Subject: Final Status Report of EBS East Asia Regulatory Matters
From: [email-masked]
To: [email-masked]
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Date: Wed, 10 Jan 2001 15:55:00 -0800 (PST)

As many of you know, I am going to be leaving Enron to pursue new 
opportunities.  
  I am leaving with regret,  as I have enjoyed working with all of you, and I 
believe EBS
  is poised for great success in Asia.   To assist in a smooth transition,  I 
have prepared 
  this report on  the status of all EBS East Asia regulatory affairs actions 
I am working on, 
  and my thoughts about next steps.    A list of key contacts is also 
provided.    Mark 
  Schroeder will reassign pending actions.   

   Again, many, many thanks for your support and encouragement and for what I 
have 
   learned about broadband and EBS from each of you. 

1.   Singapore

 (a)  SBO License Application:   

        The application was completed in draft in December.   Dan Arzola of 
EBS Asia 
        has a copy in Houston.   We cannot proceed further on the application 
until we 
        decide what  legal entity to use.   We have a legal entity (Enron 
Broadband 
        Services Pte Ltd) set up that encompasses all EBS activities 
including bandwidth t
        trading.   

        The legal entity that we use in the application will have to pay a 1% 
annual gross
        turnover fee unless we get it waived by the regulator on the grounds 
that the 
        turnover fee was never intended to capture bandwidth trading 
revenue.   This 
        is a possible option in my opinion as the regulator (IDA) does not 
want to be working at cross
        purposes with other parts of the government that wish to provide EBS 
with incentives.  
        See below.
     
    (b)  Legal Due Diligence:
   
        However, before pursuing a waiver from IDA,  we were planning to 
complete legal due 
        diligence to examine any options for avoiding the fee without a 
waiver.   
        Donald is of the view (see his Jan 9 e-mail ) that bandwidth trading 
has to be
        licensed by the regulator.  ( In Europe, bandwidth trading usually 
does not 
        require telecom licensing.)   If Donald is correct as he probably is, 
there may be 
        less need of further legal research  on that point unless perhaps to 
confirm absolutely 
        that there is no way to shield EBS bandwidth trading from the 
turnover fee apart from
        a waiver or reduction of the fee.    For example it is possible  that 
Jan Haizmann 
        or others may figure out a way to have actual trades escape the fee 
(done offshore 
        for example).   Jan I believe has some ideas on this that he adanced 
in the context
        of Korea.  

        I believe it would still be prudent  to proceed as we had planned to 
engage
        a law firm here in Singapore (as we have in Hong Kong and Japan) for 
the purpose 
        of guiding us through these sorts of questions (or at least 
confirming our reading)
        and answering the many other questions posed in a matrix developed by 
a working 
        group headed by Wayne Gardner.   We will likely be needing the firm 
anyway at 
        some point.  
        
        I have prepared a list of seven law firms engaged in telecoms 
practice in Singapore.
        EBS General Counsel is planning to examine its Asia strategy and whom 
to send and
        when to engage a firm to complete Wayne's questionnaire and for other 
purposes.

         My advice is, after the due diligence is completed or we have at 
least confirmed
         that bandwidth trading is required to be in the licensed entity,  
probably to go to the IDA and 
         discuss the implications of the fee for us.   The contacts I would 
suggest discussing this
         with are Andy Haire and Fiona Yeo (see contact list).]      IDA does 
not wish to prevent 
         EBS's coming to Singapore, and the fee was of course set up without 
bandwidth trading
         specifically in mind as a revenue source.   Bandwidth trading was 
referenced in the
         Code only later as a result of Enron's comment letters.

  (c)  Arthur D Little consultant proposal to support EBS Pioneer Status 
Application

         This 75k proposal is now with us in final form, after undergoing 
changes by me
         and two by our Houston tax lawyers.   I was to have gone to ADL 
Singapore next
         for a meeting to question them on how much of this they are able to 
         do independently without reliance on us.   This was a suggestion 
made by
         Jim Ginty of EBS tax to make sure they would not be reprocessing our 
info,    
         I also intended to get them to pinpoint which of the products would 
be quantified,
         rather than a "where appropriate."     Assuming we proceed with this 
proposal, 
         someone else will need to do this conversation with ADL Singapore.   

