Establishing a foundation: Laying the groundwork for success

The Sultanate is prioritising ICT in its economic diversification plans, which would reinvent the country as a centre of technology, education, health care and financial services. The government has set a goal of raising ICT’s contribution to the economy from 1.6% of GDP in 2010 to 6% by 2015. Brunei Darussalam has certain demographic advantages, including high literacy and relatively strong per-capita consumption of electronic goods, which make this a realistic goal. It has focused attention on achievable goals, such as its proposed data centre, for which it has the necessary inexpensive energy and investment capital. The Sultanate is also looking to develop an advantage in creative multimedia, and policymakers have launched programmes to attract students and professionals to this field.

However, there are a number of challenges that will need to be addressed first. The private ICT sector is still quite small and additional work is needed to provide better access to reliable, high-speed internet connectivity. Higher education, moreover, is not training professionals sufficiently. If it wishes to become a high-tech capital, the nation needs an increase in the number of young professionals armed with the training and experience necessary to boost the private sector. The country is now making the critical investments in submarine cables and fibre-to-the-home infrastructure upon which its ICT transformation will be based. Even more critical, however, are the socioeconomic changes that will be necessary: the rise of an entrepreneurial ICT culture and the incubation of forward-thinking, export-oriented start-ups. Innovation cannot be decreed, but the Sultanate is betting that it can be nurtured.

BY THE NUMBERS: One of the most visible signs of ICT development in the country is the now-ubiquitous smartphone, which connects to 3G networks and, for many young locals, has replaced laptops and desktops as their primary means of communication. According to the Authority for Info-communications Technology Industry of Brunei Darussalam (AITI), the Sultanate had 443,161 mobile subscribers in 2011, equal to a penetration rate of 104%. Most of this growth happened prior to 2008, when the penetration rate passed 100%. It grew from 79% in 2006 to 94% in 2007, but has since levelled off. Numbers this high are not uncommon in countries where prepaid phones dominate. Many residents own more than one phone and switch between providers for better voice and SMS rates.

In Brunei Darussalam, there are just two options for cellular providers: b-mobile, a subsidiary of the national telecom company, TelBru; and DST, which was formed in 1995. In a pattern familiar within emerging markets, the privatised entity has outcompeted the legacy player, gaining approximately 85% of market share in the mobile space.

Meanwhile, b-mobile has faltered. Despite some successes, such as becoming the first operator to offer 3G and 3.5G, poor speeds and service have seen it lose ground. Indeed, in early 2013, b-mobile’s mounting challenges drove TelBru to file a petition with the Supreme Court to have the mobile company closed. However, the petition has since been withdrawn and local media reports suggest that service quality has improved (see analysis).

BROADBAND: Assessing the country’s broadband market poses greater difficulties, thanks to incomplete statistics and unclear definitions of “broadband” itself. Brunei Darussalam had 50,557 internet subscribers in November 2011, according to AITI, which translates into an internet penetration rate of 12.16%. Most subscribers were split between mobile broadband (23,746 connections) and fixed (22,449), while just 4362 have stayed with dial-up.

The combined totals for mobile and fixed broadband subscribers gives a total of 46,195 connections, or an 11% broadband penetration. With 68,208 households in the Sultanate, per the 2011 “Population and Housing Census”, one can estimate the household broadband penetration rate at 67%. In sheer numbers, these figures compare favourably with the rest of South-east Asia; Brunei Darussalam’s 71% household internet penetration in 2012, as given by the World Economic Forum’s Networked Readiness Index, ranks 25th, behind Singapore (at 11 with 82%), and well ahead of Malaysia (at 41 with 56%), Vietnam (at 82 with 12.5%), Thailand (at 88 with 11.4%), the Philippines (at 89 with 10.1%), Indonesia (at 89 with 3.9%) and Cambodia (at 133 with 0.4%). The country is 19th in percentage of households with a personal computer (79.6%), however, it fares slightly worse when the actual number of people using the internet is taken into consideration, placing 48th with a 50% usage rate.

