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Australia’s NBN Says Costs Are Too High, Suspends Tenders

NBN Co., the Australian government-owned builder of a national broadband network, suspended the bidding process because proposed construction costs are too high.

“We have said all along that we are building an NBN, but not at any price,” Kevin Brown, the company’s head of corporate services, said today in a statement. “We will not proceed on the basis of prices we are currently being offered.”

Australia, fueled by a boom in the resource sector, faces a shortage of skilled laborers, pushing construction costs higher as wage pressures increase. HSBC Holdings Plc has estimated the value of Australian mining and resource projects proposed or under construction at $777 billion, or about 60 percent of gross domestic product, and said it expects Reserve Bank of Australia Governor Glenn Stevens to boost interest rates to compensate.

“We’re seeing capacity constraints across a wide array of industries not just the resource sector,” said Helen Kevans, economist at JPMorgan Chase & Co. in Sydney.

The broadband project, estimated since last year by the government to cost A$36 billion ($37 billion), is intended to connect 93 percent of all Australian homes to a fiber-based, high-speed, Internet network. It’s the biggest infrastructure project in the country’s history.

“NBN Co. does not regard current pricing reflects capacity constraints,” Brown said. “We are progressing a different approach that we think will produce a better result.”

Bidding Process

Brown didn’t elaborate on the company’s alternative plan. Rhonda Griffin, an NBN spokeswoman, declined to elaborate in a phone interview.

NBN asked bidders on March 29, 2010 to provide detailed design and construction services for the project.

“Potential construction partners will need to show they have the capability and capacity to design and deliver telecommunications infrastructure projects of significant size and complexity,” NBN said in the invitation to bidders.

The process attracted 45 potential suppliers, and was narrowed to 14 companies or joint ventures that proceeded to a Request for Proposals, NBN said.

The company didn’t name the final bidders.

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