Next Generation Broadband Around the World: Pricing, Penetration & Technology

This post highlights some key statistics of Next-Gen Broadband availability around the world, and benchmarks the Singapore's broadband pricing (SingTel, StarHub) against comparables abroad.

Pricing

As the following chart shows (click for full images), the most affordable 100Mbps plans are available in Korea, Japan and Sweden. StarHub's MaxOnline 100Mbps plan is by far the most expensive 100Mbps plan.


Other high-speed broadband plans are available, but are slower than 100Mbps, as the following chart shows. Particularly notable is the pricing of broadband in the USA. The vertically integrated industry model allowed by the FCC has resulted in exceptionally high pricing of broadband by Verizon in the USA, compared to the rest of the world. However, the 12Mbps plan of StarHub and the 10Mbps plan of SingTel are very very expensive relative to other comparables.(Click for full image)


Penetration

Global FttX penetration rate statistics show that Korea, Japan and Hong Kong are way ahead of the rest of the world when it comes to FttX adoption:


Technology

Finally, we see that Passive Optical Networks (PONs) are the preferred network architecture used by the telcos, with EPON deployed in Japan and GPON preferred elsewhere:

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)]

Temasek & the SWF Issue: A Few Articles

The purpose of this post is just to archive a few articles (click for full images) that have been in the press (specifically TODAY), regarding Temasek and the SWF issue.

The first was an editorial (2 Apr 08) by Conrad Raj, Editor-at-large of Today, on the semantics of the SWF. I would like give Conrad a pat on the back for being one of the few journalists in Singapore to have the courage to write a piece confronting Temasek on its behaviour; I have not seen similar content from Straits Times or My paper (which instead comes up with crap like this)

The second is a short response to Conrad's piece by an interested reader (3 Apr 08)

And finally, we have Myrna Thomas' response to the two (4 Apr 08). As usual, Ms Thomas gives Singaporeans the same lines (about being purely commercially oriented) that Temasek has been spewing for a long while.

Interestingly, while all this activity has happened in TODAY, nothing has appeared in the Straits Times regarding this issue. I wonder what has happened to my letter.

Update: Another letter on Temasek, a day after this post was published.

Apparent Lack of Coordination Between Temasek and Ministry of Finance is Alarming

[I just sent this letter to ST Forum. It is about an issue I blogged about earlier, see for background information. If this letter doesn't get published, at least a few people who care to read my blog will get to see it]

I am disturbed by recent events (“Disclosure Deal,” ST March 22 and “Guidelines for wealth funds apply to Temasek, says ministry,” ST April 01) that suggest a lack of coordination between Temasek Holdings and the Ministry of Finance.

This issue is not just a matter of definitions and of whether Temasek is a Sovereign Wealth Fund. Rather, it suggests that for at least a brief week and a half, Temasek was a corporate entity that was able to decide on its principles of corporate governance, ahead and independently of its sole shareholder and owner, the Government of Singapore.

Temasek’s corporate governance framework has implications that go far beyond standards of financial disclosure, into the realm of critical issues such as Temasek’s investment mandate and the decision-making process that Temasek uses to make or dispose of investments. These issues, amongst others, have as great an impact on allaying foreign suspicion and lowering the risk of protectionist measures, as the levels of disclosure adopted by Temasek.

The process of determining a company’s principles of corporate governance is a principal issue for every corporation, particularly a company like Temasek that invests its funds on behalf of the country. Thus, I certainly hope that the two contradicting statements to the press were the result of an honest miscommunication between the two parties, and that my concerns are misplaced.

[End]

I had also previously written a letter to the press last year in March 07 about Temasek & the MoF.

What's Going On Between Temasek and the Ministry of Finance?

Just one and a half weeks ago (March 22, 2008), it was reported in the news that Temasek Holdings was saying that it was not a sovereign wealth fund.

TEMASEK Holdings said that it is not affected by an agreement by Singapore, Abu Dhabi and the United States on principles to increase the transparency of sovereign wealth funds. 'Temasek is not a sovereign wealth fund,' its spokesman Mark Lee said in a telephone interview yesterday. 'Temasek has to sell assets to raise cash for new investments and doesn't require the government to give approvals.'

And then, today (1 Apr 08), the Ministry of Finance goes on the record saying, hey, actually what Temasek said about themselves is not true, the rules apply to Temasek as well:

THE Ministry of Finance yesterday said that Temasek Holdings should abide by guidelines for sovereign wealth funds (SWFs) that were unveiled just over a week ago.

It said that as Temasek is wholly owned by the Government, the 'policy principles' it helped craft with counterparts from Abu Dhabi and the United States are relevant for the local investment company.

Whooopsy...!! What's going on here???

Now, not only does Temasek invest "purely on commercial principles," it doesn't even clarify its status with our Ministry of Finance before making an official statement to the press!

What do we have here? A Rogue Sovereign Wealth Fund which makes up its own rules ahead of the Government and without its owner's approval??

Now we really understand why we get headlines like "Temasek says investments in U.S. not influenced by Singapore Government" - Temasek makes its own rules in the absence of a proper system of checks and balances.

This issue is not just a matter of definitions, semantics and of whether Temasek is an SWF... indeed these recent events suggest that Temasek is a corporate entity that is able to determine its principles of corporate governance ahead of and without the approval of its sole shareholder, the Ministry of Finance.

This has implications that go far beyond standards of disclosure into the realm of issues such as the investment mandate and decision making process that Temasek uses to decide on its investments.

This is very disturbing and I have written a letter to the press about this issue.

GIC, UBS & Jim Rogers

Back on 10th December 2007, the following was reported on Channel News Asia regarding GIC's investment in UBS.

The Government of Singapore Investment Corp (GIC) is injecting 11 million Swiss francs, or nearly US$10 billion, into the troubled Swiss banking giant UBS.

This will give GIC an almost 9 percent stake in UBS.

The deal comes as UBS announced that it was making further multi-billion dollar writedowns for its US sub-prime exposure.

A few months later, on March 5th, 2008, the following was reported on many news sources, including reuters, about Jim Rogers' comments that Singapore was going to lose money on its investments in investment banks. (For those who don't know, Jim Rogers is one of the most successful investors of all time, and partnered George Soros when the two ran their Quantum Fund)

"It grieves me to see what Singapore is doing. They are going to lose money," he added, referring to investments by Government of Singapore Investment Corp and Temasek in Citigroup, Switzerland's UBS and Merrill Lynch.

Just today (April 1st, 2008) UBS has announced massive losses and is again trying to raise capital, just a few months after its massive capital raising exercise that involved GIC. Reuters reports:

UBS AG doubled its writedowns from the subprime crisis, parted company with its chairman and asked shareholders for more emergency capital on Tuesday in a second dramatic attempt to reverse its fortunes.

The Swiss bank wrote down an additional $19 billion on U.S. real estate and related assets, causing a net loss of 12 billion Swiss francs ($12.03 billion) in the first quarter, and said it would seek 15 billion francs through a rights issue of shares.

But what is interesting about GIC's 'investment' is that UBS has been characterised as requesting more 'emergency capital' to 'reverse its fortunes'. I'm not sure I'd really put money in such a company and call it an investment.

Well, of course, GIC and Temasek would say that their investments are 'for the long term' and that the performance of these investments cannot be evaluated simply on the basis of their performance in a few short months.

After all, a 40% drop in stock price in 4 months can't be that bad... right?

Well, in any case, it looks like Jim Rogers is far out in the lead in this race as to who will eventually turn out to be right (click for full images):