Singapore Telcos Brace For A Testing Year

31 January 2019

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By Matti Reinikainen

Early signs of disruption. Pressure is intensifying in Singapore’s already competitive market for mobile broadband as a new challenger, TPG, prepares for commercial launch. In a pre-emptory move, StarHub, one of Singapore’s three incumbent telcos, reduced its SIM-only plan prices, while simultaneously increasing its data allowances in Dec. 2018. Circles.Life, the market’s biggest MVNO, soon followed, as did the other telcos, Singtel and M1.

TPG, meanwhile, is offering 12 months of free data over 4G to 20,000 people as part of Sim-only mobile trials that started towards the tail-end of 2018. The move echoes Jio’s market-changing launch in India, albeit on a more limited scale. TPG’s offer is also tied to a relatively generous fair usage policy (speeds are capped at 1Mbps after 2GB of data per day).

Now the market is waiting for TPG’s commercial plans, which we believe will be unveiled in Q2/Q3 2019, raising the prospect of further discounting and margin pressure. A key challenge for incumbents will be managing costs with TPG skipping 3G to go straight to 4G, which is far more cost effective, especially for data.

MPA analysis shows that implied retail data costs for Sim-only mobile plans tumbled from S$2-5 (US$1.3-3.6) to S$1-2 (US$0.7-1.3) per GB after TPG commenced its mobile trail. Between them, Singtel, StarHub, M1 and Circles.Life, representing ~99% of Singapore’s mobile broadband base, increased monthly data allowances by between 54% and 300% while cutting or maintaining prices.

Additionally, StarHub and M1 have also started giving previously paid-for value-added services, such as caller ID, to new/re-contracting fixed term postpaid subs for free. This will place further pressure on ARPUs and possibly margins in coming quarters.

Singtel and StarHub’s 9M18 mobile revenues were both down, by 5.1% and 6.3% respectively, although M1 increased its revenues by 2.1% during the same period off the back of a bigger postpaid base, likely driven by gains for MVNO Circles.Life, which uses M1’s network.

At the same time, StarHub’s new focus on driving customer growth will soon extend to its loss-making pay-TV business with new packaging set to be announced by end-Feb. 2019. StarHub’s historically onerous and broad range of premium packages are set to collapse into seven tiers with bundled discounts, likely resulting in significant price reductions and higher customer growth.

THE ROAD AHEAD

A number of scenarios could play out in Singapore’s mobile broadband market over the course of this year:

  1. Status quo prevails. While a price war can’t be ruled out, Singapore’s three major telcos are unlikely to forget MyRepublic’s disruptive launch in fixed broadband in 2015, which resulted in steep price cuts that have endured until today. As a result, the status quo could likely prevail in mobile broadband, especially given that one round of price drops (albeit marginal) and data quota hikes has already been implemented.

  2. Customers tier down. Nonetheless, ARPUs and margins will still come under pressure as contracts come up for renewal, especially for S$30-50 (~US$21-36) plans. StarHub and Singtel are already feeling the impact of lower-value SIM-only plans, which are becoming more popular.

  3. Renewed focus on high-value users. As a result, efforts to retain high-value postpaid subs, especially those with bundled devices and longer-term contracts, will likely intensify, especially for subs that are margin-accretive. That said, price-focused measures such as deeper device subsidies are unlikely to work. Instead, operators will need to significantly improve customer service and brand perception.

 

To find out more, please get in touch with Lavina Bhojwani


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