NetLink NBN Trust’s IPO: The Business of Connecting Singapore

Singapore Telecommunication Limited’s (SGX: Z74) associate, NetLink Trust, has filed its preliminary prospectus to list on the Singapore stock exchange as NetLink NBN Trust.

In Singtel’s 2016 annual report, NetLink Trust is described as a business trust that was established under IMDA’s (Info-communications Media Development Authority of Singapore) effective open access requirements for Singapore’s NextGen NBN initiative.

But all that sounds like a mouthful of words. What does NetLink Trust actually do?

Connecting Singapore

NetLink Trust has a long history stretching back to 2008.

In 2008, the OpenNet consortium (now under NetLink Trust) won the tender to design, build and operate passive infrastructure in Singapore. In simple terms, OpenNet had the task of building a ultra-high-speed broadband network that would connect all physical addresses in Singapore and the city’s connecting islands.

The trust has come a long way since winning the tender.

As of 31 March 2017, NetLink Trust owns a network of about 76,000 kilometers (km) of fibre cable, 16,200 km of ducts, and 62,000 manholes. The vast network connects 1.1 million residential homes in Singapore and is has connection points up to each floor of 1.4 million residential homes. Furthermore, NetLink Trust’s network has also connected around 38,500 non-residential locations (think office buildings).

NetLink Trust’s infrastructure is considered to be passive. In layman terms, the trust owns the fibre cable, but is not responsible for the data transmission that goes through the cables. Put another way, it is like owning a water pipe but not the water that flows through it.

The responsibility of enabling data transmission falls on the shoulders of the active infrastructure companies (termed OpCo). This group of companies will design, build and operate the active data transmission equipment, such as switches and routers that would light up the NetLink Trust’s fibre cables with data. Examples of active infrastructure companies include Nucleus Connect, Singtel, StarHub Ltd (SGX: CC3), M1 Ltd (SGX: B2F), MyRepublic and ViewQuest.

The next layer would be the retail service providers (RSP). These providers will purchase bandwidth connectivity from the OpCo to provide fibre-grade connections for the ordinary consumer. Interestingly, Singapore’s top five RSPs – namely Singtel, M1, StarHub, MyRepublic, and ViewQuest – also operate their own OpCos.        

The relationships between the parties is summarised in the diagram below:

Source: NetLink NBN Trust’s IPO Prospectus  

Putting it together

The key sentence that brings together the three parties can be found in the IPO prospectus:

“The Next Gen NBN was designed to allow operational and structural separation among the passive fibre network infrastructure (NetCo), the active infrastructure (OpCo) and retail service provider (RSP) layers.

“This structure was designed to have one NetCo, multiple OpCos (including the appointed Next Gen NBN OpCo) and multiple RSPs.

“The objective of this structure is the promotion of healthy competition in the retail market on the back of a non-discriminatory and transparent wholesale access regime.”

The Next Gen NBN (Nationwide Broadband Network) is part of the Info-communications Development Authority’s (IDA) Intelligent Nation Plan 2015.

Under this structure, NetLink Trust has a favourable position in owning the fibre network connection to residential homes. However, the trust will be mandated to rent out its network to qualified licensees without discrimination. In other words, NetLink Trust will not be able to pick and choose its customers (so long as the customer is qualified) or set different fees for each customer. How much the trust can charge is regulated.

Due Singtel’s ownership in NetLink Trust, the non-discriminatory term could be critical to prevent any unfair advantage to Singtel.    

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.