TIME-BASED TELEPHONE BILLING SYSTEM

Mr Goh Choon Kang asked the Minister for Communications and Information what are the cogent reasons for the Telecommunication Authority of Singapore to want to change the present phone billing system to a time-based one.

Mr Chin Harn Tong asked the Minister for Communications and Information (a) whether any provision is being made to exclude emergency calls to the police and other public authorities when telephone subscribers are charged on a time-usage basis with effect from 1st October 1991, as otherwise, telephone subscribers may not allow the public to use their telephones, even in an emergency; and (b) whether the number of public telephones will be increased on or after 1st October 1991 to cater for the non-telephone-subscribing public.

The Minister for Communications and Information (Dr Yeo Ning Hong): Mr Speaker, Sir, I have two Questions on the same subject. With your permission, I would like to answer both of them together.

Mr Speaker: All right.

Dr Yeo Ning Hong: The reason for a time-based system for charging telephone calls is to have a fairer system for all subscribers and users. This fairer system will lead to more efficient use of our telephone networks and, in the longer term, keep the cost of telephone services in Singapore down.

Under the present flat-rate rental system, those who hardly use their phones pay exactly the same rate as those who use their phones extensively. What that means is that the former subsidises the latter.

Telecom has done a survey. Which shows that 10% of the heaviest business users account for 34% of all the business traffic. At the other extreme, 10% of the lowest users account for only 0.1% of the traffic. In other words, the heavy users use the telephone services 340 times that of the low users. There are similar figures of disproportionate usage among the residential subscribers.

The present flat-rate telephone rental system was designed for voice communication. But as more and more non-voice communication becomes available, for example, the transmission of data, fax transmissions, and becomes more widespread and is used by both businesses as well as residences, then this distortion of usage becomes even greater. That is why the present flat-rate rental system is both unfair and inappropriate.

The telephone traffic in Singapore has been growing annually at a rate of about 6% for residential subscribers and 11% for business subscribers over the past five years. With increased traffic, more investment in telephone networks and exchanges becomes necessary. If we continue with this flat-rate rental, where everybody pays exactly the same, then what it means is that the low users will have to subsidise the heavy users even more in future, because the cost of investing in these new infrastructures will have to be recovered evenly from everybody. This is obviously not fair since it will penalise severely the low users who are in the majority.

Sir, paying for what we use according to usage is not something new. Indeed, It is something that we do all the time, every day. We pay for our consumption of electricity based on the quantity of electricity that we use. If we use less, we pay less. If we use more, we pay more. We pay for our water, petrol, food, bus rides and MRT rides, all on that same basis.

Yes, it is true that moving from a fixed rate rental system for telephone services to a usage-based system is new for us in Singapore. Other countries have gone that way. In most developed countries and cities they have adopted the usage charge. At 1.5 cents per minute, our rates are amongst the lowest in the world. Sir, with your permission, I would like to circulate for Members' reference a table (Cols. 659 - 660) showing the rates that other countries charge. [Copies of Table circulated to hon. Members]. table - SOME COUNTRIES WITH USAGE SENSITIVE CHARGING (Cols. 659 - 660)

Sir, Members would see from the table that the charge of 1.5 cents per minute is very low compared to what some cities in other countries charge. And 1.5 cents is less than half of what we charge for the public telephones where one pays 10 cents for every 3 minutes.

Sir, Mr Chin has asked about emergency calls to the Police and to other public authorities. I want to assure him that the emergency calls, such as those to the Police, the Fire Service and the Ambulance Service, will not be charged when such calls are made. Indeed, the practice in many countries is that with the usage system, many companies and organisations offer free telephone calls because this service becomes part and parcel of their marketing strategies. I am sure the same trend will take place in Singapore in due course.

Sir, on another point raised by Mr Chin, the number of households in Singapore who do not have a telephone is very small. They probably consider the present rate of $190 per year too high relative to the usage that they expect. With the present changeover to a usage-based system, it is probable that some of them may find the rates which have been halved much more attractive. This is an added advantage, an added bonus, for charging by usage.

As to the point about public telephones, Singapore already has the highest number of public telephones per thousand people. With 27,000 public telephones all over the island, the public has no difficulty having access to a phone. All the same, Telecom will continue to put up more public phones wherever there is a need for them.

Sir, I understand the concern expressed by some of the subscribers when the announcement of the change in charging system was made. Any major change can be upsetting and unsettling even if it is a change for the better. One of the reasons why Singapore is successful is that we have always made adjustments to changing circumstances and our population has always adapted to the changes. That has been one of our key strengths in Singapore. Hence, I would like to encourage Singaporeans to be patient. They will be pleasantly surprised next year when the switch is made that their telephone bills will be less than what they feared; The majority of subscribers will find that their telephone bills will be less than what they are presently paying.

After the new charging system has stabilised, when it is implemented in the fourth quarter of next year, Telecom will monitor the traffic patterns. If there are peaks and troughs in the traffic pattern, I will ask Telecom to consider the possibility of giving a discount for off-peak traffic. In other words, if you were to use the telephone in the evening, when the traffic is light, we can consider a discount. This will further lower the telephone bills for our residential subscribers. It will also help make even greater and more efficient use of the costly investment that we have made in our telephone network.

