CityNet’s acquisition of OpenNet gets go-ahead

But here's the catch.

According to a release, the Infocomm Development Authority of Singapore (IDA) has approved the proposed CityNet’s acquisition of OpenNet with conditions. OpenNet is the designated NetCo or Network Company operating under the Next Generation Nationwide Broadband Network (Next Gen NBN) initiative, which is responsible for the design, build and operation of the passive infrastructure layer of the Next Gen NBN.

OpenNet, CityNet, NetLink Trust and SingTel submitted a Consolidation Application on 22 August 2013. CityNet, as Trustee-Manager (TM) of the NetLink Trust, will acquire 100% of the issued and paid-up capital in OpenNet. This acquisition will take place in two phases.

In Phase 1, upon completion of the acquisition of the shares in OpenNet, CityNet will hold 100% of the issued and paid-up capital of OpenNet. Within twelve (12) months of the commencement of Phase 1, the assets and business of OpenNet will be transferred and integrated into the NetLink Trust.

At the same time, SingTel will relinquish its role as the Key Sub-Contractor (KSC) of OpenNet and transfer its relevant personnel, skills and expertise into the NetLink Trust, thereby enhancing the Post-Consolidation Entity’s operational capabilities. CityNet as the neutral, independent TM of the NetLink Trust will be the Post-Consolidation Entity.

In Phase 2, CityNet, as the Post-Consolidation Entity, will roll out the infrastructure, maintain the systems and provide the services previously undertaken by OpenNet on top of its suite of services. The Applicants proposed to enhance the independence of the Post-Consolidation Entity with an undertaking for SingTel to divest more than 75% of its unitholdings in the NetLink Trust by April 2018.

In assessing the proposed Consolidation, IDA seeks to ensure that it will not significantly change the Next Gen NBN market environment, result in a substantial lessening of competition in the market or harm the public interest. IDA also wants to ensure that key regulatory requirements specific to the Next Gen NBN will continue to be upheld. These include Effective Open Access, No Effective Control, regulation on wholesale prices via Interconnection Offers, OpenNet’s Universal Service Obligation and Quality of Service standards.

The Applicants have undertaken to IDA that after the Consolidation, OpenNet and CityNet will continue to comply with all contractual obligations and regulatory obligations imposed by IDA. There will be no substantial lessening of competition, with continued open access requirements, IDA-regulated wholesale prices and non-discriminatory service provisioning.

The transfer of the KSC function from SingTel to the NetLink Trust should further assure the industry of non-discriminatory service provisioning by the Post-Consolidation Entity. While SingTel may be the unitholder of the NetLink Trust, the No Effective Control requirement will mean that it will not be able to influence the management and major operational decisions of the Post-Consolidation Entity.

Mr Leong Keng Thai, IDA’s Deputy Chief Executive and Director-General (Telecoms and Post), said, “In arriving at its decision, IDA took into consideration feedback given during the public consultation conducted from 28 August 2013 to 25 September 2013. IDA agrees with the comments from the industry and public that stronger safeguards need to be put in place to better mitigate potential competition concerns.

The safeguards will help to enhance the independence and neutrality of the Post-Consolidation Entity from SingTel, particularly for the extended period before SingTel divests its unitholdings in the NetLink Trust.”

“IDA is of the view that the increased time for SingTel to divest is not unreasonable in light of the scope of the transfer and integration of the relevant assets, business and personnel under the proposed Consolidation. IDA would also stress that April 2018 is not the target date for divestment but is the deadline by which the divestment must be completed,” Mr Leong added.