SingTel's OpenNet buyout approved, but safeguards added

SingTel's proposed controversial deal to buy out Singapore's fiber broadband network builder, OpenNet, has been approved by authorities. This is despite concerns the move would have been anti-competitive by giving the telco 100 percent interest in all layers of the industry.

Under the August proposal, OpenNet's four shareholders--SingTel (30 percent), SP Telecommunications (15 percent), Singapore Press Holdings (25 percent) and Canada's Axia NetMedia (30 percent)--will sell their stakes for S$126 million to NetLink Trust. While the trust is owned by SingTel, it is managed by trustee-manager CityNet, which is supposed to act as a neutral party to allow it independence.

The Infocomm Development Authority of Singapore (IDA) decided the transaction would not result "in a substantial lessening of competition in the market or harm the public interest", according to its statement on Thursday.

Allowing market forces but with safeguards

However, IDA added conditions in order for the deal to go through following feedback gathered from its public consultation.

"IDA agrees with the comments from the industry and public that stronger safeguards need to be put in place to better mitigate potential competition concerns," said its statement.

Among the safeguards the regulator wants to see include:

1. Activities of the consolidated entity to be monitored by a board of government representitives to ensure fair competition;
2. Veto power on who takes over SingTel's role as key subcontractor, which the telco had earlier volunteered to relinquish to avoid conflicts of interest;
3. Assurance that CityNet will have full independence in decisions on prices, terms and conditions for new and existing service offerings. This follows concerns that CityNet would be bound by existing business law as a trustee-manager to act in the interest of NetLink Trust's unitholder, SingTel. 

Ultimately, the regulator was optimistic the consolidation of SingTel's assets with OpenNet's would allow for greater efficiencies to support a smoother rollout of the country's nationwide broadband network. "It may bring about more streamlined processes that will in turn lead to greater efficiencies and service improvements downstream," said Leong Keng Thai, IDA's deputy CEO and director-general of Telecoms and Post, in the statement.

Acquisition will take place in two stages

The first phase is a 12-month period that has to start by end-2013. This involves SingTel transfering its relevant staff to NetLink Trust, which will take over OpenNet's operations and assets.
The second phase will be SingTel's mandatory divestment of NetLink Trust, which IDA has now approved to be delayed from 2014 to 2018. This divestment was part of earlier conditions when SingTel won its bid in 2008 as part of the OpenNet consortium. It was required to set up an independent asset company--NetLink Trust-- to park various assets such as ducts, manholes and exchanges which it owned as the telecoms incumbent. These assets were important in cutting down the NBN fiber rollout time to open up market access to non-incumbents.

"IDA is of the view that the increased time for SingTel to divest is not unreasonable in light of the scope of the transfer and integration of the relevant assets, business and personnel under the proposed consolidation," said Leong. He pointed out 2018 was not the target date but a deadline by which the divestment had to be completed.

Consolidation good for Singapore's network resiliency

The regulator highlighted a consolidated entity could help improve the country's infrastructure resiliency, despite concerns that potential outages could potentially be worse with all networks under one provider. This follows a fire at SingTel's exchange building which led to massive outages affecting not only itself but also rival telcos and banks leasing its lines.

"On the contrary, to the extent that the proposed consolidation realises the claimed efficiencies such as improved network fault and detection as well as improved operational efficiency and responsiveness, the proposed Consolidation would likely improve service restoration efforts in the event of any service outages," IDA said.

It added with or without the proposed consolidation, OpenNet and SingTel already shared a number of common exchanges. Both parties are also required under regulations to ensure network resiliency, IDA noted.

OpenNet was in the news earlier this week when it was fined S$750,000 by IDA for wiring and connecting users too slowly under its contract obligations.