Saturday, 14 November 2015

Worries about the 4th telco are overblown

A 4th Telco could potentially launch operations in the Singapore market after the spectrum-bidding is settled in 2017. Analysts have been busy looking into their crystal balls and coming up with various projections, none of them bodes well for the 3 incumbent Telcos (SingTel, Starhub and M1).
The general consensus is that the new entrant will seize market share away from 3 existing Telcos, thus causing them to suffer a drop in revenue and profits. A bleak and uncertain future was painted especially for Starhub and M1 as their businesses are focused in the Singapore market.
However, I think the fears and concerns are blown out of proportion.
1. Competition is not something new
The 3 local Telco have been competing against one another for many years. Pricing wars is a norm for them. The tongue-in-cheek advertisements between Singtel and Starhub never fail to amuse me before every COMEX, The IT Show. In fact, Singtel also competed against foreign behemoths in overseas markets like Telstra in Australia and Vodafone in India. Despite the stiff competition over the years, they survived and grew. When Singtel snatched the exclusive broadcasting rights of the Barclays English Premier League back in 2009, everyone thought Starhub would be in terrible state. On the contrary, Starhub kinda benefitted because the obscene amounts of money which were originally earmarked for bidding for the broadcasting rights can be re-channelled into other areas of capex. Starhub emerged stronger, raising annual dividend payout to 20 cents per share and maintaining it until today. This event not only shows the resilience of Starhub but also the aggressiveness of SingTel. SingTel, with financial muscle, is willing to do whatever it takes to win the broadcasting rights even though they barely break even by offering EPL matches on Mio TV packages back then. I will like to believe Singtel, Starhub and M1 are not sitting ducks. They are professionally run by experienced and capable minds which are able to mitigate the potential challenges posed by the new Telco. They can see the new Telco coming from a mile away, with time to prepare. 

2. No guarantee the new Telco will be a roaring success
Analysts are expecting the new Telco to eventually grab around 10% of the local market after a few years in operation. This is only a projection, an assumption, a best case scenario. The actual figure could well be lower. If the new Telco tries to entice new customers with huge discounts, dirt-cheap pricing and unlimited data plans, they will probably be making a loss initially during the promotional period. But they cannot afford to be that aggressive forever. As their customer base grows, I doubt their network can support the unlimited data usage in the long run. Upgrading the network will be capital intensive. Eventually, their pricing will normalise for the business to be viable.

3. No mass exodus of customers from M1 and Starhub
Looking at how drastic the prices of M1 and Starhub have corrected over the past few months (M1 hit another 52-week low yesterday), the market seems to be assuming that customers of the new Telco will be mainly switching from M1 and Starhub. The truth is, nobody knows for sure how consumers will react to the new Telco. Maybe most of the customers jump ship from Singtel? Maybe the loss of market share will be evenly spread out among the 3 Telcos? Who knows?

4. Population growth
We live in a digital world and the smartphone is an essential part of our lives. The pie might not be big enough for 4 telcos now, but in a few years time, the population might have grown to a size that make it a viable scenario.


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