Sunday 19 February 2017

The Telco Landscape in Singapore

The telco regulator in Singapore, Infocomm Media Development Authority (IMDA), regularly publishes a list of facts & figures about the telco industry. It is interesting to look at the figures occasionally to understand the trends affecting telcos and review whether telcos worth investing.

Mobile Services

To investors of the 3 local telcos, the most important figure must be the no. of mobile subscriptions. Fig. 1 below shows the no. of subscribers according to type of network (3G/4G) and payment mode (pre-paid/ post-paid) for 2016 up to Nov.

Fig. 1: Mobile Subscriptions

From the figure, it should come as no surprise that 4G subscriptions are rising as more subscribers switch from 3G to 4G. However, what is surprising is that the 3G pre-paid segment (red line in Fig. 1 above) is fairly resilient, dropping only by 3.4% over the 11 months of 2016 even as the 3G post-paid segment shrank by 22.1%. The 3G pre-paid segment remains the second largest market segment, commanding a market share of 32% of the mobile services market.

Why do 3G pre-paid subscribers choose not to upgrade to the 4G pre-paid network? To mobile subscribers, the main difference between the 3G and 4G networks is faster data throughput on the 4G network. Thus, subscribers who use mobile data will be keen to upgrade to the new network. However, for subscribers who use only voice and SMS but no data, there is very little difference between the 3G and 4G networks. Given that pre-paid subscriptions do not come with much data (you need to buy a data add-on), there are little incentives for 3G pre-paid subscribers to move on to the 4G network.

Internet Broadband

Besides mobile services, telcos also sell internet broadband services, in the form of fibre, cable and xDSL broadband. Fig. 2 below shows the no. of broadband subscribers for the 11 months of 2016.

Fig. 2: Broadband Subscriptions

Again, it should come as no surprise that fibre broadband subscriptions are rising as they offer faster speeds of 300Mbps or more. This growth is at the expense of cable and xDSL broadband, which Starhub and Singtel operate respectively. Thus, Starhub and Singtel should be wary of declining revenue from their respective cable/ xDSL broadband business. Although both will gain from increased fibre broadband business, the fibre broadband segment is a competitive one with many operators such as the 3 telcos and MyRepublic. Telcos have found it necessary to bundle mobile broadband and home digital lines to improve their offerings.

Finally, there is 1 particular chart that all wired broadband operators should worry about, which is that the no. of residential wired broadband subscriptions have peaked in 3Q 2015 (see Fig. 3 below)!

Fig. 3: Residential Wired Broadband Subscriptions

Where did broadband subscribers go to for their internet consumption? Fig. 4 below provides the answer.

Fig. 4: Wireless Broadband Subscriptions

Fig. 4 shows that even as broadband subscribers begin to terminate their wired broadband subscriptions, they have continued to subscribe to mobile broadband. This reflects changing internet consumption habits of consumers, who access internet and watch online videos on the go instead of being tied to accessing them at home. 

The penetration rate of mobile broadband as at Nov 2016 is 196.7%, even higher than that of mobile services at 149.2%! There are more mobile broadband subscriptions than mobile service subscriptions! Again, this reflects more people having more mobile devices such as phones, tablets, smartwatches, etc.

Entry Points for 4th Telco

A key reason for the analysis above is to understand whether there are any market segments for TPG, the fourth telco, to exploit and enter the Singapore market in a big way. When MyRepublic made its way into the fibre broadband market, it did so at a time when the fibre broadband market was still nascent and the telcos were reluctant to reduce prices so as not to cannibalise their existing broadband businesses. This provided MyRepublic a chance to slash prices aggressively, gain widespread publicity and lead the competition. 

Looking at the figures above, the 3G pre-paid market segment is a potential market that TPG could exploit. It is 32% of the mobile services market. Currently, none of the existing telcos could entice 3G pre-paid subscribers to move to 4G in a big way. If TPG could offer a compelling reason to 3G pre-paid subscribers, it could capture large market share from the 3 existing telcos and entrench itself in the mobile services market.

In the fibre broadband market, competition is already very intense. While TPG will enter this market and provide fibre broadband services, I do not expect any innovative offerings. 

In the mobile broadband market, the penetration rate is already very high at 196.7%, which is equivalent to each person having 2 mobile broadband subscriptions. Having said the above, the next big bang will be the Internet of Things, whereby everything is connected to and streaming data to the internet. When this happens, the market for mobile broadband will expand significantly and all telcos, including TPG, will stand to gain.

P.S. I am vested in M1 and Singtel.

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