Govt stands its ground on cross-carriage

But pay-TV operators to get more time to implement sharing of exclusive content

The authorities here look set to press ahead with a controversial mandate that compels pay-TV operators to share exclusive programming – despite widespread protests from content suppliers. However, the government has decided to delay the implementation of the policy by up to nine months to give the media industry more time to adjust to the new regime.

The extension was granted by the Media Development Authority (MDA) of Singapore after it carried out a two-month public consultation exercise to obtain feedback on its new cross-carriage policy.

Under the MDA ruling, pay-TV companies must allow competitors to carry exclusive programming they acquire after March 12 this year.

The aim is to tackle the content fragmentation that has started to surface in the local pay-TV market as evidenced by the bitter Barclays Premier League (BPL) tussle between Singapore Telecommunications and StarHub last year.

Exclusive programmes acquired after March 12 were supposed to be extended to other players from this month, but the effective date has now been pushed back to the first half of 2011. This means that if SingTel decides to strike another exclusive deal during the next bidding cycle for the BPL in three year’s time, all matches will have to be made available on StarHub’s cable television channels as well.

As a result, consumers will avoid the pain of forking out additional registration fees, or suffer the inconvenience of having two set-top boxes in their living rooms.

‘We (MDA) do believe fundamentally that wider distribution (of content) will help (the industry). This is the right, the best measure for the market,’ said MDA’s deputy chief executive Michael Yap.

Early results show MDA’s contentious move is already starting to deliver its intended effect. In the six months since the policy was unveiled on March 12, StarHub and SingTel have not signed any exclusive contract, Mr Yap told reporters at a briefing yesterday.

Despite MDA’s claim, the new measure has split public opinion down the middle since its introduction. Consumers and pay-TV outsiders such as M1 clearly welcomed the move as it opens the door to lower subscriptions and new revenue streams.

But content suppliers and a regional media association balked at the MDA mandate as it could complicate business models and slash revenue. This is because pay-TV companies may be reluctant to pay top dollar for premium content such as the BPL after losing the exclusivity trump card.

In May, the Cable & Satellite Broadcasting Association of Asia (Casbaa) launched a rare tirade against the Singapore authorities, accusing MDA of violating international trade agreements through the cross-carriage mandate.

It even said the move could harm Singapore’s economic interests in the long run as investments in the local media scene could dry up. Casbaa represents around 130 of the biggest media companies in the region, including content bigwigs such as Sony Pictures, Fox International Channels, HBO Asia and NBC Universal Global Networks.

In the same month, Casbaa also submitted its official response in the first MDA consultation exercise, along with 18 other organisations.

Content suppliers made up the majority of these respondents, including companies such as HBO, Discovery Asia, Disney-ABC and sports marketing agencies Sportfive and the World Sport Group.

Licensing complications, revenue-sharing and billing complexities were among the major concerns raised by the companies.

In response, MDA has moved to address some of these issues by launching a second round of public consultation yesterday.

As part of this exercise, the regulator shed more light on the types of content that will be affected by the cross-carriage ruling, along with clarifications on a host of other topics ranging from ensuing billing arrangements to service standards.

Only pay-TV programmes on mainstream services such as cable television and SingTel’s mio TV platform are affected. Content that is acquired for broadcast over emerging platforms such as interactive Web TV will not be affected by cross carriage, Mr Yap revealed. The company that acquires exclusive programming will also bill customers directly, including those who view this content through rival platforms.

In addition, if an exclusive programme is bundled as part of a group, the entire group will have to be extended to other pay-TV players, Mr Yap said.

A SingTel spokeswoman said this requirement will ‘level the playing field’ in the local pay-TV sector. ‘SingTel will review MDA’s preliminary positions and provide constructive and positive feedback for its consideration,’ she added.

Rival StarHub continues to stand behind the government’s new policy and said it will work out implementation details with all relevant parties.

When contacted, Casbaa declined to comment directly on MDA’s cross-carriage updates, saying it ‘needs time to digest and consult’ members before taking a formal position. MDA’s second consultation exercise closes on Sept 28 and the regulator will issue a final decision on cross carriage by the end of this year.

2QCY10 Scorecard; Maintain Overweight

2QCY10 results show modest margin recovery. All the three telcos – M1, SingTel and StarHub – showed some modest recovery in EBITDA margins in their 2QCY10 results recently; but this was possibly due to the lull before the anticipated launch of the new iPhone 4G on 31 Jul. Both M1 and StarHub declared interim and quarterly dividend of S$0.063 and S$0.05, respectively.

