Lee Sze Yong is a Bungling Blathering Bozo

I made the decision a while ago not to read much of My Paper after I had discovered that it has generally trashy sensationalistic stuff in it - TODAY is better. However, unlike other days where I don't even think to read the paper, this morning I made the unfortunate decision to actually pick it up on my way to work.

Lo and behold, I was confronted by some guy named Lee Sze Yong with the headline on the 2nd page, "Stop Whining And Just Pay Up!", directed at football fans over the issue of SingTel winning the Champions League broadcast rights.

A. Well Well, Who is Paying Your Salary???

The first thing I should mention is that Full Page Advertisements for Generation Mio (of which Mio TV is part) paid for by SingTel have been appearing on the FRONT PAGE of My Paper.

The front page is THE premium advertising space, and thus it would not be unfair to say that SingTel is one of the biggest, if not the biggest advertiser for the My Paper account. We can thus easily establish that My Paper has a conflict of interest in this issue regarding UEFA CL programming rights and certainly biased (towards... guess who??).


But nevermind the fact that Lee Sze Yong is a mercenary writer enslaved to serve his advertising masters, I shall now proceed to systematically dismantle his mis-informed and nonsensical writings.

B. The Only One "Woofing" Here is Lee Sze Yong

Lee begins by trying to sound literary and tell an intelligent parable, but only ends up constructing a lousy analogy between a dog named "Woof" and football fans in Singapore. Woof refuses to walk 500m to the new location of his favourite fire hydrant. The dog protests the hydrant relocation by holding his bladder and ends up dying because his bladder bursts.

What is Lee's point in his oh-so-lovely parable? He says elsewhere in the essay:

"[Soccer fans] say they love the most beautiful game, but [like Woof,] they refuse to go the distance to prove it. ...

But the true test for soccer fans comes: How much money will you pay to catch your favourite club hold the Champions cup?"

Well, unfortunately for Lee, he has made the fatal and unforgivable mistake of equating "love for soccer" with the "willingness to pay." Nevermind that his parable is poorly concocted and nonsensical (whoever heard of a bladder bursting because one refused to pee? - Dogs aren't that stupid, Lee is), anyone with any thinking mind can easily see the flaw in his mistaken equation.

Boy do I know a hell of a lot of people who love the game of soccer and who at the same time do not have Cable TV at home. Some are unable to afford it, others do not see the need to spend the hefty installation and subscription fees for the Pay TV in order to catch EPL/CL at home. Yet these guys love the game to a fault.

A friend of mine, for example, loves Liverpool FC through and through. Almost without fail, he catches every Liverpool match that is televised in Singapore, and yet he does not have Pay TV at home. How does he manage to do that? Well, i shan't divulge the details - diehard football fans will be able to tell you how.

I, in contrast, have pay TV at home and am no where as football-mad as my friend. But according to Lee Sze Yong, I love the game more than my friend because I am willing to part with my cash for the Cable TV.

Preposterous!!!

Lee's Argument is Absolute Capitalist Bollocks Trying to Manipulate You to Part With Your Money!!!

There are many things that indicate an individual's passion for football. However, the willingness to pay hefty fees for mio TV just to catch a few matches, is not one of them.

Lee is obviously bending over backwards and being emotionally manipulative in order to defend his paper's biggest advertiser and to draw eyeballs to his column. How's that for journalistic ethics?

C. Hmm, He Doesn't Really Understand Pay TV Either

Now we come to Mr Lee's real misunderstanding. It is his misunderstanding about the economics of Pay TV. Mr Lee's argument about Pay TV can be reduced to two main points:

1. "Broadcasters have to outbid each other to get exclusive programming to attract viewers."

2. "Should pay TV become a monopoly so that consumers can benefit? Again, no. One major plus about competition in choice."

C1. On point 1:

I would say, yes, this is the status quo. But Lee's argument is simplistic and fails to capture the nuances of the bidding process. His understanding is: Broadcasters have to bid => Bidding causes costs to go up => Consumers must pay higher prices

Lee makes absolutely no effort to analyse the bidding process itself. Instead, his essay makes it sound as if the structure of the industry is unchangeable and that higher prices are inevitable and that there is nothing we can do but to accept our fates.

