The Story of Convergence: A Connected Island

Khaw Boon Wan, Senior Minister of State for Transport and Information, Communications & The Arts - Speech Infocomm21 Leadership Dialogue 2002, Suntec Singapore Singapore, 27 February 2002

Khaw Boon Wan, Senior Minister of State for Transport and Information, Communications & The Arts - Speech
Infocomm21 Leadership Dialogue 2002, Suntec Singapore
Singapore, 27 February 2002

Friends & Colleagues

With this audience, I do not have to belabour the point about change being the only constant in life. Your industry is constantly changing and in fact rapidly changing. Some of you are directly responsible for bringing about such changes, as pioneers in technology. Others are early adopters as you exploit the changes to expand your business or to gain new competitiveness. But all of us are affected by these changes in your industry.

As always, changes throw up winners and losers. Winners create opportunities out of changes; losers succumb to them. We see ample demonstration of this in the recent boom and bust of the Internet bubble, when billions of dollars worth of fortunes were created and lost, all within a few years.

I have personal encounters with the changes in your industry. Let me give you one example.

From NCB to IDA

Prior to entering politics, I was the Permanent Secretary of MTI. At the beginning of my term in MTI, I took part in moving the National Computer Board (NCB) from Ministry of Finance to MTI. That move signaled the expansion in the role of NCB from an agent in computerising the civil service to a champion for growing the IT sector into an economic pillar for Singapore.

By the end of my term in MTI, I was involved with the second move of the NCB. This time, from MTI to MCIT. This was to enable it to merge with TAS to form the IDA. That move signaled the first phase of convergence as IT and telecommunications became less distinguishable. In cyberspace, both are mere bits and bytes.

More recently, I was again associated with another move of the IDA. This time, from MCIT to MITA. This is to position Singapore for the next phase of convergence between IT, telecommunications and broadcasting. By putting IDA and SBA under one Ministry, we can better prepare for convergence. As industry players compete in one another's space, as some merge and consolidate in response, we hope to serve them better as one Ministry rather than having them dealing with two.

The story of convergence has yet to fully play out. Indeed, we are still in early days. The current landscape will by no means be final.

500 Channels

I first got involved in the convergence story some 8 years ago, when I was assigned the job to bring cable TV into Singapore. It was an exciting period for the cable TV industry, especially in the US. As with all excitement, there was inevitably much hype and froth.

I could still remember the hype of 500 channels on TV, as the broadcasting industry announced ambitious plans to migrate from analogue to digital. At the launch of cable TV in Tampines, our first HDB Newtown to enjoy multiple pay TV channels, I described the wonderful world of convergence when we could do many things at home, as services became digital bits and bytes travelling at the speed of light down our cable TV network. We can order and read books from libraries or bookshops. We can order and buy CDs and VCDs. We can monitor road traffic conditions. We can see what is going on in lifts and car parks in our estate. All from the comfort of our living room.

All these promises are real, as the technology is already out there. But in practice, no cities in the world are living in this wonderful world of convergence. Not yet anyway. We should not give up on this dream, for it is a sound vision. When fully realised, it would change dramatically our way of life, the way we live, work and play.

Nevertheless, some features of the converged world are already with us. I now work regularly from home, almost as efficiently as in office. Emails via our broadband network are as rapid as along the office's local area network. Broadband lifestyle is certainly more real now than several years ago.

Hype vs Reality

But why is convergence taking place so slowly? Why do some convergence ideas remain hype, while others become reality?

After selling cable TV for 7 years, I learnt one humbling fact. It is not easy to get people to part with their money. Whatever we sell, goods or services, they must satisfy a consumer need. What is technologically possible may be a commercial disaster.

Yes, we can technically pump 500 channels into the living room. But 500 channels of what? If they are mere thrash and junks, consumers will merely say: "no thanks".

Much of the Internet bubble was built on free services, as dot.coms rushed to capture eyeballs. When IPO valuation was based on multiples of eyeballs, never mind, if those eyeballs did not pay anything, it was not surprising why the race was to provide as many free services as possible, never mind if consumers really need them.

With a return to traditional economics, we are once again confronted with the classic market test. In business, we need to know what consumers want. The test is whether they are willing to part with their dollars to buy our services.

A Connected Island

The Internet bubble may have burst, but the Internet Revolution is here to stay. Broadband will continue to expand. Demand for more bandwidth and faster download will rise, not fall. Narrow band and broadband is like black-and-white TV vs colour TV. There is no turning back.

We have wired up all the one million homes in Singapore for broadband. We should now exploit this connected platform as well as infocomm technology to achieve both economic and social objectives. Economically, we should see how we can use it to increase our competitiveness, and to grow new businesses and models which can travel in the region. Socially, we should use it connect Singaporeans, both at home and abroad, and both to the past and the future.

