LIBERALIZING INTERNATIONAL GATEWAYS

ITU defines an international gateway as any facility through which electronic communications (voice, data and video) can be sent between the domestic networks of one country and another. In practice, the gateways provide links either to an international (often submarine) cable system, or to a satellite through an Earth station. Whether terrestrial or Space-based, their purpose is to aggregate and distribute incoming and outgoing international voice and data traffic.

But as well as providing connections, international gateways are also potential bottlenecks that may restrict traffic flows and thus cause artificially high prices. To overcome this, regulatory frameworks are needed that introduce new models of sharing and collocation, and that encourage competition through lowering the barriers to new market entrants.

In Singapore, these frameworks were introduced between 2000 and 2004. The country’s experience provides an example of how to liberalize international gateways and secure bandwidth capacity at lower prices. This not only improves general communications among countries, it also encourages the provision of broadband Internet access that underpins the global information society.

Traditionally, voice and data transmissions via submarine cables were seen as a natural monopoly of incumbent operators, due to the high costs of investment in infrastructure and its maintenance. In Singapore, the decision to introduce competition into the local and international telecommunication markets was influenced by two main factors. First, technological advances had greatly reduced the cost of infrastructure and the natural monopoly argument no longer held true. Second, a monopoly provider would not have sufficient incentive to satisfy the increasingly diverse demand for services that would support Singapore’s aim to be a global economic and communication hub. Liberalization was thus necessary in order to enable competition, increase choice for consumers and stimulate greater market efficiencies.

Singapore’s regulator is the Infocomm Development Authority (IDA), which is also responsible for the development and growth of the ICT sector. In 2000, IDA fully liberalized telecommunications in Singapore and created the Code of Practice for Competition in the Provision of Telecommunication Services, which establishes a clear regulatory framework to help foster competition. IDA also developed a consultative methodology for creating policy and regulations. Applying this to international gateways, the first step was to determine clear goals that liberalization was meant to achieve. These goals were to create a vibrant international market in Singapore, with multiple players; to substantially increase Singapore’s international bandwidth capacity, and to ensure significant falls in the cost of international communications.

As a next step, IDA required the dominant licensee to provide a reference interconnection offer (RIO) to its competitors. This is a model interconnection contract that facilitates rapid access and covers a range of issues, such as domestic interconnection, unbundled network elements, collocation and infrastructure sharing. The RIO is important because it sets out (in a transparent and non-discriminatory manner) regulator-approved prices, terms and conditions for other operators to interconnect, collocate and access the dominant licensee’s submarine cable landing station (SCLS). In Singapore, the RIO has become a critical instrument in securing reasonable and rapid interconnection agreements, thus expediting the entry of new players into the market and promoting effective and sustainable competition.

A key component of full liberalization of international telecommunications is to encourage the landing of multiple submarine cable systems. Singapore has two operators who have four SCLS between them. In practice, most cables that land in Singapore do so at the dominant licensee’s landing station. Competitors usually need to access this in order to connect their own submarine cable capacity, and to backhaul this capacity to their own exchanges.

As a solution, IDA required that the dominant carrier lease space to competitors at its SCLS, at cost-based rates. This is termed “collocation” and it was made mandatory in the dominant licensee’s interconnection agreement (RIO) that was approved in 2001. This significant step has allowed operators providing international services to have direct and more efficient access to submarine cables. It has also introduced competition into the backhaul services market, bringing down prices.

At an SCLS, operators need to connect their national networks to the submarine cable system. To enable this to be done by operators who have collocated their equipment in the SCLS, the dominant licensee has to provide connection services. When IDA mandated collocation in 2000, it left connection services to be negotiated commercially between the dominant licensee and its competitors.

This decision was reviewed when it became clear that connection services in Singapore were much more expensive than in other countries, and a potential bottleneck was being caused for international traffic. In 2002, IDA made connection services mandatory and required the dominant licensee to provide them at cost-based rates. Since then, charges for connection services have fallen by more than 90 per cent.

Before 2004, an operator could access international capacity that it owned on a submarine cable system landing at an SCLS. However, it could not access non-owned capacity in other cables landing at the same station. And it could not gain access on behalf of a third party who owned capacity in these other cables, but lacked the necessary backhaul infrastructure for connection between the SCLS and its exchange premises.

These restrictions were seen as increasingly inappropriate in the modern market environment. In 2004, IDA changed the regulations so that operators can now access capacity that is owned (or leased long term) on any submarine cable at an SCLS. Operators can also access capacity that is owned or leased by third parties, in order to offer them backhaul and transit services.

Faced with a loss of monopoly in the Singapore market, the dominant licensee had to adopt a new business strategy. It revamped and improved its operational efficiency, which led to lower tariffs and improved services for business and retail customers. The dominant licensee’s overall global revenues are now three times higher than before liberalization.

With international gateways opened to competition, more players entered the market. International direct dialling charges have fallen by more than 90 per cent since 2000, while charges for international private leased circuits have fallen by 95 per cent. By October 2007 (according to IDA figures), Singapore had a total submarine cable capacity of 28 Tbit/s and direct international Internet connectivity of 25 Gbit/s, making it a major communication hub in the region — and globally.

This growth in capacity has been helped not only by liberalization, but also by IDA’s work to make it easier for submarine cables to land at Singapore. Obtaining permission for this requires access to several government-controlled resources. Operators usually need to seek approval from the port authorities, utilities authorities, land control agencies, and so on. In Singapore, the “wet side”, or sea approach, is under the purview of the Maritime and Port Authority of Singapore, while approval on the land side is controlled by several agencies, led by the Urban Redevelopment Authority and the Singapore Land Authority.

When a licensee intends to land a cable in Singapore, IDA facilitates the process by acting as a “one-stop-shop” to interface with all the necessary government agencies. The licensee is guided through the steps that are necessary to land the cable, thus reducing administrative complications and the time taken for the process.

Because Singapore is a small island nation of some 4.8 million people, it had to be bold in formulating a highly effective framework to manage competition at international gateways. Plans for full liberalization were brought forward to 2000 (from an original target date of 2007), but in 2000, Singapore did not have a general competition law or a relevant history of competition policy. IDA urgently needed to put rules in place to encourage new players to enter the sector, and lessons had to be taken from best practice in other countries. At the same time, the authority also had responsibility as a development agency to ensure that regulations were prescribed with developmental goals in mind.

According to Muhammad Hanafiah Abdul Rashid, Director (International) at IDA, Singapore’s experience of liberalizing its international gateways has been a long learning process. “Competition needs a lot of nurturing by the regulator in the early days… and there are many potential bottlenecks that the regulator needs to uncover and address quickly and effectively,” he told ITU’s 8th Global Symposium for Regulators, in March 2008 in Thailand. Consultation with industry is crucial, he added, as incorporated in the regulatory methodology adopted by Singapore that “helps to spot problems early and minimize them”. Because of the many issues that demand attention, when planning for liberalization it is of utmost importance that there are clear policy objectives, firm regulatory principles and a consultative methodology to ensure that regulations are developed and implemented in a consistent, optimal manner.

Many countries already have the tools needed to require interconnection agreements and collocation, and so address the bottlenecks that may occur at international gateways. But it is important to note that, because economies vary in their socio-economic conditions and national economic goals, there is no standard regulatory blueprint for everyone. Nevertheless, Singapore’s experience could provide a helpful example.