LIBERALISATION OF TELECOMMUNICATIONS INDUSTRY (Compensation to SingTel and StarHub)

Mr Goh Choon Kang asked the Minister for Communications and Information Technology if he will quantify the benefits to be derived from faster liberalisation of the telecommunications industry and the $1.94 billion paid out to SingTel and StarHub.

Mr J. B. Jeyaretnam asked the Minister for Communications and Information Technology how the Government justifies the payment to SingTel and StarHub for ending their licences prematurely.

The Minister for Communications and Information Technology (Mr Yeo Cheow Tong): Sir, may I have your permission to take Question Nos. 11 and 12 together?

Mr Speaker: Yes.

Mr Yeo Cheow Tong: Sir, the Government is committed to introducing full market competition in the telecoms sector. Competition spurs innovation, raises efficiency, improves services and lowers prices to the benefit of the people, public and businesses. Advancing full market competition is necessary because the openness of the telecoms regulatory environment has become a key factor in attracting new investments. We must therefore have a globally competitive telecoms market, with many players offering a wide range of innovative, high quality and cost effective services. This is the rationale for the accelerated liberalisation of the telecoms market.

However, as a serious and responsible Government, we also recognise our earlier commitment to SingTel and StarHub to maintain a duopoly until 1st April 2002. Our decision to bring forward full liberalisation would have a significant impact on their business, investment and rollout plans. We must thus be fair to both SingTel and StarHub, and compensate them accordingly for any potential loss of net revenue from the earlier introduction of competition.

To ensure transparency and objectivity in deriving the compensation figures, IDA hired a third party consultant, Deloitte Consulting. Deloitte Consulting took a discounted cash flow approach to determine the net revenue positions of SingTel and StarHub, under the two scenarios of a two-year duopoly and accelerated liberalisation. Specifically, the analysis is restricted to public basic telecoms services, or PBTS, and excludes other services such as mobile communications and Internet access services because these are already open to full competition.

Forecasts made by Deloitte Consulting were based upon both the historical growth in Singapore and in consideration of overseas experience based on information available from research organisations, regulators, and investment analysts. It is with such detailed analysis that the final compensation figures of $859 million for SingTel and $1,082 billion for StarHub were derived.

The Government has accepted that these figures were derived objectively and are fair and reasonable. The long-term benefits brought about by full liberalisation will far exceed the compensations paid to these two companies. Some of the benefits are already evident today. Within a few months of liberalisation, IDA has issued more than 150 new telecoms licences. These new entrants are expected to invest a total of $3 billion in Singapore by the year 2003. These investments would strengthen the capacity and quality of our national information infrastructure, as well as our connectivity to the regional and global information infrastructures. Let me illustrate. Singapore's global connectivity is set to increase to 15 Terabits per second over the next 18 to 36 months. This is a huge increase of 300 times compared to only 50 Gbps early this year.

Competition has also benefited businesses and consumers, by bringing about lower prices, faster pace of innovation, and better quality of service. As an example, IDD rates have fallen by an average of 20% and up to as much as 60%.

Sir, put in perspective, the payments of $1.94 billion as compensations to SingTel and StarHub are essential to the strengthening of Singapore's economic competitiveness in the era of the New Economy, while preserving the credibility of Singapore as a leading investment location for global leaders. As is evident, earlier liberalisation and keener competition have indeed reaped benefits not just for our economy as a whole, but also for individual businesses and consumers.

Mr Goh Choon Kang (Marine Parade): Sir, is it true that the total amount of compensation is now less because it is tax exempt?

Mr Yeo Cheow Tong: Sir, the figure of $1.94 billion is net of tax, that means, if it was liable for tax, you would have to gross it up further. So this is the figure that is net of tax.

Mr Jeyaretnam: Why was it found necessary to assure SingTel and StarHub that there will be no players until 1st April 2002? Would they not have come into the market without that assurance?

Mr Yeo Cheow Tong: Sir, that was part of the commitment given by the Government when we invited tenders for the establishment of the second public basic telecoms service in 1996.

Mr Jeyaretnam: But why?

Mr Yeo Cheow Tong: Sir, the reason is very simple. The establishment of a second fixed line network involves a huge investment. In the case of StarHub, the commitment is $2.6 billion. To ensure that we have a viable business model and to ensure that there are enough interested companies, the Government therefore made a commitment that the investor would have a two-year grace period in which to build up market share and to ensure that they can derive an economic return from this huge investment.

Assoc. Prof. Toh See Kiat (Aljunied): Sir, I would like to ask the Minister, with this payment to StarHub, what assurance is there that the fixed line operators would still be more than one, in other words, that StarHub would not perform its role in a perfunctory way by offering a token service?

Mr Yeo Cheow Tong: Sir, in the first place, IDA has already informed StarHub that it is obliged to roll out its network, as committed.

Secondly, having invested so much money, $2.6 billion in the system eventually, I do not think any company would want to just offer a perfunctory service and collect very minimal revenue.

