VZCZCXRO2157
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #1108/01 3230251
ZNR UUUUU ZZH
R 190251Z NOV 09 ZDK
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 7434
INFO RUCPDOC/USDOC WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 04 SINGAPORE 001108 
 
STATE PASS USTR 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECPS ECON ETRD EINV SN
 
SUBJECT:  SINGAPORE BROADBAND NETWORK PROMISES FASTER INTERNET 
SPEEDS, MAY RESOLVE MARKET ACCESS ISSUE 
 
REF: STATE 27310 
 
¶1.  (SBU) Summary:  Supported by a billion dollars in subsidies, 
Singapore is launching construction of a city-wide next generation 
broadband network that promises higher connectivity speeds at lower 
subscription rates.  The new fiber-to-home network is part of a 
grand ten-year plan begun in 2005 to provide seamless connectivity 
throughout the country and build a new industry to help drive the 
Singapore economy.  Although the new network will provide internet 
access at up to ten times currently available speeds, internet 
providers worry whether software developers will be able to create 
new applications and services that would motivate subscribers to 
bother upgrading to the new network.  In a unique arrangement, the 
GOS mandated both structural and operational separation for the 
owner and operator of the network infrastructure to ensure open 
access to the network and a more competitive playing field for 
service providers.  The new network may also ameliorate a 
longstanding telecom market access dispute with the United States by 
allowing telecom providers to bypass the dominant carrier's networks 
and provide direct service to customers.  End Summary. 
 
¶2.  (SBU) In August Singapore installed the first residential 
hookups for what will become a nationwide high-speed fiber-optic 
broadband network.  The new network promises high-speed access to 
the Internet at speeds up to one gigabit per second (Gbps), ten 
times faster than speeds currently available to residential 
consumers.  For now the newly laid cables lie dormant until more 
areas of the country are wired and the necessary operating equipment 
is in place, but the network is expected to be operational in 
covered areas by the second quarter of 2010.  The network is 
scheduled to cover 60% of the country by the end of 2010, 95% by 
June 2012, with universal service obligations covered by the 
beginning of 2013. 
 
¶3.  (SBU) The new broadband network is part of Singapore's 
Intelligent Nation 2015 (iN2015) blueprint, a ten-year plan 
envisioned to provide seamless connectivity throughout the 
city-state by 2015.  The plan focuses on improving infocomm 
development in digital media and entertainment, education, financial 
services, government, health care, logistics services, and the 
tourism industry.  As part of the plan, the GOS set a goal in 2005 
for 90% household broadband penetration by 2015, a goal that has 
already been surpassed.  The GOS sees infocomm development as a new 
industry to drive growth for Singapore's economy, as well as an 
asset for improving other existing industries.  The GOS is shooting 
for a tripling of exports of infocomm products and an additional 
80,000 jobs in the industry by 2015. 
 
¶4.  (SBU) To spur development of the broadband network, the GOS is 
providing a grant of S$750 million (US$520 million) to the builder 
of the passive infrastructure, including the fiber and ducts to 
carry the fiber, and S$250 million (US$170 million) to the operator 
of the active infrastructure, such as switches and routers.  In 
return, the companies awarded the projects agreed to provide open 
access to the network, universal service coverage and to offer 
wholesale services to downstream operators on a non-discriminatory 
basis. 
 
Structural and Operational Separation 
------------------------------------- 
 
¶5.  (SBU) In a bid to level the competition and provide neutrality 
and open access to downstream operators, the Infocomm Development 
Agency (IDA), Singapore's telecom regulator, constructed a unique 
structural and operational separation between the different levels 
of the network.  The system promises to eliminate the possibility of 
exclusive contracts, allowing open access to all content using any 
access methodology.  Under the plan, a Network Company (NetCo) would 
design, build and operate the passive infrastructure that would 
carry the traffic.  A separate Operating Company (OpCo) would deploy 
and operate the active electronics such as switches and routers to 
manage the flow of traffic, and sell wholesale broadband access to 
downstream Retail Service Providers (RSP).  The RSPs will provide 
internet services to end-users.  Under the contract, the NetCo and 
OpCo are required to maintain separate management and boards from 
their parent companies, and any subcontracting to the parent must 
receive IDA approval. 
 
