Goodbye, Ricky Wong. Singapore Will Miss You

In latest developments regarding Singapore's NGNBN, City Telecom, formerly the consortium lead of Infinity consortium, has pulled out of the race for NetCo, reports Reuters:

StarHub leads group in S'pore broadband network bid
Wed Aug 20, 2008 1:13am EDT

SINGAPORE, Aug 20 (Reuters) - StarHub Ltd, Singapore's No. 2 telecoms firm, will lead the consortium bidding to build the city-state's next-generation broadband network, consortium member MobileOne said on Wednesday. StarHub replaces Hong Kong's City Telecom (CTI) who has dropped out.

Qatar Investment Authority, the Middle Eastern state's investment vehicle, has also joined the consortium, the statement said. (Reporting by Jennifer Tan; Edited by Saeed Azhar)

© Thomson Reuters 2008.

The silence of City Telecom on why this happened will certainly leave interested observers puzzled and curious as to the cause of this recent events. This is especially so considering the tremendous enthusiasm displayed by Ricky Wong, CEO of City Telecom and de facto leader of Infinity, for Singapore's NGNBN.

Ricky's interview with the Business Times demonstrated that he was a man with a dream – to ensure that in five years there would be fibre to most homes in Singapore. Ricky's vision was for Singapore, along with Hong Kong, to become a model for the rest of the world.

"The Americans and Europeans will come here to learn and follow us. We will become the technology leaders.”

This was a dream that would surely have benefited Singapore, and Mr Wong reckoned that tech-savvy people worldwide would then see that Singapore would be the best place to live, work and play – better than Silicon Valley, because it would have the best infrastructure. Unfortunately, for better or for worse, Ricky and his team are no longer in the running for the multi-billion dollar NGNBN project.

Can Infinity deliver without him? CTI's departure must have been due to significant developments in the NGNBN NetCo tender. Starhub and M1 are still around, but CTI's involvement was Infinity's trump card. CTI's unparalled experience with FTTH networks in Hong Kong is no longer part of Infinity's package. Now that the Hong Kongnese are no longer around, one wonders how much steam there is left in Infinity's bid.

Meanwhile, OpenNet's consortium members will surely be quietly smiling to themselves in the light of this new development. With CTI gone, there is no foreign technical expertise in the Infinity consortium, OpenNet will surely hold the edge with Axia's solid experience in operating open access fibre networks, along with mighty SingTel backing the group.

Yet, the tender process is not over, and we might see surprises again.

But for now, all I can say is, goodbye Ricky. Your vision for Singapore was an inspiring, compelling one. Those who knew your vision for the country will surely miss you.

Why the M1 - City Telecom Partnership Is Front Runner for NGNBN OpCo

Singapore's Next-Gen NBN OpCo RFP was released earlier this month. The race is much more open for the OpCo than the NetCo because of the lower barriers to entry and lower capital investments involved. However, despite this, I think that the only bid that truly makes sense for the NGNBN OpCo is the City Telecom - M1 consortium.

1. The operational separation is extremely onerous for the wireline incumbents, and severely dilutes the attractiveness to StarHub and SingTel.

One of the requirements of the OpCo is that it has to be operationally separated from its affiliates. This means that OpCo has to:

• Operate in all respects on a standalone basis, separate from affiliated downstream operating units
• Be located in separate premises
• Independently formulate & make own decisions on its assets and commercial policy
• Not allow its affiliated downstream operating units to have unequal influence on the formulation of commercial policy, and access to commercial information or customer confidential information
• OpCo’s Board of Directors, Management and employees not to have responsibilities in any Affiliated Operator

All these requirements will mean that an incumbent like StarHub and SingTel will have to incur significant duplication of manpower and will have to come up with a different brand name for its OpCo's operations, which might in turn compete with or overlap with its non OpCo operations. In short, Operational Separation significantly restricts their flexibility in the allocation of resources and human talent across the OpCo & RSPs.

A much less onerous option for the wireline incumbents would be to simply set up separate integrated OpCos which would have no such operational separation requirements and which could be a simple extension of existing business units. Such business units would move much faster into the market and be operationally ready.

2. A non-incumbent challenger without any sort of cooperation from existing market players faces significant market and demand risk.

Firstly, a Greenfield entrant into the OpCo space faces a significant degree of risk because his OpCo grant depends largely on meeting adoption targets. Furthermore, the incumbents like SingTel and StarHub could migrate their customer base away from the NBN OpCo to their own OpCos once the five-year exclusivity is over, thereby seeking to kill the NBN OpCo, or thereby severly harming its business case.

Secondly, Bidders with a higher risk outlook will seek to be compensated for this risk with the possibility of higher returns through higher ICO prices. However, the attractiveness of ICO prices is weighted very highly in the evaluation criteria. This puts prospective bidders in a fix. In order to be profitable, the greenfield OpCo will need to win some kind of reasonable margin from his operations. However, he is contrained by the ICO evaluation and regulation plus the fact that the iDA is trying to bring about "attractive ICO prices."