         I have forwarded the final proposal to Wayne Garder and Mark and 
most other
         interested parties earlier this week.

        NB:   Someone needs to be appointed to contact Simon MacCormac at ADL 
and explain
        at least our timing and process for getting back to him, as a 
courtesy.   I have not 
        replied to his final submission as of now.   See contact info at end 
of e-mail.

         For background,  the reason I believe EBS needs this work and sought 
a consultant
         proposal is that Pioneer Status is typically awarded  to companies 
that make major
         dollar, infrastructure, and job-creation expenditures in 
Singapore.   Our business
         model does just the opposite.   So, to be awarded Pioneer Status, 
which the EDB is
         very willing to consider us for after many months of persuasion,  I 
believe we need to  
         help EDB demonstrate what the quantitative spin-off benefits are for 
Singapore from our
         developing bandwidth trading here (e.g. increased efficiencies of 
capacity utilization,
         effect of lower bandwidth prices on attracting investment).   This 
is a job for a  development 
         economist teamed with someone who knows about bandwidth trading.   
To my mind,
         if ADL cannot produce the bandwidth trading specialist we want, it 
might be worth it 
         to have one of our experts assigned to liaise with  them, and adjust 
the contract
         accordingly to reflect what part we are providing.         

         One thing the ADL scope of work does not provide for is the actual 
completion of
         the Pioneer Status Application - only the supporting economic 
analysis.  That is because it is
         proper for us to be the ones outlining our business plan for 
Singapore, rather than
         running that information through ADL and charging its overhead.  The 
idea is to get
         ADL to perform the quantitative economic development analysis we 
cannot do in-house.  

    (d)   Direct contact with EDB on EBS's plans

         EDB (Chelsia Lim ) has this week asked EBS to update her on its 
business
         plans for Singapore.    I have made sure Craig Clark will take the 
responsibility
         for seeing this is handled.   While a courtesy call is fine, I would 
advise 
         not to brief her formally until EBS has really decided what our 
plans are,
         with staffing, etc.   They have been asking for our plans for a 
while, and
         are waiting for some specifics when we have them.

2.    Hong Kong

        We have  2 licenses:   IVANS (value added services) and ETS (external
        telecoms services (includes bandwidth trading).

        There are several documents in draft and clearance which need to be 
filed
        under these licenses before we are able to operate in Hong Kong.  
        The principal ones are (a)  the system configuration plan,   (b) the 
tariff for
        sale and trading of circuits under the ETS license (c) the tariff for 
Mediacast 
        services under the IVANS license, and (later) (d) a tariff for 
VOD/EOD to
        be filed under the IVANS license.

        (a)  status of system configuration plan:

        The plan is done in draft and is being held pending a decision to be
         communicated by Roger Estrada within the next week or two as to 
whether 
         the Lucent 10G equipment described in the plan will be changed to 
other 
         equipment.    The HK lawyers  (Michelle Chan of Clifford Chance)  
have said 
         that if we plan to provide other equipment at the outset, we ought 
to just
         wait and send in the correct description rather than revise.   If we 
do stick with
         the Lucent equipment , we will also need to revise our orginal 
license 
         application as well (says Michelle Chan)  to include description of 
related
         Cisco equipment that was not mentioned in our orginal license 
application.

         When the system configuration plan is done in final, we also need to 
         change the listed destination in the diagram from "San Jose"  to 
"West Coast
         USA,  Japan, Singapore, and Australia".

         There are two copies of the present draft submission typed on the 
OFTA forms. 
          I have given one to Craig Clark of EBS to carry back to Houston.  
The other
         copy is with Annie Ng in our Singapore office.

