SingTel's OpenNet Wins NGNBN NetCo Bid; Biggest Loser to be StarHub

OpenNet recently won the NetCo segment of the NGNBN. The consortium comprised Canada's Axia NetMedia, and Singapore's SingTel, SPH and Singpower Group. Although it might have been painted as a close "two-horse" race, I doubt if there were ever any questions as to who was going to win the bid. With the government putting up $750m to fund the NGNBN NetCo passive network, it could not afford to place its bets on the Infinity network, which would have faced stiff, cutthroat competition from SingTel, had the latter not won the tender.

And now that SingTel's consortium has won the bid, the long term outlook for StarHub doesn't look pretty. StarHub's franchise lies with its cable network and its strong programming line-up. It keeps customers and prevents churn by using its exclusive cable infrastructure to tighten its stranglehold on the telecoms market with strong triple & quadruple play packages.

But with the advent of the new NGNBN structure, StarHub will see this competitive advantage starting to erode. The open-access fibre infrastructure gives SingTel the advantage now. Despite holding only a 30% stake in OpenNet, SingTel has a huge revenue-share stake in OpenNet's revenues, due to its lease structure agreement with the newly-formed infrastructure company.

Furthermore, we can expect SingTel to move swiftly to rollout the new infrastructure and to start selling next-gen services in this market. The competition will force StarHub to lower prices on its cable franchise in order to prevent churn to the new SingTel fibre offerings. But that will be difficult, considering SingTel's assault on Starhub's cable network, most recently exemplified by MioTV's win of the Champions league broadcast rights.

Add to that SingTel's stranglehold and dominance over international internet gateways coming into Singapore (just try accessing youtube at peak hours over starhub and singtel, and you'll see the difference), and StarHub's cable internet is likely to suffer in the long run.

With the prospect of pricing pressure and heightened competition, Starhub doesn't look like the best stock in Singapore's telecom landscape. Furthermore, the company is almost exclusively focused in the Singapore market, unlike SingTel which has diversified investments in emerging markets overseas. Starhub will have to move quickly to reinvent itself in the light of latest developments, or it may continue to see its stock decline.

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[IDA] Selects OpenNet Consortium as its Network Company

By Anshu Shrivastava
TMCnet Contributing Editor

Axia NetMedia has announced that Infocomm Development Authority of Singapore (IDA) has selected the OpenNet consortium as its Network Company (NetCo).

As per the contract, OpenNet will provide passive fibre grid services for Singapore's Next Generation National Broadband Network (NGNBN).

Back in May, the company announced it entered into an agreement creating the OpenNet consortium. This OpenNet proposal is for the rights to provide passive fibre grid services throughout Singapore. The second is for the rights to provide the active Real Broadband services over the fibre grid.

At present, Axia has a 30 percent interest in OpenNet, while SingTel, Singapore Press, and SP Telecommunications taking up the remaining interest with 30 percent, 25 percent and 15 percent share, respectively.

“OpenNet's approach is future-proof with no compromises from either the technology or business structure perspectives for the passive segment of the network,” said Art Price, chairman and CEO at Axia NetMedia.

He also said in a statement that Axia now has references for the best in class next generation network (NGN) solutions for rural, regional and metropolitan communities. Based on open access no conflict principles, OpenNet plans to create the NGN solution.

According to the company, a key component of the solution involves OpenNet acquiring access to existing infrastructure through usage fees that vary with the market adoption of OpenNet's services.

OpenNet expects to complete the agreement contracting process with the IDA as planned, within the next seven months and expects that the Singapore-wide fibre grid will be completed by June 2012.

The company believes that when completed, OpenNet will provide Singapore with a “truly open, better and faster fibre-to-the-home network.”

This announcement is the first part of IDA's RFP process for a complete NGNBN. IDA said that the second part is the provision of active broadband services over the fibre grid.

Good on Temasek, Shame on the Government

On Recent Events

I have come to know, through very reliable sources, of an incident that has greatly enhanced my confidence in Temasek as being independent of government influence. This incident has greatly influenced my perceptions of Temasek and has deepened my understanding of the regulatory problems that Temasek is facing in Indonesia and Thailand.

Not too long ago, the top officials of a Singapore Government Agency (let's call it ABC) approached the top leadership of Temasek, seeking that Temasek influence one of the corporations (XYZ) under its control to enact a series of plans designed to produce a favourable regulatory outcome for ABC. This occurred because ABC feared that it would not be able to get XYZ to do what ABC wanted without Temasek's influence.

I am extremely happy to say that Temasek turned around to ABC and said that Temasek cannot and would not influence the management of the corporations under its control. This is despite the fact that Temasek could have tried to accede to ABC's requests and influence XYZ without risk of public knowledge. However, I feel that the officials of ABC should have known much better than to try to use the government's position as owner of Temasek to try to get Temasek to influence XYZ in ABC's favour.