¶6.  (SBU) The structural separation will help prevent domination of 
the network by dominant incumbent Singapore Telecommunications 
(SingTel), which owns much of the existing network and which other 
telecom providers say has been notoriously difficult to work with. 
Management of the new OpCo say SingTel has adopted a fresh approach 
since the initiative began and has been much easier to work with. 
Nevertheless, there are still concerns that with SingTel having a 
sizable stake in the owner of the passive infrastructure there may 
 
SINGAPORE 00001108  002 OF 004 
 
 
be overlapping interests that could complicate matters down the 
road. 
 
NetCo - OpenNet 
--------------- 
 
¶7.  (SBU) In September 2008, IDA awarded the NetCo contract to build 
the passive infrastructure to OpenNet, a consortium between SingTel 
(30%), Canada's Axia NetMedia Corporation (30%), Singapore Press 
Holdings (25%) and SP Telecommunications (15%).  Under its proposal 
OpenNet will deploy and own all the fiber optic cables and offer 
wholesale dark fiber (fiber that has yet to be "lit" or activated) 
services to downstream operators.  Prices are set at S$15 (US$11) 
per month for a residential fiber connection and S$50 (US$36) per 
month for non-residential connections.  Under the contract, OpenNet 
is required to waive installation charges for building owners when 
the network reaches their premises, and after 2013 under universal 
service obligations will continue to install fiber termination 
points in new homes, offices and buildings.  In addition, OpenNet 
will run fiber to non-building address points like bus stops and 
lamp posts for possible future uses of network services including 
e-signage and traffic control. 
 
¶8.  (SBU) OpenNet began its first network connections in August and 
plans to have 15 percent of the city covered by the end of the year. 
 With much of the passive infrastructure owned by consortium member 
SingTel already in place, little time-consuming digging will be 
necessary to link buildings to the network.  However, OpenNet has 
initiated hooking up customers based on the location of its existing 
infrastructure rather than locations with higher concentrations of 
customers.  Some major corporate sites where infrastructure is solid 
will see connection during the first year, but network expansion to 
some residential areas will be more sporadic.  OpenNet plans to have 
all Singapore schools connected by mid-2010.  OpenNet's biggest 
challenge thus far has been convincing residents to allow its 
technicians to link the fiber to their homes, said Ms. TAN Kah Rhu, 
OpenNet's CEO.  OpenNet has so far received a low response rate to 
its letters to homeowners notifying them that the fiber will soon be 
installed and requesting access. 
 
¶9.  (SBU) The GOS will grant S$750 million to OpenNet to help 
finance the network construction.  The GOS will progressively dole 
out grant funds based on a combination of area covered and the take 
up rate by consumers.  OpenNet expects to expend S$1 billion on 
initial construction costs, and as much as S$2 billion to lease 
infrastructure from SingTel.  The company will transfer its 
extensive infrastructure already in place, including ducts, manholes 
and exchange buildings to an independent asset company known 
provisionally as AssetCo by mid-2011.  That company will in turn 
lease those assets to OpenNet.  Analysts say the transfer will be a 
boon to SingTel as the value of its infrastructure was expected to 
decline as the new fiber network expands and SingTel would no longer 
be able to compete on the basis of owning its own network. 
 
¶10.  (SBU) Once construction of the network is complete, OpenNet 
expects a steady stream of profit from leasing lines. 
Post-construction costs are expected to be minimal, with little more 
than maintenance and extension of the network to new buildings. 
Prices for access to lines will likely drop after the initial 
construction investment costs have been covered.  OpenNet is 
nevertheless under IDA-set price controls for eight years with 
occasional price reviews to allow OpenNet to raise rates if costs 
are increasing.  OpenNet has a 25-year license to manage the 
infrastructure, which it is not allowed to abandon.  Under the terms 
of the contract, OpenNet submitted a business continuity plan for 
the possibility it would be unable to continue operation.  IDA 
officials say that if necessary the GOS would step in to take over 
the network. 
 
NetCo - Nucleus Connect 
----------------------- 
 
¶11.  (SBU) In April the second layer of the new network fell into 
place as IDA accepted Nucleus Connect's bid to be the Operating 
Company.  Nucleus Connect is a wholly owned subsidiary of local 
telco StarHub.  The company has committed to begin service to wired 
areas of the country by the end of March 2010.  After operation 
begins, Nucleus Connect is required to be able to provide service to 
customers within seven days after the network reaches their 
premises.  The operator will receive a S$250 million grant from IDA 
to subsidize its planned expenditures of approximately S$1 billion 
for the active network over the 25-year period of the license.  The 
grant will be disbursed in increments as Nucleus Connect meets 
certain subscription benchmarks.  The GOS believes Nucleus Connect 
can hit 80-90% of its targeted take up rate, but says it will count 
only subscribers to 100 mbps service to promote new applications it 
 
SINGAPORE 00001108  003 OF 004 
 
 
hopes the new network will bring.  Nucleus Connect will charge S$21 
for a line, S$6 over its cost from OpenNet.  Prices will be fixed 
for six years, but Nucleus Connect does not expect prices to 
increase after that date. 
 
