IDC: Long-term NBN price war not feasible

As industry players unveil connectivity plans for Singapore's national broadband network, analyst notes value-add services will be differentiator going forward while observers say initial adoption to be slow.
Written by Tyler Thia, Contributor

SINGAPORE--Even as the first local players unveil connectivity packages under the country's next-generation national broadband network (NBN), an analyst has pointed out that perks and services, rather than price, will be the competitive edge going forward.

Nucleus Connect, the operating company (OpCo) of Singapore's NBN initiative, commenced operations this week, wholesaling fiber-optic bandwidth to retail service providers (RSPs) who are keen to offer broadband services to local customers.

Among the first five RSPs, M1, SingTel, StarHub and SuperInternet have released price plans for different connectivity options, with the cheapest "basic" 100Mbps plan at S$50 (US$37) offered by SuperInternet, a newcomer in the consumer market.

The last RSP, LGA Telecom, will announce its broadband plans next month, according to local media.

Long-term price war not feasible
According to Sherlin Pang, IDC Asia-Pacific's research manager for communications research, a price war is inevitable among the service providers but the differentiator in the longer run for these players will be perks and value-added services.

She noted: "The major players have the advantage of a ready customer base which the new players will have to build, and will probably need to come out with very competitive pricing for their service in order to compete."

"The players also need to watch their margin and [it] will not be feasible in the long run to fight based on pricing," added Pang. "Instead of dropping prices to near or below wholesale prices they will [likely] add on value-add services to differentiate themselves."

While SuperInternet and M1's packages start at S$50 (US$37) and S$59 (US$44) respectively for a 100Mbps connection, SingTel charges home users S$89.50 (US$66.50) for an "exPress" 150Mbps connection that comes with a 10Gbps online storage facility. SingTel also has a S$109.50 (US$81.30) "exPlore" package that consists of a 200Mbps plan bundled with its Mio Stadium ESPN Start Sports Twinpack, which is part of the company's IPTV service.

Enterprise customers wanting to sign up with SingTel will have to fork out at least S$248 (US$184), and a one-time charge of S$321 (US$238.40).

The telco defended the higher charges, explaining it was "providing more than access".

"Our key differentiator is that we leverage our fiber network resources to deliver personalized customer-centric applications which focus on entertainment, convergence and productivity enhancements," a SingTel spokesperson said in an e-mail to ZDNet Asia. "For example, for consumers, the exPress portal allows customers to enjoy features like unified messaging, online storage and sharing of multimedia content, and high-quality multi-party chat."

"Businesses can use eVolve, a new fiber solution to access SingTel's suite of managed services and cloud solutions, improving productivity and cost efficiencies."

StarHub announced its packages on Thursday, with MaxInfinity"access" plans ranging from S$68.27 (US$50.70) for a 100Mbps connection to S$395.90 (US$293.70) for 1Gbps. It also has "hubbing" plans from S$86.88 (US$64.50) onwards for Internet and cable TV services. Enterprises can look forward to faster connection from S$268 (US$199).

Customers who sign up for new plans will also be given dedicated assistance, either via call center support or onsite technical support within 48 hours of request.

The parent company of Nucleus Connect also will be targeting small and midsize businesses (SMBs) and large enterprises with its dedicated fiber-optic cable, ensuring "resilient connectivity" for corporate customers. This is on top of the NBN infrastructure, and according to StarHub will accord the company an edge over competitors.

The dual-network strategy offering high speed bandwidth also allows new cloud-computing solutions such as human resource management tools and point-of-sale systems to be introduced. The telco is collaborating with partners such as Justlogin and Wincor-Nixdorf to provide the cloud offerings.

To entice customers to try out the new ultra-high speed Internet, both M1 and StarHub are offering free three-month trials to those whose homes are fiber-optic ready.

Asked if this is a tactic to lock in customers, an M1 spokesperson said: "The trial will give customers a first-hand experience of the high speed service and we certainly hope that they will sign on after the positive experience."

New OpCo to remain competitive
While SingTel will rely on the NBN infrastructure for home consumers, it has announced its own fiber-optic backbone for the enterprise market. The telco's decision to be an OpCo is set to StarHub a run for its money.

The ability to offer discriminatory pricing will no doubt set SingTel apart from its competitor, but Nucleus Connect noted that it was SingTel's business decision, and the NBN-appointed OpCo "would consider adjusting its pricing to remain competitive".

Asked if this will spark an unfair pricing policy, IDC's Pang commented:"With another OpCo, the RSPs have [an] alternative choice beside Nucleus Connect. IDA will be the governing authority on the wholesale pricings to the OpCos and RSPs and unless there are strong justifications, there should not be preferential treatment on any RSPs."

SingTel's spokesperson noted that the company will monitor the market and its wholesale prices will be competitive with Nucleus Connect's.

Home fiber installation slow for now
Despite the launch of various connectivity packages, it is not clear what level of consumer take-up there would be, as one key challenge of the NBN initiative has been getting the fiber into residences, an executive from the Infocomm Development Authority of Singapore shared recently.

As of now, the cabling has reached 40 percent of homes, with the figure expected to hit 60 percent by end of 2010 and at least 95 percent by end-2012. However, IDC's Pang believes that the adoption rate for ultra-high-speed broadband will not be high.

OpenNet, the NBN network company (NetCo) or builder of the fiber-optic infrastructure, revealed that as much as 50 percent of households declined to accept free installation provided by the company, as many do not see the need for upgrade. The company is offering these households another go at the installation, but there will be a charge of 50 percent of the cost.

StarHub CEO Neil Montefiore concurred with Pang. During a StarHub media briefing on Thursday, he said most home owners are not aware of the advantages of this new service for now, but with more information going public and as more RSPs reveal their offerings, people will be educated over time. Montefiore estimates that the NBN take-up will only escalate from 2011.

StarHub COO Tan Tong Hai pointed out, also at the briefing, that there is little awareness in the market. Typically, those who sign up for new technology are gamers and early adopters, he said.

For Kelvin Chow, a games enthusiast, the main draw of NBN is faster connection speeds. "I would sign up for fiber-optic broadband because I want faster downloading speed when I am surfing the Net and [playing online games]. With faster speed, the game reaction time will also be faster, thereby making the content more enjoyable," he said.

However, writer Ong Kai Ling said pricing of NBN-based packages need to be attractive.

"Faster connectivity is good but not necessary for most of my needs in the foreseeable future," she pointed out. "Hence, unless the price is competitive enough such that I do not have to pay more for this service, I don't see myself switching."

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