Mr Low Thia Khiang: The Minister says that at the point of tender, to ensure commitment, the Government allowed them to monopolise the market up to 2002. My question is, why did the Government, at that point in time, fail to see the need to liberalise the telecommunications market and allow these two companies to monopolise the market up to 2002 and, now, suddenly, discovered that there is a need to liberalise the market for the benefit of the nation, and thereby about $2 billion is needed to pay out from the Government's coffers? Is this the result of the Government failing to foresee what is happening in the future?

Mr Yeo Cheow Tong: Sir, it is very easy at this point in time, having seen all the rapid liberalisations taking place around the world, to say that the decision in 1997 was perhaps faulty. We have to bring ourselves back to 1995-6 when most of the global telecoms market was still not fully liberalised and, therefore, setting a timeframe of 2002 at that point in time was already a very aggressive timetable. So it is not that we did not have the foresight. We knew that there was liberalisation taking place, which was why we moved up the date for liberalisation or the introduction of competition by seven years for SingTel from 2007 to 2000. But in order to attract a new serious player into this market of public basic telecoms services, which involves such a huge investment, companies would want to ensure that there are certain safeguards in order to build their market share before prices start collapsing with the introduction of full competition.

Dr Wang Kai Yuen (Bukit Timah): I would like to find out from the Minister whether he considers it staggering that the loss of monopoly over two years for the industry amounts to a net revenue of $1.9 billion. In my mind, there are very few industries that if they lose a monopoly for two years, it will come to that amount. Would he agree that perhaps this number shows that Singaporean consumers have been paying too much for their fixed-line service?

Mr Yeo Cheow Tong: Sir, the figure would appear staggering and, I am sure, to many people, it is staggering. But then, one must also consider that SingTel's profit each year exceeds a billion dollars.

Dr Wang Kai Yuen: That is precisely my point, Sir, that, as a monopoly, SingTel's profit is outrageous. And, the Government, being a regulator, perhaps had not been doing a very good job by allowing SingTel to make so much money out of Singaporeans through the use of telephones.

Mr Yeo Cheow Tong: Sir, global practice, prior to this time, has been for national telecoms monopolies and, in fact, in most countries of the world, the norm is still a national telecoms monopoly. Of course, because we are part of the global network and we want to be a knowledge-based economy and we also want to be a telecoms and business hub for the region, we have no choice but to open up the telecoms market as rapidly as possible in order to ensure that the new investments that are being considered for the region will now come to Singapore or, at least, much of those investments in the pipeline, will come to Singapore. Therefore, the price of $2 billion, in the context of the overall economic development, is a small price to pay.

Mr Simon S C Tay (Nominated Member): Two questions for the Minister. The first is that the Minister has explained the promise that was given of a duopoly to StarHub and the fact that StarHub, based on this, has committed to certain investments. But how does the logic apply to SingTel, given that SingTel was already first a monopoly, and has already made those investments?

The second question is more general, regarding duopolies. The Government has also recently announced plans to basically create a duopoly of competition for the newspaper media and television media. Looking forward, is there a danger that we have to liberalise this sector more quickly and we end up in another position where we end up paying compensation?

Mr Yeo Cheow Tong: Sir, the reason for having to compensate SingTel too is that we have made a public commitment that there will be a duopoly for two years, which means that SingTel would have also gone ahead to make its investments on that basis. So, therefore, the commitment, although not explicit to SingTel, is an implicit one.

With regard to the duopoly of newspaper and television media, I would suggest that he raise the question with my colleague.

Assoc. Prof. Toh See Kiat: Sir, two supplementary questions for the Minister. One, is to follow up on the StarHub payment. The Minister says that StarHub will be committing more than $2 billion into infrastructure. Shortly after the announcement that the Minister would liberalise telecommunications, they announced that they would withdraw their investments. So are they now committed again to putting in that investment for the more than $2 billion they originally were committed to?

My second question, Sir, is about the monopoly. If the Minister is stepping back by liberalising and by emphasising self-regulation in all these public announcements, how is it going to be possible for self-regulation in a market which is so dominated by one player still?

Mr Yeo Cheow Tong: In reply to his first question, no, StarHub will not be reneging on its investment commitment. It is still required to roll out the local network and we are in discussion now with Starhub on their plan and the schedule.

Sir, on the second part, that with such a dominant player, how can self-regulation work, there is still a need for a regulator, which is why we have IDA. IDA will remain as the telecoms regulator to ensure that there is no anti-competitive behaviour by the dominant player and to facilitate the smooth development of the entire industry.

Mr Jeyaretnam: The Minister has spoken of accelerated liberalisation and the benefits that are to be derived. Would he tell us how many players are queuing up for licences to be issued?

Mr Yeo Cheow Tong: Sir, I have answered just now in my main answer that IDA has already, in the short period of time since I announced the move to liberalise, issued a total of 150 new telecoms licences, and these would comprise 11 facilities-based service providers and 130 service-based operators.