Temasek and the Ministry of Finance have clearly stated repeatedly that Temasek is to act independently of the government as a financial investor. Temasek's role is thus not to produce political and/or regulatory outcomes for government agencies. Any act by Temasek to this effect would severely tarnish the credibility and reputation of Temasek in its operations, particularly considering the trouble it is going through with Shin Corp in Thailand and with Indosat in Indonesia.

Thus, I would go so far to say that ABC's behaviour was tantamount to an attempt to abuse one's position of authority and influence. It was a selfish act that only considered the individual interests of ABC without considering the potentially deliterious consequences to Temasek, the Ministry of Finance, and the rest of Singapore. I am hence extremely disappointed with the top officials of ABC. What they did was fundamentally irresponsible and unacceptable.

Once again, I would like to give credit to Ho Ching and Temasek for standing firm in not exercising its influence over XYZ, and hope that this behaviour is indicative of how Temasek conducts itself with the rest of its investments.

On PT Indosat

ST Telemedia has recently completed its divestment of its stake in PT Indosat to Qatar Telecom.

ST Telemedia completes $2.5b Indosat sale to Qtel
S'pore firm transfers stake that had been at centre of antitrust dispute. -ST
Chua Hian Hou

Tue, Jun 24, 2008
The Straits Times

QATAR Telecom (Qtel) has defied some political resistance to complete a controversial acquisition of a Singapore firm's stake in No.2 Indonesian telco Indosat.

The US$1.8 billion (S$2.5 billion) stake was transferred to Qtel by Singapore Technologies Telemedia (ST Telemedia), which held the shares in two holding companies. ST Telemedia is a unit of Temasek Holdings.

The Indosat stake that ST Telemedia held has been at the centre of a legal dispute since last year, when Indonesia's Business Competition Supervisory Commission, or KPPU, ruled that the Singapore firm had breached antitrust laws.

The KPPU claimed that Temasek had engaged in monopolistic practices in Indonesia's mobile-phone market, and had breached anti-competitive laws by holding majority stakes in more than one company in the same industry.

Temasek has a deemed stake of about 20 per cent in Indonesia's No.1 telco Telekomunikasi Selular (Telkomsel) held via SingTel. It also had a 31 per cent deemed stake in Indosat, held via its wholly owned unit ST Telemedia.

The KPPU fined the companies and also ordered Temasek to sell its deemed stake in either Telkomsel or Indosat. It also ruled that buyers could purchase the shares only in 5 per cent chunks at most.

Temasek, SingTel and ST Telemedia claimed that there was no breach of antitrust laws and appealed against the ruling in the Central Jakarta District Court.

But last month, the Indonesian court upheld the KPPU's ruling. The three firms then said they would appeal against this decision to the Indonesian Supreme Court.

But on June 7, ST Telemedia announced that it was selling its Indosat stake to Qtel.

It is unfortunate that ST Telemedia has had to elect to divest its lucrative stake in PT Indosat in order for its parent, Temasek, to avoid further complications in the antitrust lawsuit it is facing against KPPU. While not the most favourable outcome, practically it was probably the most prudent decision on the part of ST Telemedia.

In light of the incident I have narrated above, I have much more confidence in believing that Temasek exerted no strategic influence over its 'effective' stakes in PT Indosat (previously owned thru ST Telemedia) or Telkomsel (currently owned thru SingTel). In light of this, the regulatory decision by KPPU against Temasek probably holds little water and I am inclined to accept the arguments of Temasek's lawyers that Temasek is innocent of the claims of monopolistic practices brought against it by KPPU.

Yet this incident is exemplary of the problems that Temasek faces as it expands out of Singapore to make investments overseas. Even as Temasek makes its decisions on commercial grounds and independently of the Singapore government, its government-linked perception and the close ties to the government do Temasek no favours. Indeed, Temasek's status as a government owned entity is very much a liability when it comes to dealing with political and regulatory knock-on effects. Temasek's actions overseas incite political suspicion simply because it is owned by the Ministry of Finance, and not necessarily because the government actually exerts any influence over its actions.

On Shin Corp

How best, then, to deal with this problem? One solution would be not to take any majority stakes in any prominent or politically-linked foreign companies:

Singapore's Temasek plans to cut its stake in Thailand's Shin Corp
By Amy Kazmin in Bangkok, for the Financial Times
Published: June 18 2008 03:00 | Last updated: June 18 2008 03:00

SINGAPORE'S Temasek Holdings plans to reduce its stake in Shin Corp, the Thai group it took control of more than two years ago, through a public offering of shares.

