A tale of two halves for local telco sector

Operators come to life in second half after six-month hibernation

2009 has turned out to be a tale of two halves for Singapore’s telecommunications sector, with operators stirring to life in the second half after a six-month hiatus. And the action can only get more sizzling as the key players brace for heightened competition with the arrival of the new nationwide, ultra high-speed broadband network in 2010.

In the first six months of this year, Singapore Telecommunications, StarHub and MobileOne were mostly in hibernation, relying on a mix of tight cost controls and recurring subscriber revenues to tide them through the global downturn.

While many companies struggled, the three operators proved their mettle by delivering an encouraging set of first-half results in spite of the economic difficulties.

StarHub’s net profit rose 11 per cent during the period to $160.3 million, while M1’s net income fell marginally by 0.3 per cent to $78.9 million.

SingTel’s profit for its fiscal fourth quarter ended Mar 31 declined 17 per cent due to its overseas exposure. However, it rebounded strongly three months later with a 7.7 per cent rise in net income to $945 million for its first quarter ended June 30.

‘The biggest highlight was basically being able to grow the revenue from our Singapore business, our Ebitda (earnings before interest, tax, depreciation and amortisation) and free cash flow,’ said Allen Lew, CEO of SingTel Singapore.

While the telco front was starved of major competitive strides in the first half, one operator did ring in major changes to its management deck from the get go. In January, M1’s CEO of 12 years, Neil Montefiore, announced his resignation. Its long-serving chairman, Lim Chee Oon, also stepped down two months later.

M1’s chief financial officer Karen Kooi eventually took over the reins in April, becoming the second local telco CFO to be promoted to the top job after SingTel’s Chua Sock Koong. Teo Soon Hoe, Keppel Corp’s senior executive director and group finance director, took up the post of M1 chairman.

The first half also saw the start of another round of merger talks between SingTel’s Indian associate Bharti and South Africa’s MTN Group but regulatory hiccups caused the deal to be scuppered a second time.

But StarHub’s attempt at business diversification eventually succeeded as its subsidiary Nucleus Connect clinched the government’s OpCo (operating company) tender to operate the Next-Gen NBN (National Broadband Network), the country’s new fibre-optic broadband superhighway. ‘It is a milestone for us to win the bid to build and manage the OpCo for the Next-Gen NBN. This is the more exciting and innovative part of the Next-Gen NBN infrastructure,’ said StarHub spokeswoman Jeannie Ong.

Past the half-year mark, signs of economic recovery reignited the competitive flames among the three warring factions.

SingTel started the ball rolling by retaining its exclusive rights to sell the latest version of Apple’s coveted touch-screen handset – the iPhone 3GS – in July.

In the same month, StarHub announced that it had poached Mr Montefiore to succeed its outgoing chief Terry Clontz. Mr Clontz will retire at the end of this month.

M1, on its part, signalled its intention to branch into the broadband market by buying Internet service provider Qala for $14.9 million in September.

A month later, any uncertainty surrounding the change-of-guard at StarHub was made worse when SingTel managed to score the broadcast rights to the English Premier League (EPL) for its mio TV platform in October.

‘I have not seen so many people talk about mio TV until we won the EPL. The ability to bring mio TV from being a niche product to a must-have product is significant,’ SingTel’s Mr Lew said.

‘While we may not have the rights to air the EPL for the next three seasons, it is not game over for us. StarHub still has a wide array of content,’ responded StarHub’s Ms Ong.

While ‘robbed’ of the crown jewel of its cable programming, StarHub – along with M1 – finally managed to land the star of SingTel’s handset portfolio, the iPhone 3GS. The device, which went on sale at StarHub and M1 shops earlier this month, sparked off one of the fiercest mobile skirmishes in local history. StarHub upped the data bundle for its basic iPhone plan tenfold in a day in response to M1’s generous subscription packages. SingTel reacted the next day by doing the same.

Such tit-for-tat battles will likely continue into 2010 when the Next-Gen NBN starts to come online from the end of the first quarter, market watchers say.

‘Starting from a very low base, we believe that M1 is likely to benefit the most from this as it would be able to offer fixed line broadband services on an equal footing. It will also be able to make its maiden foray into the more lucrative corporate broadband arena with Qala,’ said OCBC research analyst Carey Wong.

StarHub, on the other hand, will finally get a chance to provide Internet connectivity to corporate customers, while SingTel can now replace its aging copper cables with high-speed fibre-optic pipes, he said.

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