Singapore’s telecom operators invest in next-generation technologies-
Over the years, Singapore’s telecommunications industry has outperformed its regional peers in terms of growth to become the most mature market in Southeast Asia. The country has done exceptionally well in the area of wireless telephony: wireless subscriptions stand at around 8 million (as of December 2012) – a figure that even exceeds Singapore’s total population of around 5.3 million. At end-2012, the penetration rates of mobile services, wireless broadband, and residential wired broadband in the country were 150 per cent, 164.09 per cent, and 107 per cent, respectively.
The sector’s liberalisation in the 1990s paved the way for further competition in the sector; as a consequence, the industry is one of the most competitive in the region today. Currently, there are three incumbent players: Singapore Telecommunications (SingTel), Mobile One (M1), and StarHub. While the competition has benefited consumers in terms of better coverage, lower tariffs, and improved quality of service, operators are faced with the challenge of retaining customers. In a bid to sustain their competitive edge, operators have been making huge investments in infrastructure roll-outs and upgradation. At the same time, they have sought to enhance their service portfolio on a regular basis in order to keep pace with changing technologies and consumer needs.
Profiles of Singapore’s telecom operators in 2012
The wireless subscriber base in Singapore stood at 8.06 million as of December 2012, with 3G subscribers accounting for over 80 per cent. SingTel, with a subscriber market share of 46.2 per cent, dominates the wireless segment. The remainder of the market is served almost equally by StarHub (27.5 per cent) and M1 (26.3 per cent). Data service uptake remains on an upswing, which has contributed significantly to the operators’ revenues. All three operators also undertook significant long term evolution (LTE) service roll-outs in 2012.
SingTel – Market leader
Sing Tel registered a modest operational and financial performance in the Singaporean market: its operating revenue increased by 4.4 per cent from S$4.83 billion for the nine-month period ended December 2011 to S$5.04 billion in 2012. Revenue from the mobile segment grew by 3 per cent compared to 2011, thanks to the higher uptake of data roaming plans. As for equipment sales (mostly handsets), revenue grew by 4.7 per cent, fuelled by robust demand for new smartphones and tablets. Despite a highly competitive broadband market, fixed broadband services delivered strong revenue growth of 9.9 per cent, led by higher fibre adoption and an increased mix of higher-tier plans. Further, SingTel’s acquisition of Amobee, Inc, in April 2012, played a key role in increasing the revenue of its digital business, which rose from S$7 million in 2011 to S$49 million in 2012. Fixed line voice services, however, were affected by fixed to-mobile substitution and migration to lower-priced digital voice; revenue from the segment declined by 3.9 per cent due to increased churn and lower traffic.
Net profit rose by 2.8 per cent year on year to reach S$975 million in 2012. However, if one were to discount the net exceptional gains incurred during the period, company’s net profit would have declined by 5.7 per cent due to higher depreciation charges, acquisition of new businesses, and higher taxes. Nonetheless, net exceptional gains proved to be a saving grace for the company’s bottom line in 2012, which comprised a S$119 million gain on the divestment of its investment in FarEasTone Telecommunications and an impairment charge of S$7 million on certain available-for-sale investments.
Finally, the company’s bottom line was also adversely affected by the significant 9.9 per cent growth in selling and administrative expenses between 2011 and 2012. Moreover, the earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin stood at 32.1 per cent, expanding by merely 1.1 percentage points, as a result of investments in the digital business and higher mobile customer connection costs.
On the operational front, SingTel continues to maintain its leadership position in Singapore’s telecom market with a subscriber base of 3.76 million – almost half of the total wireless subscribers in the country. The tiered data plans, introduced in July 2012, have received a positive response from subscribers. Currently, the plans are serving 17 per cent of SingTel’s total post-paid customers; 9 per cent have actually exceeded their data allowance, which translates into improved ARPUs for the company. The outcomes of these plans are in line with the company’s expectations: SingTel had expected 10 per cent of its customers to pay for higher data usage by March 2013. The number of mobile broadband customers reached 1.49 million at end-2012, while the customers for fixed broadband lines stood at 553,000. Smartphone penetration had reached more than 70 per cent of the total post-paid base as of December 31, 2012.
SingTel made significant progress in its LTE network roll-out in 2012: island-wide coverage is expected by the end of March 2013, which also entails higher capex. (However, the company has yet to announce its annual guidance as its financial year ends in March.) Further, SingTel is making significant strides in expanding its digital business, as well as increasing its focus on data services in order to grow in the long term.