SPEEDING THINGS UP: TelBru’s consumer-oriented fixed broadband product, e-speed, tops out at 5 Mbps, and can go as low as 1 Mbps, which does not meet the international standard criterion for broadband of 2 Mbps. However, the company recently launched its first fibre-to-the-home (FTTH) offering which provides speeds of up to 30 Mbps.

Mobile broadband is also available – b-mobile and DST both offer speeds of up to 7.2 Mbps, with monthly plans between $60 and $75 for unlimited access. DST and b-mobile also provide leased-line services to enterprise clients, which average 10 Mbps and offer an alternative to the limited consumer options. The picture of broadband speeds is not ideal: the country ranked 97th worldwide, behind Thailand (52) and Laos (92), in an international comparison of speeds conducted by web analytics firm Netindex.

Brunei Darussalam also suffers from high bandwidth costs: it ranks 115 on the affordability pillar of the Networked Readiness Index, thanks to an average fixed broadband price of $81 per month. These high costs can be attributed to several factors: the small population makes it hard for internet service providers (ISPs) to get volume discounts on international bandwidth, while the country’s isolation makes most hubs on the internet several hops away. Lack of local competition is also a factor.

Although it is ultimately unclear how many providers could potentially be supported by the small market, TelBru’s monopoly on fixed-line services makes for limited pressure on prices.

FIBRE FEVER: Brunei Darussalam is counting on heavy investments in next-generation technology to improve the country’s position in broadband. The nation has embarked on a three-phase FTTH deployment programme with phase one being implemented by TelBru, who contracted Chinese IT giant Huawei in 2010 to bring in the necessary equipment, expertise and management services.

Phase two and three will be funded by a BN$230m ($179m) allocation under the 10th National Development programme. According to the Ministry of Communications, the roll-out aims to reach 30% of households by the end of phase one and 80% and 100% of households by the end of phase two and phase three respectively. As of February 2013, 1000 homes had been connected across the country, with 6000 more targeted by the end of the year.

However, while FTTH is certain to increase the maximum capacity of broadband connections available to the end consumer, it so far appears unable to bring down the price. TelBru’s application form launched in 2012, giving citizens a chance to register their interest. It lists the entry price at BN$105 ($81.80) monthly for a 5 Mbps connection – identical to the top offering for the e-speed service. From there the price escalates significantly: 10 Mbps for BN$165 ($128.50), 20 Mbps for BN$325 ($253) and 30 Mbps for BN$465 ($362). By way of contrast, Malaysia recently launched its own similar FTTH programme, which included strict rules guaranteeing open access for competitors to the legacy provider’s network, attracting private sector players like Maxis, TIME, Celcom and P1. The cheapest offering includes 8 Mbps for $40.50, while speeds can go as high as 50 Mbps for as little as $124.60.

There are concerns about whether competitive or political pressures will pull the price downward in the country. DST has called for open access for competing telecoms players, with former CEO Idris Vasi telling the press, “We are working with AITI, the Ministry of Communications, to make sure there is open access, because the government is spending money in laying out the fibre and they need to provide open access to DST so we can run applications for our customers.” At the same time, Vasi told OBG that DST would have to see the value proposition in investing before it would go toe-to-toe with TelBru in the fixed broadband sector. The potential subscriber base – approximately 70,000 households – may be too small to warrant the capital risk.

TUNING IN: One avenue of business which FTTH may enable is internet protocol television, or IPTV, under which television content would be delivered over the high-capacity fibre lines to consumer devices. This would primarily be an opportunity for TelBru, as DST, through a partnership with Malaysian entertainment giant Astro, already offers the Kristal Astro satellite-TV project. TelBru has been considering options for providing a triple-play package to customers, combining high-speed internet, IPTV and telephone services. However, this would require innovations in terms of regulatory frameworks.

AITI is currently only responsible for regulating the telecoms industry, but companies wishing to become an IPTV provider would also require a broadcasting licence. Because data can be transmitted via a range of media, many countries are transitioning to a converged system which combines television and telecoms functions – something in which AITI has expressed interest. “We are working with the Ministry of Communications to develop a framework that would transfer the broadcasting regulatory functions to AITI, creating a converged regulator,” AITI’s CEO, Hj Yahkup Menudin told OBG. This could simplify regulations and make it cheaper for application service providers to be licensed.

