M1’s fixed-line foray: too little, too late?

M1’s RECENT diversification into fixed-line broadband services is an attempt to quell longstanding market concerns about its lack of headroom in the mobile space. However, the dependence on rival technology, coupled with shifting dynamics in the local broadband sector, means this foray is unlikely to raise M1’s revenue ceiling significantly in the near term.

Last week, M1 finally joined SingTel and StarHub in providing wired broadband services to consumers with the launch of four new high-speed Internet packages.

Unlike larger rivals SingTel and StarHub, M1 is the only local telco that does not have its own Internet pipes. Without a direct connection to homes, the company is at a natural disadvantage as it has to depend on infrastructure and bandwidth from others to power the broadband venture. In M1’s case, potential revenue is thinned by the need to pay StarHub’s monthly cable leasing bill.

This limitation aside, Singapore’s swelling broadband user base simply does not leave M1 with much room to grow. According to statistics from the Infocomm Development Authority of Singapore (IDA), the country’s household broadband penetration rate hit 86.8 per cent at the end of June.

Close to 990,000 families are already using high-speed Internet packages to surf and e-mail, with StarHub’s cable modem service and SingTel’s ADSL (asymmetric digital subscriber line) offerings accounting for the bulk of paid household subscriptions. With such entrenched beachheads, M1 faces a formidable task in trying to eke out a decent market share.

To be fair, with the heat that M1 is starting to feel in its core mobile business, the company has little choice but to promptly take the broadband plunge. IDA’s mandate for true mobile number portability means that consumers can now jump ship while hanging on to their handphone numbers.

In the lead-up to its introduction on June 13, local telcos have been racking up giant advertising bills in a bid retain customers and attract defectors when the new ruling kicks in.

StarHub has already blamed aggressive marketing tactics for dragging down its second-quarter profits, while M1’s advertising and promotion expenses also went up by a staggering 51 per cent to $5.9 million quarter-on-quarter in Q2.

To add to soaring costs, M1 also appears to be losing out to its competitor’s ability to provide discounted bundles that combine services such as pay-TV, broadband and mobile subscriptions.

The telco added merely 57,000 customers in the second quarter; in the same period, StarHub’s subscriber base swelled by 178,200, while SingTel was the biggest gainer with 182,000 new customers. With SingTel set to launch Apple’s coveted iPhone 3G here within the next two weeks, the red camp’s lead could be extended further in the coming months.

M1 had already signalled its broadband ambitions before last week by partnering with StarHub and Hong Kong’s City Telecom to vie for a tender to build Singapore’s new and improved Internet highway. SingTel is part of a second consortium that is bidding for the same Next-Gen NBN (National Broadband Network) project.

However, this mammoth undertaking is at least four years away from completion, and it will take far longer for the winner to recoup the billion-dollar investment. In the meantime, M1 cannot sit idle and watch its mobile market share slide.

Without a regional strategy, M1 needs to make every local cell phone customer count, or carve out alternative revenue streams to ensure its long-term survival. The main issue here is that last week’s broadband announcement does not convincingly address either of these points.

With the ties that M1 already has with StarHub on the Next-Gen NBN front, perhaps a full-fledged union could be a way for the two Singapore-centric telcos to stem the advancing red tide? After all, the idea is hardly new, since SingTel did think of acquiring M1 back in 2001.