         When we know what equipment we are going to be using, Tom Wei needs 
to
         revise the diagram and also make the changes in destination referred 
to above.
         Other small edits need to be made in Appendix A (see Dec 28 e-mail 
referenced
         below).   My successor should review the whole package once more 
with Michelle
         Chan in final.    Then the final package needs to be cleared by 
Anthony Duenner
         and our EBS lawyers before going to Ken Rice or another qualified 
Director of
         our Hong Kong company for signature.   After that it goes back to 
Michelle Chan
         for filing with OFTA.

         NB:   See Michelle Chan's e-mail of Dec 28, being repeated 
separately, for 
                  further information.  

       (b)   Tariffs for BWTrading under ETS License 

        In December in Houston I worked with Bill White and his staff on a 
tariff plan for
        bandwidth trading in HK.   Based on a meeting I had with the 
regulator in Hong 
        Kong,   we agreed to file pro forma ceiling prices rather than an 
entirely new
        and variable system which the regulator insisted we not do.   
Ceiling  prices 
        were developed and submitted to Michelle Chan for review.   

        Along with the prices we are required to submit our Terms and 
Conditions.   For 
        that I used EBS General Terms and Conditions (GTC's) for trading 
obtained from 
        Robbi Rossi and Michelle Heard.  Mike Grimes  has a set as well.   

        Present status:  Right now a dialogue is under way between Michelle 
Chan and  
        Robbi Rossi as to whether it is sufficient to file the GTC's alone or 
whether 
        certain exhibits, service level agreements, and confirmations 
referred to in
        the GTC's must also be filed.   There are other questions being 
discussed in
        that channel  such as how to handle variations in the terms based on
        commercial dynamics.     All these e-mails will be  forwarded.   Once 
these
        issues related to the GTCs are resolved, the tariff for bandwidth 
trading should
        be filed, going through Michelle Chan.

        NB:  See Michelle Chan e-mail of 1/09/01 which being forwarded 
separately.

     (c)  Tariff for Media Cast under IVANS license:

       I worked with Leroy Ho and Ken Wang in December and we submitted the 
main
       part of the Media Cast tariff to Michelle Chan.   However, we still 
need to get the
       Terms and Conditions for Media Cast from Robbi Rossi or Michelle Heard 
and
       attach them to the tariff diagrams and submit them to Michelle Chan. 
       
       NB:   See my e-mail to Michelle Chan of Dec 21 which being repeated.
       Someone needs to work with EBS legal to get the T and C's for Media 
Cast to Michelle
       or to set up direct channel between EBS legal and Michelle Chan as in
       the case of the exchanges on the T and C's for Bandwidth trading 
referred
       to above.

      (d)   Overall change of responsibility for EBS Regulatory HK 

        Michael,  or whomever will be taking over these responsibilities, 
should 
        get from Michelle Chan of Clifford Chance Hong Kong a fresh copy of 
        Alison Lindsay's letter to Xi Xi of October 2000 stating that we 
received 
        our licenses and setting forth in detail all of the requirements.   
This is the 
        master document ("bible") on compliance under our licenses and will 
catch any
        detail not included above.   For example:

            - my successor should also file a new form with OFTA,  the Hong 
Kong 
              regulator (form is included in the attachments to the letter)  
naming 
              himself the point of contact, replacing me.    Michelle Chan 
can forward
              the letter to the regulator.

           -  we will need to be selecting an independent auditor to certify 
certain routine
              reports we may need to file in future.   I have not started on 
that.

3.    Korea

       Robbi Rossi needs to call Kim and Chang (law firm we use in Korea)
       to authorize them to research and provide advice to us on how to 
handle 
       the apparent regulatory impediment to Bandwidth Trading in Korea that
       we identified during my November trip.

       Once Kim and Chang starts work on this, someone from regulatory should
       be made available to help guide Kim and Chang on our regulatory 
       questions, in coordination with Robbi Rossi.

       The key e-mails are (a) one from me outlining the overall problem and
        some suggestions for dealing with it ;  (b) one from Jan Haizmann 
with 
        some additional and in some cases alternative suggestions on how
        to deal with it,  (c)  two from Jae Moo Lee in Korea with additional
        points of view.  These will be forwarded.  

