Category: StarHub
StarHub – BT
StarHub’s new CEO has his work cut out
TERRY Clontz’s appointment as StarHub CEO in 1999 came at a time when the local telecommunications sector was ringing in a sea change with the dawn of market liberalisation. A decade on, the firm’s change-of-guard again coincides with a new era of competition, and the stakes are just as high for former M1 chief Neil Montefiore.
In anointing its new chief executive, StarHub has clearly opted for a safe bet by roping in a seasoned deckhand to steer the course when Mr Clontz retires in January next year.
StarHub’s former president Mike Reynolds would arguably have been the first choice had he not left to take over as CEO of New Zealand’s third mobile operator 2degrees. With the telco sector on the cusp of sweeping changes, it needed someone who could promptly get up to speed and Mr Montefiore naturally fits the bill.
Having taken over the reins at M1 three years before StarHub even came into the picture, he is well attuned to Singapore’s competitive landscape and regulatory nuances. In addition, StarHub can expect to glean some insights into the inner workings of a rival and possibly uncover its Achilles heel by poaching the former M1 helmsman.
While it is clear what Mr Montefiore brings to the table, it is what he doesn’t that has raised a fair share of market eyebrows.
Culturally, StarHub displayed a more brazen competitive approach under Mr Clontz’s stewardship. It went tit-for-tat with SingTel on all fronts from mobile to pay-TV and broadband services. M1 on the other hand, was more conservative and defensive while Mr Montefiore was at the helm.
More importantly, M1’s business is anchored on consumer mobile services, a segment which makes up one-fourth of StarHub’s overall business portfolio. With Singapore’s cellphone penetration already at a sky-high level of 133.8 per cent, the mobile sector is already teetering on the brink of saturation.
The prerogative now among all three operators is to drive the uptake of new mobile data services – a task which Mr Montefiore may not be all that familiar with, given his priority in the past decade was primarily about increasing mobile subscriber share.
StarHub’s two other cash cows are cable TV and broadband, businesses that are also foreign to its incoming chief.
The dynamics of negotiating exclusive content agreements, and the intricacies of being an Internet service provider are things that Mr Montefiore will need to learn quickly, though time may not be on his side.
Like its counterparts, StarHub is being threatened on all fronts. Its cable television business is facing competition from SingTel’s mio TV offering.
The latter’s pay-TV foray is hardly denting StarHub’s market share for now. However, it does throw a spanner in the works when it comes to bidding for content; the bruising bidding war between StarHub and SingTel for last season’s English Premier League (EPL) broadcast rights is a salient reminder. Both companies are again going head-to-head this year – a move that will inevitably jack up costs at a time when subscribers are tightening their purse strings.
In addition, new pay-TV rivals could emerge once Singapore’s fibre-optic network is in place in end-2012 as breakneck broadband speeds will allow television programmes to be easily streamed to consumers. The same applies to Internet services as the government’s open-access mandate levels the playing filed and allows new entrants to have access to the country’s broadband pipes at the same price as incumbents.
While new competitors may throw their hat into the ring, the biggest thorn in StarHub’s side will continue to be SingTel. In this regard, having the former M1 chief as its new front man could be the harbinger of a closer alliance against the country’s dominant telco; after all, the duo had already joined hands to bid for the contract for building Singapore’s fibre-optic network in 2008. M1 is also using StarHub’s cable Internet platform to power its current broadband offerings.
Given their recent track record, perhaps a full-fledged union could eventually be in the making to stem the surging red tide. And having a face that is familiar to both companies would certainly smoothen the way for any consolidation.
TELCOs – CIMB
2Q09 results preview
• No surprises expected. We anticipate a fairly uninspiring 2Q where we project sector revenue growth of 3% and sector EBITDA to be relatively flat on a qoq basis. Specifically, we see revenues being relatively lifeless owing to stagnating usage patterns and weakness in roaming, IDD and migrant worker usage. The compensating factor, however, would be the growth in data services. Cost containment, while an ever-present theme, will face resistance from normalising
subscriber acquisition and retention cost (SAC) after a seasonally low 1Q09. Key themes to watch out for are a) normalising SACs, b) weak toplines, c) market share trends, d) cost containment and e) skirmishes in broadband.
