Category: M1
M1 – BT
Will customer inertia be M1’s Achilles’ heel now?
AS a pure-play mobile carrier, M1 (Mobile-One) has been the one-trick pony against the other two telcos in Singapore, which offer broadband and TV services in addition to their mobile businesses.
The upcoming roll-out of the Next Generation National Broadband Network (Next Gen NBN) will move M1 properly into the broadband space, but the telco’s low-risk profile begs the question of where its next growth spike will be.
So far, M1’s experience with broadband has been limited to a service it rolled out to home users two years ago on infrastructure rented from StarHub and SingTel.
The government-initiated fibre NBN gives M1 the opportunity to access business and residential user bases on wholesale connectivity pricing, levelling the playing field for the smallest telco. To M1’s credit, it was nimble in being one of the first to come out with NBN price plans.
But as carriers move away from being ‘dumb pipes’, that is, to function as utility carriers of data without adding particular value to the equation, M1 might find the competition continuing to pull ahead even as it makes gains in new spaces.
Some are adding services or apps to their connectivity packages, while others bundle telephony with other offerings such as triple-play services, which include TV and broadband.
The value-add is seen as essential for business sustainability, because there is less opportunity to retain customers for a ‘dumb pipe’ carrier, if another will offer the same service at a lower rate.
SingTel, for example, just announced a $200 million seed fund in search of the next promising tech start-up that it can grow and take under its wings. The telco intends to use the fund to scout the globe for talent to contribute to its triple-play businesses.
StarHub, too, has been extending its feelers into new avenues. Two months ago, it announced a partnership with the media agency Mindshare to help content producers eventually get their programmes aired. With an upcoming Web TV channel planned, StarHub is making strides towards differentiating its online channel by populating it with original content.
At a recent NBN event, SingTel Singapore CEO Allen Lew acknowledged that soon, even offering triple-play on its own may not be compelling enough a proposition for customers. Pointing to the company’s interest in the apps space, he said it hopes such new offerings will help pique customer interest.
M1, on the other hand, has stayed relatively reactive to market changes, even though it has managed to stay profitable and continues to earn analyst praise on its stock ratings. The company’s profit held stable over the recent years, at $150 million last year and the year before.
In a note published by DMG & Partners Securities last month, M1 remained the top pick for its capital management, and with the expected line of business from the NBN. But any boost from the NBN will rely on M1’s ability to increase its broadband subscriber base. In Singapore’s saturated market with 168 per cent broadband penetration, this requires additional effort on M1’s part to pull existing broadband customers over from competitors.
One bump in the road may be customer inertia. According to the Infocomm Development Authority’s statistics, each month the number of subscribers hopping over to competing carriers hovers around the 10,000 mark. Out of a total of 7.1 million subscriptions in the country, however, this represents a mere 0.14 per cent of the entire user base. So far, it might even have worked to M1’s advantage. While the competition has been bundling triple-play services together, M1 has held onto a respectable 26 per cent market share. StarHub is close, at 28 per cent, and SingTel has a 44 per cent share.
Taking this general inertia as an indication of the way customers might react to the tight broadband competition on the horizon, this very phenomenon that has benefited M1 may turn out to be a thorn in its side.
M1 has been doing a respectable job of retaining its customer base. For example, it was quick to respond to competition, and was the first carrier here to announce it had a plan for the next-generation mobile standard after 3G, known as LTE (long-term evolution).
And M1 may well be able to continue keeping business running smoothly, by prioritising customer service and reliable uptime. But as the role of telcos continues to evolve and widen to cover more aspects of ICT, this one-trick pony needs to seek its next growth spurt in order to run with the big boys. 
M1 – BT
Will customer inertia be M1’s Achilles’ heel now?
AS a pure-play mobile carrier, M1 (Mobile-One) has been the one-trick pony against the other two telcos in Singapore, which offer broadband and TV services in addition to their mobile businesses.
The upcoming roll-out of the Next Generation National Broadband Network (Next Gen NBN) will move M1 properly into the broadband space, but the telco’s low-risk profile begs the question of where its next growth spike will be.
So far, M1’s experience with broadband has been limited to a service it rolled out to home users two years ago on infrastructure rented from StarHub and SingTel.
The government-initiated fibre NBN gives M1 the opportunity to access business and residential user bases on wholesale connectivity pricing, levelling the playing field for the smallest telco. To M1’s credit, it was nimble in being one of the first to come out with NBN price plans.
But as carriers move away from being ‘dumb pipes’, that is, to function as utility carriers of data without adding particular value to the equation, M1 might find the competition continuing to pull ahead even as it makes gains in new spaces.
Some are adding services or apps to their connectivity packages, while others bundle telephony with other offerings such as triple-play services, which include TV and broadband.
The value-add is seen as essential for business sustainability, because there is less opportunity to retain customers for a ‘dumb pipe’ carrier, if another will offer the same service at a lower rate.
