Category: SingTel
SingTel – BT
Can SingTel be a good venture capitalist?
WHEN established businesses become too expensive to buy, the next best option could be to try and snap up young ones before they turn big and successful. Punting on the next Google or Facebook has long been the game of venture capitalists but SingTel joined the table last month with the establishment of its own venture investment arm Innov8.
Armed with a $200-million war chest for the next three years, Innov8 is on the prowl for promising start-ups to complement its parent’s mobile, broadband and pay-television businesses.
Technology giants such as Intel and Google too have venture investing units but SingTel ranks among a mere handful of telcos globally to try its hand at this game. For Innov8 to be successful, however, it must be prepared to shrug off its parent’s legacy and become somewhat of a rebel child.
Like most operators, SingTel realises that the future of telcos lies not in providing ‘dumb pipes’ or carriage services but in offering intelligent applications. To get there, however, the operator cannot rely on financial muscle alone.
It must be open to working with others, pounce quickly on emerging market opportunities and think out of the box when push comes to shove.
All these would require a drastic mindset change for the once-lumbering telecommunications giant.
This is something that is arguably still new to SingTel, given its roots as a monopoly and a state-owned entity. The firm is showing signs of becoming more nimble in recent years but the evolution is still very much a work-in-progress.
With its local infrastructural stranglehold, the company has been known for being somewhat of a ‘bully’ when dealing with smaller companies in the past. It remains to be seen if this reputation will come back to haunt SingTel as it now welcomes upstarts with open arms.
Many would also argue that it takes a good entrepreneur to spot another, but SingTel has never quite seen the world from the bottom up. The challenges and difficulties of being a start-up are foreign to SingTel as it enjoyed market dominance from the word go.
Perhaps the only time SingTel had a taste of starting afresh was when it branched into the pay-television market and played second-fiddle to StarHub in 2006. Even then, the company could rely on its financial clout to force its way up, outbidding its rival to score the Barclays Premier League last year.
In the fast-moving Internet era, however, money alone does not do all the talking. The technology stars of today are mostly software companies armed with nothing more than a few computers, servers and broadband access.
These upstarts may not be as hungry for seed funding as the dot coms of yesteryear. Tools such as Facebook and Twitter, along with marketplaces such as Apple’s AppStore, have given them the ability to reach millions around the world at little or no cost.
The advent of open-source software and Web-based storage means these firms can keep operating costs to a minimum. Venture capitalists bent on courting these companies must then show they can bring something more to the table besides mere dollars and cents.
Finnish game developer Rovio, for example, achieved overnight success taking a bite at the iPhone. Its runaway hit, Angry Birds, has garnered over seven million downloads to date, lifting the outfit from the depths of obscurity to become the new million-dollar mobile sensation of today. This was achieved with only one round of funding from a hands-off angel investor.
The challenge for SingTel’s Innov8 is to find more of such companies and convince them it can resist its parent’s controlling instincts. On its part, SingTel must also give its new unit the full blessing to do so.
This is an important pre-requisite as the search for the next big thing could turn up results that are not music to SingTel’s ears.
For instance, a start-up looking into tethering, a technology which turns all smart phones into mobile broadband routers, could harm SingTel’s revenue by eliminating the need for separate 3G modem subscriptions.
Consumers would clearly welcome the technology but will SingTel see past the immediate clash of interest and invest for its long-term gain?
Innov8 must be given the full autonomy to make an independent assessment.
The risks of venture investing are inherently higher but the payoffs can also be great.
SingTel has started on the right foot by giving its new unit an apt name. Now it must back the investment by adopting an innovative mindset as well.
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.
SingTel – CIMB
Smartening the pipe
• Maintain UNDERPERFORM. SingTel showcased its ambitions to become the leader in cloud computing by hosting an i.Luminate Business Innovations Forum. We view this as SingTel’s attempt to reinvent itself from being a “dumb pipe” broadband provider to one that offers businesses value-added services, much like its ambition to be a multimedia company for residential users. Cloud computing should also help SingTel retain customers with the advent of NGNBN. Riding its existing infrastructure, SingTel can provide these services across the region. While we view its move positively, we estimate that contributions from cloud computing will not be significant in the foreseeable future. Meanwhile, SingTel faces earnings pressure in Singapore, India and Australia. Hence, we maintain our UNDERPERFORM rating and SOP-based target price of S$3.09. We prefer M1 as we believe it will be the largest beneficiary of NGNBN, and offers capital-management potential.
