Commentary: StarHub wins Opco deal in Singapore’s NBN

April 3rd, 2009 | by Alfred Siew

StarHub's bidding team - okay, it's not the NetCo, but OpCo's a win still

StarHub has just won the OpCo contract in Singapore’s next-generation national broadband network (NGNBN), a deal which will see it operate and manage the “active” infrastructure in the new network that promises speeds of 1Gbps in future.

The active infrastructure refers to stuff like switches and anything that is “manageable”, that is, anything other than the physical cables which are being laid by the NetCo (awarded to the OpenNet consortium of Axia NetMedia, SingTel, Singapore Press Holdings and SP Telecommunications).

Essentially, StarHub will be the go-between for RSPs (retail service providers) looking to offer ultra high-speed broadband and services like perhaps pay-TV in future over the new network. It will also be the one likely to be hooking up your terminators/modems to the fibre optic cables being laid to homes, schools and offices by the NetCo.

To do its job, StarHub will have to start a new wholly-owned subsidiary, called Nucleus Connect. This is because the builders of the new network – both the NetCo and OpCo – are not supposed to be “in bed” with retail service providers, which StarHub will continue to be.

It’s not as strict a rule as for SingTel, for example, which is allowed to only own up to 30 per cent of the NetCo, even though it is providing most of the infrastructure (thus the other consortium members). That’s because the government regulator, the Infocomm Development Authority (IDA), has always viewed SingTel as a dominant player that could derail its efforts to use the NGNBN to foster more competition.

What should you make of this announcement?

Firstly, no surprises that StarHub has won the OpCo deal. This was the “consolation prize” after it failed in its bid, as part of a consortium that once contained the promising Hong Kong Broadband Network (HKBN), to grab the NetCo contract. For its efforts, Nucleus Connect will spend S$1 billion on the active infrastructure over 25 years, with IDA granting up to S$250 million of the costs.

But the bigger question is: what does this do for competition? It’s a mixed bag and a bit hard to call now.

The whole idea of restructuring the market around a NetCo and OpCo is to separate the operators of different parts of the network, so that no one telco controls everything. This way, they will wholesale and resell parts of the infrastructure at open, pre-determined prices.

It’s a bold move – short of breaking up SingTel like how UK regulators have broken up BT into wholesale and retail components – to ensure competition in an industry that spawns natural monopolies.

Yet, there are problems. It is clear that IDA wants to break up the duopoly of SingTel and StarHub, which together own most of the pipes underneath the ground here, with this exercise. But yet, the two telcos have now ended up as the dominant powers at the end of the bidding exercise.

Sure, you can say SingTel now owns only 30 per cent of the NetCo, and thus the infrastructure. When the new network is up, it will have offered access – via the NetCo – to most of the cables it now owns to other operators at open prices. And yes, you can say StarHub too will have its powers diminished after this, since it is not supposed to get a preferential price from the new OpCo.

But is there something more that IDA could have done? You’d wish, as an observer, a foreign wildcard like HKBN, would have thrown a spanner in the works for competition’s sake. Now that it’s out of the game, and we are back to SingTel and StarHub, the feeling is, inevitably, a bit deja vu.

I’m hoping the business community doesn’t feel this way. MobileOne and Pacific Internet, for example, should take this chance to innovate and compete on services. They’ve cried foul in the past about SingTel leveraging on its fixed line network, so here’s a chance for them to get even.

The other challenge I see for IDA is content. Even if we accept that the infrastructure is “open” now and prices regulated, how do you prevent one service provider from banking on exclusive pay-TV content – yes, I’m thinking of the Barclays Premier League (BPL) – to kill off smaller service providers who cannot pay the hundreds of millions of dollars for the broadcast rights?

If, say, SingTel or StarHub is allowed to offer its broadband customers discounts when they buy BPL programmes from them, how do smaller service providers compete?

Currently, there are no rules to prevent that, because the IDA is not in charge of content. The Media Development Authority (MDA), which has so far taken a hands-off approach, will have to look harder at things at a more macro scale.

Indeed, people need to ask why there is one regulator for telecoms, and another for pay-TV, when telcos are using one profitable service (mobile or broadband) to bankroll their dominance in another (exclusive pay-TV content).

So far, we’ve seen nothing done by either agency that properly regulates this cross-bundling. And users have paid the price for this undesirable type of competition – in higher BPL pay-TV prices and the trouble to get two set-top boxes if they want to watch both Champions League matches (on SingTel) and BPL programmes (on StarHub).

It’s been known for years that telco firms are morphing into media companies. So, why aren’t the rules clearer to allow for the right kind of competition that brings better value to people? Without rules to curb cross-bundling, the NGNBN will only solve one part of the problem – and be bogged down by another.

Another round of BPL bidding is up this year, as StarHub’s three-year term comes up. It’s something for government regulators to think about, before the network even reaches its target of covering half of Singapore by 2012, and some 95 per cent of the island by 2015.

(update: The last two targets were originally set by IDA. OpenNet, in winning the NetCo bid, had said it would complete nationwide rollout by 2012)

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