Monday, 30 January 2017

Impact of SIM-Only Plans on Telcos

I recently switched my telco subscription plan from the regular ones to SIM-only plans. How do these SIM-only plans impact the revenue and profitability of the 3 local telcos?

Before we begin, let me explain what are SIM-only plans. As the name implies, SIM-only plans only provide voice, SMS and data but do not come with subsidised handphones. The tables below show the amount of voice, SMS and data for regular and SIM-only plans for M1, the telco which I subscribe to. The last table shows the difference in the amount of voice, SMS and data between the 2 types of plans. As you can see, SIM-only plans have generally the same amount of voice but less SMS and more data than regular plans. As people seldom SMS but rely more on data nowadays, I would argue that SIM-only plans provide better value than regular plans at lower costs!

Regular Plans

Plan Lite Lite+ Reg Reg+ Max Max+
Monthly Cost 28 42 62 82 102 228
Voice (mins) 100 200 300 400 800 Unlimited
SMS/MMS 500 1000 1200 1500 2000 5000
Data (GB) 0.3 3 4 5 7 13

SIM-Only Plans

Plan MS+ 15 MS+ 20 MS+ 30 MS+ 45 MS+ 75 MS+ 125
Monthly Cost 15 20 30 45 75 125
Voice (mins) 100 150 300 400 800 Unlimited
SMS/MMS 600 800 1000 1200 2000 Unlimited
Data (GB) 1 4 6 8 13 20


Monthly Cost -13 -22 -32 -37 -27 -103
Voice (mins) 0 -50 0 0 0 0
SMS/MMS 100 -200 -200 -300 0 Unlimited
Data (GB) 0.7 1 2 3 6 7

What is the impact of SIM-only plans on telco's revenues? We have to assume a particular handset to illustrate the impact. Let us use Samsung S7 as the handset. If you purchase it under the regular plans, the price you pay ranges from $608 to $0, depending on which plan you choose. This sale of handset contributes to the overall revenue of the telco. However, for SIM-only plans, there is no sale of handset, so handset sale no longer contributes to the overall revenue. Not only that, the service revenue is also lower. The table below shows the revenue impact of SIM-only plans. Using Lite/ mySIM+ (MS+) 15 plans as an example, the total revenue over a 24-month period is $1280 under the regular plan, but only $360 under the SIM-only plan. The decline in revenue is $920, or 72% of the revenue under the regular plan! As we move towards the more expensive plans, the percentage decline becomes lower. Thus, we can expect telco revenue to drop, depending on how many people switch to SIM-only plans.

Lite Lite+ Reg Reg+ Max Max+

MS+ 15 MS+ 20 MS+ 30 MS+ 45 MS+ 75 MS+ 125
Handset Price

Regular 608 458 128 58 0 0
SIM-Only 898 898 898 898 898 898
Total Revenue

Regular 1280 1466 1616 2026 2448 5472
SIM-Only 360 480 720 1080 1800 3000
Difference -920 -986 -896 -946 -648 -2472
% Difference -72% -67% -55% -47% -26% -45%

For M1, the expected decline in revenue shows up in their latest financial statement for FY2016 released last week. Fig. 1 below shows that handset sales dropped by 23.7% in FY2016 and mobile telco revenue dropped by 4.2% despite the total no. of mobile customers rising by 4.7%! Likewise, Fig. 2 below shows that the Average Revenue Per User (ARPU) dropped by 6.0%.

Fig. 1: M1's Revenue

Fig. 2: M1's ARPU

Having said the above, please note that the reasons M1 gave for the decline in net profit were lower IDD and roaming revenue, higher handset subsidy and higher depreciation and amortisation. So, perhaps not many people switched over to SIM-only plans.

Although revenue is expected to drop with SIM-only plans, if the cost of sales drop correspondingly, the impact to profit would not be significant. Here, I will attempt to estimate the profit impact from SIM-only plans. A few assumptions need to be made. Firstly, I will assume that M1 is a pure mobile telco company, even though it also has international call services and fixed services, which together constitute 21% of its service revenue in FY2016.

In FY2016, M1 reported gross profit of $180.0M on total revenue of $1,060.9M, giving it a profit margin of 17.0% (Based on FY2014 financial results, which is before M1's launch of SIM-only plans in Jul 2015, the gross profit margin was 20.4%. We will use the more conservative and latest figure of 17.0% in this analysis). Since this profit margin includes both the sale of handsets and mobile telco services, it is assumed to be the profit margin for the regular plans.

