Sunday, 29 April 2018

No Competition for M1's Big Data Plans

Usually, the 3 local telcos are very competitive. Whenever 1 launches a new service, the other 2 will follow quickly. However, for the new big data plans that M1 launched in Aug 2017, the follow-ups have been fairly feeble. Starhub launched its unlimited weekend data plans immediately, but that came with additional monthly subscription fees of $5.10. Only Singtel came up with something close, offering a Data X Infinity add-on for unlimited data for additional $39.99 per month 2 weeks later. However, that add-on only applies to higher mobile plans. Let us look at the offerings from each telco.

Do note that M1's big data plans do not come with much talktime and SMS. All the big data plans (except for the most expensive one) have only 100 mins of talktime and 100 SMS. For extra talktime, there are add-ons that range from $5 (for extra 200 mins) to $15 (for unlimited talktime). These big data plans do not replace M1's more traditional mobile plans that have a balance of talktime, SMS and data. For Singtel and Starhub, there are no new mobile plans that are equivalent to M1's big data plans. They are just enhancing their existing mobile plans to add more data. Thus, the comparison below is not a like-for-like comparison. However, for users who use a lot of data, this comparison is relevant.

M1 Plans
mySIM 40 mySIM 70 mySIM 90 mySIM 118
Monthly Cost
$40.00 $70.00 $90.00 $118.00
Data (GB)
5 15 30 Unlimited

Singtel Plans Combo 1 Combo 2 Combo 3 Combo 6 Combo 12
Monthly Cost $27.90 $42.90 $68.90 $95.90 $239.90
Data (GB) 0.1 2 3 6 12
Data X2 Cost - $48.80 $74.80 $101.80 $245.80
Data X2 (GB) - 4 6 12 24
Data X3 Cost - $52.80 $78.80 $105.80 $249.80
Data X3 (GB) - 6 9 18 36
X Infinity Cost - - $108.80 $135.80 $279.80
X Infinity Data - - Unlimited Unlimited Unlimited

Starhub Plans XS S M L XL
Monthly Cost $48.00 $68.00 $88.00 $108.00 $238.00
Data (GB) 3 4 5 8 12
Plus 3 Cost $54.00 $74.00 $94.00 $114.00 $244.00
Plus 3 Data (GB) 6 7 8 11 15
DataJump Cost - $78.00 $98.00 $118.00 $248.00
DataJump Data (GB) - 9 15 23 32

At the low end of the spectrum, M1's plan for 5GB costs only $40 per month. Singtel's Combo 2 Plan with Data X2 add-on costs $48.80 (for 4GB) while Starhub's XS plan with Plus 3 add-on costs $54 (for 6GB). There is simply no competition at this end of the spectrum.

At the middle of the spectrum, M1's plan for 15GB costs $70. Singtel's Combo 6 plan with Data X2 add-on costs $101.80 (for 12GB) while Starhub's M plan with DataJump add-on costs $98 (for 15GB). Again, no competition.

At the high end with unlimited data, M1's plan costs $118. Singtel's Combo 3 plan with Data X Infinity add-on costs $108.80. Starhub has no credible response here. Although Starhub's plans offer unlimited data during weekends, they are not comparable to M1's and Singtel's unlimited data plans that are unlimited any time of the week. Thus, at this end of the spectrum, only Singtel is able to beat M1.

The figure below shows that subscribers are consuming more and more data. The average usage for M1 subscribers has risen from 3.2GB in 1Q2015 to 4.5GB in 1Q2018. The no. of subscribers who exceed their primary data bundle is also on the rise, from 20% in 1Q2015 to 29% in 1Q2018.  If this trend continues, and if the other 2 telcos do not start offering similar big data plans in the near term, M1 might grab a bigger share of the mobile services market.

Fig. 1: M1's data usage trend

P.S. I am vested in M1, Netlink Trust and Singtel.

