Opportunities for carriers in Asian ICT hubs

With telecoms and ICT pure-play growth spiralling ever downwards, players from both ends have found themselves competing for new opportunities in the enterprise communications market.

Home to some of the most tech-savvy countries on earth, the Asia-Pacific region has been one of the first to see telcos increasingly invade ICT territory in order to further exploit revenues in this space.

According to a recent forecast by Frost & Sullivan, the enterprise market in Asia-Pacific (minus Japan) is expected to grow from $23 billion in 2011 to $41.7 billion by 2015. At this point, the market watcher estimates the region’s M2M market will have reached $2.4 billion, driven by smart grid verticals, the growing ubiquity of broadband access and ability of smaller devices to connect to the internet.

According to Macario Namie at Jasper Wireless, there are numerous co-sell and re-sell relationships emerging between operators and site management and smart grid solution providers. “Operators play a role on the network side, supplying the data centre, connectivity components and backhaul in addition to mobile connectivity to the end point. But multiple players have to participate in order to make this business work,” he adds.

Telcos are moving into ICT to drive new revenue streams and protect revenue. “TM and SingTel are premium examples of telcos stepping into the IT market as a way to protect their original business and lock-in enterprise clients,” says Juan Rio, Partner at Delta Partners. “However, this strategy can also see the IT business become an entity in its own right, as has been the case with T-Systems and BT Global Services.”

Juan Rio stresses that incumbent telcos hold the dominant position in more network-centric ICT services, as they own the licence and the infrastructure. On the data centre and systems integration side where traditional ICT providers dominate, a growing number of telcos are entering this space via acquisition.

“It’s a question of developing the capabilities to be able to provide the enterprise with the facilities they require. And this is what telcos in Asia such as SingTel with its acquisition of CSE Global, and TM with the development of VADS, are realising. They have the infrastructure, but they need to be credible from an IT perspective.”

With build-out of data centre infrastructure gaining pace, Hong Kong and Singapore are ranked 13th and 2nd respectively in the WEF’s Networked Readiness Index 2012. Malaysia, where issues with electricity and security are said to have surfaced as data centres roll out, is ranked 29th.

Recent developments saw Google triple its investment in its high-tier facility in the Tseung Kwan O district of Hong Kong to $300 million, while Amazon added its AWS Direct Connect to its data centre in Singapore, which provides private network connection to the Amazon cloud and was the company’s first data centre outside of the US and Europe.

The rise in submarine cable capacity and the dramatic drop in IP transit prices have been key factors in forming ICT hubs, while data centres act as an anchor for multinational corporations. “Submarine cable system upgrades have been the real game changer,” states Robert Schult, Research Director at TeleGeography. “Construction costs are recouped in the initial pricing, with future circuits only having to recoup the cost of the electronics upgrades.”

Schult says the attraction to co-locating or grouping cable landings is the ability to interconnect to many different geographies and suppliers. “Enterprises are also attracted to the hubs forming around them because a wide range of suppliers forces competition and ensures restoration or redundancy – the latter being particularly important for this region.”

More than a hundred smart opportunities for international companies have been identified across Asia, with many designed to address challenges such as congestion, resource scarcity and pollution.

But for international players looking to step into these markets, building relationships will be essential. “It’s about building relationships first rather than straightforward business propositions,” states Iain Jawad, director, strategic partnerships at Frost & Sullivan.

As the government supporting trade agency for UK companies, the UKTI is establishing a strategic framework for the whole of APAC, using Hong Kong and Singapore as a hub for north and south east Asia to bring surrounding countries into play.

“We are looking at opportunities as far out as two years to be a part of the specification and relationship-building process,” says John Davies, UKTI’s global strategy and technology advisor. “The reality is that ITC has to be specified right up front. It can’t be bolted on at the end because there’s too much legacy if you do that.”

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The SAR’s telecoms market is fully liberalised, with no foreign ownership restrictions. The Office of the Communications Authority (OFCA) is the executive arm and secretariat of the Communications Authority (CA) and was established in April 2012 as the unified telecoms and broadcasting regulator.

Currently, the SAR has nine submarine cable systems, 17 overland cable systems and eight satellites. By 2013, both the ASE and SJC submarine cable systems under construction and landing in the SAR should be in service. Virtually all businesses and households have access to some form of broadband connectivity.

