TELECOMMUNICATION AUTHORITY OF SINGAPORE (Free market competition)

[Mr Speaker in the Chair]

Mr Chng Hee Kok asked the Minister for Communications why the Telecommunication Authority of Singapore is against free market competition.

Mr Ong Kian Min asked the Minister for Communications on what grounds the Telecommunication Authority of Singapore (TAS) will disapprove a tariff reduction package or permanent promotion proposed by a mobile telephone operator and whether the TAS has in the past rejected any proposal for price cuts submitted by either SingTel Mobile or M1.

Mr S Iswaran asked the Minister for Communications what is the rationale behind requiring telecommunications service providers to seek approval from the Telecommunication Authority of Singapore for changes to their charges and whether there are plans to discontinue with this practice when the market is further liberalised from 1st April 2000.

Mr Chuang Shaw Peng asked the Minister for Communications why the Telecommunication Authority of Singapore considers the latest price cutting by SingTel Mobile anti-competitive and not in line with the free market policy practised by the Government.

Mr Chng Hee Kok (East Coast): Mr Speaker, Sir, before I ask Question No. 1, let me declare my pecuniary interest as I am a director of Singapore Power Ltd. Singapore Power is one of the partners of StarHub. Question No. 1, Sir.

The Minister for Communications (Mr Mah Bow Tan): Mr Speaker, Sir, may I have your permission to take Question Nos. 1 to 4 together as they are related?

Mr Speaker: Yes.

Mr Mah Bow Tan: Sir, since its formation in 1992, TAS has actively and consistently adopted a pro-competition approach. It is committed to fully liberalising the telecommunication industry to ensure Singapore's competitiveness and to allow consumers to enjoy the benefits of competition, ie, a wider range of quality services and products at competitive prices. In line with this philosophy, TAS has liberalised the basic telecommunication services market earlier than planned, by bringing forward the expiry of the monopoly licence of SingTel by 7 years from 2007 to the year 2000 at a cost of $1.5 billion. It opened the mobile phone and paging market in 1997. It has further liberalised the mobile services market from April 2000. The Internet services market has been completely opened since last year. The basic services market will also be opened up to further competition from April 2002.

In liberalising the market, TAS has a duty to ensure that the competition is sustainable or healthy. It has to ensure that incumbents do not adopt anti-competitive measures, such as predatory pricing, to keep out competitors. This is to safeguard the interests of consumers in the longer term by ensuring that we do not regress to the former monopolistic situation. It is especially important in an industry like telecommunications where significant natural barriers to entry already exist.

Recent developments in the mobile phone market serve to illustrate this point. There are only two players in the current mobile communication market. Until such time when there is more and freer competition in the market, TAS needs to approve operators' proposals to ensure that (1) they do not engage in predatory pricing, ie, operators which enjoy certain monopolistic privileges are not using these to unfairly drive out other market players and (2) they do not lock consumers into schemes that prevent them from switching operators freely.

TAS has not rejected SingTel Mobile's proposal in this particular case. What it has said is that the proposed scheme was unclear in some respects, and that SingTel Mobile has to revert with more details to address TAS' concerns. These include whether its loyalty programme is sustainable, and whether tie-in conditions would be imposed on subscribers to prevent them from switching operators when the market is further liberalised in year 2000.

If SingTel Mobile can satisfactorily address TAS' concerns, TAS will allow such a scheme to be marketed to the consumers as permanent. But until it is approved as a permanent scheme, TAS has to ensure that SingTel Mobile does not mislead its consumers by marketing it as a permanent scheme, when it is currently approved as a promotion only valid till March 2000. Let me say that TAS has since received clarification and financial information from SingTel Mobile on its loyalty programme. TAS is satisfied with the clarification and the business case and will approve the loyalty programme as a permanent scheme. TAS will be issuing a formal announcement later today.

TAS encourages any proposal that will benefit consumers in the long run. However, in keeping with its role to protect consumer interests, there have been past instances where TAS had disapproved schemes or proposed modifications to schemes to prevent customers from being tied down or having to suffer penalties for switching operators. In some cases, competitive services had been bundled with monopoly services, to the disadvantage of competitors without monopoly rights.

TAS will take a progressively relaxed regulatory stance as the telecommunication industry is further liberalised from 1st April next year. However, it will continue to impose minimum service standards, as well as minimum safeguards to protect the consumers and maintain an oversight role over market developments to ensure a sustainable competitive environment.