These factors, amongst others, make it highly unattractive for any prospective greenfield bidder with no demand guarantee (e.g. Axia, Zitius etc.)

3. This leaves the M1 - City Telecom (CTI) consortium as the only sensible bid.

A City Telecom - M1 partnership goes a long way in circumnavigating the challenges mentioned above.

Firstly, M1 has a substantial mobile customer base in Singapore, and will be looking towards the NGNBN as an opportunity to provide fixed line services to prevent customer churn and to attract new customers. With a stake in the OpCo, M1 will ensure that its services run over the NBN OpCo, thus significantly enhancing the business case of the OpCo.

Secondly, M1 has no significant wireline operations in Singapore. This means that the operational separation is no where as onerous to M1 as the incumbents. Furthermore, with City Telecom taking a major stake in the OpCo and contributing significant manpower and operational expertise to the OpCo, this greatly relieves the need for M1 to create duplication of manpower - the OpCo business does not cannibalise or compete with M1's current core competencies. In contrast to the incumbents, the Operational Separation requirements are a relative non-issue to M1/CTI.

Conclusions

Neil Montefiore must therefore be an optimistic man. Because for a long time now, SingTel and StarHub have been attacking M1's market share because of the small telco's lack of fixed-line offerings.

I certainly hope Neil realises that he has a very real opportunity here and makes the best of it. Consumers would all benefit from genuine extra competition and from someone who appears to have a genuine understanding of what is really going on.

Why Singapore Will Continue to Slip in Global Tech-Saviness Ranking

The following article appeared in the Straits Times 3 days ago:

April 11, 2008
S'pore drops to 5th place in tech-saviness ranking
By Alfred Siew , Tan Weizhen

FROM being the world's most tech-savvy nation, Singapore has dropped to 5th place.

It fell two notches on the Networked Readiness index, an annual ranking released on Wednesday by the World Economic Forum.

The index, which measures the impact of infocomm policies and usage in 127 economies, ranked Denmark as the most ready to take advantage of technology.

It is followed by Sweden, Switzerland, the United States and Singapore.

This is the lowest Singapore has ranked since topping the chart in 2005. It was second in 2006, and third in 2007.

In this year's ranking, the Republic was top in the quality of math and science education and the Government's vision of infocomm, areas in which it had done well in the past.

But it only scored 15th on the accessibility of digital content, a new indicator measuring whether content is widely available on platforms such as the Internet, mobile phones and cable television.

It was placed 115th for freedom of the press - one notch up from last year - and 99th for expenditure in education, another new indicator.

Dr Irene Mia, an editor of the report and senior economist at the World Economic Forum, said freedom of the press referred to how freely people could share opinions online, and the ranking was based on a survey of top businessmen in 130 countries.

... ...

The NRI ranking discussed above can be found in the World Economic Forum Global Information Technology Report 2007-2008.

I foresee this trend of Singapore slipping down the NRI rankings continuing, for several reasons.

1. Singapore isn't going to accelerate up the metrics of press freedom or accessibility of digital content, anytime soon.

Well, I really don't have to comment much here, do I?

Singapore is notorious for the suppression of political content and opposing opinions in its press, not just of the opposition but also of its own citizens. Reporters Without Borders' gives Singapore an abysmal ranking on its Press Freedom Index, and commentators from around the blogosphere have made comments to the same effect.

Seriously, now that the WEF has added this KPI to the NRI calculation, we're only going to keep falling.

2. Singapore is already far behind the world leaders in terms of broadband speed and pricing.

While world leaders such as Sweden, Korea, Japan and the U.S.A. are charging ahead with speeds up to 100Mbps, Singapore still lags behind with speeds much further behind and prices far higher for the similar quality of broadband speed. Full details found in "Next-Gen Broadband Around the World"

3. The Government is trying too hard to accelerate broadband development, and the efficacy of its plans are not clear.

Much noise has been made about the Infocomm Development Authority's grand plans for Singapore's Next Generation National Broadband Network. The Government is trying to deploy broadband speeds of 100mbps starting from 2010 (which, by then, will probably be far behind the world leaders, who are already testing speeds of up to 1Gbps).

However, unlike many other successful models where the builders of the broadband infrastructure are vertically integrated companies, Singapore is trying to break up the network so that it is operated by several companies. This involves "structural separation" of a NetCo and "operational separation" of an OpCo (these are technical terms and you can find out more here).

For those who do not have the time to find out what these complexities mean, suffice to say that the plans have received criticism from several quarters. For instance, an informed commentator has remarked,

"This effective double layer of separation appears to be the most extreme requirement of any NGN regulatory regime in the world and will likely prove controversial with those in the industry who say that separating out network design from the operator of its electronics is likely to lead to massive inefficiencies and friction."