In a statement to the Stock Exchange of Thailand yesterday, Shin Corp said it was drafting a prospectus for an offering that would increase the minority shareholding, although it also said it would have to monitor the investment climate and sentiment in order to "conduct a successful offering . . . in the future".

Shin Corp gave no details of a timeframe or size for such a deal.
In January 2006, Temasek paid $3.8bn, or Bt49 per share, for a 96 per cent stake in Shin Corp, the telecommunications-to-aviation group founded by Thaksin Shinawatra, who was then Thailand's prime minister.

The deal, Thailand's largest takeover, triggered a crisis as Bangkok residents protested against the Shinawatra family's $1.9bn tax-free profits from the deal.

Critics accused the Singaporean state investment agency of violating Thai laws limiting foreign ownership of telecoms companies to 49 per cent, though the deal replicated similar take-overs.

The furore culminated in the September 2006 coup and the seizure of most of the Shinawatra family's earnings from the sale.

The military government also vowed to investigate whether the takeover violated foreign investment laws.

Like the PT Indosat case, Temasek probably made the investment in Shin Corp in full compliance of the laws of Thailand as they knew it, and were unfortunate victims of the political turmoil in Thailand. In all fairness to Temasek, it had probably no inkling that the military coup and its subsequent fallout could have been triggered by the sale of Shin Corp by Thaksin Shinawatra to Temasek.

Yet in hindsight, the highly politically charged nature of the transaction should have raised alarm bells during Temasek's political due diligence of the transaction. Here was an asset of national pride, changing hands between the Prime Minister of the country and the investment arm of a foreign government body. Surely there had to be knock-on political ramifications.

But nevermind that, what is done has been done and we cannot turn back the clock. Yet Temasek's latest plan to cut its stake in Shin Corp only just having recently acquired it, is acknowledgement that an investment's political fallout is a burden too heavy for the company to bear. This mirrors ST Telemedia's decision subsequent to the KPPU case, on behalf of Temasek.

But adopting such a strategy going forward can place significant constraints on Temasek's investment options. It now has to carefully weigh the potential political ramifications of every investment it makes. Doing so would narrow the universe of potential investment and acquisition targets available to Temasek, and place downward pressures on Temasek's investment returns. That Temasek's assets under management continue to balloon, do it no favours either. Temasek has to deal with the double whammy of having more capital under its responsibility, and fewer options with which to deploy this capital.

Indeed, Ho Ching's job is certianly not one I would envy; it is a tough set of problems she has to deal with. But deal with these problems, she and her team must. Otherwise, it is time to reduce the scale and scope of Temasek, and start returning the money to the people.

Can Singapore's corporate elite come up with the solutions for such tough problems? Singaporeans will surely watch intently, and only time will tell.

SingTel, Starhub & M1: A Comparative Analysis

(Z74 = SingTel, CC3 = Starhub, B2F = M1)

SingTel

Singapore Telecommunications Limited, together with its subsidiaries, provides services and solutions in fixed, mobile and data communications, Internet, IT and consultancy, and satellite.

• Wireline services include cable-based and satellite-based fixed telecommunications network services, such as domestic and IDD services, leased lines, data communications, lease of satellite capacity, Inmarsat, and Internet services.
• Wireless services comprise mobile telecommunications services, such as cellular and paging services, and sale of handsets and pagers.
• Information technology and engineering services portfolio consists of information technology consultancy, systems integration, and engineering services.
• Other businesses include subscription television; technical and management consultancy services; ownership and chartering of barges; provision of storage facilities for submarine cables and related equipment; billing services; IT disaster recovery services; operation and maintenance of fibre optic network between Brisbane and Cairns; research and development of software; and managing and operating a call centre for telecommunications services.

Singapore Telecommunications provides its services to corporate and consumer markets primarily in Singapore and Australia. The company was founded in 1879 and is headquartered in Singapore, Singapore. Singapore Telecommunications Limited is a subsidiary of Temasek Holdings (Private) Limited.

SingTel also has extensive overseas investments in Mobile operators around Asia. These include Bharti Airtel of India and Telkomsel of Indonesia.

Starhub

StarHub, Ltd., an info-communications company, provides a range of information, communications, and entertainment services over its fixed, cable, mobile, and Internet platforms for residential and commercial customers in Singapore.

• Mobile services include 3G that enables users to make video calls and 3.5G that offers broadband Internet access over mobile phone; mobile voice services; mobile data services, including video downloads, Web SMS, MMS animation and wallpapers, MMS retrieval centre, Disney mobile, mobile ESPN premiership, and themes, as well as call, MP3, and true tones; green prepaid card; and roaming services.
• Cable TV services comprise operation of news, movies, entertainment, sports, music, and education channels.
• Broadband services include mobile and home broadband access, as well as other Internet services; and fixed network services comprise voice, data, Internet, and wholesale services for businesses.
• StarHub offers online value-added services, such as online music portal; email and broadband content filtering service, family access network, and anti-virus email scan services; data/Web storage services; corporate portal and IP-VPN solutions; and content creation and development solutions.