¶12.  (SBU) Nucleus Connect will have an exclusive license as the 
operating company for five years or until it has claimed a 25 
percent broadband market share.  In practice, Nucleus Connect 
expects to have a 25 percent market share at the open of the network 
operation as its parent StarHub plans to buy all its access from 
OpenNet, enough to cover at least 25 percent of the total market. 
However, the company does not expect immediate competition to 
provide retail bandwidth as nationwide coverage will not be complete 
for another two years and other OpCos would not likely see immediate 
market entrance as profitable.  David Storrie, CEO of Nucleus 
Connect, told Econoff he eventually expects more competitors at the 
OpCo level, although the government's plan was structured so that 
most competition will take place at the RSP level. 
 
¶13.  (SBU) Nucleus Connect is also hoping for a boost from 
government contracts as the GOS encourages agencies to spend their 
annual expenditures of $S150 million on communications services on 
the new network.  Nucleus Connect believes they will get a 
substantial piece of the government business, but notes that the 
government may in the end set up their own government-wide RSP to 
provide services.  In the meantime, Storrie says he has been assured 
that "something big" is coming their way from the government that 
will add to their business, possibly mobile road pricing.  IDA 
officials say their e-government plans for the network are still in 
the works. 
 
New Applications or No New Customers 
------------------------------------ 
 
¶14.  (SBU) Although the new network will provide speeds up to 1 
Gbps, ten times faster than currently available speeds, there may be 
a limited number of consumers who can or need to utilize those 
faster speeds.  Nucleus Connect is concerned about attracting a 
sufficient number of subscribers while simultaneously dealing with 
lower prices for broadband.  Industry expects that the network's 
open access and non-discrimination structure will send prices per 
mpbs crashing.  The current S$50-60 subscription rate for a 10 mbps 
broadband connection will likely stay steady at the new speeds of 
100 mbps, with prices for slower speeds dropping significantly. 
 
¶15.  (SBU) To woo new subscribers, Nucleus Connect is banking on the 
development of new service applications to make use of the faster 
speeds, such as remote diagnostics for health care, grid computing, 
and improved interactive learning applications.  To spur network 
usage, IDA has started the Next Generation Multi-Media Applications 
and Services (NIMS) to put an open platform in place where code 
writers can write new applications and put them on the market 
quickly.  Tom Cheong, Managing Director for Cisco in Singapore, said 
Cisco would be targeting sales for its TelePresence product used for 
teleconferencing, a popular product but one that required 
substantial bandwidth. 
 
FTA and Market Access 
--------------------- 
 
¶16.  (SBU) Singapore's fiber-to-home network may resolve or at least 
ameliorate a long-standing trade dispute under the U.S.-Singapore 
Free Trade Agreement involving market access in the telecom sector. 
U.S. telecom providers in Singapore have been unable to obtain 
reasonable access to SingTel's network at economically efficient 
points of aggregation, forcing providers to build out networks to 
disparate local exchanges.  SingTel has announced plans to close a 
number of exchanges without specifying which ones, adding to 
providers' cost and uncertainty.  With an open access network with 
fiber in each home and office in Singapore, other telecom providers 
may soon be able to bypass SingTel's network and provide service 
directly to customers. 
 
¶17.  (SBU) Local representatives from U.S. telecom provider Verizon 
told Econoff that although the new fiber network offered a new 
competitive option for providing services, it did not close out 
other options and the issue of improved access to SingTel's network 
remained.  Depending on the building, its proximity to the network 
and the number of customers in the building, linking through 
SingTel's existing network could still be more cost-effective than 
using the new fiber network.  Although Verizon expected OpenNet to 
lease fiber at a fraction of SingTel's prices, they also expected 
prices could be substantially higher for particular buildings and 
links under the new network, especially if fiber passed through more 
than one exchange before reaching the endpoint.  For the moment, 
Verizon plans to begin leasing bandwidth on the new network within 
 
SINGAPORE 00001108  004 OF 004 
 
 
two years, but will be monitoring the operation of the network to 
see where the most cost-effective opportunities may lie. 
 
SHIELDS