UNDER THE SEA: If upgrading the last-mile infrastructure has not proven to be the solution to the high cost and low speed of bandwidth, new submarine cables being connected to the country may somewhat ameliorate the issue while opening up a broad spectrum of possibilities for investment in the country. Hj Sahralidin Abdul Momin, the general manager of the IT services firm, eSiPADU, told OBG, “There is a constraint with linking to the outside world as we only have two submarine cables.” However, this is set to change soon.

The Sultanate is a partner in the $400m Southeast Asia-Japan Cable (SJC), which will connect Japan, Hong Kong, the Philippines, Brunei Darussalam, and Singapore, with an option to extend further to Vietnam and Thailand at a later date. In addition to being the Sultanate’s highest capacity and fastest pipe, the 8900-km cable will bring the country’s total of international connections to three. This is a crucial threshold of redundancy necessary for investments in high-uptime operations like data centres.

Brunei Darussalam currently has two cables serving it – the Asian-American Gateway (AAG), linking it to Malaysia, Singapore, Thailand, Vietnam, Hong Kong, and the US, and the SEA-ME-WE 3 cable, which has connections to South-east Asia as well as Africa, the Middle East and Western Europe. These are showing limitations in age and capacity – SEA-ME-WE3 is limited to 655 Mbps and may be decommissioned in the next decade, while AAG has a capacity of 1.92 terabits per second (Tbps). The SJC will have a bandwidth of 15 Tbps and may be upgraded to 23 Tbps.

However, the fact that the pipe between the Sultanate and the rest of the world is widening and quickening does not by itself suggest that internet access will soon get faster or cheaper. Brunei International Gateway (BIG) only allocates to the country about 45% of its current allotment of bandwidth, according to Pg Mohd Salleh, the general manager of BIG. The rest is sold to other regional telecoms in an attempt to recoup some of the government’s investment in undersea cables. And of the 45% – consisting of 12.5% each for DST and TelBru, and 20% for reserve capacity — most are unlit, or not in use.

BACKUP CABLE: Brunei Darussalam’s investment in the latest cable is therefore being justified on grounds other than capacity. Primary appeals are that it offers more convenient and more redundant connections to the rest of the world, and that it will provide lasting value. Furthermore, the cable is expected to draw new investors to the country.

In terms of convenience, Pg Salleh noted that the new cable avoids stopovers at midpoint destinations like Vietnam and Thailand, which can add milliseconds of latency. "With the SJC cable, the Sultanate will be just one hop away from Hong Kong, Singapore, Japan and China – the main destinations for our internet traffic,” Pg Salleh told OBG.

The impending direct connection has also paved the way for Japan’s NTT Com to establish a point of presence in the country, cutting down on IP transit fees and delays. A memorandum of understanding was signed between BIG and NTT Com on May 21, 2012; discussions are ongoing, but if the partnership goes through, local ISPs like TelBru and DST will be able to connect directly to the internet via NTT Com’s Tier-1 global IP network. Local ISPs tell OBG that the combination of the incoming SJC and the NTT gateway is expected to contribute to lower permegabit fees for internet access, by combining several IP transit pipes into a single point of access.

DATA CENTRE: Perhaps the most significant outgrowth of Brunei Darussalam’s participation in the SJC is that it lays the groundwork for the country to construct its first data centre. This has been a long-term ambition of the government, which sees it as a test project that will demonstrate the country’s credentials as a tech haven and a good destination for foreign investment. Like many of the Sultanate’s largest projects, the data centre initiative is being implemented by the Brunei Economic Development Board (BEDB), an economic development and investment promotion agency often tasked with courting foreign investors for mega-projects.

The BEDB’s pitch, advertising the Sultanate’s suitability for a data centre, emphasises a number of important strengths: cheap and reliable electricity, political stability and the absence of natural disasters. The proposed data centre would be shared between government ministries, the local hydrocarbons industry and regional companies looking for backup facilities in a sheltered location.

