Telcos refuse to fall in line on proposed mega fine

All of them oppose move to raise penalty ceiling to 10% of yearly sales

Singapore’s bickering telecommunications trio is standing in unison against a set of proposed legislative changes which could see them cough up 10 per cent of their yearly sales in fines if they flout their licensing agreements.

Currently, telcos that violate their licence conditions or codes of practice face a maximum penalty of $1 million. Instead of having a fixed ceiling, local authorities are considering tweaking the formula so that operators can be fined up to 10 per cent of their annual turnover.

Both Singapore Telecommunications and M1 feel that the current penalty of $1 million is enough to get operators to toe the line.

In its response to a recent consultation exercise by the Ministry of Information, Communications and the Arts (Mica), SingTel highlighted the fact that the maximum $1 million penalty has never been meted out in local history.

Mica oversees the country’s telecommunications regulator – the Infocomm Development Authority of Singapore (IDA).

A change would be justified if IDA could provide examples where a licensing breach was serious enough to warrant a fine that goes above the current ceiling, it said.

If enacted, the change would mean SingTel, which raked in $1.5 billion in local mobile revenue last year, could be slapped with a maximum penalty of $150 million instead of $1 million currently.

‘However, the converse situation has been true, whereby there have been no instances where the IDA has felt the need to impose a maximum fine. As such, the proposal to increase financial penalties is disproportionate,’ SingTel stressed.

Singapore’s smallest operator M1 echoed its rival’s sentiment, adding that a heavier fine would transfer ‘investible resources’ to the government and slow down the pace of technology and infrastructural deployment.

An alternative approach would be for IDA to require an operator to invest up to 10 per cent of its annual sales into the service that has fallen short, it said.

‘A financial penalty should only be imposed for instances of intentional non-compliance,’ M1 added.

StarHub is the lone operator to agree with the government’s stand that the current $1 million cap is inadequate. However, it urged Mica to consider lowering the 10 per cent quantum.

There is also a need for IDA to spell out how financial penalties are computed and how they will be imposed, StarHub said in its response.

One concern it had with the percentage-of-turnover approach is that it could result in a huge disparity in fines for the same breach as operator sales could vary significantly, StarHub pointed out.

Mica received a total of five responses when its consultation closed earlier this month.

OpenNet – the company in charge of wiring up Singapore with new fibre-optic links – and industry group the Asia-Pacific Carriers Coalition (APCC) were the only two outside of Singapore’s telco trinity to have replied.

Beyond increasing financial penalties, Mica also sought the industry’s views on other proposed changes to the country’s Telecommunications Act, a bill which has been intact since 2005.

Among the amendments are two recommendations to give the minister of information, communications and the arts the power to seize control of an operator’s business to protect national interests, as well as the right for him to force a telco to split up its various businesses.

Both were frowned upon by the APCC, which warned that investments in the local telecommunications sector could be chilled by the ‘introduction of a virtually unfettered power of confiscation’.

‘Other developed countries have not found a ministerial discretion to compulsorily transfer network management or assets to be necessary to protect national interest or continuity of supply,’ the APCC argued.

Mica previously said it is looking to table these amendments in parliament early next year.

Telcos refuse to fall in line on proposed mega fine

All of them oppose move to raise penalty ceiling to 10% of yearly sales

Singapore’s bickering telecommunications trio is standing in unison against a set of proposed legislative changes which could see them cough up 10 per cent of their yearly sales in fines if they flout their licensing agreements.

Currently, telcos that violate their licence conditions or codes of practice face a maximum penalty of $1 million. Instead of having a fixed ceiling, local authorities are considering tweaking the formula so that operators can be fined up to 10 per cent of their annual turnover.

Both Singapore Telecommunications and M1 feel that the current penalty of $1 million is enough to get operators to toe the line.

In its response to a recent consultation exercise by the Ministry of Information, Communications and the Arts (Mica), SingTel highlighted the fact that the maximum $1 million penalty has never been meted out in local history.

Mica oversees the country’s telecommunications regulator – the Infocomm Development Authority of Singapore (IDA).

A change would be justified if IDA could provide examples where a licensing breach was serious enough to warrant a fine that goes above the current ceiling, it said.

