Impact of SMRT's Bid for Telecommunications Market Entry on Public Transport Services

Mr Baey Yam Keng asked the Minister for Transport (a) whether SMRT's collaboration with OMGTel to bid for Singapore's fourth wireless telecommunications carrier licence will affect the public transport services provided by SMRT; and (b) whether the Government can and will impose conditions to ensure that the public interest in the provision of public transport services is not compromised.

The Minister for Transport (Mr Lui Tuck Yew): Mdm Speaker, I expect SMRT to remain fully focused on providing reliable and efficient public transport services. In this regard, SMRT has given their assurances on multiple occasions. What we understand from SMRT Corporation is that it intends to take a stake with an investment of up to $34.5 million, which is small, compared to the overall cost of a new mobile network, and that the collaboration will be for the provision of services and goods that leverage on SMRT's media presence and commuter reach.

In any case, the LTA imposes strict Operating Performance Standards and Codes of Practice on our public transport operators to ensure that they perform to expectations. These standards and codes are reviewed regularly, with the most recent round of tightening announced earlier this year. If operators fail to comply with these regulatory requirements, they can be penalised up to $1 million per incident, or 10% of the annual fare revenue of the licensed system, whichever is higher.

LTA will continue to keep a close eye on our public transport operators to ensure that they are not distracted by their non-public transport businesses, and that their primary mission of providing public transport services is not compromised.

Mr Baey Yam Keng: Madam, I have three questions to follow up. First, looking at the past few years of financial figures for SMRT, we note that the revenues and earnings of SMRT, fare-based versus non fare-based, there has been a greater discrepancy. There are more profits generated from non-fare businesses. So, how does the Government ensure that the management's attention is not distracted, given that other businesses are bringing the company more profitability?

The second question is regarding the fines. If you look at the fines imposed on SMRT over the last three years, they constitute about, at most 2% of the overall profits that the company made. How is the Government able to ensure that this fine amount or the system of penalty is adequate enough to make sure that the fines serve as an adequate deterrence and penalty for the PTOs?

My third question is: in today's Zaobao interview given by the CEO, he claimed that the profits from non-fare businesses helped to keep public transport fares low. Is this just a goodwill gesture of the company, or is it featured in PTC's assessment of any fare increase proposals by the PTOs? And whether this goodwill could be mandated as a condition for such PTOs to be allowed to diversify into other businesses so that the public interest of Singaporeans and commuters, is protected.

Mr Lui Tuck Yew: Mdm Speaker, I thank the Member for the supplementary questions. The first is on financial figures. It is indeed true that for the last few years, the vast majority of the profits have come from non-fare revenue. In the recent financial year, the profit for the entire SMRT Group is about $91 million. If I recall correctly, more than 90% of this was from non-fare businesses and the pattern was familiar in the preceding years.

Regardless of that, for LTA and for MOT, for us, we regulate them based on the Operating Performance Standards as well as the Codes of Practice. It is our job to make sure that they are not distracted as a result of ventures together with the Sports Hub or this possible venture with the fourth telco operator, and to concentrate on delivering public transport to the degree of reliability and service standards that is expected of them.

On the fines, as part of the review, I think it was last year or the year before, we had raised the fines from the maximum of $1 million to either $1 million or 10% of the annual fare revenue of the licensed system, whichever is higher. That is not to say that for every incident, we will fine them to this amount. It really depends on the matrix of factors including, for example, the severity of the disruption, the number of commuters that are affected, and so on and so forth.

The reason why this limit was raised was that when we did a review following the December 2011 incident, we felt that the $1 million limit was insufficient for an incident of that severity. Hence, we decided to make a move to increase the limit that we could impose on them should a similar incident of such nature happen again.