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Monday, 23 April 2018

Do M1's Acquisitions Make Sense?

It is a well known fact that competition among telcos has been heating up in the last couple of years. All 3 telcos have been finding new sources of revenue outside their traditional telco businesses. They have been busy acquiring companies, such as Singtel's acquisition of Turn for USD310M in Feb 2017 and Starhub's acquisition of D'Crypt for up to SGD122M in Dec 2017. In comparison, M1's acquisitions have been very small. So far, their acquisitions are as follow:
  • Aug 2016 - SGD3.0M for a 30% stake in Octopus Retail Management, which provides Point-of-Sales (POS) solutions for retailers and Food & Beverages (F&B) outlets.
  • Oct 2017 - SGD2.45M additional investment in Kliq, which provides digital mobile remittance service.
  • Apr 2018 - SGD3.0M for a 25% stake in Trakomatic, which provides Business-to-Business video analytics solutions to retailers.

Do these acquisitions have synergy with M1's existing businesses? Let us look at them one by one.

Octopus - Point-of-Sales

The POS solution is provided by Octopus Retail Management. This is an independently run business and not marketed together with M1's other services. As such, there is no synergy with M1's existing businesses. In fact, M1 has another mobile POS solution that is developed independently! To be fair, M1's in-house mPOS solution only facilitates payment transactions whereas Octopus' POS solution covers inventory tracking and customer loyalty programmes.

It is a bit difficult to see how this acquisition ties in with M1's overall business strategy. For FY2017, this associate lost $0.29M for M1.

Kliq - Digital Mobile Remittance Service

Though Kliq, M1 provides remittance service to 9 Asian countries such as Bangladesh, India, Philippines, etc. Users have to M1 customers. Payment for the remittance is made through AXS machines (which accept ATM, credit and debit cards), m-AXS mobile app (which accepts internet banking, credit and debit cards) and at M1 shops at IMM and Paragon  (which accept cash).

Although users have to be M1 customers, there is no integration with other M1 services. Users cannot pay for their remittance through their M1 monthly bills or their pre-paid stored value accounts. Furthermore, M1's share of the telco market is only 24.0%; by limiting the service to only M1 customers, they are effectively reaching out only to a small group of potential users.

I cannot see how this business ties in with M1's overall business strategy. Perhaps, someone from the remittance industry can see how it makes sense. In Oct 2017, M1 announced that it jointly invested an additional $5.02M in Kliq with Merchantrade Asia Sdn Bhd, thereby diluting its stake from 100% to 51%. Merchantrade is 20% owned by Axiata, one of M1's controlling shareholders.

Trakomatic - Video Analytics Solution

Trakomatic provides video analytics solutions to businesses to understand the movement and profiles of customers in their stores. The solutions can leverage on existing cameras and sensors that stores already have. This can complement M1's own data analytics solution, which analyses and provides similar information from the telco data of its customers. Trakomatic can provide information of customers within the store while M1 can provide information of potential customers in the vicinity of the store. Taken together, the data analytics created by M1 and Trakomatic will be more comprehensive and more valuable to businesses.


So far, M1 has acquired small stakes in 3 companies for a total of less than $10M. Among these 3 companies, 2 of them do not seem to complement its existing telco businesses very well. The more exciting acquisition is Trakomatic, which complements its data analytics business. M1 should be very careful about acquisitions, as its debts have been steadily climbing from $250M in Dec 2013 to $450M in Dec 2017.

P.S. I am vested in M1.

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Sunday, 15 April 2018

Where Art Thou, TPG?

Just when I thought TPG was very quiet in its plans to roll out its 4G network, it suddenly announced on 19 Mar that it would provide the elderly with a free mobile plan for 2 years that includes unlimited calls and 3GB of data. That sounds really good on paper, but is TPG's 4G network ready?

