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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10 Comments

  1. Danien Chee says:

    @Alfred, thanks for bringing up these issues from time to time. I agree with you but it doesn’t appear like our situation will change any time soon as there aren’t any methods or political will to change it. It is disappointing, but carry on the good fight!

  2. Danien Chee says:

    @xtrocious: From my experience working together with a few small and mid-sized companies using Singtel and Starhub internet services and paying a few hundred dollars for 1.5Mbps to 8Mbps business lines, they have the same complaints. The quality isn’t better enough to justify the big price difference. And if it really was QoS, shouldn’t there be a QoS guarantee in the contract that shows that this is significantly better than residential lines? In fact, I asked this very question to the Singtel business managers and they said they were not aware of the quality differences.

  3. Alfred Siew says:

    Danien, thanks for your comments – actually, it’s a full-length commentary. 🙂
    Re: content, it is important that big telcos ie StarHub and SingTel do not use exclusive content, bid at high costs with their profits in other services, to keep out smaller players. Otherwise, chances of real competition will be diminished even with the new network.

  4. xtrocious says:

    To Danien Chee,

    The price difference between residential and commercial is due to QOS or Quality of Service…

    I am not a network engineering but from experience, a business plan will outperform a consumer plan even though both have similar speeds…

    In my previous office, a network of 20 PCs can comfortably share a 8Mbps corporate plan but a residential 8Mbps plan will struggle to provide decent surfing speed for several PCs.

    So perhaps the different group of users are routed to different servers etc where the business users are put ahead of residential users?

  5. Danien Chee says:

    Good commentary. Pardon me while I rant.

    It seems like we always end up with the same two incumbents. This duopoly, along with the disconnect between IDA and MDA regarding infrastructure, services, content, and the spirit of competition to drive better pricing and services for consumers, have worked against the best interests of consumers. We are weary of the usual “our customers are very happy with our services” response to complaints, without providing statistical market proof. We are equally weary of seeing this seemingly “consolation prize” partitioning of the market between them. Perhaps it is time that IDA and MDA conduct an extraordinary open, independent, and credible survey on consumer satisfaction regarding the current situation, as well as sentiments on future propects of service quality.

    As you have mentioned, problems such as the EPL and Champions League debacle have risen from this and customers have made their dissatisfaction clear, albeit in vain. Granted, the terms of these rights auctions are dictated by the content providers, but as with any nation-wide industries, the relevant government agencies should seriously consider the public’s interests as well. If the argument is to let the free market decide, then why are there terms in the NetCo and OpCo bids to curb these same free market ideals? What is the critieria for deciding when intervention is necessary?

    Another example is Starhub removing channels from their analogue cable customers, then claiming to provide “free” additional channels if customers upgrade to digital service. The additional cost per set-top box per month is hardly mentioned.

    @Chi-Long: As a local startup game development studio working on digital downloadable content, incubation for digital media in Singapore is somewhat of a joke with regards to internet services. And I won’t even go into the office space incubation pricing. On the flip side, there are many government grants schemes to help financially, of which my startup business has indeed benefitted from.

    Internet services for businesses in Singapore are ridiculously priced compared to consumer prices. Even with this new network, wholesale prices for businesses ($75) are more than 3 times higher than for consumers ($21). Once the profit margin for resellers is factored in, it is likely this factor will increase.

    There is no real reason for this disparity. Does IDA provide subsidies to Singtel and Starhub for consumers? In a meeting with Singtel Business Customer managers a couple of years ago, we asked why there was such a disparity and they literally looked at each other and replied, “we don’t know”.

    With the level of bandwidth usage by consumers today, it is illogical to think that businesses in general would use significantly more bandwidth. After all, usage isn’t supposed to be capped in “unlimited” packages and speed is regulated based on the package. The offer packages of 1.5Mbps DSL lines also does not reflect expectations of high bandwidth usage.

    So why do businesses have to pay 3-8 times more than consumer rates in Singapore for essentially the same connection speed and quality, compared to 1-3 times in countries like the US, Japan, Korea, etc? The “value-added” services, with plenty of free open source or commercial alternatives, are no where near worth the additional expense. Is this just a case of “because they can”? It was only in the past one year that business DSL pricing has come down to $100 per month for a meagre 1.5Mbps line. The same service cost as high as $200-$400 the year before and this sudden drop was not reflected in any phenomenon to indicate large scale global or regional factors.

    In addition, most web hosting and data centre services and pricing here are years behind countries like the US. We had no response for weeks from Starhub after inquiring, and after an hour long meeting with the same Singtel managers regarding hosting needs, we received such a poor response that we decided to host our servers in the US. Most of the web hosts here provide outdated software packages with usage policies that are overly restrictive in terms of what development tools and testing applications can be hosted and run on servers. Can you imagine trying to develop and test internet-capable applications and services hosted here?

    While doing business is Singapore is great, the internet infrastructure and services sector needs a huge wakeup call. As a Singapore business, pretty much all our internet needs are hosted outside the country for better services and pricing. The hype is far outpacing reality. If we are such a connected nation, why do most of our biggest companies like Courts and Challenger, have such poor consumer-facing web presence? Even Borders Singapore, with an established and comprehensive web storefront for their US customers, have not bothered to provide the same service here, despite its Singapore store having once achieved its highest revenue per square foot worldwide.

    While competition alone cannot guarantee solutions to all these problems, maintaining the status quo through timid policies or unintentional non-intervention will only hinder our ability to truly develop and incubate web and digital media technologies in Singapore while the rest of Asia catches up or surpasses us with more forward thinking, just as South Korea did.

  6. Chi-Loong says:

    Great commentary Alfred.

    Hmmm… At least the bid didn’t go to SingTel. Or else the public can charge what open loop unbundling of the network if they owned both the NetCo and OpCo? Yeah, sure there are restrictions, but it would still have seemed a little… monopolistic.

    As you said, a duopoly of SingTel and StarHub sounds a little deja vu. All the earlier bids by foreign companies (like British Telecoms) all fell out one by one after they looked at the terms and walked away.

    I hope that the groundwork has been laid to create a really level playing field for the market. Think IDA has done what it could (given what the government was willing to fork out), and I’m slightly optimistic, but I could be wrong.

    And you’re right — content IS the issue. Besides licensing of content issues, which you talked about, one main thing to make the NGNBN a reality are the content services — e.g. telemedicine, video telepresence in every house — that will ride on it.

    It’s not a field of dreams in which you build the infrastructure and the content will come naturally. It’s a tandem dance, and the content side also needs to be built up. Companies in the content services space likely need to be incubated or lured to Singapore, and whether it’s IDA or MDA (or MTI or EDB), this aspect can’t be ignored.

    Else the infrastructure will just sit there and be a big white elephant infrastructure pipe that nobody uses.

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