(see "Singapore's Shock Structural Separation Policy for NGN" and "Singapore's Separation Plan Defies Logic." [Commsday])


4. The incumbent telcos are closely Government-linked, and realistically, we don't expect Lee Hsien Loong's government to hurt Ho Ching's investments.

The Mr Lee is the PM of the Government. The IDA is a department of the Government.

Mdm Ho is the CEO of Temasek Holdings. Temasek has a major stake in SingTel, which holds the monopoly over Singapore's copper access network and has the most to lose if the NGN separation plans are taken to their extreme.

Do we expect PM Lee to hurt his wife in this regard? I seriously don't think so.

Even if the Next-Gen NBN plans come to fruition, politics is going to play a major, major role in hampering the execution of those plans.

Conclusions

Well, we can see that reasons 1, 3 and 4 are political. Indeed, as with many things in Singapore, politics gets in the way of how things develop.

And as far as Tech-Saviness is concerned, I simply don't see how this will change in the near future.

SingTel, Starhub & M1: Analysts' Reactions to the Next-Gen NBN OpCo RFP

CIMB

Operational Separation requirements could significantly dilute the attractiveness of the OpCo to the incumbents.

• Operational Separation significantly restricts their flexibility in the allocation of resources and human talent across the OpCo & RSPs

There is “little incentive for bidders to offer sharply lower ICO prices to what incumbents are charging.”

• Greenfield entrant into the OpCo space faces a significant degree of risk because his OpCo grant depends largely on meeting adoption targets.
• Bidders with a higher risk outlook will seek to be compensated for this risk with the possibility of higher returns through higher ICO prices. However, the attractiveness of ICO prices is weighted very highly in the evaluation criteria.

NGNBN is essentially neutral for the telcos and downside is limited.

Credit Suisse

For incumbents, outcome looks neutral at best...

• At OpCo level it would be easier for infrastructure builders to drag their feet in truly offering open access.
• Receipt of OpCo licences for SingTel and StarHub would be unlikely to change the competitive dynamics materially.

… and more probably materially negative

• Additional player into the OpCo space willl begin chasing the existing broadband revenue pool.

Continue to prefer M1

• Upside potential since M1’s leased line costs could fall and it could defend cellular market share by becoming an RSP.

NGNBN OpCo RFP Released: OpCo to be "Operationally Separated," Receive Maximum of $250m Grant

The IDA yesterday released the RFP for the NGNBN OpCo (see here for more info about the NGNBN). One of the key features of the RFP is that the NGNBN OpCo is to be "Operationally Separated" from other entities. In comparison, it was earlier announced that the NetCo was to be "structurally separated." The following compares the two types of separation (click for full images).

The following are the key features of the Operational Separation Requirements of OpCo as released yesterday to the public, amongst other details:

Next Gen NBN OpCo shall be independent from its downstream affiliated operating units, including the following:

• Operate in all respects on a standalone basis, separate from affiliated downstream operating units
• Be located in separate premises
• Independently formulate & make own decisions on its assets and commercial policy
• Not allow its affiliated downstream operating units to have unequal influence on the formulation of commercial policy, and access to commercial information or customer confidential information
• OpCo’sBoard of Directors, Management and employees not to have responsibilities in any Affiliated Operator
• All remuneration and incentive schemes for the OpCo’sBoard of Directors, Management and employees not to be linked to the performance of Affiliated Operator(s)
• Ensure compliance with Operational Separation Requirements through the maintenance of a comprehensive governance manual, monitoring against a set of Operational Separation Performance Indicators, & appropriate reporting to the Monitoring Board (Source: IDA)
  

Key issues in the OpCo/NetCo separation

How will the government ensure that the costs of NetCo structural separation and OpCo operational separation do not outweigh the benefits to the economy from the separation? The government has said that the end goal in this NGNBN project is to have a "vibrant RSP market," and that the next gen infrastructure will provide "non-discriminatory prices and conditions." Yet it is not clear that these end goals necessitate the onerous layers of legislation and compliance requirements that structural and operational separation of the NetCo and OpCo respectively will require.

The IDA is also offering a grant of up to $250m to the winning OpCo bidder. This grant is ostensibly the carrot to entice private investment into this sector and to offset the OpCo separation requirements. And will it be enough?

In view of the multiple compliance requirements that the NGNBN will impose on incumbents, the best option for the incumbents (Starhub & SingTel) is to refrain together from participating in the NGNBN RFPs, and in the mean time invest in their own broadband infrastructures to compete the NGNBN out of business. Starhub would go ahead with its DOCSIS 3.0 investments (just like Comcast has just released) and SingTel would roll out its own FTTx infrastructure. With their entrenched customer base and bundling strategies, they would easily out-compete the NGNBN operators and retain their duopoly status. In contrast, participating in the NGNBN artificially introduces a competitive (and possibly unsustainable) market structure in addition to onerous regulatory requirements.

It will be interesting to watch the developments of this space and see how things develop.

[Click here for official information on the OpCo RFP release (Press release/Presentation Slides/Speech etc)]

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]