Message-ID: <4092091.1075848124898.JavaMail.evans@thyme> Date: Wed, 10 Jan 2001 15:55:00 -0800 (PST) From: david.merrill@enron.com To: anthony.communications@enron.com Subject: Final Status Report of EBS East Asia Regulatory Matters Cc: craig.communications@enron.com, jane.wilson@enron.com, michael.grimes@enron.com, donald_lassere@enron.net, xi_xi@enron.net, roger_estrada@enron.net, leroy.communications@enron.com, kenneth.communications@enron.com, tom.communications@enron.com, wayne.gardner@enron.com, james.communications@enron.com, kristina.communications@enron.com, marie.communications@enron.com, stephen.burns@enron.com, steven.kean@enron.com, don.hawkins@enron.com, scott.communications@enron.com, amr.ibrahim@enron.com, mike.dahlke@enron.com, carmen.perez@enron.com, elizabeth.linnell@enron.com, laura.lannarone@enron.com, lindsay.meade@enron.com, miyung.buster@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: craig.communications@enron.com, jane.wilson@enron.com, michael.grimes@enron.com, donald_lassere@enron.net, xi_xi@enron.net, roger_estrada@enron.net, leroy.communications@enron.com, kenneth.communications@enron.com, tom.communications@enron.com, wayne.gardner@enron.com, james.communications@enron.com, kristina.communications@enron.com, marie.communications@enron.com, stephen.burns@enron.com, steven.kean@enron.com, don.hawkins@enron.com, scott.communications@enron.com, amr.ibrahim@enron.com, mike.dahlke@enron.com, carmen.perez@enron.com, elizabeth.linnell@enron.com, laura.lannarone@enron.com, lindsay.meade@enron.com, miyung.buster@enron.com X-From: David Merrill X-To: Mark Schroeder@ECT, Anthony Duenner@ENRON COMMUNICATIONS X-cc: Craig Clark@Enron Communications, Jane Wilson, Jan Haizmann@ECT, Michael Grimes, , , Justin Cornett@ENRON, , Leroy Ho@ENRON COMMUNICATIONS, Kenneth Wang@ENRON COMMUNICATIONS, Tom Wei@Enron Communications, Wayne Gardner, James Ginty@Enron Communications, Kristina Mordaunt@Enron Communications, Robbi Rossi@EES, Marie Heard@Enron Communications, Stephen D Burns, Sue Nord@Enron, Richard Shapiro@Enron, Steven J Kean, Don Hawkins, Scott Yeager@Enron Communications, Amr Ibrahim, Mike Dahlke, Carmen Perez, Elizabeth Linnell, Ginger Dernehl@EES, , Lindsay Meade, Miyung Buster X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf 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 (2) Bernard NEE - Head, Infocomms and Media - 832-6964 (3) Sean LOW - Senior Officer Infocomms and Media - 832-6260 (4) LEE Eng Keat - same as above - 832-6006 (c) Arthur D Little proposal (1) Simon MacCormac - Associate Director 297-2300 (2) Peter J Connell - Vice President 207-2300 (d) Hong Kong License filings: (1) Michelle Chan 852-2825-8888 (2) Alison Lindsay (3) OFTA: M.H. Au Senior Asst Director (Regulation) 852-2961-6688 (e) Japan Telecom regulatory consultant to EBS: Art Yanagawa 81-3-5418-7056 David for example, the option of whether we can break bandwidth trading functions out of the entity