According to the terms of the spectrum auction, TPG has to achieve the following network coverage by certain dates following the commencement of its spectrum rights on 1 Jul 2017:

Coverage Quality of Service Duration Date
Street Level 95% coverage 18 months 01 Jan 2019
In-Building 85% coverage 30 months 01 Jan 2020
MRT Underground Stations & Lines 99% coverage 54 months 01 Jan 2022
Thus, if TPG's roll-out schedule follows the above milestones, its network coverage is good only at the street level when it launches next year. Within buildings, the coverage will be sporadic. What is the use of having free mobile plans if they cannot be used to make or receive calls within buildings? 

Between street level and in-building coverage, TPG only has 1 year to roll out to all buildings. Given that there are so many buildings in Singapore, I do not think TPG can achieve the required Quality of Service (QoS) imposed by IMDA. Thus, if my guess is correct, it will be several years before TPG's 4G network is capable of matching those of the existing telcos. 

On the capex to build the nation-wide network, TPG has quoted a figure of $200M to $300M. If you compare to M1's fixed asset costs for "network and related application systems" of $517M as at end Dec 2017, TPG's proposed capex of $200M to $300M is on the low side. No doubt, M1's fixed asset costs include the 3G, 4G and Narrow-Band Internet-of-Things (NB-IoT) networks, but to build a nation-wide 4G network capable of meeting all the QoS standards at $200M to $300M still looks low.

Perhaps, what TPG is thinking of is to leverage on the 700MHz frequencies, which require less base stations than the traditional 900MHz and 1800/1900MHz frequencies. However, the 700MHz frequencies are dependent on the population switching out of analogue TV into digital TV, which is expected to be completed only by end Dec 2018.

In an interview by Zaobao on 27 Mar, M1 also had doubts on whether TPG could complete their network by the end of the year, noting that to set up a network, a telco has to purchase land, build base stations, connect the base stations to the core network and configure them. The largest obstacles are in buying the land and building base stations. M1 has around 2,500 macro base stations, and that does not include smaller base stations which are 2 to 3 times that number. Based on their observations, TPG does not seem to have started building the base stations.

In its results presentation for 1H2018 on 20 Mar, TPG reported actual capex of only AUD29.7M (or approximately SGD30.3M) for the Singapore mobile network. This is only 10% of the estimated total capex of $300M, providing further evidence that TPG has been slow in rolling out its network.

It is not easy to set up a telco network from scratch. Based on the experience of U Mobile, the fourth telco in Malaysia, it had to leverage on Celcom's network (i.e. act as a Mobile Virtual Network Operator, MVNO) while it rolled out its own nation-wide network concurrently. But for the case of Singapore, it is highly unlikely any of the existing telcos would allow TPG to come on board as a MVNO, since once TPG's network is completed, it would pose a threat to the existing telcos' business. 

Thus, I do not see TPG as posing a serious threat to the existing telcos any time soon. TPG, I am waiting for you.

Sunday, 8 April 2018

How Long Can (The) Boring Investor Blog Continue?

This is post no. 260, which represents the 5th birthday for this weekly blog. In past years, this would have been a joyous occasion, as it means that I have blogged for another 52 continuous weeks. This year, however, there is a tinge of sadness, as there is a realisation that all things will eventually come to an end, including this blog.

Regular readers of this blog would know that I like to string all posts with the same theme together, such as the telco theme of recent weeks. However, to have something useful to blog about, I need to carry out research. And research takes time. Despite this being a weekly blog, the amount of time needed to search, analyse and write useful stuffs is sometimes quite overwhelming. For example, the 4 posts on Hyflux last year were spread out over 7 weeks, simply because the research could not keep up with the blogging. 

Besides the lag in blogging, a lot of personal stuffs are also piling up. There are 400 over unread emails in my mailbox; I have not calculated my Profit & Loss for 2H2017; my database of 260 stocks is only updated up till 2016, etc.