Despite the presence of 17 local fixed network operator licensees, former monopoly wireline telco PCCW (HKT) remains the dominant provider. Meanwhile, there are 300 external fixed telecoms providers and 185 ISPs in the SAR.

It is also one of the most competitive mobile markets in the world, with five mobile network operators and cellular penetration of about 210%. In February 2012, OFCO concluded its 4G LTE spectrum auction on the 2.3 GHz band, raising a reported $60.6 million.

Deployment of 4G LTE is identified as an immediate opportunity, with the government pushing for 70% of households and businesses to be connected by 2013.

Other major programmes include the Digital 21 Strategy, the government’s blueprint for ICT development launched in 2008, as well as both a public and private cloud strategy and several e-government initiatives. The latter includes: Electronic Information Management; Shared HRM Services (cloud computing); Multi-application Smart ID Card; and Access and Re-use of Public Sector Information.

The SAR is also working with the Mainland authorities on developing an arrangement for the mutual recognition of electronic certificates for cross-boundary trade, as well as promoting a cloud standard.

According to Frost & Sullivan, the SAR’s data centre market ranks second in APAC in terms of Raised Floor Space (RFS) per $billion GDP. Aiming to counter growing competition from Singapore, the Office of the Government Chief Information Officer (OGCIO) commenced operation of its Data Centre Facilitation Unit in July 2011. Large data centres in Hong Kong tend to cluster around the districts of Tsuen Wan, Kwai Chung, Sha Tin, Kwun Tong, Kowloon Bay, San Po Kong, Quarry Bay, Chai Wan and Tseung Kwan O.

The SAR is also seeing the gradual formation of a ‘green tech’ cluster as local industries and the public become more conscious about environmental protection and sustainable development. Some $3.8 billion was spent last year on environment-friendly facilities and funded projects.

Situated at the south-eastern tip of mainland China, the SAR consists of three main territories: Hong Kong Island, the Kowloon Peninsula and the New Territories. Formerly a British colony, it officially returned to Chinese rule in 1997, although its legal system and regulatory and judicial framework has remained unchanged.

The SAR’s ‘rule of law’ is designed to ensure a level playing field for local and international business. “Operating under the rule of law, which is based on common law, means you have the best of both worlds,” states Charles Ng, Associate Director-General of Investment Promotion at InvestHK, the department for Foreign Direct Investment. “You have freedom of speech and information flow, our low tax regime, at the same time being able to take advantage of growing opportunities in Asia and, in particular

in Mainland China.”

The SAR is a conduit for China’s export market and, under the second phase of the Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA II), the Mainland applies zero tariffs to products of Hong Kong origin.

Hong Kong service suppliers (HKSS) can apply for qualification certification of computer information system integration (SI Certification) and set up wholly-owned enterprises in the Mainland. HKSS can also establish joint venture enterprises, with shareholding not exceeding 50%, to set-up in the Mainland and operate telecoms VAS or ICT services.

The SAR is particularly strong in supply chain management, RFID logistical applications, ERP and CRM in areas such as trading, banking and finance. Together with tourism, these form the SAR’s four pillar industries, which employed about 1.7 million people and contributed almost $128.9 billion (HK$1 trillion) to the local economy (58% of GDP) in 2010.

The SAR is the premier stock market for Chinese firms seeking to list abroad and is the official offshore centre for settlement of the Renmenbi. “This creates a huge opportunity for telcos, as well as service providers, who will have to enable the transfer of these funds and also in terms of e-banking and settlement of trade in Renmenbi,” Ng continues. “Indeed, digitalised connectivity will ensure that Hong Kong is at the forefront of all these angles.”

The IMF predicts growth of around 5% for the SAR’s economy this year. However, it warns that the SAR’s status as an international financial centre leaves it exposed to shocks that originate in other financial systems and that a predominant near-term risk emanates from a renewed global slowdown or a hard landing in Mainland China.

 

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The telecoms market in Singapore is governed by the Telecommunications Act 1999, which established the regulatory powers of the Info-communications Development Authority (IDA).

Amendments to the Act last year gave the IDA additional powers designed to remove barriers to competition in market segments where one operator controls the network infrastructure and participates in delivery of retail services. SingTel and StarHub are currently the dominant players.

