SingTel offers ‘music buffet’ to customers

Subscribers can download to heart’s content from array of 500,000 songs

Singapore Telecommunications is going all out to strike the right chord with customers.

The operator launched a new buffet-style music store yesterday with the Universal Music Group in an effort to swing subscriber votes and boost its flagging voice revenues.

‘In the past, it (the telco) used to be about carriage services – carrying voice and data from one point to another. SingTel decided two years ago that the telco of the future needs to be more than just bits and bytes,’ said SingTel chief executive Allen Lew.

Unlike previous offerings from Nokia and Sony Ericsson which are tied to specific phones, SingTel’s new Amped music service works across multiple handsets and is bundled free with three of its 3G subscription plans.

Beyond the usual talktime and mobile Internet bundles, these plans – which costs between $39 to $95 – offer subscribers the added benefit of being able to download to their hearts’ content from the firm’s new music portal.

Existing SingTel customers can opt for a separate $9.90 monthly mobile data add-on to receive the same perk. All other charges usually levied on over-the-air downloads are waived for this service.

The operator’s music repertoire is currently made up of nearly half-a-million songs from major Universal artistes such as the Black Eyed Peas, Lady Gaga and the Pussycat Dolls, as well as Asian stars Jacky Cheung and Eason Chen.

Consumers can feast on this musical buffet on both their computers and mobile phones but the majority of the downloaded tracks will expire at the end of their two-year SingTel contracts.

However, customers will be allowed to keep 15 ‘DRM (digital rights management)-free’ songs every month and these can be transferred to other phones or music players, according to SingTel’s consumer chief Yuen Kuan Moon.

SingTel Amped currently works with 12 handset models from Nokia, Samsung, LG Electronics and Sony Ericsson but the compatibility list will be expanded to include the likes of HTC in the coming months, he added.

The operator may also get more labels to back the service in the near future, a move which market watchers feel is needed to guarantee its longer-term success.

‘Consumers today look for variety and choice. SingTel will need to get other music distributors and labels on board,’ said Foong King Yew, research director for carrier operations and strategies at technology analyst firm Gartner.

‘SingTel’s clearly trying to avoid the fate of a fat dumb pipe,’ added IDC Asia-Pacific research manager Aloysius Choong.

SingTel Amped is the third legitimate music service to make its Singapore debut this year, coming after Nokia Comes With Music in February and Sony Ericsson’s PlayNow Plus launch in April.

The Sony Ericsson service is also exclusive to SingTel and it is only offered alongside the purchase of the W705 Walkman handset. The Nokia offering, on the other hand, is extended to all three telcos and is bundled with seven phones.

A fourth local online music portal opened nearly a decade ago by Motorola unit Soundbuzz will be shut down next month, while Apple’s popular iTunes Music Store continues to be off-limits to Singaporeans.

What lies behind SingTel’s latest music foray?

THE problem with chasing a runaway hit is that you will always be seen as playing catch-up. In this light, SingTel’s latest music foray will undoubtedly draw comparisons with Apple’s vastly popular iTunes store and be viewed as yet another wannabe giant-slayer.

However, if you look behind yesterday’s glitzy launch and the marketing rhetoric, it’s not difficult to discern SingTel’s true intent behind its new business venture.

For the near term, at least, the company’s new Amped music portal is less about uncovering a new revenue stream but more about cementing its longer term mobile dominance.

All three telcos saw a weakness in their local mobile earnings in the first quarter as consumers kept within their subscription bundles and avoided making long-distance calls.

M1 lost 11,000 mobile subscribers during the first quarter and the exodus pulled its market share down to 25.4 per cent. StarHub’s mobile revenue dipped 3.1 per cent to $264.7 million in the same period.

SingTel managed to eke out a 9.1 per cent gain in mobile revenue during the period because it managed to add 34,000 new customers and coax more of them to go for mobile data and higher-value bundles.

As it stands, Singapore’s mobile penetration rate is already at 133.2 per cent and this translates to 6.45 million cellular subscriptions in a country with a population of only 4.5 million.

Simply put, there simply isn’t much room left for telcos to grow their local subscriber count substantially in the coming years.