Overall Handset Service
Revenue 1060.9 255.4 805.5
Expenses 880.9 343.9 537.0
Gross Profit 180.0 -88.5 268.5
% Profit 17.0% -34.7% 33.3%

A breakdown of the revenue and expenses shows that handset sales contributed $255.4M to the overall revenue and $343.9M to the costs. In other words, M1 subsidised $88.5M for the sale of handsets to its regular plan customers. Removing the revenue and expenses from handset sales, the service revenue is $805.5M and the cost of service is $537.0M, giving it a gross profit of $268.5M or a profit margin of 33.3% on mobile telco services alone. This is assumed to be the profit margin for SIM-only plans, since they only provide mobile telco services.

Finally, I will further assume that the profit margins of 17.0% and 33.3% apply for all regular and SIM-only plans respectively, which is likely to be incorrect. I understand that a lot of assumptions have been made here, but these assumptions provide at least a starting point for analysing the impact of SIM-only plans on telco profitability. If you have better figures, please let me know.

Applying these profit margins to the revenue discussed above, the gross profit for the various plans are shown in the table below.

Lite Lite+ Reg Reg+ Max Max+

MS+ 15 MS+ 20 MS+ 30 MS+ 45 MS+ 75 MS+ 125
Gross Profit

Regular 217 249 274 344 415 928
SIM-Only 120 160 240 360 600 1000
Difference -97 -89 -34 16 185 72
% Difference -45% -36% -12% 5% 44% 8%

Using the Lite/ MS+ 15 plans as an example, the gross profit for the regular plan is $217 (17.0% x $1280) but only $120 (33.3% x $360) for the SIM-only plan. The difference is $97 or 45% of the gross profit of the regular plan. However, as we move towards the more expensive plans, this difference turns from a loss into a profit! The reason is pure mobile telco services has a higher profit margin. Thus, the more expensive the plan is, the more profit the telco makes!

The same analysis repeated for iPhone 7 (128GB) is shown below. Likewise, it shows that there is a significant drop in revenue but the impact to profit depends on which plan the subscriber chooses.

Lite Lite+ Reg Reg+ Max Max+

MS+ 15 MS+ 20 MS+ 30 MS+ 45 MS+ 75 MS+ 125
Handset Price

Regular 880 745 560 380 190 0
SIM-Only 1218 1218 1218 1218 1218 1218
Total Revenue

Regular 1552 1753 2048 2348 2638 5472
SIM-Only 360 480 720 1080 1800 3000
Difference -1192 -1273 -1328 -1268 -838 -2472
% Difference -77% -73% -65% -54% -32% -45%
Gross Profit

Regular 263 297 347 398 448 928
SIM-Only 120 160 240 360 600 1000
Difference -143 -137 -107 -38 152 72
% Difference -54% -46% -31% -10% 34% 8%

So, the next 2 big questions are: (1) how many people will choose to switch from regular plans to SIM-only plans, and (2) which plans are they on currently?

I do not have much insights on these 2 questions. On the first question, my opinion is that people who choose to switch include those who are cost-conscious, do not need an expensive phone and/or tired of upgrading phones every 2 years. The possible profiles of these groups of people would be the elderly and young children (if they are not already on the pre-paid plans). To cut a long story short, I do not think a lot of people will switch.

Another point to note is that M1 launched the SIM-only plans in Jul 2015. Since the typical contract period is 2 years, we are approximately 75% into the first renewal cycle. Nevertheless, it is also possible that some subscribers could have missed the SIM-only plans when they previously renewed and choose to make the switch in the next cycle.

On the second question, based on Fig. 2 above, the ARPU is $58, which is closest to the Reg plan that costs $62 per month. For this plan, the SIM-only equivalent will result in lower profit based on the analysis for Samsung S7 and iPhone 7 (128GB) above.

Hence, in conclusion, for each subscriber who chooses to switch, SIM-only plans will result in a significant drop in revenue. The impact to profit is also negative but smaller than the decline in revenue. However, the no. of subscribers who choose to switch to SIM-only plans is likely to be small.

P.S. I am vested in M1.

See related blog posts:


  1. What spurred me to switch (from Singtel's plan) is that even though I signed up for M1's SIM-only plan, they still give some subsidy for the mobile phone with a 12-month contract albeit less than the regular plans' subsidy.

    Thereafter, I think Singtel also lowered its prices of SIM-only plans to stay competitive.

    1. Thks for your info. I had a little subsidy when I made the switch. My switch was from M1's regular plan to its SIM-only plan.