Review of operations. And because of this lull, we note that equipment sales fell during the quarter, and this also brought acquisition costs for M1 and StarHub lower; although SingTel saw an increase. But with the increased usage of smartphones, we note that ARPUs have continued to rise for both SingTel and StarHub; though flat for M1. Meanwhile, there has been little change on the broadband front; we suspect some inactivity may be due to the impending roll-out of the NBN, which has been slightly delayed to 3Q10. On Pay TV, SingTel provided more colour on its mio TV segment, while StarHub managed to retain its subscriber base and ARPU in 2Q10. But we note there was some distortion due to the World Cup and 3Q numbers should give a clear picture of the landscape.

Stable outlook for 2010. Going forward, all the three telcos expect their Singapore operations to remain stable or show slight growth, but most note that EBITDA margins are likely to decline slightly this year. StarHub for example, expects its EBITDA margin to hover around 28% vs. the historical average of 32-35%. The telcos have also kept their earlier capex guidance or even reduced it slightly in the case of M1. And thanks to their strong cashflow-generative businesses, the telcos have largely kept their dividend payout guidance; M1 to pay at least 80% of underlying net profit; SingTel to pay 45-60% of underlying earnings; StarHub to pay S$0.20/share, or S$0.05/share per quarter.

Maintain Overweight. In light of the increased volatility in the market due to the unresolved uncertainties in Europe, the still floundering economic recovery in the US and potentially slowing economic growth in China, we continue to like the telcos’ defensive earnings and relatively attractive dividend yields. Maintain OVERWEIGHT. While we have BUY ratings on all three telcos, our preference is for M1 as we believe it has potentially the most to gain from the NBN in the coming two years. Meanwhile, we are also in the process of reviewing our fair value for StarHub.

NBN- the moment has arrived

• Two new entrants in the broadband sector, five more expected by end of 2010.

• The real battle is for SME and corporate customers, where EBITDA margins are much healthier.

• StarHub’s estimated 25% of earnings and SingTel’s 10% of group earnings would be subjected to competition from new entrants.

Two new entrants, five more expected. SuperInternet and LGA are two new entrants as retail service providers (RSPs). LGA would target mainly SME and corporate customers, while SuperInternet would compete in the consumer segment. NucleusConnect expects five more RSPs to enter the sector by the end of 2010. SuperInternet came out with the most aggressive monthly price of only S$49.80 for 100 Mbps speed compared to S$124 charged by StarHub for a similar plan before the launch of NBN. However, SuperInternet would not offer triple play bundling of mobile, pay TV and broadband as offered by StarHub.

Pricing plans suggest aggressive SuperInternet and M1. SingTel announced monthly retail pricing of S$85.90-S$109.90 for 150 Mbps-200 Mbps plans, which is quite reasonable compared to approx S$40 for the 6 Mbps plans being offered currently. However, SuperInternet and M1 announced 100 Mbps plans for only S$49.80 and S$59 respectively compared to S$124 charged by StarHub for a similar plan before the launch of NBN. We expect StarHub to offer lower price post NBN launch. M1 has solid island-wide distribution and branding, so incumbents need to be most cautious of M1, in our view.

SingTel has confirmed that it would be using its own OpCo in addition to StarHub’s NucleusConnect. In fact, SingTel’s OpCo would also compete with NucleusConnect in the wholesale of bandwidth to RSPs. We like to remind investors that NetCo is allowed to sell its capacity to other OpCos, only if NucleusConnect’s market share exceeds 25%. This should not be a hindrance for NetCo as StarHub (natural customer of NucleusConnect) already exceeds 25% market share.

Prefer SingTel and M1 to StarHub. Due to its more diversified earnings base, data and Internet segment accounts for an estimated 10% of SingTel’s group earnings. For StarHub, data and broadband segment accounts for an estimated 25% of earnings. M1 is the only telco to gain from NBN and we expect the share price to benefit as market gains confidence in M1’s execution.

Telcos take their fight to the next level

SingTel, StarHub and M1 rolling out their ultra high-speed broadband packages

Local telcos SingTel, StarHub and M1 are taking their bitter rivalry from this generation to the next in a services showdown on Singapore’s next information superhighway.

The country’s new fibre-optic backbone opens for business today and the three telcos will go head-to-head on an entire spectrum of new ultra high-speed broadband packages for consumers and businesses.