Against this backdrop, sustainability will rest upon getting current customers to use more services, or snagging all the new subscribers and defectors you can get your hands on.

SingTel’s online music foray seems squarely aimed at addressing the latter.

As a free service offered alongside selected mobile plans, it is clear that the new Amped service is not meant to be a revenue-generating platform. Add Universal Music into the mix and the revenue-sharing pact makes it even less attractive from a sales and margin perspective.

However, the prospect of free unlimited music downloads does give kids, teenagers and young adults who are accustomed to all things Internet an additional reason to ‘see red’. This user group represents the future of mobile consumption in Singapore and SingTel is clearly trying to start them early.

As with SingTel’s exclusive iPhone arrangement, the Amped service also gives consumers an additional reason to consider defecting under Singapore’s new number portability regime.

With voice being the lowest common denominator among the telcos, a free musical buffet could prove to be the thin line separating a customer gain from a loss.

For record labels such as Universal, striking such pacts with telcos also cuts them in on revenue they would have otherwise lost to piracy. The International Federation of the Phonographic Industry estimates that 95 per cent of online music downloads from the Internet last year were pirated.

Both SingTel and Universal could be seeding users for the future by getting them used to legal downloads now. If the piracy scourge is eventually reduced with stricter enforcement, it will undoubtedly drive more users to seek out legitimate alternatives, a win-win situation then for both the record label and the red camp.

In the game of business, one must think ahead to stay ahead. In this respect, Singapore’s once-lumbering telecommunications giant is now showing signs that it is becoming more nimble by the day.

SingTel to take another bite at new iPhone?

The phone which launched a thousand queues will hog the technology spotlight all over again as Apple kick-starts its annual developer conference today.

If the third incarnation of the iPhone is indeed unveiled, Singapore Telecommunications looks set to take another exclusive bite at the coveted device.

This is because the operator’s iPhone monopoly will last for another year at least, according to a telecommunications industry insider.

With the dearth of competing touch-screen phones from handset giants such as Samsung, LG Electronics and HTC, Apple will take the quickest route to market by relying on its existing distribution agreements in Asia. ‘It (the exclusivity) also adds to the phone’s appeal,’ he said.

SingTel and its three regional units were given the right to sell Apple’s iPhone 3G last year under a regional pact covering Singapore, Australia, India and the Philippines.

Speculation is rife that new models – which could include enhancements to its camera module and storage capacity – could surface as early as tonight during Apple’s annual WorldWide Developers Conference in the United States, the same platform for the iPhone 3G launch last year.

Beyond a hardware refresh, they are also expected to incorporate iPhone 3.0, a new operating system which promises to fix niggling quirks such as the inability to copy and paste text and send multimedia messages.

‘Apple has made an art of launching evolutionary upgrades with each iPod refresh – slimmer designs, more colours and more memory. This has enabled the longevity of the product line. The iPhone likewise does not need a radical redesign, but beyond a lower price and more memory, it could certainly benefit from some cosmetic retouching,’ said Aloysius Choong, a research manager with technology analyst firm IDC Asia-Pacific.

When contacted, both SingTel and Apple declined comment on the tenure of their current contract. ‘Since the launch of the iPhone 3G last August, we have been working closely with Apple to enhance our customers’ iPhone experience and will definitely look at introducing new products from Apple whenever these are ready for market in Singapore,’ said SingTel spokesman Peter Heng.

SingTel has sold more than 100,000 units of the phone and it continues to rank among the company’s top-selling models today. Apple forbids individual operators from disclosing their sales tally but the gadget maker said 8.2 million iPhones were sold globally in the six months ended March 28.

‘Apple came out of nowhere to capture a 10 per cent share of the Singapore converged (devices) market in 2008. Shipments have declined over time but (iPhone) volumes remain impressive given that Apple’s entire portfolio comprises a grand total of two models,’ said Mr Choong.

StarHub and MobileOne were initially confident of breaking the iPhone stranglehold last year, but the handset is still docked at only one local operator.

Mobile users who are locked down by their M1 and StarHub subscription deals have to wait out their contracts or buy unsubsidised iPhones from the grey market at hefty prices. This has prompted some consumers to resort to online petitions to try and get Apple to change its mind.