In fact, the unfortunate state of affairs for consumers surrounding the Champions league and the EPL in Singapore has to do with the fact that SingTel is trying to break into a market already dominated by StarHub. In the process, SingTel is using its profitability and financial strength in its other areas of business (such as its monopoly over the wireline copper network) in order to subsidise the losses which it will inevitably incur when it makes such a high bid to win the Champions league rights away from ESPN and attempts to deploy Mio TV.

This is a far cry from the simple bidding process that Lee would have us believe is the result of a "competitive market'. The issue at stake here is: should a behemoth like SingTel be allowed to muscle its way into the market with loss-making over-sized bids, at the expense of consumers and competitors? Or should there be some regulation that says that this is an abuse of financial strength and amounts to anti-competitive and anti-consumer behaviour?

Lee fails to ask this question, let alone answer it.

C2. On point 2:

Lee would have us believe that there is a simple relationship between competition and choice. His understanding is: More Competition => More Choice, therefore competition is good and we cannot have monopoly. Lee cites the example that Cable TV resulted in much more choice compared to Free-to-air broadcast TV and therefore competition is better.

But this argument is as fallacious as it is simplistic and misleading.

The primary force driving the proliferation of availability of channels (and choice) was (and is) technology, not competition.

For the first time, CATV systems made it possible for distributors to track and control precisely who received what content and charge them for it. The technology made it feasible for niche and new channels to survive because they were able to capture a paying audience for the content they served. This was in contrast to free-to-air broadcast television which relied predominantly on advertising to sustain itself.

In a similar manner, the technological force that is the internet has made it possible for even more variety to be made available in the media world. Blogs have allowed people like me to add to the sphere of dialogue and debate. Youtube has allowed For more info read about the concept of the long tail.

A corollary of this is that more competition does not necessarily result in more choice. In fact, it is plain to see that we have more competing broadcasters (MioTV & Cablevision vs just Cablevision), but the same choice: There is still only ONE Champions League! The only thing that has changed is that it is being distributed on a different platform.

WHERE IS THE VARIETY THAT LEE SZE YONG IS TALKING ABOUT?!?!?!????????

Regardless of the number of broadcasters in the market, the top content will eventually make it to the consumer. The issue of choice & variety is at the content part of the media value chain, enabled by the broadcasting technology; the production of variety of content is not determined by the broadcaster.

For all the rhetoric of competition promoting choice and consumer welfare, football fans for the most part care about only a few select teams, leagues and matches. What they want is not choice, what they want is affordability and convenience.

D. Okay, Enough About This My Paper Article

What's important to realise from this is that consumer rights in Singapore are very weak. As long as civil servants please their ministerial bosses, they will not really bother about the impact to the man on the street; corporations naturally exploit the loopholes in legislation to profit and plunder where they can.

If anything is to happen to counter such anti-consumer events, consumers must band together to become strong as a unit and bring about action either to make corporations change their minds or to force the government to step in and intervene.

It's really all up to football fans.
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For more on this topic, see:
1. When Competition is Bad for Consumers (UTWT)
2. To All Sports Fans (TOC)

M1, CTI & StarHub vs SingTel in Singapore's Next Generation National Broadband Network (NGNBN)

A. Next Generation National Infocomm Infrastructure

The Next Generation National Infocomm Infrastructure (Next Gen NII) is Singapore’s new digital super-highway for super-connectivity. It will entrench Singapore’s Infocomm hub status and open the doors to new business and social growth for the country. Next Gen NII comprises complementary wired and wireless networks to ensure Singaporeans enjoy seamless connectivity.

The wired broadband network or Next Generation National Broadband Network (Next Gen NBN) will deliver ultra-high broadband symmetric speeds of 1Gbps and above, to all homes, offices and schools, while the Wireless Broadband Network (WBN) will offer pervasive connectivity around Singapore.

B. Next Gen NBN (NGNBN) RFP Launch

The IDA, on 11 Dec 2007, released the Request-For-Proposal (RFP) to all interested parties to submit their bid to design, build and operate the passive infrastructure layer of the Next Gen NBN.

According to the Minister for Information, Communications and the Arts, Dr Lee Boon Yang, the Next Gen NBN is envisioned to offer pervasive and competitively priced ultra high-speed broadband connectivity to business users at the workplace as well as to Singaporeans at home, schools and learning institutions and other premises.