• Expectations for operators. For M1, we think the key event would centre around their success in curbing, if not improving, their market share erosion which has now descended near their internal threshold. Thus, we anticipate revenue to decline by 1-2% for 2Q exacerbated by slower roaming, and weaker mobile usage among the migrant worker segment. We project EBITDA margin declines of 0.5-1% pts on a qoq basis leading to a net profit contraction of 9-10% sequentially. For StarHub, we see 2Q revenue declining by a smaller 1-2% relative to 1Q. We think that there could be multi-faceted threats to topline from its discretionary base which is
arguably more vulnerable to an economic slowdown. In terms of margins, we believe that there could be some slight pressure on margins owing to promotion campaigns and potential down trading. Thus, we believe that EBITDA margins would trend downwards slightly by close to 1% pts leading to net profit contraction of 5-7% qoq decline. SingTel Singapore should see a 4% qoq revenue rebound in 2Q09, on the back of wireless and wired broadband revenue. EBITDA margins should fall from the seasonally high 1Q09 of 37.6% to 36% in 2Q as subscriber acquisition and retention costs rise from its seasonal low.
• Maintain NEUTRAL on the sector. Given our more optimistic outlook on the stock market, we believe that telcos will not outperform the market. Hence, we advise investors to switch out of telcos into high beta cyclicals and reiterate our Neutral stance on the sector. That said, dividend yields are a prime downside supporter with average yields of 4-9% for CY09.
• Top pick is SingTel. Our top pick in the sector continues to be SingTel for its earnings turnaround, exposure to emerging markets and the strengthening regional currencies. We maintain our OUTPERFORM rating on the stock with a SOP-based target price of S$3.20. Potential re-rating catalysts include qoq earnings growth driven by the strong performances of its key associates. We advocate switching out of StarHub (Underperform, Target price: S$1.54) into SingTel as we believe its share price will come under pressure when bidding for rights to broadcast the Barclays Premier League begins in 3Q09.
StarHub – BT
Former M1 chief to take the reins at StarHub
Neil Montefiore will take over the post from Terry Clontz who will be retiring
The maxim ‘know thy self, know thy enemy’ is taking on new meaning in Singapore’s telecommunications battleground.
In a move which surprised most industry watchers, StarHub yesterday announced the retirement of long-standing chief executive Terry Clontz. To fill the upcoming void, Singapore’s second largest operator is turning to the former helmsman of the country’s smallest telco MobileOne – Neil Montefiore.
Mr Montefiore, who left M1 only in February this year, will re-emerge as StarHub’s CEO exactly a year later. Mr Clontz will relinquish his CEO role in January 2010 but will continue to be a director of the company, StarHub said in a statement.
The change-of-guard is subject to the approval of telecommunications regulator the Infocomm Development Authority of Singapore.
‘This comes as a complete surprise to me,’ said DBS Vickers analyst Sachin Mittal.
‘There were no rumblings in the market before this (announcement),’ added OCBC analyst Carey Wong.
Mr Clontz, 58, joined StarHub in January 1999 as its founding president and CEO, steering the firm through its merger with Singapore Cable Vision in 2002 and its listing in 2004.
‘Terry has led StarHub from a fledgling new entrant to a leading quad-play listed entity. At StarHub, he is known for his innovative ideas, clear vision and cohesive strategies,’ said company chairman Tan Guong Ching.
Mr Montefiore on the other hand, left M1 for ‘personal reasons’ in February after nearly 13 years of service, resulting in the appointment of its veteran chief financial officer Karen Kooi as the new CEO two months later.
Mr Montefiore re- emerged at several major telecommunications conferences shortly after as a ‘telecommunications consultant’.
While Mr Montefiore’s new appointment may have caught most industry watchers off-guard, the switch looks to have been sealed at the time of his resignation from M1.
In an interview with a telecommunications news site in March, Mr Montefiore was quoted as saying he wants to ‘work as an independent consultant for 12 months, before beginning a new role – as yet unspecified – in 2010’.
When contacted, M1 declined to comment if his move to StarHub had violated any contractual obligations. However, industry observers believe the one- year buffer could be a result of a non-compete clause in his former contract.
‘He’s (Mr Montefiore) definitely someone who knows the local market and he also knows the competitor,’ said DBS Vickers’ Mr Mittal.
