Mr Mah Bow Tan, Minister for Communications Speech - TAS to Advance the Expiry of S'pore Telecom's Exclusive Licence for Basic Telecommunications Services to Year 2000

Mr Mah Bow Tan, Minister for Communications
Speech - TAS to Advance the Expiry of S'pore Telecom's Exclusive Licence for Basic Telecommunications Services to Year 2000
Singapore, 11 May 1996

During the debate in the Committee of Supply in Parliament in March this year, I spoke of the need for MinCom and Telecommunication Authority of Singapore (TAS) to constantly review and, where necessary, adjust our telecommunication policies to reap the full benefits of developments in the telecommunication industry so as to maintain Singapore's competitiveness.

Under the existing regulatory regime, Singapore Telecom (ST) has monopoly rights in the provision of basic local and IDD telephone services. To make up for the absence of real competition, TAS has taken on the role of a proxy competitor. TAS has steadily introduced competition in many areas, eg. Internet and VSAT, by interpreting ST's exclusive licence narrowly. It has also regulated ST's charges by benchmarking ST's rates against other countries. In the last 2 years, ST has cut its IDD rates to 37 countries by close to 50%.

However regulation cannot substitute fully for real competition to spur providers to raise efficiency, improve services, and lower prices. We have seen just a few weeks ago how aggressively countries were negotiating an agreement on telecommunications in order to reduce barriers to competition worldwide. Although the negotiations were inconclusive, countries have agreed to pursue the matter actively to reach a broad agreement to further liberalise our markets.

Further, technology is forcing the industry to open up faster than we envisaged. These technological changes are making ST's exclusive licences less and less meaningful and more and more difficult for the regulator to enforce.

Singapore cannot disregard the changes sweeping the world. We are a major banking and financial center. Banks, forex dealers, and commodity traders depend on telecommunication services of the highest quality and the lowest cost. So do our ports, airports and manufacturers.

Perhaps more than any other country, we depend on the efficiency of our infrastructure, especially telecommunications, to attract high-quality investments. As a business hub, we must keep pace with technology, and offer telecommunication services which are as comprehensive, as efficient and as competitive as possible. To sharpen the competitiveness of our telecommunication industry, we must introduce real competition, and do so as soon as practical.

ST's monopoly on basic telecommunication services only expires in 2007. From 2002, TAS has the right to allow broadcasting operators and other public telecommunication licensees to offer telecommunication services which are ancillary and incidental to their principal services. This was stated in ST's IPO prospectus. This in effect allows TAS to progressively introduce competition in basic telecommunication services from 2002.

However, this approach does not allow us to introduce competition in an optimal way. First, we will be locking ourselves in to a predetermined pool of players: existing broadcasting and telecommunication service providers, like the cable television, mobile phone or paging licensees, who have started business in Singapore before 2002. These operators will have an unfair advantage over other potential competitors.

Second, time is of the essence. 2002 is still 6 years away. In this dynamic environment, every year counts. Every year that we do nothing is a year lost as competition world-wide intensifies and technological change speeds up.

The Government has therefore decided to modify ST's licence explicitly, to end its monopoly on basic telecommunication services earlier than 2007. This way, it can introduce competition in a controlled and even-handed way. It will compensate ST fully for any change to its licence as provided for in Section 28 of the TAS Act.

Developed countries in Europe and North America have set 1998 as the target date for liberalising their own telecommunication markets. It is not feasible for Singapore to open up by 1998, in view of the lead time needed to introduce competition. The process of proper tendering, selection and service roll-out would require at least 36 months.

We have therefore decided to remove ST's exclusive rights, and allow competition in basic telecommunication services from the year 2000. By then many cross-border services, such as global satellite mobile services and Internet-related services will be coming on stream.

The Government will compensate ST fully and fairly for any likely loss in earnings as a result of this modification in ST's licence. TAS has engaged an international consultant to advise on the compensation amount payable.

The consultants have projected ST's earnings based on the current situation, ie. competition in 2002 and expiry of exclusive rights in 2007. They have compared this against ST's projected earnings when its exclusive rights expire in 2000. The difference between these two figures is ST's likely loss. The consultants have computed this amount to be $1.5 billion. The Government will compensate ST this full sum of $1.5 billion.

ST is no stranger to competition. It has been actively gearing itself up for competition both locally and abroad. It has shown over the last few years that it is more than able to hold its own in such an environment. I have no doubt that when ST's monopoly expires in 2000, and a more robust and dynamic telecommunication industry develops, ST will continue to do well.