Section Two Regulatory Situation in Asia/Pacific

1. Section TwoRegulatory Situation in Asia/Pacific Jan D. HAIZMANN – Director Regulatory Affairs, London Mike GRIMES – Manager, Public Affairs, Tokyo Singapore, 27th April 2001

2. Overview of regulatory regimes I

3. Overview of regulatory regimes II

4. State of Deregulation Korea Japan Singapore European Union Hong Kong Australia

5. Overview of Licensing Structure • Advantages: • Avoids multiple masters/simplified deal • structure. • Revenue generation and Central Localisation of Support Services leads to leaner cost structures. • Acceptable solution for tax, legal and regulatory. Japan General Type 2 Special Type 2 EBS Asia Pacific Hong Kong PNETS/IVANS License Korea/Taiwan Service Licenses Singapore SBO License

6. Licensing Status

7. Challenges in Japan • Current Status: Telecommunications trading not contemplated by regulatory scheme – but is not expressly prohibited • MPT Minister has broad authority under vaguely drafted laws – the accepted procedure is to gain approval in private meetings with bureaucrats • Telecom – IT convergence is a high profile issue for several ministries which are trying to influence policy for their constituents • Large group of stakeholders focused on telecom policy developments, with NTT (46% government owned) still largely in control • Approach: Manage policy developments to support trading • Expand transparency by coordinating support for trading with other stakeholders • Make involved ministries aware of the economic benefits deriving from trading • Demonstrate that trading can occur within existing scheme without affecting communications security • Current Status: Multiple licenses inhibit operational flexibility • One company cannot hold both General Type 2 and Special Type 2licenses, so that services will have to be “sourced” from two license holders • Some services require tariffs, which mean price caps and equal treatment for all customers, regardless of time of purchase or credit-worthiness • Approach: Eliminate restrictions tying business to license • Operate all trading under General Type 2 license

8. Challenges in Japan II • Current Status: MPT definition of Terms & Conditions incompatible with Master • Special Type 2 license requires notification of T&C’s and tariff for each transaction prior to transaction, and that the same price for the same product be given to all customers • Type 1 License requires MPT approval of T&C’s and tariff prior to each transaction • Approach: Broaden General Type 2 license to cover trading of all products • Current Status: No Price Transparency • MPT does not require publication of “yakkan” (T&C’s) – simply that they be approved by regulators • Obtaining data on services/pricing requires contacting all providers • Regulator does not view its role as providing this information, or even a vehicle for doing so, in the name of increased competition • Approach: Develop consensus among service providers to get MPHPT to create a site for such information • Current Status: EOD can be provided with existing General Type 2 License • Approach: Monitor developments advantaging national television company

9. Challenges in Singapore • Current Status: License fee structure is of considerable burden • 1% levied on annual gross turnover (pertaining to physical circuits originating, terminating or passing through Singapore), minimum of Sing$ 10.000, will represent more than 50 % of gross margin • Division between the turnover generated on-shore and off-shore is likely to create additional burden for back-office functions • Some grey zone may exist when attributing revenues to on/off-shore • Approach: Multi-pronged appeal • Advocacy at senior governmental level for review of fee structure • Common action with other market players either by way of common action, or coordinated individual action at senior level • Lobby that the Enron intermediation/trading model is different because of different revenue patterns between traditional telecommunications service provider and EBS • Current Status: Application for Pioneer Tax Status is being reviewed • Tax holiday for 5-10 years • Likely to be linked to conditions • Likely to be reviewed every year • Approach: Staying in close touch and facilitating the current review process

10. Challenges in Korea • Current Status: Restrictive Regulations have prevented Action • Trading not contemplated by current legislation • Situation is different for buying/selling capacity/leased circuits • Sell international bandwidth capacity to Korean companies is legal according to current legislation without license requirement (we can do it now) • Buy international bandwidth capacity from Korean companies is not allowed • Resale of national capacity is restricted to NSP license holders • IRU/dark fibre ownership restricted to Network Service Providers • Financial Instruments such as commodity derivatives would require prior approval by the Bank of Korea for every USD transaction • Approaches: • Since 1 January 2001, no more ownership restrictions for telecommunications service providers, also 100 % subsidiaries of foreign companies may pursue telecommunications business • Monitoring development in reform in particular on uncertainty of licensing EOD activity • Advocacy with MIC & other players, regulatory reform has been initiated recently and may lead to tangible results end of 2001

11. Challenges in Hong Kong/Australia • Current Status: • Regulatory environments in both countries are favourable for development of broadband trading in both countries • In Hong Kong finalize process of registration of EBS Asia Pacific as a service provider • Approaches: • Aggressive Positioning in the markets accompanied by cautious regulatory risk management

12. Challenges in Taiwan • Initial review conducted 1/01 indicates closed telecommunications industry • Limits on foreign ownership • Owning facilities requires Type I license, • Products based on leased facilities require Type II license • License Fee Issue • Both licenses appear to require physical presence • Approach: Complete due diligence • Law firm has been identified

13. Overall Regulatory Strategy Ensure Widest Possible Latitude for Commercial Activity in a fragmented Market Place with very different Stages of Liberalisation • Ensure telecommunications policy throughout region supports Common Bandwidth Trading Standards • Participate in Asia-Pacific telecommunications policy development to minimize commercial impact of policy changes • Minimize need for holding licenses or compliance procedures • Where licenses are necessary, expand permitted operational flexibility

14. Next Steps Transition from License Compliance to Advocacy • Leverage relationships with policy makers to efficiently impart consistent message across region • Tailor EBS policy message to each country – consonant with commercial strategy • Cultivate relationships with policy makers – US & local governments, politicians, competitors – to efficiently effect policy changes • Influence Singapore legislation to eliminate impact of license fee • Use relationships to help define telecommunications policy to permit the freest use of market mechanism to support innovative service offerings and delivery vehicles

15. More Steps • Closely Monitor regulatory reform process – to identify potential in new markets and to minimize legislative/regulatory impact on commercial activity (Regulatory Risk Management) • Ongoing rregulatory due diligence for other target countries in region: • Taiwan • Korea • Any other country (Malaysia/Indonesia etc.) • Leverage efforts by using regional organizations like APEC to promote a market-oriented environment • Ensure rate consistency/consistency of service filings across region • Co-ordinate with PR to ensure consistency of public messages across region and regulatory strategy • Develop and manage regional license compliance program • Establish biweekly conference call among legal, tax, accounting and regulatory staff