Singapore’s fibre network operating company Nucleus Connect has brought online the first two major facilities on its network. Not only do the two Central Offices represent a significant milestone for the company’s network roll out, but they also lay the foundation for a test bed which simulates the active Next Gen NBN – a test bed that is now offered via an Interoperability Test service by Nucleus Connect.

In this interview, CommsDay International’s Tony Chan speaks to David Storrie, CEO at Nucleus Connect, about the state of the company’s business and the challenges of building the world’s first national government-backed broadband network.

CommsDay International: You have launched two Central Offices, what does that really mean for the market?

David Storrie: In parallel to building of the network, we are talking to applications developers, service developers and trying to establish some innovative services that don’t exist just now, but that will benefit from the higher bandwidth that we are going to have. Once those are done, hopefully, we will be able to wholesale those out onto the service provider layer so they can sell them to their customer base.

We have talked to a lot of service providers, and some don’t need a lot of services because they are affiliated with fully established operators. So if you take SingTel and StarHub, they are fully functionable, they can do their own billing, etc. But if you look at smaller RSPs who are not that well established, they are looking for a low cost entry into Singapore, so we are prepared to do a lot of wholesale services such as CRM for them, so we will do their customer management for them, we can also bill the customer for them if they want, we can do field services for them. There are various things on the services layer like that we can wholesale immediately. Hopefully, as the company gets more established, and people experience success in Singapore, we can expand on those services into other areas.

Besides the COs, are you also rolling out the access network?

We have electronics being packed into nine other centres, which is owned by the passive infrastructure builder – the company is called OpenNet and they are building the optic fibre network. We have to go into their centres to be able to connect our active elements, the electronics, into the fibre itself, which will take us into the last mile. Those kinds of exchanges are being built as we speak. Obviously we have to connect together those exchanges as well from our two Central Offices and get them online, so we can move traffic around after the service providers’ requirements.

Are you also putting in international capacity to support the domestic broadband network?

Not at this moment. At this moment, the RSPs need to source that from different places. It may change as time develops, but right now, the only piece that we are involved in is the domestic market, not the international portion.

But doesn’t it make sense for you to wholesale the international capacity as well?

It may well happen in the near future. We are already talking to the regulator here about allowing that to happen naturally. We have had a number of service providers ask us if we can do that for them. The license doesn’t allow us to do that. We can source it for service providers from other service providers, such as StarHub or SingTel, who have international bandwidth. At the moment, the license we have doesn’t allow us to go and buy our own international capacity and wholesale that.

This is the world’s first government supported, implemented national NBN project, what’s the experience so far, and do you think this is viable in other markets?

It is an interesting model because you have gone away from a vertically integrated operator who is responsible for all three parts. Some of the challenges that we’ve had on this is, because it is on three layers, to able to simulate, for example, an order process for services. If you think of it as an end-user, you go to your service provider and the service provider takes care of everything, comes around and tells you that they will be around to your place in 24 hours or 48 hours. Because we’ve got three layers to that, we’ve had to build in, using Huawei’s Active Equipment and Alcatel’s OSS/BSS Systems, the ability to simulate it as we were one. So that the customers don’t get any worse of an experience – now that has been a bit of a challenge quite frankly and will continue to be a bit of a challenge once we go live. That’s one of the challenges in this type of model in particular – is to get some of the process operating the three parts as if they were a single entity.

Will this be marketable elsewhere?

I think it will depend on each individual area. I talked to the Australian government on the time when they came up to look at the Singapore model and quite frankly, when they first came up they didn’t see an awful lot of similarity to what they were doing in Australia, but actually, from a regulatory point of view, they saw a lot more similarities than they first thought. So I think it is possible to use in other markets, but it needs to be thought through properly in each of the areas.

If you take, just as an example – I’ve also talked to the FCC in the US, there, it is a completely different beast because the States of the US have an awful lot of power individually – they set their own State tax, etc, and to be able to do a national project, when each State has their own rules and regulations is going to be a major project. So I’m not sure this model that we have in Singapore will actually transmit itself to a place like the US for instance.

What about the commercial model of the project, do you think it works?

The actual interconnect offer is now posted on the IDA website here in Singapore. You have to go back to the original intention of the NGN, and the IDA here believe they want to stimulate penetration of broadband, even though it was fairly high when they started this project. They wanted especially to make it very accessible for the mass market by bringing the pricing down quite substantially. That was one of the objectives, to make it more accessible for the low income families, so they can experience the same type of service as people in high salary range – level the playing field basically.

So the regulated pricing was started off in that sort of area. But the question really is if you keep the active layer and the passive layer [regulated], but then the RSP layer is fairly, unregulated. What I mean is that if a service provider buys a 100Mbps best effort type of circuit from us, we’ll charge them $S21 for that circuit. It is really up to the RSP layer as to how much his own costs are, and also how much margin he expects.

What we are all trying to understand is what is going to happen on the RSP layer because if, for instance, there are not very many service providers that enter the market, there’s no reason for the current service providers to cut away most of their margins. We’ve been trying to work with the IDA on ‘how are you going to regulate and force them to make it mass market capable?’ We can go say, ‘well the price of a 100Mbps circuit in Singapore at the moment is able S$110. They will be paying S$21 for it now, so that would give them an S$80 margin. If you take the costs out, then maybe the margin is S$60. If they want to maintain that margin, then they will keep that margin there. That doesn’t meet the IDA’s original intentions, it doesn’t bring the price down the way they want.

I think what they are hoping is that there’ll be a stimulated service provider layer, more than what they have now, maybe 10, 12, 13 operators, all going after the same market and the market will drop naturally because of competition. Once we launched, the truth will come out as to what will happen.

At Nucleus Connect, we have been talking to a significant number of potential service providers. We’ve talked to both big and small players, probably totalling now somewhere between 70 and 90 RSPs. Will they all enter the market? I doubt it very much. But we will probably see somewhere in the range of 25 and 30 over a period of time, offering some kind of services in Singapore. Some of them are very niche I would think. Some of them are really looking at it as being ‘we only want to service this area, or this segment,’ and they’ll go very hard to get as much share of that segment.

As an example, we talked to a significant amount [of potential RSPs] and when we mentioned what is their plan for residential – there are very few who are looking at the residential market as something they want to enter. I think they see that as being difficult because the two incumbent operators are very strong there already – that might just be too difficult for them.

What about your bottom line since your pricing is dictated by the government?

At the moment, I’m very comfortable with the pricing that we’ve got there with our interconnection offer. This is never going to be a high margin business. What we are trying to do is meet what the government wanted, which is to try and bring the cost of 100Mbps, 1Gbps into the reach of the mass market, and with that, we’ve built a business case that is relatively low margin but one we are very comfortable with.

As we developed as a company, we will bring on more and more wholesale services. Hopefully, that will the cream on top of what we’ve got with our business case.

In terms of that business case, what percentage of take up will it take for you to be successful?

We did a lot of studies and we did a lot of scenario planning, based on other operating companies similar to ourselves, or vying for the same market. We think we know what we need to achieve to make this work. The numbers in the early years are still very conservative because we are still building out up to 2012. Once we get ubiquitous coverage of the fibre, the number start to pick up a little bit. I think in the early years, one of the problems you’ve got is if you haven’t got island wide coverage, a lot of the service providers aren’t going to take your service. A lot of them are saying, we’ll be back in 2012 when you have the full fibre roll out. We are really looking at the period between 2012 and 2015, we think that is where the take up will happen.

Any specific number that you are targeting?

I think if I can hit about 25% to 30% [take up rate], I think I’d be pretty comfortable.