The first salvo under Singapore’s new era of broadband competition was fired by SingTel yesterday morning with the unveiling of new offerings that take advantage of the massive speed boost that comes with the arrival of pervasive fibre-optic rollout.

M1 followed suit later in the day and StarHub is expected to do so tomorrow.

SingTel also laid months of speculation to rest by announcing plans to compete with StarHub in a third segment – the wholesaling of fibre-optic bandwidth to other players that are keen to offer Internet-related services to local customers.

By dipping its toes into this market, SingTel will be competing directly with StarHub subsidiary Nucleus Connect.

Until yesterday, Nucleus Connect is the only so-called operating company (OpCo) that was sanctioned to resell ultra high-speed bandwidth packages to other Internet service providers on Singapore’s government-backed fibre-optic network.

It received a $250 million subsidy from the Infocomm Development Authority of Singapore (IDA) to help defray its set-up costs.

In return, Nucleus Connect has to play by a strict set of government rules including providing transparent and non-discriminatory pricing to all buyers. In addition, the firm has to be run independently from its parent StarHub as part of IDA’s operational separation mandate.

However, this separation requirement does not apply to SingTel as the firm is not the government-anointed OpCo, according to its Singapore chief Allen Lew.

Exemption from these government rules also means that SingTel could potentially offer discounts or rebates instead of having to abide by the IDA’s equal pricing policy.

In addition, SingTel will also be using its own fibre-optic pipes on top of the ones that are run by Nucleus Connect.

The company plans to use its own fibre-optic backbone to provide connectivity to commercial customers and rely on Nucleus Connect’s infrastructure for the consumer segment only, Mr Lew told reporters at a media briefing yesterday.

Some 4,000 commercial buildings will be wired up with SingTel’s fibre-optic links by this November, including 1,500 that are predominantly used by small businesses, the firm revealed.

‘We’ve been expecting it (SingTel’s plan to wholesale fibre-optic bandwidth). When you have discriminatory pricing, and you have to go in to negotiate, it’s a long and tough process,’ Nucleus Connect chief David Storrie told reporters at a separate media briefing yesterday evening.

‘With our model, it’s clear what you’ll get,’ he stressed, adding that the firm would consider adjusting its pricing to remain competitive.

Five companies have already committed to buying bandwidth from Nucleus Connect. These include the three existing telcos, as well as homegrown communications firms SuperInternet and LGA Telecom.

More could sign up when the fibre-optic network is fully completed in two years’ time, he added.

Some 40 per cent of local households are already wired up with fibre-optics and nationwide rollout is set to be completed by end 2012.

‘I think the number of five we have will grow. Interested parties, especially overseas operators, say they will be back when coverage is complete,’ Mr Storrie said.

On the consumer front, SingTel raised the game with four new consumer plans that promise to double access speeds by charging slightly more than what StarHub charges for its highest-end broadband package today.

By paying $95.90, consumers can enjoy download speeds of 200 Mbps (megabits per second), twice as fast as its rival’s 100Mbps plan, which is priced at $86.88.

Besides allowing speedier movie streaming and music downloads, the company also offers increased uplink speeds of up to 100Mbps. This means that users can upload high-resolution pictures and videos at a fraction of the time of what it would have taken them with today’s cable broadband and ADSL (asymmetric digital subscriber line) broadband packages.

In addition, SingTel is bundling other perks such as high-definition video chats and free Web-based storage and even free movies. Soccer fans can enjoy their Barclays Premier League fix along with their new high-speed broadband plan for $109.90.

‘Fibre is just the basic hygiene factor to get into the home. Offering pure access services doesn’t really make sense,’ said SingTel’s Mr Lew. The company is also offering a lower-end 150Mbps plan for $85.90 monthly.

M1 has claimed the mantle of offering Singapore’s fastest broadband plan for now at 1Gbps (gigabit per second), five times the speed of SingTel’s latest offering. However, users will have to pay a monthly fee of $399 to enjoy the speed boost.

At the same time, Singapore’s smallest operator hopes to offer consumers more bang for their broadband buck with a range of lower speed plans, including one which offers 100Mbps download speeds for $59 a month.

However, M1’s speed advantage is expected to be short-lived as StarHub could match the offer by as early as tomorrow.

‘Incumbents are likely to sell FTTH (fibre-to- the-home) services as faster speeds and pricing is likely to be lower if you compare on a cost per bps basis. I think it will take some time for the FTTH services to become mainstream,’ said telecommunications consultant Soh Siow Meng.