StarHub – Strategic partnerships
StarHub showed modest growth in revenues across all verticals during 2012. Its operating revenue grew by 5 per cent to S$2,422 million in 2012, while service revenue rose by 3 per cent to S$2,228 million. During the same period, revenues for the broadband segment and fixed line services increased by 3 per cent and around 6 per cent, respectively. Net profit grew by 14 per cent from S$316 million to S$359 million, mainly on account of strong growth in the post-paid customer base.
StarHub’s EBITDA margins also improved from 31.1 per cent to 32.3 per cent, thus exceeding the company’s 30 per cent guidance, as the company had not accounted for handset subsidies. Costs of sales rose from S$929 million to S$1,011 million in 2012, due to the higher costs of services and equipment. The ratio of cost to revenue in 2012 was 42 per cent; the company expects this ratio to stay higher than 40 per cent in the forthcoming years, as StarHub plans to continue with its efforts to invest in handsets and content.
The company continues to record steady growth on the operational front. As of December 2012, StarHub’s total mobile subscriber base and its residential broadband subscriber base stood at 2.2 million and 444,000, respectively. Data service enhancement was the key growth area for StarHub during the year. Specifically, it partnered with Vodafone to offer its customers affordable data roaming rates, while travelling in major European countries, Australia, New Zealand, and South Africa. Most mobile users currently disable their data roaming when they are overseas due to the exorbitant charges. Therefore, StarHub’s partnership with Vodafone has enabled the former’s customers to use data services even when they are abroad. Furthermore, StarHub, in line with its peers, also launched tiered pricing in 2012, thus allowing the company to monetise its service offerings in an improved manner. Moreover, the company joined the LTE bandwagon in 2012 by launching the service in selected areas including the Central Business District and Changi Airport. Since, then, StarHub has been expanding its LTE reach; it expects to build a nationwide network in 2013.
Based on the current outlook, the company expects its operating revenue to grow within the single-digit range for 2013. The EBITDA margin, as a percentage of service revenue, is expected to be about 31 per cent. Total capex payments in 2013 should make up about 13 per cent of operating revenue, two percentage points higher than the corresponding figure in 2012, primarily on account of wide-scale LTE roll-outs.
M1 – Keeping up
Growth of M1’s bottom line remained largely subdued in 2012, on account of the increased costs of sales and minuscule growth in revenues. Net profit declined by 10.7 per cent from S$164 million at end-December 2011 to S$147 million in 2012. Operating revenue grew by a mere 1 per cent from S$1,065 million to S$1,077 million. The primary factor was the decline in handset sales during the year, which led to lower revenues from the segment. However, service revenue rose by 2.8 per cent to S$772 million, driven by growth in the mobile customer base and a higher contribution from fixed line services.
The cost of sales increased by 5 per cent as a result of the handset subsidies given to customers and the expensive deployment of base stations, which had a strong impact on the company’s profits. The EBITDA margin also fell from 41.4 per cent to 38.9 per cent. Nonetheless, M1 managed to achieve the highest margin among its peers in 2012. In comparison, the EBITDA margins for SingTel and StarHub stood at 32.1 per cent and 32.3 per cent, respectively.
On the operational front, M1 registered healthy growth: its total wireless and fibre customer base stood at 2.11 million and 52,000, respectively, as of December 2012. The non-voice segment, comprising SMS and mobile data, was a key contributor to the company’s performance. Driven by increased smartphone usage and a higher mobile broadband customer base, the share of non-voice services in total revenues rose by two percentage points, from 35.6 per cent in 2011 to 37.6 per cent in 2012. Smartphone customers now account for 75 per cent of the company’s total post-paid customer base. Tiered data plans introduced by M1 in July 2012 have been a success: currently, 14 per cent of the company’s post-paid customers are covered under these plans. Further, 9 per cent of these customers have exceeded their data bundle limits, which translates into higher ARPUs.
Finally, M1, which launched LTE services in select regions during 2011, achieved countrywide reach in 2012. Thus, it expects to improve its net income through the increased adoption of 4G services. It is also optimistic about enhanced fibre adoption via nationwide coverage under the government’s Next Generation Nationwide Broadband Network. In terms of financial guidance, the company estimates that its capex will range between S$130 million and S$150 million in 2013, higher than the previous year, on account of 4G network roll-out and the need to meet consumers’ growing demand for data.
Pushing for the next frontier in telecommunications
As the voice-based service market in Singapore has reached saturation, the operators are moving in the right direction by shifting their focus towards next-generation technologies and data services. The introduction of tiered plans has already started ushering in benefits for the operators: all three operators expect to see increases in their monthly ARPUs in 2013. Going forward, the industry will see nationwide roll-out of LTE services by all the players, which will result in increased uptake of LTE-enabled smartphones and bandwidth-intensive services, and consequently higher revenues.
