Cablegate: Singapore Broadband Network Promises Faster Internet

DE RUEHGP #1108/01 3230251
R 190251Z NOV 09 ZDK





E.O. 12958: N/A


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

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

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be overlapping interests that could complicate matters down the

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

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two years, but will be monitoring the operation of the network to
see where the most cost-effective opportunities may lie.


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