 

The island state is entering the second phase of its next-generation National Broadband Network (Next Gen NBN) roll-out, which is part of the government’s ‘iN2015’ 10-year master plan to grow the ‘infocomm’ sector, enhance competitiveness and build a connected society.

Next Gen NBN is operated by the OpenNet consortium comprised of SingTel, Singapore Press Holdings, SP Telecommunications and Axia Netmedia. Meanwhile, StarHub’s Nucleus Connect subsidiary is responsible for the active infrastructure and is intended to be ‘operationally separate’ from downstream operators.

Singapore’s broadband market is well developed, both in terms of the range of access technologies available and the number of operators offering fixed and wireless alternatives.

As well as unbundling local access, IDA has put in place further measures to promote effective competition, including wholesale broadband access services and a framework allowing operators greater access to submarine cable systems. As of August 2011, Singapore was connected to 15 active submarine cables landing in three designated sites: Changi North; Tanah Merah; and Tuas.

According to the IDA, there are two fixed-line telephony providers, three mobile operators, 87 ISPs, 379 voice service providers and 37 IP telephony providers. In the mobile sector, market saturation has forced the incumbents to look to data and 4G LTE for fresh revenue streams.

An auction of six lots of wireless spectrum for 4G is expected this year, although roll-outs have already commenced in some localities. Currently, five local operators hold spectrum for mobile or wireless broadband services (valid until 2015).

Singapore currently has numerous initiatives underway in smart energy management, transportation and urban living. The ‘Image of Singapore’ (i-Singapore) programme for example aims to integrate the use of government’ geospatial data with that of the private sector for applications such as workforce productivity, demand-supply matching and lifestyle services, while a 360-hectare development in Jurong Lake District recently won a grant under IBM’s Smarter Cities Challenge programme.

As a designated ‘smart district’, Jurong Lake District will be the largest commercial and mixed-used development outside of the current central business district and is being rejuvenated as part of a broader decentralisation strategy overseen by the Urban Redevelopment Authority (URA).

A 13-hectare specialised industrial park for data centres is also under development in Jurong. “Singapore is taking the smart city concept to the next level as they realise the opportunity that they’ve got in the form of a close integration of activity,” says Frost & Sullivan’s Iain Jawad. “It was one of the first markets in the world to deliver electronic road pricing and is already at stage two, with trials underway with four consortia. It is quite clear how far advanced they are in both their planning and their reality.”

With more than 1,600 online and 300 mobile services already offered by the government, National Electronic Health Record and Integrated Clinical Management Systems are also being developed. Last year, an ‘eGov2015 masterplan’ and ‘G-Cloud’ tender were announced. The IDA currently supports 14 cloud projects and the SaaS Enablement Programme, while all cloud iterations now fall under the Productivity and Innovation Credit (PIC) Scheme.

As an island at the tip of the Malay peninsula, Singapore is linked to mainland Asia by a causeway. Formerly a British crown colony, it became an independent republic in 1965. Its population is made up of Chinese (around 75%), Malay, Indian and other groups, most of whom are bilingual or trilingual. English is the language of administration.

As a major economic hub in the region, Singapore provides a conduit to Mainland China, with local companies able to approach the Infocomm Singapore Centre (ISC) in Shanghai. Established in 2004, the ISC has facilitated more than $64.1 million-worth of export revenue.

“Singapore stands out because of its location as the only sea state in south east Asia with a high volumes of port traffic going through it,” says Frost & Sullivan’s Nitin Bhat. “Historically, it has also seen a variety of economic cycles, with the Government always looking ahead at new sectors to ensure diversifies. Also important is the fact the Government’s development agencies and regulatory agencies are pro-business, promoting Singapore as a place where you can live, work and play.”

In January 2012, the IMF reported that Singapore’s economy was slowing markedly, dragged down first by supply-chain disruptions from Japan’s March 2011 natural disaster and more recently by weaker global demand. Overall, growth is projected to slow to 2.7% in 2012, recovering to 3.8% in 2013.

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Malaysia’s telecoms markets are governed under the Malaysian Communications and Multimedia Commission Act (CMA) of 1998, which provided for the creation of the Malaysian Communications and Multimedia Commission (MCMC) as an independent regulator.