It is also involved in the sale of customer premise telecommunication equipment. The company was incorporated in 1998 and is based in Singapore, Singapore. StarHub, Ltd. is a subsidiary of Asia Mobile Holdings Pte., Ltd.

MobileOne

MobileOne, Ltd. provides cellular mobile communications services in Singapore. It provides

• a range of mobile voice and data communications services over its 2G/3G/3.5G network.
• international call services to mobile and fixed line users; and wireless broadband Internet services to home, office, and mobile users.
• a range of mobile voice, nonvoice, and value-added services on its cellular network and as an operator.

It has a network of operator-owned retail shops (M1 Shop) and operator-appointed distributor outlets in Singapore. As of December 31, 2007, MobileOne operated approximately 13 M1 shop outlets, as well as an e-shop, which sells mobile phones and accessories online. The company also had approximately 1,535,000 mobile customers comprising 856,000 postpaid customers and 679,000 prepaid customers.

In addition, it involves in the research and development of mobile telecommunications product and services, as well as provision of after sales support and customer services. MobileOne has a partnership with Vodafone to provide a range of wireless business products and solutions, as well as has a joint venture with PLDT (SG) Retail Service Pte, Ltd. to provide prepaid mobile services. The company was founded in 1994 and is headquartered in Singapore, Singapore.

Financials

The following is a comparative financial analysis of the three companies:

Profitability:



As can be seen SingTel has the highest margins whereas Starhub has the highest profitability ratios. However, SingTel has contributions from associates above the EBITDA line, so this skews the results.

Leverage & Multiples:



SingTel has the strongest leverage ratios. However it is also the most expensive, compared to M1 which is the cheapest stock, and has the highest yield.

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)]

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.

Telstra: a Political Operation, or a Free-Market Business?

Phil Burgess, head of public policy at Telstra, has been on the record as having made the following comments:

"We've been aggressive because there is a move under way to confiscate something that is owned by 1.6million mum-and-dad investors and give it to a Singapore company," Dr Burgess told The Australian.

"We're talking about turning over Australia's only nationwide telecommunications network to a consortia run by the Singapore Government. That's a government that executes people, number one, and doesn't allow competition in its own country. It's unbelievable.

"We've had a national broadband plan since August 2005. It's been vetoed twice by the (Australian Competition and Consumer Commission). When people say we're threatening not to do broadband, it just isn't true. We need to have our costs accepted by the ACCC. We are not going to build it if we can't get a commercial return on our investment."

If you scrutinise this statement carefully, what Phil Burgess is saying is the following:

a. Telecommunications business in Australia should be given to Telstra because Telstra's shareholders are mum-and-pop shareholders.

b. Telecommunications business in Australia should be given to Telstra because it is an Australian company and Australia does not execute its people.

c. If Telstra cannot competitively operate a national broadband infrastructure, no other company should be allowed to do so.

Well, how's that for a competitive company?

The last time I checked, business should be conducted based on the ability of a company to offer its customers the best services and the best value, not some call to political arguments or human rights issues.

In my view, these statements are just shameful and show that Telstra does not compete on the basis of economic competitiveness but on the basis of slimy political maneuvering. And it just goes to show that business simply cannot be separated from its political environment.

Mergers and Acquisitions: Acquiring To Gain Market Access

Companies seeking to break into markets sometimes do so via acquisition. If the market is established and there are high barriers to entry, establishing a sizeable beach head through an acquisition is only the feasible way to do so, and can often be a costly exercise.

Take for example DBS Bank which acquired Dao Heng bank in order to gain access to the Hong Kong banking market. Or SingTel which acquired Optus to gain access into the Australian telecommunications market. Both paid high premiums to make the acquisitions, and both parent companies have taken large write-downs to their respective holdings.

A similar seems to have happened with OSIM. Osim acquired Brookstone, and paid a hefty 20x earnings to acquire the company. And now it looks like the acquisition is underperforming. Does the argument of acquiring to gain market access make sense?

Well the problem with doing so is that the acquiring company often pays too much for a second best asset that do not justify the premiums paid. The market leaders are hardly candidates for buyouts. Perhaps a better strategy is to pay a fair price for a smaller player and grow market share organically. Or the competitive nature of established markets may mean that a prospective entrant should stay away altogether.

Osim is likely to make a significant write-down of its acquisition of Brookstone in the future, if it doesn't divest the company at a loss.