The Next Gen NBN is expected to be available nationwide by 2015, although consumers can begin to look forward to a range of new and exciting Next Gen Services such as high-definition video conferencing, telemedicine, Grid Computing-on-Demand, security and immersive learning applications on the Next Gen NBN from about 2010.

The list of qualified consortium leads for the Next Gen NBN RFP is as follows:
1 Alcatel-Lucent Singapore Pte Ltd
2 Axia NetMedia Corporation
3 BT Singapore Pte Ltd
4 City Telecom (H.K.) Limited (Replacing Hong Kong Broadband Limited)
5 Nippon Telegraph and Telephone West Corporation
6 Nokia Siemens Networks Singapore Pte Ltd
7 Singapore Computer Systems Limited
8 Singapore Telecommunications Limited
9 SP Telecommunications Pte Ltd
10 StarHub Ltd

C. StarHub, CTI and M1

Hong Kong's City Telecom (CTI) and Singapore's M1 and StarHub (CMS Consortium), on 20th March 2008, signed a Memorandum of Understanding (MoU) to jointly form a consortium to design, build and operate the passive infrastructure network capable of delivering ultra high broadband speeds for Singapore. The consortium will jointly submit a bid that will meet all the criteria for the Infocomm Development Authority of Singapore’s Request-for-Proposal (RFP) for the Network Company (NetCo).

This important development effectively narrows down the field to two key bidding consortiums for the NetCo layer of the Next Gen NBN:
i. SingTel and its financial partners
ii. CTI, M1 and Starhub (CMS Consortium)

The other bidders do not have a serious chance in winning the NetCo layer:

1. SingTel's position as incumbent fixed-line operator and its islandwide telecom infrastructure puts it in pole position to roll out the island wide fibre-optic network. It has the experience, deep knowledge, financial pockets and incentive to roll out the fibre infrastructure in the most economically efficient manner that does not duplicate existing infrastructure and requires the minimum construction of new ducts.

2. If the NetCo contract were to be awarded to a player (players) other than SingTel, there is a very high probability that SingTel would then embark on deploying its own fibre-optic network to compete directly with the NGNBN.

• The SingTel entity operating the next gen network would be a vertically integrated beast (from infrastructure operator through to Retail Service Provider) that would not be subject to open access obligations and that would have the speed of execution of an independent, single corporation (rather than a cumbersome regulated consortium).
• SingTel would be able to cherry pick the best and most profitable areas to roll out its network first in order to get a head-start ahead of the NGNBN operators as it is not tied to rollout obligations as stated by iDA
  
• SingTel would not be obliged to make its network infrastructure available to the NGNBN operator, potentially driving civil costs much higher for the NGNBN NetCo.
  

3. It thus follows that any non-SingTel consortium winning the NetCo will have to be a strong, credible force that will be able to take on the SingTel beast in head-on competition and yet be able to survive. The newly formed consortium of CTI, M1 and StarHub fits this bill.

• CTI will bring its experience of operating a fibre network in Hong Kong to the table.
  
• StarHub will bring its deep knowledge & experience with the residential cable networks. It will also bring a strong customer base of payTV subscribers to the table.
  
• Both Starhub & M1 will bring their mobile subscriber base to the table and be able to market a new bundled service incorporating the next-gen services of the NGNBN network.

4. Other players do not stand a realistic chance.

• Any winner of the NetCo layer other than the CMS Consortium will probably be squeezed to death by SingTel, unless the CMS consortium is somehow roped in at the OpCo layer without being awarded the NetCo. This is highly unlikely.
  
• Any independent winner of the OpCo layer that operates with open access without SingTel at the NetCo layer (e.g. Axia) will be absolutely crushed by SingTel, which would have a massive customer base to build its own Next Gen offering and no open access obligations.

D. Conclusions

Thus, it looks like the NGNBN is gradually evolving into a two-horse race. Despite the government's grand plans to create open access and to encourage a vibrant RSP market as well as promote competition along various parts of the telecommunications value chain, the economics of telecoms networking means that a multi-player industry structure looks unsustainable and that the current duopolistic structure will remain, with minor players along the RSP fringe.

I am personally open to considering arguments as to how the NGNBN will allow a third major player into the wireline telco landscape in Singapore. However I remain very skeptical of the possibility of a three-way (or multi-way) fight.