The act provides for increasing convergence within the communications and media sectors and is designed to foster competition and transparency.

Former monopoly operator Telekom Malaysia (TM) continues to dominate the fixed-line market. The only significant facilities-based competitors, Maxis Communications and TIME dotCom (TdC) have comparatively small numbers of fixed-line subscribers.

However, Maxis Mobile is the largest mobile operator. There are four mobile operators in total, the others being Celcom Axiata, DiGi Telecommunications and U Mobile. Competition between them remains fierce and is driving the roll-out of more advanced technologies as a means to spur take-up and increase turnover.

Broadband is an area highlighted by the Malaysian government as being vital to future economic growth and TM commenced construction of its fibre-based high-speed broadband network (HSBB) in 2009, launching services in March 2010.

As an investor in a number of submarine networks, TM’s international network is predominantly fibre-optic based, with links established to most countries. Additionally, having partnered with Indonesia’s PT Telkom, it has a major stake in the DMCS (Dumai-Melaka Cable System), which links Malaysia with Indonesia. As at end-2010, TM had more than 50,000 international gateway exchanges.

Kuala Lumpur and Malaysia as a whole is in the midst of a transition from an emerging to an advanced economy. The Multimedia Super Corridor (MSC Malaysia) was established in 1996 with the aspiration of becoming a global hub for ICT and multimedia innovation, operation and services and to transform Malaysia into a knowledge-economy and achieve developed nation status in line with Vision 2020.

By the end of Phase II in 2010, seven Cybercities and eight Cybercentres (KL, Perak, Johor and Melaka) had been rolled out, while the eastern and southern corridors are still undergoing development. Flagship applications – such as e-government, multi-purpose card, tele-health, smart school, R&D cluster, e-business, and ‘technopreneur’ – have yet to realise their full potential and, in the short term, improvements in the communication and transport infrastructure are required.

“Development of the applications on top of the fundamental network is the key driver,” says Frost & Sullivan’s Iain Jawad. “Malaysia is therefore much less advanced in terms of smart capability, but there is strong interest in education and healthcare and Malaysia would see itself competing as a hub of excellence in educational development and deployment versus places such as Singapore and Hong Kong.”

Last year, MSC Malaysia, together with local telcos and ISPs, Jaring and Maxis, launched the MSC Malaysia Cloud Computing initiative. It allows Malaysian cloud application providers to be on-boarded onto the telecoms infrastructure with bundled data, voice and business application services and is targeting more than 300,000 SMEs in the country, designed to lower costs for business.

Malaysia, comprising part of the Malay Peninsula as well as Sabah and Sarawak on the northern coast of Borneo, was formed as an independent state in 1963 through the union of the former British colonies of Malaya and Singapore, although the latter withdrew in 1965 to pursue its own claims for independence.

Today, Kuala Lumpur is extremely open to international business, which also means fierce competition. Malaysia’s Economic Transformation Programme (ETP) is identified as an immediate opportunity, under which there are a number of Entry Point Projects (EPPs) designed to increase the ICT contribution to GDP. In addition, The MSC Malaysia National Rollout represents the second phase of the MSC Malaysia initiative.

“As a nation, we have focussed on 12 National Key Economic Areas, sectors where Malaysia can compete globally,” says Dinesh Nair, Head of Infotech, at Multimedia Development Corporation (MDeC). “To date, 131 Entry Point Projects (EPP) have been identified to kick-start growth as well as to catalyse investment and participation from the private sector.”

A key ICT-related EPP in Malaysia is EPP3, which aims to establish Malaysia as the preferred destination for data centre investors and increase the supply of space from 0.5 million square feet to 5.0 million square feet by 2020. In 2011, construction commenced on four data centres with a combined investment value of $250.9 million.

The first one launched in January 2012, with the remaining three expected to be fully operational by Q2 2012 and will provide some 350 jobs, mainly in technical and engineering fields.

According to MDeC’s Nair, foreign direct investment in Malaysia rose to $10.7 billion in 2011, an increase of 12.3%, while private sector investment has grown to $30.6 billion in 2011, up 19.4% from 2010. Meanwhile, the IMF forecasts growth of 4% in the Malaysian economy, before strengthening to 4.5% in 2013.