred/unreadable.
I did not end up with a solid conclusion because I don’t have 3rd party evidence to say the service prices were padded by how much.
Go back and look at the topology again and you will see that commercial operators are still a major part in the network. Majority of the cost in the equipments will go to microwave transmitters and WiMAx base stations.
You need to take a look at the BoQ again yourself to see the nitty details and breakdowns.
Download it here.
Lyle, RN says:
“B&W Business HP Laserjet Printer costs between $179.99 to $2,799.99.
An HP Pavillion dv2700t is around $2,500 (fully upgraded)
An HP Compaq PC Desktop dc7800 Series costs between $800 – $2,500, fully loaded.
I believe this *single unit* will be used in the Remote Office during implementation. These will not be bulk orders for each offices.”
So are you saying that our goverment offices are that high-tech that a sub Php 5,000 office printer won’t do the job?
Come on, we’re talking about government offices here.
Abe Olandres says:
Lyle, I happen to visit one of the offices in DFA last year and saw this huge, centralized, network printer being shared by people in the whole room. Instead of getting each desk a cheap, sub-Php5k printer, they got a high-performance network printer serving the whole department.
I’m not arguing here that they should get a cheapo 2-page per minute printer instead of a high-performance 15-page per minute network printer. I am merely pointing out that the $804.20 budget is within a commercial range of HP’s printer line-up $179.99 to $2,799.99. In short, if they got an HP Laserjet printer for $804.20, the price is just right within current market figures. In essence, the figure was not padded.
It’s a different thing if they listed there an Epson LX 300 (that slow ribbon printer) and put a price of $840.20 when we know the market price for such printer is just $80. Now there’s the clear padding of prices.
Then again, I’m pretty sure that this single printer will not be used by a government office. This printer, laptop and PC will be used by the engineers during the implementation period. If it were for a government office, I don’t think they’ll buy just 1 unit.
Ian says:
Interesting. I wonder how they would achieve peering with commercial providers, given the previous attempts in that field.
The architecture, at first glance, appears sound and achievable. Note, though, that there are already precedents for this: PREGINET, DA VSAT, etc. Boosting the TELOF infra will help. But… remember “Telepono sa Barangay”?
sylv3rblade says:
I just watched the special on GMA about the NBN – ZTE deal. With everyone pointing fingers at each other I doubt things will get resolved anything soon and while everyone’s too busy covering their own a$s we get to watch the country tumble.
*sigh*
Dave Starr says:
Sorry I haven’t got around to reading this until now, Abe. Good of you to post/discuss it, since almost all discussion anywhere else just focuses on personalities or politics.
There is a basic flaw in the whole idea that needs to be re-thought. I have 20 years expereince moving government microwave networks back onto commercial fiber and microwave backbones. It sounds enticingly cheap for a government to buy microwave backbone equipment and set up their own ‘pipes’ without paying charges to PLDT and their cohorts. The US did it for years … nearly 10,000 miles in Japan/Korea alone.
By properly negotiating contracts with commercial carriers we moved nearly every mile of this onto commercial connectivity and saved millions of dollars per year in maintenance cost, even after subtracting the connectivity charges by the carriers.
This plan, sad to say, is based on 40 year-old thinking and in some cases 40 year-old technology … buying channelized equipment, like T-1 or E-1 components is dark ages stuff … you don’t need anything like 64 kbps channels for voice today. Building a network like the NBN is currently envisioned would cripple the government with operational costs even if the network itself was free to build.
The entire NBN project is a solution in search of a requirement … it really needs to go back to the beginning and determine what the needs of the government actually are rather than proposing a juggernaut of a technical solution. When you let the department of forestries and a cable TV marketing exec determine a country’s communications future, your have a problem, ZTE, JDV or any other entity notwithstanding.
Francis Bersabal says:
I wouldn’t agree with you more Dave. It seems all of the post were focused on specific equipments and certain contract prices but none of it were able to question the value of those equipments, contracts, trainings if its really important or worth it.
“The entire NBN project is a solution in search of a requirement … “—this is so true!
Instead of the government build its own infrastructure and invest on it and take revenue for services after, they would rather buy something outside and increase more country’s debts (although theyre claiming zero expenses). Philippines has enormous resources and talent and even budget if spent well to invest in such engineering feets…we just need to wake up and make things happen.
Pinoyako says:
BOQ or bill of quantities will surely not show the overcharging of a project cost, definitely for large projects as the author mentioned, they pay the “representation fees” via the vendors’ pockets. the invoice for sure is somehow reasonable, but the vendor will cut down their own profit ie from 30% to 25% just to accomodate the 5% to the client representatives. Thats how the business works.
BOQ also allocates, unexpected or cost variations, if their are changes in the current or ongoing project, this will also be charged to the government, that is why main contractor are very confident to shell out money for the meantime, and in the long run, these variation costs (which reflects the current prices including the overhead expenses will cover the cash outs from initial stages of the project)
Should be the auditor scrutinize the prices, he/she will find nothing in that case, but there should be strict and well scoped contract terms and agreements to avoid corruption.
Erwin says:
Bumili nalang sila ng isang set na PC then lagyan ng printer.. tapos magpakabit ng internet.. tapos.. haha..
kasi ganun din naman lagi sistema nila eh.
Best Boots On Sale says:
I’m spending the weekend with my parents, who flew in from New Brunswick on Wednesday, my brother who recently came back from Texas, and my boyfriend! We’re going to check out a huge new mall and go out for dinner tonight, then relax tomorrow.
Dominck Variughn says:
Brilliant article about search engines. I’m frankly amazed that that has not really been enunciated earlier to such great lengths.
Alvin of Pangasinan says:
pd bng mkahingi ng term paper na may ganitong format:
1.situationer/situation
2.strength of the financial system of the Phil.
3.weaknesses/limitation of the Phil. financial system.
4.final discussion or solution
..>>.sna sa friday meron na po.
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