Mr Chng Hee Kok: Mr Speaker, Sir, has TAS any plan to carve up the market, ie, set a maximum cap on the market share for the different carriers? The second question is: should one of the carriers fail because the marketing of their products is not as well as the other carriers, will the Government bail out that particular carrier so that there will always be this so-called choice for consumers?

Mr Mah Bow Tan: Sir, it is not possible for TAS to set market caps for any player in the market. This is for the individual players to work out, ie, for them to go and gain as much market share as possible within the rules of the game as set out, in other words, there is no anti-competitive pricing especially when the incumbent operator has got certain monopolistic privileges.

The second question which the Member asked was whether the Government would bail out an operator. The answer obviously is no.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I would like to ask the Minister whether his Ministry has plans to issue more licences for mobile phones. If there are, when will they be implemented, what is the market size in Singapore and whether it can sustain more than two operators at the moment.

Mr Mah Bow Tan: Sir, as the Member is aware, although the mobile phone market has two operators, with effect from next year, there will be another mobile phone operator in the market. This was as a result of a competitive tender that was issued in 1998. TAS was prepared to issue up to two more licences. But as the Member may recall, one of the successful bidders for the licence had to withdraw for various reasons.

There are no plans at the moment for Government to issue any more mobile phone licences. But the situation is a very fluid one and we have not indicated categorically that we will not be issuing any more licences. In other words, as and when the situation requires, we are free to issue more mobile phone licences but it must necessarily be after the year 2000.

Mr Chng Hee Kok: Sir, following up from my previous question, does it mean that in that case TAS will make sure that prices will be held at a certain level until such time there are three or more carriers who will then compete in a free market with less regulation? This means that ultimately it can still lead to market failure because one can have a strong competitor which then becomes a monopoly again. What would TAS do in that case?

Mr Mah Bow Tan: Sir, the main issue in this case is whether the strong operator or the incumbent operator, which enjoys certain privileges that the other operator does not enjoy, is making use of this privileged position. Today there are two operators; one has got certain monopolistic privileges, the other has not. Until such time as the playing field is more even, it is necessary for the regulator to ensure that any changes or any new pricing schemes or any new market practices, for that matter, must be under scrutiny. This does not suggest that prices cannot go down. In fact, as I have announced earlier, after looking at the application and making certain queries and receiving clarifications from the applicant, TAS is now satisfied that the new pricing scheme does not in any way affect the other operator. Neither does it tie consumers down so that they do not have the flexibility or the freedom to change operator come April 2000. Having received those clarifications, TAS is quite happy to approve the new loyalty scheme with lower prices.

Mr Chng Hee Kok: Sir, the Minister is aware of Marketing 101. Price is only one of several practices in the market. If price is the only determinant, then all of us will be driving a Suzuki and not a Mercedes-Benz. Quite clearly, the amount of marketing effort or advertising expenditure has a tremendous impact on the market share. The question I want to ask the Minister is, hypothetically, will TAS control a carrier if it wants to give a phone free of charge, for example? Will TAS control the marketing expenditure of the different carriers to make sure that one will not over-spend to create a larger market share?

Mr Speaker: Mr Chng, may I remind you that you are not permitted to ask hypothetical questions.

Mr S. Iswaran (West Coast): Sir, will the Minister clarify the Government's response to a perception in some quarters that the TAS' current requirements are in part to protect the market for new entrants in the mobile and fixed line industry?

Mr Mah Bow Tan: Sir, the decision to license a third mobile operator has been made. This third mobile phone operator will commence its operations with effect from April 2000.

While the two current operators strive to capture whatever market share they can with their current innovative marketing strategies, it is important for TAS to ensure that come April 2000 the market place will be a level playing field for all players - first, second and third operators. It is no use for us to issue a licence for a third operator when at the same time, the existing two operators are allowed to capture customers and penalise them if they were to switch. If there are any loyalty programmes that are being put in place by either of the operators today to maximise their market share, that is perfectly all right, so long as come April 2000, customers are free to switch. That is the key point, that there is no penalty involved in the switch. If they want to have loyalty programmes for one, two, three or four years, that is perfectly fine. The new operator will have to contend with that but it must also be able to bring customers on board because such customers are not tied down by the existing loyalty scheme. This ultimately is for the benefit of the consumers. If we allow a situation where the two operators currently tie up all the consumers, we are back to a duopoly situation. Then what is the point of issuing a third licence?

Come year 2000, customers will have more choice and TAS wants to ensure they will be allowed to switch easily from whatever loyalty programmes they join today. The purpose of the requirement by the regulator to approve any such schemes beforehand is ultimately with the benefits of the consumers in mind.