Mr Goh Choon Kang (Braddell Heights): Sir, does the Minister agree with the following observations:

(1) That telephone users in general have no complaints about the present system. Cross-subsidisation, yes, but overall, everybody enjoys lower charges and nobody, except maybe Telecom, complains about the so-called unfairness.

(2) By changing to the time-based system and going by Telecom's statistics, about 40% of all the users will face increases in their telephone bills. These increases in the business sector ---

Mr Speaker: Mr Goh, can you please ask your question?

Mr Goh Choon Kang: I am asking whether the Minister agrees with these observations.

Mr Speaker: Your observations are rather long ones. Could you please frame your question?

Mr Goh Choon Kang: I would like to ask whether the Minister agrees that the increase in the business sector will inevitably in the end be passed on to the consumers and, therefore, the public as a whole will be worse off rather than they will benefit from the new system.

Dr Yeo Ning Hong: Sir, I thank the Member for the supplementary questions because it provides an opportunity for further amplification.

Sir, the Member says that subscribers have no complaints and therefore we should leave things be. Sir, that is the surest way for Singapore to go down the tube, which is to make no changes when circumstances have changed. True, up until now, subscribers have not made any complaints. But as I pointed out, the traffic volume of telephone calls is increasing. What that means is that Telecom will have to add more networks, more switches, more telephone lines, more optical fibres and so on, and when that happens the flat rate rental to all subscribers will have to be increased. If we do not make the change to a different system, and when we announce an increase in the telephone rates, then the public will get very upset. But that increase will be unjustified for those who are presently low users. That is why we have to make the change now.

Sir, let me illustrate in a slightly different way to show why the flat-rate rental system is inappropriate in the new circumstances that we are entering. At the moment, practically every household in Singapore has got a telephone. There are no charges put on the individual subscriber for international calls. If we had operated a flat-rate rental system for international calls, then all subscribers today would probably have to pay another $100-$200 per year. What we have to do is to add up the total cost of having international calls and divide it evenly by the million subscribers that we have in Singapore. So multi-nationals who make thousands of dollars worth of calls each month will be subsidized by all the domestic subscribers who do not use their telephones at all for international calls. That would be the consequence of operating a flat-rate rental system if we had used that system for international calls. Sir, I would like to ask the Member whether that is fair. Obviously, not.

Sir, the Member mentioned another point that we should not make a change because some of the businesses will have to pay more for telephone charges. True. But 60% of the businesses will pay less. The objective is not to go for an increase in revenue for Telecom, but to change the rate structure such that the final revenue is about the same. So whilst some businesses will have to pay more, others will have to pay less. So it should even itself out without any additional cost increases to be passed on to consumers.

Dr Wang Kai Yuen (Bukit Timah): In view of the Minister's very strong and rational arguments for a time-based system, would Telecom go completely into a time-based system for domestic services and thereby in future probably eliminate completely the flat-rate system for domestic services?

Dr Yeo Ning Hong: Sir, I take the Member's suggestion of going completely to a usage-based system to mean that there will be no charge at all even when a subscriber has a telephone in his house.

Dr Wang Kai Yuen: That is right.

Dr Yeo Ning Hong: Sir, that is possible. But this time it will be unfair the other way round. I will explain why. To have a telephone in a subscriber's house, Telecom has got to invest in physical infrastructure, including all the telephone lines to his house. That has to be amortised and paid for, and the flat-rate rental is the amount of money that he has got to pay for the entire infrastructure. If you go for zero-base charge and, raise the charges from 1.5 cents per minute to a few cents per minute, say, 3 or 4 or 5 cents, whatever the number works out to be, then what happens is that the heavy users will now end up subsidizing the low users because now the heavy users will have to pay for all the infrastructure which the low users enjoy as they use their telephones sparingly.

Dr Arthur Beng Kian Lam (Fengshan): Sir, I would like to ask the Minister what is the cost of putting in place the infrastructure to effect the change to this new billing system and what percentage of the 1.5 cents goes towards the infrastructure?

Dr Yeo Ning Hong: Sir, I do not have the figures for that at the moment, but it is in the order of a few million dollars. In the context of Telecom's overall revenue of approximately $2,000 million a year, that expenditure of a few million dollars, spread over a large number of years, is negligible.

Dr Arthur Beng Kian Lam: Sir, the second part of my question refers to the percentage of what we would pay for a time-based call. What percentage of that would go towards manning the infrastructure?

Dr Yeo Ning Hong: Sir, It is insignificant. It is extremely small.

Mr Heng Chiang Meng (Cheng San GRC): Sir, I do not think there is much quarrel with the principle of the new charges and the new system, but it's really the rates. May I ask the Minister, if the revenue of Telecom has increased after this new system, since he said that it is revenue-neutral, whether he would consider lowering the rates once he finds out that Telecom has actually made extra revenue from this new system?

