The IDA yesterday released the RFP for the NGNBN OpCo (see here for more info about the NGNBN). One of the key features of the RFP is that the NGNBN OpCo is to be "Operationally Separated" from other entities. In comparison, it was earlier announced that the NetCo was to be "structurally separated." The following compares the two types of separation (click for full images).
The following are the key features of the Operational Separation Requirements of OpCo as released yesterday to the public, amongst other details:
Next Gen NBN OpCo shall be independent from its downstream affiliated operating units, including the following:
- Operate in all respects on a standalone basis, separate from affiliated downstream operating units
- Be located in separate premises
- Independently formulate & make own decisions on its assets and commercial policy
- Not allow its affiliated downstream operating units to have unequal influence on the formulation of commercial policy, and access to commercial information or customer confidential information
- OpCo’sBoard of Directors, Management and employees not to have responsibilities in any Affiliated Operator
- All remuneration and incentive schemes for the OpCo’sBoard of Directors, Management and employees not to be linked to the performance of Affiliated Operator(s)
- Ensure compliance with Operational Separation Requirements through the maintenance of a comprehensive governance manual, monitoring against a set of Operational Separation Performance Indicators, & appropriate reporting to the Monitoring Board (Source: IDA)
Key issues in the OpCo/NetCo separation
How will the government ensure that the costs of NetCo structural separation and OpCo operational separation do not outweigh the benefits to the economy from the separation? The government has said that the end goal in this NGNBN project is to have a "vibrant RSP market," and that the next gen infrastructure will provide "non-discriminatory prices and conditions." Yet it is not clear that these end goals necessitate the onerous layers of legislation and compliance requirements that structural and operational separation of the NetCo and OpCo respectively will require.
The IDA is also offering a grant of up to $250m to the winning OpCo bidder. This grant is ostensibly the carrot to entice private investment into this sector and to offset the OpCo separation requirements. And will it be enough?
In view of the multiple compliance requirements that the NGNBN will impose on incumbents, the best option for the incumbents (Starhub & SingTel) is to refrain together from participating in the NGNBN RFPs, and in the mean time invest in their own broadband infrastructures to compete the NGNBN out of business. Starhub would go ahead with its DOCSIS 3.0 investments (just like Comcast has just released) and SingTel would roll out its own FTTx infrastructure. With their entrenched customer base and bundling strategies, they would easily out-compete the NGNBN operators and retain their duopoly status. In contrast, participating in the NGNBN artificially introduces a competitive (and possibly unsustainable) market structure in addition to onerous regulatory requirements.
It will be interesting to watch the developments of this space and see how things develop.