  4.   Japan  

       Our regulatory consultant is Art Yanagawa.   Contact info below.  Mike 
Grimes 
       and I have been in meetings with him and  Mike is fully briefed to 
carry on the 
       on-the-ground  part of contacts with Art.   Art also responds to 
Donald and 
       Roger Estrada and relies on them for guidance and input.     

      At some point it should be thought through who should be the point 
person
      to manage  this contract and approve payments, or decide to leave things
      as they are with approvals done in Houston.    The present system works 
but
      it is not clear to me who is responsible for what.  

      Art has prepared the amendment to our Special Type 2  license to add
      service to other destinations.   The latest status was that he was 
holding
      the amendment over the holidays while clarifying some points raised by
      Mike Grimes.    Someone needs to be assigned responsibility for
      getting the amendment through.  

      General Concern:      

      A more general regulatory concern for us in Japan is that our 
consultant 
      advises us that we cannot use the term bandwidth trading  in 
      communications with the government because it is not something 
      contemplated in the Telecom Business Law,  so is prohibited if 
      stated as we would state it elsewhere.   

      We therefore are having to go through elaborate contortions to make 
      what we are planning to do actually look like we are doing something
      else.    I admit that I agree with the approach we are taking for now 
and 
      can offer nothing better for the immediate term.    

      However, I would say that long term we are running some risks.    If we 
      are going to make Japan  one of the centerpieces of our  Asia EBS 
      strategy,   I think we need to consider devoting more full time EBS 
      regulatory resources to Japan exclusively.    

       The allocation problem is that whatever regulatory resources we apply 
       have to focus on  immediate license amendment  and operational
       questions that drive out time to work effectively on long term
       issues such as how to go about amending the Telecommunications 
       Business Law  to allow bandwidth trading explicitly.    This would seem
       important to reduce long term risks to our business strategy. 

5.    "Digital Divide"

       I had been giving intermittent support to helping Scott Yeager and 
Justin
       Cornett of EBS, and Will Reed of Technology for All, figure out how
       to expand the concept of Technology for All to Asia.    The strategy
       was to utilize some of Japan's $15 billion pledge of funds to support
       digital divide activities in Asia - to support the expansion into Asia 
of
       the EBS-supported TFA model.    This work will cease unless it can 
       be picked up by Laura Lannarone of corporate social responsbility 
       or Steve Burns of the DC office.   

6.   KEY CONTACTS for operational items in this memo:

(a)   SBO License:  InfoCom Development Authority of Singapore

        (1)  Ms. Fiona Yeo, Asst Dir Competiton  - 211-1824
        (2)  Mr. Andrew Haire - Senior Director Policy and Regulation - 
211-1731 
        (3)  Ms Hema Ramnani - Manager- Policy   211-1860
        (4)  Ms Aileen Chia, Deputy Director, Economic Regulation - 211-1883
        (5)  Ms Ng Cher Keng, Director, Policy - 211-1828
      
(b)  Pioneer Tax Status:  Economic Development Board

       (1)  Chelsia LIM - Senior Officer Infocomms and Media - 832-6676
              <[email-masked]>
       (2)  Bernard NEE -  Head, Infocomms and Media - 832-6964
       (3)  Sean LOW - Senior Officer Infocomms and Media - 832-6260
              <[email-masked]>
       (4)   LEE Eng Keat - same as above - 832-6006
 
(c)  Arthur D Little proposal

        (1)  Simon MacCormac - Associate Director
              297-2300
              <[email-masked]>

        (2) Peter J Connell - Vice President
               207-2300
             <[email-masked]>

(d)  Hong Kong License filings:

       (1)  Michelle Chan  852-2825-8888
              <[email-masked]>

       (2)  Alison Lindsay
               <[email-masked]>

        (3)  OFTA:  M.H. Au
               Senior Asst Director (Regulation)
               852-2961-6688
               <[email-masked]>

(e)  Japan Telecom regulatory consultant to  EBS:

       Art Yanagawa
       81-3-5418-7056
       <[email-masked]>  

David

 

         

  

 

        

       

       for example, the option of whether we can break bandwidth trading 
functions
       out of the entity