On the third point, I have not read the CEO's interview with Zaobao . I will certainly go and look it up. As far as we are concerned, public transport fares are governed by the fare formula that the PTC works on. It is the formula that is used to determine the extent of the fare increase or reduction should the factors call for a reduction, as we expect for this year's exercise. Having said that, PTC will, of course, look into the financial performance of the operator and one of the features is that it requires the operators, if they are doing well, to make a contribution to the Public Transport Fund. Both SBST and SMRT made a contribution last year. This year, when we had the fare increase in April, they made a larger contribution to the Public Transport Fund.

Mr Zaqy Mohamad: I thank the Minister for the clarification. Just a couple of supplementary questions. I am glad that the Minister mentioned about keeping SMRT focused on operating guidelines and requirements. To keep SMRT focused and to ensure that the profits that it gains every year are not misconstrued as profiteering from passengers, what is stopping the regulator – LTA or the Ministry, for example – from ensuring that every new non-fare business that SMRT undertakes, they have to set up a separate subsidiary? Or even for existing non-fare business, should SMRT then move these entities or businesses to a separate subsidiary?

On Minister's reply earlier, as with the fines review, when he said the fines are a proportion of operating revenue, is that just operating revenue from the fare business or does it include total operating revenue that includes all the non-fare business as well.

Mr Lui Tuck Yew: I thank the Member for his suggestion. Indeed, it is possible for them to set up a subsidiary but I suspect they will still be looking at the overall performance of the entire corporation. Although they manage the non-fare businesses separately, we look at it in its entirety.

Your second question was whether it is on the revenue of the operating system itself or in totality. Actually, it is on the fare revenue of the operations itself which is the vast majority of total revenue. So if you are looking at revenue by far, the vast majority of it comes from operating trains, but in terms of profits, the bulk of the profit, probably up to 90%, actually comes from the non-fare businesses that they run.

Er Dr Lee Bee Wah: Thank you, Mdm Speaker. By asking them to just contribute to the Public Transport Fund is not sufficient. It is providing public transport and if they would want to do any other businesses, it must bring benefit to the commuters. Therefore, any profits from other businesses, they should use it to cross-subsidise the public transport. Otherwise, why should we allow them to venture into other businesses? I would like to ask the Minister, will PTC change the fare revision formula to take into consideration the overall profit, so as to cross-subsidise the commuters' fare.

Mr Lui Tuck Yew: Mdm Speaker, the PTC formula was deliberated in this House a couple of years ago. It runs till 2017, by which time, we would then take a relook at the formula, and I am sure Members can give their suggestions in due course for that to be taken into account.

Mr Baey Yam Keng: Thank you, Madam. I would like to ask the Minister to clarify, because I was looking at section 19 of the Rapid Transit Systems (RTS) Act. The penalty is up to $1 million or 10% of its annual fare revenue of a rail line. Does that refer to a particular line that has suffered some breakdown or disruption or the rail revenue for all rail operations under the PTO?

Mr Lui Tuck Yew: For a particular licensed system. The North -South and East-West Lines are considered as one licensed system.

Ms Chia Yong Yong (Nominated Member): **** : I would like to ask the Minister thus far the penalties do not seem to be working very well in terms of ensuring that there are smooth operations for the benefit of commuters. Right now, we also have an issue of SMRT wanting to go into another area of business which is not its core business. I know the Minister has stated that the Ministry will ensure that they continue to give good services and adhere to the transport standards that are required, but in more specific terms, how would the Ministry ensure that they do not get distracted by making more profits, seeing of course that the computation of the penalties could possibly be quite minuscule, particularly if it is limited only to the revenue of a particular line.

Mr Lui Tuck Yew: I would say that in reply to the point that the penalty could be minuscule because it is only on the revenue of a particular licensed system, it probably is not so. If you look at the revenue for the North-South and East-West Lines, that constitutes the bulk of the revenue. It could be a very, very hefty fine well beyond $1 million should there be a breakdown that is so severe that the LTA has to impose the 10% limit.

What are the ways in which we look at it? First, we look, in particular, at the use of manpower with regard to SMRT Trains, which is the entity that we regulate. If, for example, we see senior manpower being taken out from SMRT Trains to be used to support their venture with the fourth telco, we will be very concerned.