While Mr Montefiore may be an old hand in the mobile sector, he may need ‘some time to get up to speed’ with StarHub’s pay- TV and broadband businesses, according to OCBC’s Mr Wong.
‘Time is a luxury that StarHub may not have with the NBN (national broadband network) coming on board in 2012,’ he added.
Once Singapore’s new fibre-optic network comes online at the end of 2012, the combination of breakneck Internet speeds and a more open regulatory regime is widely-expected to intensify competition for all three local operators.
StarHub – CNA
Terry Clontz to retire as StarHub’s CEO, Neil Montefiore to succeed him
Terry Clontz will retire as StarHub’s CEO in January 2010, and will be succeeded by telecommunications industry veteran Neil Montefiore. However, Mr Clontz will continue as a director with the group, said StarHub in a statement.
Mr Clontz, 58, joined StarHub in January 1999 as its founding president and CEO. He also serves as a director on StarHub’s Board.
Under his leadership, StarHub merged with Singapore Cable Vision (SCV) in 2002; brought it public on the Singapore Exchange in 2004; made StarHub Singapore’s second largest mobile operator in 2005; and grew its revenue base to more than S$2 billion by 2008.
StarHub said Mr Clontz has led StarHub from a fledgling new entrant in Singapore’s telco industry to a fully integrated quadruple-play listed entity this year.
Tan Guong Ching, chairman of StarHub said: “At StarHub, he is known for his innovative ideas, clear vision, and cohesive strategies. Terry has been instrumental in the success of StarHub, as well as in instilling in the company a culture dedicated to strong corporate governance, integrity, and compliance.”
Clontz said: “I have thoroughly enjoyed the opportunity of working with the StarHub team and living in Singapore for more than 10 years. Info-communications is an exciting industry, so I intend to remain somewhat active in the industry; but I look forward to spending more time with my family.”
StarHub said Mr Montefiore, 56, will join StarHub in January 2010, subject to regulatory approval. He brings with him over 33 years of experience in the telecommunication industry.
Mr Montefiore was the CEO and a board director of M1 in Singapore since 1 April 1996. Before that, he was the director of Mobile Services at Hong Kong Telecom CSL Limited, the largest cellular operator in Hong Kong.
On appointing the former M1 CEO, StarHub said it strongly believes that he is the most suitable candidate to lead the company to the next level. The telco said the key criteria in selecting the new CEO included strong leadership and experience with the telco business and regulatory environment in Singapore.
Mr Montefiore left M1 on February 1 this year after 13 years at the helm to pursue personal interests.
Mr Clontz added: “I am leaving StarHub in good hands. Neil and I have known each other on a professional and personal level for ten years. I have enormous respect for Neil and I am confident that I will be turning the helm of StarHub over to a seasoned industry executive who can continue steering the company successfully.”
StarHub – CIMB
Football concerns
• Lose-lose for StarHub. We believe StarHub’s share price will come under pressure leading up to the battle with SingTel over the rights to the 2010-2012 BPL seasons in 3Q09. If it wins, it would have to pay a steep price with questionable ability to pass on the cost to subscribers. If it loses, it could see significant customer churns.
• Window of opportunity to grab BPL. With most of the other attractive content locked up at least till 2010, SingTel has a small window of opportunity to clinch these rights. We believe that SingTel will go all out to win. It has been acquiring content aggressively, demonstrating its intent of building up its pay TV business.
• Regulatory intervention? Recent press reports have suggested that the regulator could intervene to prevent escalating content cost. But we believe it is beyond the boundaries of the regulator as the decision on exclusivity provision appears to lie with the content owner (FAPL).
• Sensitivity analysis. If StarHub loses its exclusivity of the BPL rights, we expect a 7% uplift to FY10 earnings due to savings on content costs, but FY11 core net profit could drop 5% due to rising churns. We currently assume StarHub will retain the rights, but at double the S$200m it paid in the last auction.
• Sell into the recent strength. At this stage, it is too premature to make any incisions to our earnings forecast or our DCF-based (WACC: 9.4%, LT growth: 1.0%) target price of S$1.58. We believe the market has not adequately priced in the risk of a loss of this exclusive content. Maintain UNDERPERFORM on de-rating catalysts of a) content warfare in 3Q and b) downtrading to its pay TV and broadband franchise.