DSL Prime:
Tanks Protect Broadband President Accused of Corruption

If ZTE actually spent $100 million to obtain a $300 million contract, they overpaid—the going rate for graft worldwide is closer to $1 in bribes per $10 in contracts, with even better rates available in the U.S. and Saudi Arabia.

by Dave Burstein of DSL Prime and Future of TV [February 28, 2008]

"When one IP address is shut down, a hundred thousand spring up/When one identity is shut down, a hundred thousand spring up."
—A Chinese protest against censorship, from WSJ.

President Gloria Macapagal Arroyo fears a revolution and has stationed 3,000 elite Philippine soldiers with tanks around Malacaņan Palace. A broadband scandal may bring enough people to the streets to force her out of office. Over $100 million in bribes were apparently included by ZTE of China to win the $329 million National Broadband Network (NBN) contract for broadband between government offices. Some of the money went to her close associates. Over a million went to "First Gentleman Jose Miguel Arroyo," according to one high official. A consultant testified the "First Family" was to get over $40 million, and that half the money had been turned over to middlemen. Ms. Arroyo admitted Saturday to knowing about the payment, but left the deal open for five months. Read the Manila papers for the political details, below for some of the industry story.

50 megabit, upstream and down, available to half the homes in America in 2010? Brian Roberts of Comcast is leading the charge, planning to upgrade to DOCSIS 3.0 for ten million homes in 2009. That's half his network. Motorola believes they will be able to deliver that speed in the upstream as well as the downstream, with equipment everyone is hoping will ship by the end of this year. This could be a nightmare for AT&T, Bell Canada, Qwest, and British Telecom. Comcast will be 20 times as fast as U-Verse on the upstream, and easily twice as fast downstream. The manufacturers tell me they are ready to supply equipment for 30 to 60 million U.S. homes by 2010 if the cablecos want to move quickly. While the CTOs are very excited, the CFOs haven't yet approved the spending in other U.S. cablecos.

Randall of AT&T needs to fear first are the consequences of an astounding stock drop: $20 billion in two days and $30 billion in a week. I'm a wall street guru right now, because I wrote on January 18 "AT&T, Verizon: Up So High They Look Down Very Far" with lots of data. Christopher King of Stifel had the clearest analysis of what was to come. I still don't pick stocks, although I do think there's a good chance of a partial recovery. What happened last week was panic about a wireless price war that probably won't happen. More next issue.

Another issue soon, I hope. All the DSL chip vendors have news, while they hope I won't discuss their financial reports. Jessica Zufolo should not be the only one to report the massive move of USF money from the rural carriers to the Bells in the latest USF proposals. I've asked Tauke and Cicconi how many of their lines would newly qualify, because no one outside their companies can calculate the number. Probably billions of dollars—and no one is telling the story. The coming hype over how the wireless auction "solves the broadband problem" needs a reality check. Wall Street's current crowd madness, ignoring the company's future, is eating the heart out of several telcos. AT&T stock is gyrating like a dot.com (although the business is very profitable). I'm writing as fast as I can.

Meanwhile, say hello to this round fellow with a beard at the Rayburn House Office Building on Friday. The iGrowthGlobal people are bringing me to D.C. for a forum at noon. I'll have time in D.C. Thursday and Friday afternoon. Anyone fancy a visit and conversation? Preferably about evidence-based analysis or something more interesting than NN.

Jailed Saudi blogger Fouad Al Farhan is being kept in solitary confinement. This is a dangerous world.

Tempora O Mores: ZTE In Philippine Broadband Scandal
$130 million alleged in bribes, over 30 percent
Above, how this scandal could topple the government.

I hope ZTE is innocent. I'm getting tired of writing about scandals in our business, and I'm sure you are tired of reading about them. Virtually every company in our business has been involved. ZTE's Howard Xue told AP the company "cannot allow itself to be dragged into any political circus. ZTE has neither done anything wrong, nor has it bribed anyone to get this project." Several witnesses, including senior government officials have testified otherwise in televised hearings that threaten the government

30 percent would represent a major hike in the going rate for bribes. U.S. Congressman William Jefferson only had $90,000 in his refrigerator, and the total Nigerian influence payoffs apparently were in the low millions. Siemens' billion or so in "improper payments" typically represented only 5 to 10 percent of the contract. The $18 million Alcatel paid Costa Rican ex-Presidents was far less than 30 percent. Lucent has acknowledged spending for Saudi Arabia was only a few million for contracts in the hundreds of millions.

ZTE's contracts in China and Europe are typically at very low prices, which means it's unlikely to pay large bribes as a regular practice. Western complaints of especially high levels of corruption in China are almost surely exaggerated, The prices China Telecom demands simply don't leave room for big payoffs.

It's definitely a political circus, with the president's husband, Jose Miguel "Mike" Arroyo central and ex-elections commissioner Benjamin Abalos the accused bagman. Former Socioeconomic Planning Secretary Romulo Neri testified that Abalos offered him a bribe to approve the ZTE proposal. "More than 50 former Philippine officials called for President Gloria Macapagal Arroyo's cabinet to resign ... The officials from previous administrations, including former Arroyo cabinet members, made the public appeal after attending a Mass led by Roman Catholic groups and ex-President Corazon Aquino," AP reports.

The accused maintain their innocence and that the charges are politically inspired. The losing bidder and one of the accusers is AHI major stockholder Jose "Joey" De Venecia III. He's the son of then Speaker of the House of Representatives of the Philippines Jose de Venecia, Jr.. The opposition has previously tried three times to impeach Arroyo and politics in Manila are brutal.

Does anyone have news of Christian Sapsizian, the Alcatel Executive grabbed by the FBI while changing planes in Miami? Facing ten years in jail for bribery, he agreed to provide evidence but there hasn't been news since. Alcatel always enjoys strong support from the French government and rarely would be challenged like this at home.

Copyright 2008 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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