• One-stop ICT solutions provider. SingTel wants to move up the value chain from a mere provider of managed and professional services to cloud computing i.e. SingTel has assembled solutions from many providers, offering software, platform and infrastructure services to which businesses can subscribe as and when they need them.
• SingTel’s counter-attack. We view the above as part of SingTel’s defence of its dominance in broadband services to small and medium enterprises. SingTel’s near monopoly in this market segment has been made vulnerable by NGNBN which will connect all buildings and commercial areas in Singapore with fibre optics.
SingTel – BT
SingTel launches $200m venture fund for start-ups
IN a shot in the arm for the local IT start-up scene, SingTel has launched a $200 million incubation fund to invest in budding infocomm companies.
The telecom giant has set up a subsidiary called Innov8 to scout for start-ups with potential.
Innov8 CEO Yvonne Kwek told BT the venture company will focus on firms with technologies relevant to SingTel’s business. This covers applications on front-end to back-end networking technology.
Mrs Kwek acknowledged that the pool of back-end technology start-ups is small, and said SingTel is interested in technologies that will augment existing infrastructure. For example, technologies to help maximise coverage and spectral efficiency would be attractive, she said.
With Innov8, SingTel hopes to bring its parent company’s clout to the table. Mrs Kwek touted the company’s ability to rope in ‘subject matter experts’ from SingTel’s pool of engineers, as well as an eventual audience of SingTel’s 350 million customers globally for IT projects that get to see the light of day.
Innov8 will invest in start-ups for a stake in their business but won’t take controlling interest, she said.
Running on a team of eight, the venture fund intends to work with government agencies and tertiary institutions to harvest talent, but intends to look beyond our shores as well.
Its $200 million fund will be reviewed regularly, but has been set for a period of three years, Mrs Kwek said.
Jeffrey Paine, managing partner at local venture investment firm Battle Ventures, said the fund has a large sum, even spread out for a global search. ‘SingTel has to look globally for new innovations,’ he said, adding that its face as a Singaporean entity is likely to be perceived as attractive to the global market.
As for the pool of mentors SingTel will bring, Mr Paine said any mentorship, however slight, will help entrepreneurs get off the ground. He said Innov8 looks to be a strong force on the venture scene because it brings to start-ups SingTel’s large amount of capital plus the company’s brand name and industry connections in the mobile sector.
Gwendolyn Tan, a partner at venture company Thymos Capital, said the injection of more funding into the industry is exciting for start-ups, but it doesn’t necessarily mean more start-ups will win funding.
‘It’s a flawed argument to say more money means more people will get funded. A company must have a winning project, regardless,’ she said.
SingTel’s search for innovative projects may indicate Innov8 will focus on later-stage start-ups that have already produced something to show for their efforts, Ms Tan reckons.
Its large pool of funding could indicate it will participate in Series A funding, otherwise known as a company’s first significant round of venture funding, she said. In Singapore, this sum is usually between $300,000 and $1 million.
Alvin Yap, founder of Singapore games outfit Nexgen Studio, said the fund’s size is attractive, but start- ups should also consider the amount of equity SingTel intends to take in them. He pointed to existing ‘bite-size funds’ doled out by the Media Development Authority (MDA), saying the government agency doesn’t take a stake in recipient companies. ‘If I had a start-up, I’d explore the fund,’ he added.
Speaking at a SingTel forum yesterday, Deputy Prime Minister and Minister for Defence Teo Chee Hean said the infocomm industry is a key driver of economic growth through productivity improvements.
Using the government- initiated TradeXchange programme as an example, Mr Teo said the neutral electronic platform for the shipping industry has led to annual efficiency savings of some $1 million. By the end of 2012, 100 companies are expected to participate in B2B transactions over the platform, he said.
SingTel’s push to acquire applications and services talent via Innov8 underscores the telco’s cloud aspirations.
Business group executive VP Bill Chang says SingTel’s cloud services arm, while making up ‘a few percentage points’ of SingTel’s overall billion-dollar infocomm business, is growing fast and has amassed a base of 100,000 seats spread out over 1,000 companies. The aim is to grow its cloud business at a compound annual rate of about 50 per cent, he said.