SingTel, for example, just announced a $200 million seed fund in search of the next promising tech start-up that it can grow and take under its wings. The telco intends to use the fund to scout the globe for talent to contribute to its triple-play businesses.
StarHub, too, has been extending its feelers into new avenues. Two months ago, it announced a partnership with the media agency Mindshare to help content producers eventually get their programmes aired. With an upcoming Web TV channel planned, StarHub is making strides towards differentiating its online channel by populating it with original content.
At a recent NBN event, SingTel Singapore CEO Allen Lew acknowledged that soon, even offering triple-play on its own may not be compelling enough a proposition for customers. Pointing to the company’s interest in the apps space, he said it hopes such new offerings will help pique customer interest.
M1, on the other hand, has stayed relatively reactive to market changes, even though it has managed to stay profitable and continues to earn analyst praise on its stock ratings. The company’s profit held stable over the recent years, at $150 million last year and the year before.
In a note published by DMG & Partners Securities last month, M1 remained the top pick for its capital management, and with the expected line of business from the NBN. But any boost from the NBN will rely on M1’s ability to increase its broadband subscriber base. In Singapore’s saturated market with 168 per cent broadband penetration, this requires additional effort on M1’s part to pull existing broadband customers over from competitors.
One bump in the road may be customer inertia. According to the Infocomm Development Authority’s statistics, each month the number of subscribers hopping over to competing carriers hovers around the 10,000 mark. Out of a total of 7.1 million subscriptions in the country, however, this represents a mere 0.14 per cent of the entire user base. So far, it might even have worked to M1’s advantage. While the competition has been bundling triple-play services together, M1 has held onto a respectable 26 per cent market share. StarHub is close, at 28 per cent, and SingTel has a 44 per cent share.
Taking this general inertia as an indication of the way customers might react to the tight broadband competition on the horizon, this very phenomenon that has benefited M1 may turn out to be a thorn in its side.
M1 has been doing a respectable job of retaining its customer base. For example, it was quick to respond to competition, and was the first carrier here to announce it had a plan for the next-generation mobile standard after 3G, known as LTE (long-term evolution).
And M1 may well be able to continue keeping business running smoothly, by prioritising customer service and reliable uptime. But as the role of telcos continues to evolve and widen to cover more aspects of ICT, this one-trick pony needs to seek its next growth spurt in order to run with the big boys.
TELCOs – OCBC
No 4th Mobile Operator
No new 4th mobile operator. The IDA (Infocomm Development Authority of Singapore) has allocated Singapore’s remaining 3G cellular network spectrum (1900 – 2100 MHz) to SingTel, StarHub and M1 for S$60m, or at the reserve price of S$20m each; this after its plan to auction off that spectrum rights did not draw any other bids besides the three incumbents. We note that it was a repeat of an earlier 3G spectrum auction in 2001 where there were only bids from the three telcos. As a result, the telcos each paid the reserve price of S$100m for their 3G licenses then.
Already a saturated market. We were not surprised by the lack of interest, given that the mobile market here is already very saturated, with a penetration of 143% (Jul 2010). Additionally, we note that the three incumbents have already very well entrenched market shares, led by SingTel (~46%), StarHub (28%) and M1 (26%). As such, it would be a very uphill and expensive task for a newcomer to make a meaningful and profitable impact on the market, especially if margins are likely to be further eroded by an ensuing price competition. Having said that, we still expect mobile penetration to increase, where the proliferation of mobile computing devices such as the Apple iPad 3G will continue to drive mobile data demand.
Additional bandwidth much welcome. Hence the allocation of the additional spectrum is welcome news as the telcos will be able to expand their cellular bandwidth, thus allowing them to cope with the expected rapid growth in mobile broadband demand in the coming years. According to IT research firm Analysys Mason, it expects the total number of mobile broadband connections in developed Asia-Pacific region to increase from 6.2m in 2009 to 27.2m in 2015 (28% CAGR); it also expects mobile broadband revenue to jump 3x from US$2.4b in 2009 to US$7.1b in 2015.
Maintain OVERWEIGHT. The Singapore stock market has generally done very well over the past quarter, with the STI up 9.2% QoQ; however, further upside from here may be limited as there are questions still unanswered like the pace of the US economic recovery, the credit situation in Europe etc. As such, we maintain our OVERWEIGHT call on the telcos for their attractive dividend yields while their defensive earnings should also limit any downside risk in terms of renewed economic slowdown.
TELCOs – CIMB
No 3G spectrum auction
The IDA has announced that it has received a total of three applications for the 3G spectrum rights auction. As there was only one offer for each of the three lots, the IDA will allocate each lot at the reserve price of S$20m. The news is not a major surprise as we had not expected any new bidders to emerge from this process and is in fact positive as the three telcos avoided a bidding warfare and obtained the spectrum at a fairly low cost. The additional spectrum will give the telcos more capacity for mobile broadband. The cost of the spectrum should not affect dividend payouts given the telcos’ fairly solid balance sheet. We retain our UNDERWEIGHT stance on the sector as we remain perturbed over the rising content costs, pressure on fixed broadband ARPUs and escalating subsidies. M1 (OUTPERFORM, TP: S$2.60) remains the top pick for its capital management potential, most upside from NGNBN and as it benefits from the soaring inbound visitors.