Years ago, the NCB spearheaded the initiative to turn Singapore into an Intelligent Island. We have made much progress. In our next phase of development, the IDA will spearhead the re-invention of Singapore from an Intelligent Island into a Connected Island. As a Connected Island, our vision is for Singapore to not only have advanced infocomm facilities, but also create and distribute rich multimedia content and broadband applications over such an infrastructure. This would expand the ICT sector as our industry players better exploit and export infocomm and media services. At the same time, a Connected Island is about bridging social and digital divides as competition brings affordable and ready infocomm access to all Singaporeans.

The convergence of the 3Cs - Compute, Conduit and Content, and putting all these portfolios under one Ministry in MITA, has made the vision of a Connected Island feasible. It will push our infocomm development to greater heights. We hope that the collision of new technologies, digital media and the arts can nurture new opportunities for value creation. We want to be a leader in this new space, in the context of the remaking of Singapore.

Productivity Due to Innovation

I have just read an excellent article by McKinsey on "What's right with the US economy". It examined the near doubling of the US productivity growth rates, from 1.4% before 1995 (1972-95) to 2.5% after 1995 (1995-2000) and asked whether this trend could continue. The McKinsey research was triggered by the economic downturn and the war on terrorism, and as its clients worried over the long-term health of the US economy. The research zeroed in on productivity growth rate, as it is the main determinant of how fast the economy can grow.

I will leave you to read the report yourself (McKinsey Quarterly 2002 No 1), except to highlight its two conclusions, which are of relevance to what we discuss today.

First, the McKinsey research suggests that many of the product, service and process innovations which underpinned the productivity acceleration, will continue. This is the good news.

Second, the primary source of the productivity gains of 1995-1999, was not due to IT. This must come as a disappointment to some of you. Rather, managerial and technological innovations in only six highly competitive industries were the most important causes. These six sectors accounted for 99% of net productivity acceleration. The rest of the economy contributed a mix of small productivity gains and losses that offset each other. (In addition, cyclical demand factors were important in some parts of the economy.) The six sectors are wholesale trade, retail trade, securities, semiconductors, computer manufacturing and telecommunications.

Innovation Due to Competition

The key insight of the McKinsey Report is that the most important cause of the productivity acceleration in these 6 sectors was fundamental changes in the way companies deliver products and services. Sometimes these innovations were aided by technology, whether new or old, sometimes not. But in all the six sectors, high or increasing competitive intensity was essential to the spread of innovation. And in two sectors, telecommunications and securities, deregulation played an important role in raising that competitive intensity.

That was why we pushed for liberalisation in the telecommunications sector, and advanced the pace of deregulation by two years to Apr 2000. An immediate benefit to consumers has been the sharp fall in rates, and proliferation of choices. IDD rates to popular destinations like the US and UK went down by 60-80%. We will press on to increase the competitive intensity, so as to exploit the full benefits of competition. In particular, we hope that industry players will respond to the increased competition with greater managerial innovations, in coming out with more innovative services and products, in the way they run their business. The McKinsey findings should be an inspiration to you all.

IT Not Enough

Let me now return to the role of IT in productivity. The McKinsey research concluded that the widespread adoption of IT was not the most important cause of the acceleration in US productivity after 1995. But this does not mean that IT did not play a role.

IT can be quite valuable when deployed as part of a management plan to reorganise specific core activities of a business. In this respect, it is not different from other forms of capital investments: new building designs, new materials-handling systems, new production tools. But when generic IT solutions are applied to support functions, or when IT represents no more than a "me-too" investment, it is unlikely to make any dent on a company's productivity.

Put it simply, IT is often a necessary, but not a sufficient part of a company's productivity success.

Infocomm 21

Today's Infocomm 21 Leadership Dialogue is to solicit industry inputs on how we can further grow the infocomm sector. We have achieved a lot in a short time. But what more do we need to do, to make it an important economic pillar? What more do we need to do to transform Singapore into a Connected Island?

I have a personal interest in your discussions as I chair the Economic Review Committee's Service Industries Sub-Com. My Sub-Com has high hope of the ICT sector becoming a major economic pillar. Right through the Asian financial crisis, this sector has continued to chalk up positive growth.

Obviously liberalisation and greater competition have underpinned this spectacular performance. The question is whether we can do more. In particular, we need to discuss how we should revise existing policies and regulatory regime to facilitate faster and greater convergence, as this would open up the field to more players and greater competition.

Mr Wilson Tan chairs the ICT Working Group on this important assignment. I look forward eagerly to his Report.