Dr Yeo Ning Hong: Sir, if there are savings as a result of productivity gains as a result of this more efficient system, Telecom will certainly consider the possibility of passing that savings back to the subscribers. Indeed, that has been the policy of Telecom all these years. For the last 12 years, Telecom has passed back a total of $2,400 million. Indeed, recently, Telecom has just passed back another $23 million back to the subscribers - cheaper rates for pagers, cheaper rates for IDD and the other services. That has always been the practice of Telecom.

Mr Heng Chiang Meng: Sir, I wish the Minister will answer the question directly. My question is: Would Telecom reduce the rates once he has found that the new system generates more revenue, since the new system is meant to be revenue-neutral? I think the words "revenue-neutral" were used by Telecom.

Dr Yeo Ning Hong: Sir, I have answered that question directly. If there are gains as a result of this change, Telecom will reduce the rates. But we must remember this. When you are talking about an organisation like Telecom, you are not talking about a static organisation. You are talking about an organisation will be investing billions of dollars over the next five-year period, and that investment will result in even greater productivity gains. I am saying that when there are even more productivity gains, those productivity gains will be passed back to the subscribers.

Mr Heng Chiang Meng: Sir, I would like to ask the Minister whether he considers there are any differences between decreases in cost due to productivity gains and increases in revenue due to the difference in the system of charging? In any case, would the Minister not agree with me that if Telecom can come out with such a complicated system which is completely different from the present system, and pronounced to the world that it is revenue-neutral as far as Telecom is concerned, it should not be too difficult to come out with a monitoring system to show whether it has actually increased the revenue or not through the new system. I am not disputing his answer on the point about productivity gains.

Dr Yeo Ning Hong: Sir, I do understand the Member's point.

Let me sketch out a scenario for the Member. If Telecom sits down and does nothing, it can monitor the performance of the system after we have changed over from the present flat-rate system to a usage-charged system. But I certainly do not anticipate, in fact I will not allow, Telecom to sit and do nothing. I do not think Singaporeans want a Telecom that does not make any progress. So after the changeover has taken place, there will continue to be investments made. The investments will improve the quality of telephone services in Singapore.

Sir, the Member is a banker and he knows that our telephone communication system is second-to-none in terms of its cost for financial transactions worldwide and in helping Singapore maintain its position as a financial centre.

Mr Heng Chiang Meng: Sir, with your indulgence, may I clarify with the Minister on just one point?

Mr Speaker: Could you ask your supplementary question?

Mr Heng Chiang Meng: Yes Sir, but by putting some supplementary points in question form, the Minister may not understand me.

Sir, I was a banker. But I am not a banker right now. But, Sir, what I am saying is that since Telecome has said that the system is revenue-neutral, surely Telecom has the means of monitoring whether the new system will generate more revenue or whether the existing system will generate more revenue. And if, based on usage, the new system generates more revenue, then I am asking that Telecom, to be truthful to its original intention, should reduce the rates so that it will be revenue-neutral. And it is not difficult, Sir, to put up such a system.

Dr Yeo Ning Hong: Sir, the short answer to that question is yes. But it is like saying that all things being equal, the answer will be yes. But we all know that all things are not going to be equal. I just mentioned to him that I will not allow Telecom to sit and do nothing and just to monitor the figures so that we can provide him with the figures over the next three years after the change-over has taken place and say, "There you are, the figures show that there has been an increase in revenue and here we are, we give you back the rebates." I am saying that we do more than that. I am saying that we continue to invest in infrastructure and continue to invest in the latest switches, optical fibres and exchanges. And wherever there are productivity gains, wherever there are decreases in cost and increases in revenue, these will be passed back to the subscribers, just as Telecom has been doing it for the last 12 years.

Mr Chng Hee Kok (Tiong Bahru GRC): Sir, I share the sentiments of Mr Heng. The question I want to ask the Minister is really that the sample size was only 7,000 out of one million subscribers.

Mr Speaker: Mr Chng, can you ask your question?

Mr Chng Hee Kok: My question to the Minister is: is he convinced that the sample is sufficiently representative and that it is not too conservative in favour of Telecom? That, ultimately, revenues will go up rather than reduce, or remain neutral, as he said.

Dr Yeo Ning Hong: Statistical sampling is a science and Telecom has got the best advice on the build-up of the sample. I am given to understand by people who know such matters that the sample is indeed a valid sample.

Mr Heng Chiang Meng: Sir, may I ask whether the Minister has actually and truly answered my question? Because I have not mentioned ---

Mr Speaker: I do not think that is a supplementary question, Mr Heng.

Mr Heng Chiang Meng: No.

Mr Speaker: Could you ask your question? I think it has been asked a number of times, and answers have been given. If you have nothing new, I propose to move on.

Mr Heng Chiang Meng: No, Sir. I think I would like to have an answer to the question of revenue and not the overall problem about productivity and expenses. May I ask the Minister whether it is impossible for Telecom to come up with a system where they can monitor both the revenue for the next year based on the existing system and on the new system? Is it impossible to do that, Sir?

Dr Yeo Ning Hong: Sir, as I said, the short answer is yes.