Brunei Darussalam’s location is indeed remarkably stable for a country in such a volatile region – the nation is located inside of the seismic “ring of fire” that produces regular earthquakes, tsunamis and volcanic eruptions in nearby Indonesia and the Philippines. The Sultanate, however, hardly experiences any seismic activity. Data collection on natural disasters is somewhat limited in the country, but, outside of a few fatalities due to flooding, there have been no catastrophic weather events. The data centre’s architects have emphasised disaster planning for regional companies, pointing to disruptions after recent flooding in many nearby countries. According to the BEDB, the proposed National Data Centre would not necessarily seek to be the primary data centre for companies in the ASEAN region, but would instead focus on offering backup and redundancy services.

Requirements for data centres are strict: facilities that will house critical data generally require two sources of power and two or three separate network connections, which in the country’s case, means access to submarine cables. The construction of the centre will likely exceed the capacity of local contractors. This is one reason why BEDB is playing a leading role in the project and is using its expertise to attract international partners.

The BEDB has so far awarded a BN$3.2m ($2.5m) consulting contract to South Korea-based KT Corporation and Malaysian consulting firm Alliance Geotechnical Services (AGS), with AGS focusing on the hydrocarbons-specific aspects of the project and KT handling the overall design.

A feasibility study ran from November 2012 to February 2013 and a request for proposals is anticipated for later in 2013. The challenge for the centre will not be government approval, as the necessary political will is currently in place. However, finding the right mix of non-government clients may prove somewhat difficult.

LOCAL DEVELOPMENT: The major challenge for developing the ICT sector is the lack of home-grown talent and businesses. For example, the E-Government National Centre, which functions as the state’s in-house ICT department, finds that the “local” companies which they contract with outsource much of their workload to foreigners.

“At this point, most of the companies we contract with use foreign providers to deliver manpower and expertise. I would like to see more local content,” Mohamed Norshafiee Abdul-Jalil, the director of the E-Government National Centre, told OBG. This phenomenon is not new to the country or unique to the sector – there is even a term, “Ali Baba”, referring to local companies that act as licence-holding fronts for foreign operations.

The government is adopting a number of strategies to bolster the local ICT industry, with a bevy of grants and funding opportunities available to entrepreneurs (see analysis). Human resources, however, remain the key sticking point, as it is across the Sultanate’s economy. Of the 167,915 employed workers in Brunei Darussalam in 2009, according to IMF statistics, just 39,025, or 23%, were citizens and permanent residents working in the private sector. 46,757 worked in the government in some form, while the rest were temporary residents working in the private sector. To break this cycle, in which only foreign workers and firms are utilised, local industry advocates have called for knowledge transfer requirements and programmes.

“We can take advantage of projects being handled by foreign companies and seize the opportunities to enhance the human capital development in Brunei Darussalam. On top of existing local capacity, the requirement for local knowledge transfer is key for retaining skills and experiences,” Siti Nuraazzah Azi, the chief technical officer at Network Integrity Assurance Technologies, told OBG.

The government is also investing in programmes to promote ICT skills acquisition. In 2010, AITI launched a programme to subsidise IC3 training – a globally-recognised certificate indicating basic computer proficiency – through a partnership with Infomars, a local training company.

In the same year, AITI’s ICT Competency programme struck a deal with three separate companies – AT e-Knowledge Solution, HAD Technologies, and iLM Academy – to offer training programmes and certification courses in web development, Photoshop and IT administration.

OUTLOOK: Trying to build a grassroots industry from the top-down is a daunting proposition, since entrepreneurial capabilities cannot just be willed into existence. To boost local industry, the Sultanate has been trying a variety of approaches, from megaprojects like the data centre to the promotion of small app developers and programmers. And this has indeed produced improvements – Brunei Darussalam jumped from 63rd worldwide to 54th on the Networked Readiness Index (NRI), thanks in part to improvements in the education system.

The NRI has given the country considerable credit for the role that the education system plays in the ranking improvement, particularly the high rate of secondary school enrolment, where it ranks 11th worldwide. Individual ICT usage is high, reflecting locals’ love for mobile devices, but innovation weighs on the country, and a cultural transformation will be necessary to make ICT one of the foremost sectors.