TELCOs – BT

No sweat for telcos as new law nears

While the proposed changes to the Telecommunications Act will give the Ministry of Information, Communications and the Arts (Mica) more teeth, analysts believe there is little chance of telcos being bitten hard if they are passed, for now.

The amendment bill, which passed its second reading in Parliament yesterday, will, among various things, give the minister the power to order the separation of a telco.

This attempts to check anti-competitive behaviour by a telco that might exploit its involvement in various points along the supply chain at the expense of its competitors.

Yaacob Ibrahim, Minister for Information, Communications and the Arts, told Parliament yesterday that a telco operator which controls the network infrastructure, while having a toe in the wholesale and retail services markets as well, may lack commercial incentive to open up the services to its competitors.

If this amendment is passed, the telco industry will be the first one in Singapore subject to the possibility of operational separation or more drastic structural separation.

The Next Generation National Broadband Network (NBN) set-up, for example, illustrates both kinds. OpenNet – which is rolling out the network infrastructure – is structurally separate from SingTel, one of OpenNet’s four shareholders. SingTel does not have effective control of OpenNet.

Further downstream, StarHub, on the other hand, has a wholly owned subsidiary called Nucleus Connect which buys infrastructure from OpenNet and sells it to retailers. Nucleus Connect is subject to the milder operational separation. It has separate branding and physical premises from StarHub, but the latter retains its shareholding in it.

While separation has been built into the very structure of the NBN so that new players are not deterred from entering the market, the amendment aims to ensure that the same is true for other areas of the industry.

The need to split up an incumbent telco, however, might depend on the existence of more new players, and some believe that such a day has not yet come.

‘It could be good that there’s increased competition. (But) the Singapore market is quite small. Even if you want more competition, at the recent auction of the additional bandwidth, you didn’t see people coming in other than the three incumbents,’ said Carey Wong, OCBC Investment Research analyst.

SingTel called the separation order power ‘unnecessary’ in its response to the proposal. In Australia, its subsidiary Optus is arguing for more regulation of its rival, Telstra. Australia is struggling with the mechanics of Telstra’s structural separation, as part of the rollout of its own NBN.

An analyst with a local house believes that the way the NBN is structured here precludes the possibility of a similar separation order being enacted, at least in that respect. ‘It’s more of a signal to the telcos,’ he told BT.

Dr Yaacob stressed that the government would not use the power of the separation order frivolously. ‘As far as possible, the bill provides clear conditions and limitations under which a separation order can even be considered,’ he said.

The amendments proposed will also raise the ceiling on the financial penalty that can be levied on a telco, from $1 million to 10 per cent of the company’s annual revenue for licensable services. For even the smallest telco, M1, this is a ceiling of almost $60 million, based on figures from its last financial year.

M1, in its response last year, said that the increase could cause market disruption. ‘A stiffer fine only serves to transfer investible resources to the government and . . . slow down technology/infrastruc- ture deployment by the operator to rectify its non-compliance,’ it said.

Last week, it was fined $300,000 for the disruption of its services earlier this year. The higher penalty ceiling would have applied to the code of practice that M1 had breached. The telco has decided to appeal against the ruling.

‘Notwithstanding the higher penalty ceiling, the actual quantum of penalty imposed by IDA will continue to be based on the facts and severity of each case,’ Dr Yaacob said.

The bill is now slated for its third reading in Parliament, before it can be passed into law.

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