What contributed to the lag in blogging since last year? Starting from last year, I have been analysing stocks as business investments rather than financial investments. This means having to understand the operations of a business and know what factors would affect its profitability, rather than just looking at its income statements, balance sheets and cashflow statements and conclude whether the stock should be bought or sold. A case in point is the telco theme that I have been blogging recently. To have an informed analysis about whether telcos' profitability is going up or down, I need to understand Will SIM-Only Plans Cannibalise Regular Telco Plans?, Impact of Data Upsize Plans on Telcos, Will MVNOs Cannibalise Telcos' Business?, Is Pay TV Still A Reliable Cash Cow?, Do Telco Investors Need to Fear the Fourth Telco? etc., before I can reasonably conclude Is Starhub's Dividend of 16 Cents Sustainable? Looking at the various aspects of the operations of the business is similar to the scuttlebutt approach mentioned in Philip Fisher's book "Common Stocks and Uncommon Profits".

Although very time-consuming, this change in blogging approach has benefited my investments as well. Global Logistic Properties (GLP) was the largest winner in the 20 years I have been investing with my own money. As for M1, although I am sitting on paper losses currently, I am confident the stock price will turn around. Likewise, I am confident that my analysis for the likes of Keppel Corp/ SembCorp Marine, Hyflux, Starhub will turn out to be correct. There is no going back to the days of just analysing the financial statements and buying/ selling the stock. Similarly, I also believe readers would want to know how the business aspects of the company are doing rather than just the financial aspects. 

Thus, as much as I like to continue blogging once every week, there will come a time when this trend will be broken. After having blogged 52 times every year for the past 4 years, I will be quite sad when this day comes. In the meanwhile, let us relish for every week that this blog can continue.

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Sunday, 1 April 2018

Will MVNOs Cannibalise Telcos' Business?

How many telcos are there in Singapore currently? If you answered 3, that is incorrect. There are currently 6 telcos -- 3 traditional telcos that operate their own telco networks, namely, Singtel, Starhub and M1, and 3 Mobile Virtual Network Operators (MVNOs) that buy network capacity from the traditional telcos and resell to retail customers. Ever since the first MVNO, Circles.Life, set up shop in May 2016, things have accelerated in the MVNO space. In a short span of 3 months, we have had another 2 MVNOs springing up, namely, Zero Mobile and Zero1. You probably have heard of their promotions, like Circles.Life's 20GB of data for $20, Zero Mobile's Unlimited calls, SMS and data plan, or Zero1's unlimited data plan for $29.99. Since MVNOs compete for the same group of retail customers as the traditional telcos, will MVNOs cannibalise telcos' business? Let us look at each one of them.

Circles.Life vs M1

Circles.Life leases network capacity from M1. Its most well-known promotion is its 20GB-for-$20  plan. Although it sounds exciting, you need to sign up for the base plan first before you can sign up for the 20GB-for-$20 add-on. The table below compares Circles.Life's base and add-on plans and the corresponding M1's SIM-only plans. Note that I am using M1's SIM-only plans that come with 12-month contract, whereas MVNOs do not require any contracts. M1 has no-contract SIM-only plans, but these plans provide less data and I believe most customers would not mind signing up for a 12-month contract for better value.

Circles M1 Circles M1
Plan Base mySIM20 Promo mySIM50
Price  $   28.00  $   20.00  $   48.00  $   50.00
Talktime (mins) 100 100 100 100
SMS 0 100 0 100
Data (GB) 6 5 26 30
Caller ID Yes No Yes No
Equivalent Price  $   30.00  $   25.35  $   50.00  $   55.35

As you can see, Circles.Life's base plan is more expensive than M1's corresponding plan. There are a few add-ons to make both plans more comparable. Circles.Life's plan does not come with free incoming calls. To have this feature, you need to add another $2, making it effectively $30 per month. M1's plan does not come with caller ID, which costs another $5.35. Hence, the equivalent cost is $25.35 per month. In terms of the base plans, Circles.Life is generally more expensive than M1, although Circles.Life has 1GB of data more.

