Published May 6, 2009

SingTel to hive off bulk of Internet assets by 2014

Telco could reap huge returns from divestment over next five years

By WINSTON CHAI

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(SINGAPORE) Singapore Telecommunications has been given the deadline of April 2014 to divest more than 75 per cent of its local Internet assets - a move which could yield substantial returns for the operator over the next five years.

The telco is required to hive off its so-called passive broadband infrastructure such as underground ducts and manholes to a neutral party called the AssetCo (Asset Company) under OpenNet's winning proposal for building the Republic's new fibre-optic cyber highway.

OpenNet, in which SingTel has a 30 per cent stake, received the official nod from the Infocomm Development Authority of Singapore (IDA) for its construction plan earlier this week.

'The AssetCo, as proposed by OpenNet in its NetCo Request-for-Proposal submission, will own and control the relevant underlying passive infrastructure assets that are used to support OpenNet's deployment. These underlying assets, which include central offices, ducts and manholes, will be transferred from SingTel to AssetCo,' IDA said in a statement.

By reusing SingTel's existing investments, OpenNet promises to complete the job of wiring up Singapore two years ahead of IDA's initial schedule. This time advantage was widely viewed as one of the key factors behind OpenNet's victory over the Infinity Consortium, a group fronted by rival telcos StarHub and MobileOne.

Besides expediting deployment, the IDA said this arrangement will ensure there is 'minimal disruption when civil works begin later this year' as activities such as underground excavation will be cut down during network rollout.

Under the regulator's new mandate to curb unfair competition by splitting up broadband infrastructure owners and service providers, SingTel will need to reduce its stake in the AssetCo to less than 25 per cent within 60 months from April 2009, IDA revealed.

According to industry estimates - which could not be confirmed - SingTel's existing Internet assets could be worth nearly $2.8 billion. By divesting more than 75 per cent of these to the AssetCo, SingTel could stand to receive substantial compensation over the next half a decade. Industry sources estimated that this could easily amount to more than $1 billion.

With IDA's new broadband regulations, players such as SingTel can no longer have complete ownership of broadband pipes and provide Internet services at the same time. Instead, they will need to lease bandwidth from an intermediary called the Operating Company (OpCo) if they wish to provide broadband services to consumers and businesses.

A new StarHub subsidiary called Nucleus Connect clinched the government tender to be Singapore's first OpCo last month. This contract, which comes with a $250 million subsidy, was officially signed on Monday evening.

If SingTel decides against buying bandwidth from its rival, the firm has the option of setting up another OpCo as the StarHub deal is non-exclusive.

However, SingTel will not be entitled to any government funding if it proceeds with its own OpCo venture.