[Update: the NBN OpCo RFP has been released]

When "Competition" is Bad for Consumers: SingTel, the UEFA Champions League and the Economics of PayTV in Singapore

It has recently been reported that SingTel has won the rights to broadcast the UEFA champions league ("SingTel's UEFA coup a boon for fans?") on its new payTV offering, Mio TV, competing the programming rights away from ESPN Star Sports which broadcasts on Starhub's Cable TV.

This seems like good news to consumers - the prospect of increased competition might cause pay TV prices to drop. Indeed, the TODAY article continues to make the following comments:

And with three pay-TV broadcasters — the third being StarHub CableVision — now battling to bring English football and Uefa action to Singaporeans, fans are cheered at the prospect of improved content and lower subscription prices.

Said wealth manager Kelvin Tan, 28: "This should lead to more competitive rates. For a long time, there was only one player (ESPN Star Sports) in the market and viewers paid for a product that sometimes delivered a less-than-satisfactory standard of coverage."

However, these comments are misleading and demonstrate a lack of understanding of pay-TV economics; indeed, the propect of greater "competition" in the pay-TV market results in higher prices for consumers and greater inconvenience. Let me explain:

1. "Competition" causes the cost of programming rights go up, and this higher cost translates into higher retail prices for the consumer.

It is no secret that the three-way bidding for the English Premier League football broadcasting rights between SingTel, ESPN and StarHub caused the price of the programming to go up. StarHub eventually won the bidding war but was unable to keep the retail prices of the EPL programming constant, because the cost of its content had risen significantly. As a result, subscribers saw the amount they paid for the content go up.

Competition for the programming rights causes prices to go up simply because the content rights owner is able to exert its monopoly power over the programming and play the bidders off against each other in order to drive prices up. In contrast, if there were only one bidder at the table, that bidder would be able to exert counter-monopsonistic bargaining power in order to keep the cost of programming to a minimum. If the single bidder then passed this cost savings on to consumers, consumers would benefit with power prices than in a competitive bidding situation.

But in a three-way bidding war, the cost of programming always goes up, and the retail price of the programming can never be lower than in the case of a single payTV provider. This is even more aggravated when we have a player like SingTel in a 'must win' situation, trying to break into the pay TV market in Singapore. Such a player is willing to bid for the content at a non-profitable price in order to break into the market, thus sending the cost of content much higher than it should be.

2. Consumers now have to subscribe to multiple pay TV services (and pay more) to get the same content as before.

Die-Hard football fans who want to watch both the EPL and the Champions League now have to subscribe to BOTH Starhub CableVision AND Mio TV in order to get their entertainment, whereas before when ESPN was broadcasting the Champions League, a consumer only had to subscribe to ONE plan.

Now I don't care how much either payTV operator lowers prices, the NET COST to the retail consumer is definitely going to be higher if he subscribes to both plans than if he subscribed to just one plan. The reason is simple: the consumer now has to pay BOTH to rent the Cable infrastructure that Starhub has rolled out AND he also has to pay to rent the IPTV infrastructure that SingTel has rolled out. This is because the main cost of deploying payTV networks is the cost of deploying the communications infrastructure to the home of the consumer.

The marginal cost of distributing extra content over the same infrastructure is very low (close to zero). However, the cost of building an alternative infrastructure is, well, just about doubles the cost to the consumer. The consumer is unable to enjoy the benefits of economies of scale that would be available to him via a single payTV operator and his cost of programming goes way way up.


3. So What's the Solution?

If competition results in higher costs (and thus higher retail prices) than a monopoly (in this case this is an industry structure of a natural monopoly), yet consumers feel that they are not getting the best prices and best services through the monopoly, the solution is not more competition but better regulation. Regulatory bodies like consumer watchdogs and the Infocomms Authorities should step in to regulate the final prices and the quality of service in order to ensure that consumers are not short changed and that payTV operators get a fair return on investment.

But competition at the broadcast part of the value chain is definitely bad, it drives the cost of programming up. This is because the real monopoly - the monopoly over the program rights - is not broken by the introduction of competition at the distribution end of the value chain.

For me, the news of SingTel winning the rights to the Champions League is definitely bad news because in slightly over a year's time, I will not be able to catch the CL at home without paying significantly more than I currently am for my football entertainment.

Hence, I find it rather weird that people like Kelvin Tan and the writer of the TODAY article think it is good for them. This is a clear case where a company like SingTel has been able to hoodwink consumers without doing much.