Dr Toh See Kiat (Aljunied): Mr Speaker, Sir, would the Minister then confirm that beyond April 2000 therefore any of the three operators would be able to state any price or have any kind of loyalty programmes they want without any regulation?

Mr Mah Bow Tan: Sir, as I indicated earlier, as the market becomes freer and as there are more players, the regulator will not need to have the strict oversight role that it currently has. This will be progressively relaxed as we have a freer market situation and as the consumers become more savvy and more discriminating in their choice. In other words, they do not look at just the short-term. It is fine to say, "Let us have a free-for-all now. I want to enjoy the benefits today." But they must be sophisticated and savvy enough to realise that they must also be able to enjoy the benefits of competition in the longer term, in other words, that competition is sustainable. Those are the conditions under which the regulatory regime will and should operate beyond April 2000.

Dr Lee Tsao Yuan (Nominated Member): I would like to ask the Minister whether the regulator is being unnecessarily cautious in this regard, for example, if the operator wants to cut prices, to automatically allow the operator to do so, and if there are any conditions attached, such as loyalty conditions, to ensure that the operator makes this clear that there is a note in this regard that there would be a third operator that comes in in the year 2000.

Mr Mah Bow Tan: I think this is what the regulator has sought to do. The regulator has not said that you are not allowed to make these filings. What the regulator has said is, when you make the filing or want to make a public announcement, make it clear that this is subject to approval. If you want to have such loyalty programmes, you must let the regulator know what are the precise terms and conditions before you implement.

One could argue that we could let them implement first and then take retrospective action thereafter. This is possible except that it can be a little messy, if, for example, customers are tied in by contract to loyalty programmes and then you have to unwind later on. On hindsight, at this stage, TAS, the regulator, feels that it is better to make the clarifications before implementation, rather than after. But as I said, when the third operator comes in, subsequently even fourth, fifth or more, the market will be in a much more competitive situation. The regulator can then take one or two steps backwards and the consumer can then be depended upon to make those choices.

But today, where there are only two operators, as the experience has shown in many other countries, in a duopoly situation, you have to ensure that the major operator, the incumbent operator, does not make use of the privilege that it has to push aside competition.

Mr Iswaran: Could the Minister inform the House how TAS' regulatory requirements compare with similar requirements in countries which are at a comparable state of development in their telecommunications industry?

Mr Mah Bow Tan: I have here a list of the regulatory bodies overseas that have similar requirements. OFTA in Hongkong, OFTEL in the UK, ACA in Australia, they have established similar policies to what TAS has put in place. In fact, I had been told that Hongkong Telecom, for example, was actually ordered by OFTA to stop anti-competitive prices. In 1998, they were fined for engaging in widespread illegal anti-competitive practices in that year. Later, in September 1998, they had to make similar announcements and take similar action. In the UK, over the past two years, OFTEL had to investigate complaints on British Telecom, again the incumbent operator, for engaging in alleged predatory prices for both Internet services and fixed line services. In other words, this is not something unique to Singapore. There are similar experiences in many regimes where markets are starting to liberalise, and you have a situation where you do not have many players in the market.

Dr Lee Tsao Yuan: Does the Minister agree that this whole incident, particularly in terms of the public communication, could have been better handled?

Mr Mah Bow Tan: Sir, I asked that same question myself. I asked TAS why is it that they came out so strongly, as the headline put it, "to slam the two operators". I went into some detail about this because I felt that it was, as the Member pointed out, totally unnecessary. TAS informed me that, in fact, when they were asked for clarification, all they said was that the two service providers should seek TAS' approval before they announced their proposals, in other words, make it clear to the public that these are subject to approval so as not to mislead the public. That is all. I thought that was a perfectly reasonable response to the query.

However, I was surprised to see that it became something of a furore, first of all, starting with the headline that "TAS slams the Friday shoot-out". Thereafter, it was also quoted that TAS felt that the operator was either too quick off the mark or could be misleading the public. I am told that such comments were not actually made at all although they were ascribed to TAS. I believe that clarification has been made with the reporter concerned. Yes, I agree that it is much ado about nothing. This is really a storm in a teacup. I hope with this explanation, the public will be more aware of the reason behind TAS' actions, that there is no such thing as a free meal, that even though prices do come down, they must ensure that their interests are safeguarded in the longer term and that it is TAS' responsibility at this stage, as the regulator, to make sure that this is so.