The news
The IDA has received three applications from each of the three telcos who were interested in participating in the 3G spectrum rights auction. As there was only one offer for each of the three lots of 2×5 MHz, the IDA will not be conducting an auction and the 3G spectrum will be allocated to each of the incumbents at the reserve price of S$20m.
Comments
Not a surprise. As mentioned in our previous note, we had not expected any new bidders to emerge given Singapore’s small and mature market with well-established incumbents. We had also not expected any of the incumbents to go after more than one lot as the incumbents would have a total of 2×20 MHz, following this round of auction, which is more than sufficient in our view.
No bidding warfare, increased capacity. The development is on the whole positive as the three telcos avoided a bidding warfare and was able to obtain the additional spectrum at a relatively low cost of S$20m. Moreover, the three incumbents would benefit from having more real estate, ie spectrum, that would help increase the capacity for the three operators and enable them to cater for current and future growth in the mobile data and wireless broadband business. It would also enable them to plan their networks more efficiently with the additional spectrum.
No impact to dividend payouts. At the assigned price of S$20m, the spectrum cost would boost SingTel, StarHub and M1’s 2010 capex by 1%, 6% and 19% respectively. The spectrum cost should not affect the dividend payouts of the telcos given their solid balance sheet, in our view. Of the three telcos, M1 would be the most affected in terms of capex outlay given its smaller balance sheet but we do not think that this would inhibit any capital management potential there.
Valuation and recommendation
Maintain UNDERWEIGHT on the sector as we are concerned over the rising content cost, escalating subsidies and pressure on broadband ARPUs. Our top pick within the sector is M1 (OUTPERFORM, TP: S$2.60) for its capital management potential, the most upside from NGNBN and as it benefits from soaring inbound visitors.
TELCOs – BT
Talk of 4th telco dies in the air
Remaining 3G spectrum to be shared by SingTel, M1 and StarHub
The doors to a fourth local mobile operator have now closed and Singapore’s telco scene will remain a three-cornered fight among Singapore Telecommunications, M1 and StarHub.
The Infocomm Development Authority of Singapore (IDA) yesterday announced that it would allocate the country’s remaining third-generation (3G) cellular network spectrum to the three incumbent operators in the absence of other rivalling bids.
Three lots within the 1,900 to 2,100 MHz (megahertz) frequency range were supposed to go under the hammer but the regulator received only one offer each from SingTel, StarHub and M1 when the registration deadline passed on Monday.
‘No more than one initial offer was made in respect of each of the three 3G spectrum lots available for allocation. Therefore, the 3G spectrum rights (2010) auction will not take place,’ the IDA said on its website.
The latest development means that these lots will be allotted to SingTel, StarHub and M1 at the reserve price of $20 million apiece.
This is a repeat of the scenario in 2001 when the country’s 3G licences first went on sale.
Four spectrum lots were to be parcelled off then but the IDA’s auction plan was scrapped as it garnered only three bids in the end. SingTel, StarHub and M1 ended up paying the reserve price of $100 million each for their 3G licences at that time.
The fourth unclaimed spectrum is the one that IDA is now allocating to the three incumbents. The move is expected to boost their cellular bandwidth to cope with the explosive increase in mobile broadband consumption in recent years.
The smart phone boom, fuelled by handsets such as the iPhone, coupled with the growing use of token-like 3G modems, are placing a growing strain on an operator’s existing cellular network.
Besides giving current players more headroom, the government also wanted to see if a fourth player is willing to throw its hat into the ring.
While all three telcos welcomed the bandwidth boost, they protested against the IDA’s initial plan to conduct a second 3G auction.
Instead of bidding, they had lobbied for a non-competitive, ‘administrative allocation’ approach where the remaining 3G spectrum is distributed among the trio. Should there be interest beyond the current telco trinity, incumbents should be given first dibs at acquiring the spectrum, they said.
However, the IDA eventually stood its ground, arguing that an auction is a more objective and transparent way of allocating scarce national resources such as cellular network spectrums.
Last month, it also released more details of the auction. In particular, the IDA kept the door open for a fourth operator by giving foreign players a two-month buffer between tabling their initial bids and setting up a local office.
Despite the government’s best intentions, market watchers have repeatedly said that the chances of having another telco are slim as the local mobile scene is already mature and the incumbents have entrenched customer bases. Singapore did have a fourth operator once, in 2002, in the form of Virgin Mobile, a joint venture between SingTel and Richard Branson’s Virgin Group. However, it failed to make a dent in the market and the company pulled out within a year.