If enacted, the change would mean SingTel, which raked in $1.5 billion in local mobile revenue last year, could be slapped with a maximum penalty of $150 million instead of $1 million currently.

‘However, the converse situation has been true, whereby there have been no instances where the IDA has felt the need to impose a maximum fine. As such, the proposal to increase financial penalties is disproportionate,’ SingTel stressed.

Singapore’s smallest operator M1 echoed its rival’s sentiment, adding that a heavier fine would transfer ‘investible resources’ to the government and slow down the pace of technology and infrastructural deployment.

An alternative approach would be for IDA to require an operator to invest up to 10 per cent of its annual sales into the service that has fallen short, it said.

‘A financial penalty should only be imposed for instances of intentional non-compliance,’ M1 added.

StarHub is the lone operator to agree with the government’s stand that the current $1 million cap is inadequate. However, it urged Mica to consider lowering the 10 per cent quantum.

There is also a need for IDA to spell out how financial penalties are computed and how they will be imposed, StarHub said in its response.

One concern it had with the percentage-of-turnover approach is that it could result in a huge disparity in fines for the same breach as operator sales could vary significantly, StarHub pointed out.

Mica received a total of five responses when its consultation closed earlier this month.

OpenNet – the company in charge of wiring up Singapore with new fibre-optic links – and industry group the Asia-Pacific Carriers Coalition (APCC) were the only two outside of Singapore’s telco trinity to have replied.

Beyond increasing financial penalties, Mica also sought the industry’s views on other proposed changes to the country’s Telecommunications Act, a bill which has been intact since 2005.

Among the amendments are two recommendations to give the minister of information, communications and the arts the power to seize control of an operator’s business to protect national interests, as well as the right for him to force a telco to split up its various businesses.

Both were frowned upon by the APCC, which warned that investments in the local telecommunications sector could be chilled by the ‘introduction of a virtually unfettered power of confiscation’.

‘Other developed countries have not found a ministerial discretion to compulsorily transfer network management or assets to be necessary to protect national interest or continuity of supply,’ the APCC argued.

Mica previously said it is looking to table these amendments in parliament early next year.

No 4th Mobile Operator

No new 4th mobile operator. The IDA (Infocomm Development Authority of Singapore) has allocated Singapore’s remaining 3G cellular network spectrum (1900 – 2100 MHz) to SingTel, StarHub and M1 for S$60m, or at the reserve price of S$20m each; this after its plan to auction off that spectrum rights did not draw any other bids besides the three incumbents. We note that it was a repeat of an earlier 3G spectrum auction in 2001 where there were only bids from the three telcos. As a result, the telcos each paid the reserve price of S$100m for their 3G licenses then.

Already a saturated market. We were not surprised by the lack of interest, given that the mobile market here is already very saturated, with a penetration of 143% (Jul 2010). Additionally, we note that the three incumbents have already very well entrenched market shares, led by SingTel (~46%), StarHub (28%) and M1 (26%). As such, it would be a very uphill and expensive task for a newcomer to make a meaningful and profitable impact on the market, especially if margins are likely to be further eroded by an ensuing price competition. Having said that, we still expect mobile penetration to increase, where the proliferation of mobile computing devices such as the Apple iPad 3G will continue to drive mobile data demand.

Additional bandwidth much welcome. Hence the allocation of the additional spectrum is welcome news as the telcos will be able to expand their cellular bandwidth, thus allowing them to cope with the expected rapid growth in mobile broadband demand in the coming years. According to IT research firm Analysys Mason, it expects the total number of mobile broadband connections in developed Asia-Pacific region to increase from 6.2m in 2009 to 27.2m in 2015 (28% CAGR); it also expects mobile broadband revenue to jump 3x from US$2.4b in 2009 to US$7.1b in 2015.

Maintain OVERWEIGHT. The Singapore stock market has generally done very well over the past quarter, with the STI up 9.2% QoQ; however, further upside from here may be limited as there are questions still unanswered like the pace of the US economic recovery, the credit situation in Europe etc. As such, we maintain our OVERWEIGHT call on the telcos for their attractive dividend yields while their defensive earnings should also limit any downside risk in terms of renewed economic slowdown.