It is only when you add on the 20GB-for-$20 option that Circles.Life becomes cheaper than M1's corresponding plan. After accounting for the necessary add-ons mentioned above, Circles.Life's plan costs $50 whereas M1's mySIM50 plan costs $55.35, but with 4GB of data more.

According to M1, the average data usage for Dec 2017 is 4.3GB per month. Thus, customers who need the 20GB-for-$20 add-on really belong to the minority. Circles.Life is unlikely to threaten M1's telco business.

Zero Mobile, Zero1 vs SingTel

Both Zero Mobile and Zero1 lease network capacity from Singtel. Zero Mobile has 2 plans while Zero1 has 1 plan. The table below compares the plans for Zero Mobile, Zero1 and Singtel's SIM-only plans (with 12-month contract). The corresponding Singtel's SIM-only plans are 10GB for Zero Mobile and 5GB for Zero1, for reasons discussed later.

Zero Singtel Zero Singtel Zero1 Singtel
Plan Zero X 10GB Zero 40 10GB 5GB
Price  $   65.00  $   36.05  $   40.00  $   36.05  $   29.99  $   20.00
Talktime (mins) Unlimited 150 Unlimited 150 200 150
SMS Unlimited 500 0 500 200 500
Data (GB) Unlimited 10 9 10 Unlimited 5
Caller ID Yes No Yes No Yes No
Equivalent Price  $   65.00  $   84.20  $   40.00  $   57.45  $   29.99  $   52.10

Again, for the base plans, MVNO's plans are more expensive than Singtel's corresponding plans. To make Singtel's SIM-only plans more comparable to that of MVNOs, I added unlimited talktime for $16.05, 25GB of data for $26.75 and caller ID for $5.35, where applicable. Unlimited SMS for $16.05 is ignored, since most subscribers nowadays do not send many SMS.

After accounting for all the corresponding add-ons, Singtel's plans are more expensive than all the MVNO's plans. There are important caveats, however. Firstly, "unlimited" does not really mean unlimited usage. For both Zero Mobile and Zero1, "unlimited" means a cap of 5,000 mins of talktime and 5,000 SMS per month. Secondly, Zero X's unlimited data plan does not allow you to share the data with other devices, either by using your phone as a WiFi hotspot, or using the SIM on another device. For Zero1's unlimited data plan, only the first 3GB of data will be at 4G speeds (This is the reason why Zero1's plan is compared against Singtel's 5GB plan and not the 10GB plan). All data after that will be throttled according to the network capacity and performance. Thirdly, for Zero Mobile, any excessive, unreasonable, fraudulent or unapproved usage might be charged at the commercial rates mentioned below.

Monthly Subscription Cost  $   10.00
Mobile Data usage (per GB)
 $   10.00
Incoming Calls (per minute)
 $     0.10
Outgoing Calls (per minute)
 $     0.10
Incoming SMS (per SMS)
 $     0.05
Outgoing SMS (per SMS)
 $     0.05

In the final analysis, most people would not need unlimited talktime, SMS or data. The base plans from Singtel (150 mins of talktime and 5/10GB of data) are sufficient, with a caller ID add-on at $5.35. From this perspective, MVNOs' plans are generally still more expensive than Singtel's plans. Customers who need a lot of data and are attracted to MVNO's plans belong to the minority.


Although MVNOs have exciting promotions, in reality, they are hampered by the fact that they need to buy network capacity from the traditional telcos, and telcos will not offer them such low prices that the MVNOs can undercut them. The relationship between MVNOs and traditional telcos is similar to that between a landlord and tenant; because the tenant has to pay rent to the landlord, he will never be able to offer lower prices than the landlord on a sustainable basis. Thus, MVNOs will not cannibalise traditional telcos' existing business.

P.S. I am vested in M1, Netlink Trust and Singtel.