ZTE doubled rates of WiMAX supplier

ZTE Corp. more than doubled the price of WiMAX equipment it was getting from a subcontractor for the national broadband network (NBN). So in its contract with DOTC, the Chinese firm marked up the telecom gadgets to $46,107,524 for 25,844 units, when it should have cost only $19,206,194.

 Claiming honesty in the hot deal, DOTC has been daring critics to “do the numbers.” The numbers of WiMAX alone in the $330-million contract belie it. There was overpricing of $26,901,330 ($46,107,524 — $19,206,194), or P1.35 billion, when the sale was signed in Apr. 2007.

The fraud emerges when comparing DOTC-ZTE contract annexes with price quotations of ZTE’s WiMAX subcontractor, Alvarion of Israel. Documents were provided to The STAR by concerned sources.

One DOTC-ZTE annex, “NBN Project WiMAX BoQ (Bill of Quantities), specified the following:

CPEs (Customer Premise Equipment) Subscriber Units

Item: BMAX CPE ODU PRO SA 3.5

Quantity: 25,844

Unit Price ($): 1,784

Total Price ($): 46,107,524

Description: BreezeMAX PRO CPE Outdoor Radio Unit

BreezeMAX brand is by Alvarion, a pioneer in WiMAX technology. WiMAX is short for Worldwide Interoperability for Microwave Access, a system of transmitting data over long distances, point-to-multipoint. It was the way DOTC-ZTE proposed to link up national and local government offices via 300 base stations and 25,488 sites.

Alvarion quoted its WiMAX prices to ZTE Corp. in May 2006. At that time ZTE was negotiating, through Filipino brokers, with the Commission on Information and Communication Technology (under the Office of the President) to supply only a fraction of the NBN.

ZTE’s proposal to CICT then was only for 63 sites. Alvarion quoted ZTE then $46,819 for the 63 BreezeMAX units, or $743.16 apiece. At that fee ZTE already had a comfortable profit of 20 percent, since Alvarion gave a “partner’s price” to the Chinese firm of only $576++ apiece. Such 20-percent margin for ZTE was high in the very competitive telecom business.

Malacañang in Oct. 2006 reassigned the NBN plan to Dept. of Transportation and Communication (DOTC). The DOTC increased the number of sites to 25,844, supposedly for wider coverage. Given the unit price of $743.16, this should have cost only $19,206,194. And with the “partner’s price” Alvarion was giving, ZTE would have made nearly $4 million as its 20-percent margin on the $19,206,194.

But ZTE upped the price nearly 2-1/2 times to $46,107,524. Such 250-percent margin is unusual in telecoms. Experts say it would have been impossible had there been public bidding instead of quiet negotiations.

Former ZTE technical consultant Dante Madriaga explained the fraud to the Senate this month. Price padding “grew exponentially” as the DOTC expanded the coverage and ordered more units, he said.

That ZTE was selling a third party’s WiMAX model also contradicts the claims of DOTC officials that they went only for the best. ZTE may now be deep in WiMAX research and assembly, but at the time it was talking to supply the NBN, it had yet to produce its own units. For the NBN, ZTE was planning to get from OEM (original equipment manufacturer) Alvarion.

BreezeMAX was a 2004 prototype of fixed WiMAX 802.16-2004, using an outdoor antenna. In late 2005 pioneers released a new standard, the nomadic system 802.16-2005, also called mobile WiMAX. ZTE dealt with CICT in May 2006 and signed the sale to DOTC in Apr. 2007 of Alvarion’s 2004 fixed-standard BreezeMax. Yet since early 2006 the WiMAX Forum of 520 or so operators, developers and suppliers already preferred the cheaper yet more powerful, thus cost-efficient 2005 mobile standard.

(The nomadic version — now produced by giants Motorola, Nortel, Alcatel-Lucent, and Nokia-Siemens, among others — not only is mobile but also has reliable indoor penetration. Soon the 802.16-2005 Intel chipset will be embedded in all laptops and mobile phones.)

 As a fixed model, BreezeMAX would have used 3.5-GHz frequency. Such weak signal can beam data only 12 km radius using outdoor antenna, and less than 1 km using indoor CPE. Nomadic models (802.16-2005) can penetrate indoors, even without outdoor antennas, up to 30 km radius. In print ads and Senate hearings DOTC officials falsely cited mobile features to defend the fixed model they had contracted from ZTE.

Too, the BreezeMAX was not capable of VoIP (Voice over Internet Protocol) — another DOTC lapse. Fixed WiMAX needs Access Gateway Primary Voice Equipment in order to transmit voice messages. That’s why the DOTC-ZTE contract had to insert $15,175,887 more to make the WiMAX carry voice aside from data. And that again was in overprice of $12 million.

Sen. Loren Legarda wants the Senate to commission an independent study of the DOTC-ZTE deal to determine if there was fraud. Reviewers would spot red flags in the WiMAX portion.

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The Supreme Court ruling on executive privilege officially makes Congress toothless. There’s no more point in investigations. The Senate might as well abolish the Senate blue ribbon committee.

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