‘We continue to receive feedback from our customers that they would like to get the iPhone and be connected to StarHub’s network. We really want to meet these requests and have continuously indicated our keen interest to Apple to distribute the iPhone,’ a StarHub spokeswoman said.

Denies fund raising rumours

Fund raising article “misleading”; Maintain BUY. We spoke to SingTel’s spokesperson following a Bloomberg article suggesting that the telco was seeking US$4b in funds to “protect its stake in Bharti Airtel”. He said that the article was “misleading” and “very wrong”. The fact is that SingTel did engage a financial adviser, but it was for the purpose of assessing the potential merger between Bharti and South-Africa based MTN, and not specifically to look into fund raising. We estimate that Bharti would need US$4b for this deal, which will likely be in the form of debt financing. But even if it were to do equity fund raising, SingTel will be in a good position to support. Maintain BUY on SingTel, with price target of S$3.17 based on SOTP. Bharti accounts for 25% of our SOTP.

Recapping the deal. Bharti would acquire 49% shareholding in MTN, and MTN would in turn acquire a 36% stake in Bharti. The combined entity would create an operator with revenue of more than US$20b and combined customer base of 200m users. Both parties have agreed to discuss the potential transaction exclusively till 31 Jul 09, which if successful, will make it the world’s third largest mobile phone company. The deal prices Bharti at EV/EBITDA of 11x, and MTN at 5.5x. Moreover, MTN currently generates free cash flow, while Bharti is only expected to be FCF neutral this year. Hence, the deal appears to favour the latter.

Potential merger impact on SingTel. Post-merger, SingTel’s stake in the Bharti will be reduced from 30% to 19%, while SingTel’s EPS is estimated to slide by 1.5%in FY11. We believe that should Bharti require funds for this merger, SingTel will stand ready to support. Based on our estimates, Bharti may need to raise up to US$4b if the deal goes through. According to the media in India, Bharti will fund the acquisition through debt, but assuming half the amount is through equity, SingTel may have to fork out US$600m.This would raise SingTel’s net gearing from 28% to 32%, still very manageable given its strong balance sheet.

SingTel expected to top up Bharti stake if dilution occurs

SINGAPORE Telecommunications’ stake in Bharti Airtel could be slashed by up to 10 percentage points or more if the latter’s merger with the MTN Group comes through but industry observers say the Singapore operator might be willing to pump in more money to make up for the dilution.

According to a Financial Times report citing unnamed sources, SingTel can be expected to acquire some, or all, of the 11 per cent Bharti shareholding expected to be offloaded by MTN shareholders who do not want to end up with Bharti shares after the planned deal.

If ongoing negotiations between Bharti and MTN bear fruit, the Indian operator will own a 49 per cent stake in its South African counterpart under a complex share-and-cash swap transaction valued at nearly US$23 billion.

Bharti last week offered to pay 86 South African rand and 0.5 newly issued Bharti global depository receipts for each MTN share. In return, MTN will lay claim to 25 per cent of Bharti while its shareholders will own another 11 per cent.

Market analysts said a successful Bharti-MTN merger is likely to reduce SingTel’s 30.5 per cent stake in its Indian associate to around 19 per cent, although Singapore’s largest operator will gain from having indirect access to Africa’s burgeoning telecommunications markets.

If SingTel acquires the 11 per cent Bharti shareholding from MTN shareholders after the deal, the move would restore its Bharti stake back to pre-merger levels. However, industry watchers say SingTel may have to raise more capital to fund this purchase.

When contacted, SingTel said it does not comment on market speculation. ‘Discussions between Bharti and MTN are ongoing, and SingTel will continue to be actively involved in due diligence and key aspects of the transaction,’ a company spokesman said.

However, SingTel’s recent track record would suggest it is always ready to seize opportunities for increasing its overseas stakes.

In March this year, the firm pumped in an additional US$25 million into Pacific Bangladesh Telecom Limited to take its total investment in the associate to US$143 million. SingTel also injected an additional US$75 million into its Pakistani associate Warid Telecom in January.

BT understands that Goldman Sachs is advising SingTel on the Bharti-MTN deal. Deutsche Bank and Bank of America Merrill Lynch are counselling MTN, while Standard Chartered is the financial adviser for Bharti.