M1's mobile plan consolidation could deepen losses in industry postpaid revenue

Singtel and StarHub could revamp their bundled plans to compete with M1’s base plan.

M1’s decision to ditch its 19 mobile plans for one base plan for both SIM-only and handset bundles could temporarily result in subscriber losses as well as a decline in the mobile sector in 2019, DBS Group Research said.

According to Sachin Mittal, DBS Group Research analyst, the new SIM-Only plans which start at $25 per month (vs. $20 earlier) are likely to uplift M1’s SIM-Only average revenue per user (ARPU) which comprise >20% of M1’s postpaid subscriber base, although M1 may cede some SIM-Only subscribers to Singtel’s GOMO plans (20GB for $20) in the process.

“However, we do point out that Circles.Life, the Mobile Virtual Network Operator (MVNO) partner of M1, still has the cheapest SIM-Only offering with 20GB for $18. This should help M1 sustain some of the subscriber losses on the SIM-Only front,” he said.

DBS Group Research also sees a downside risk to its projected 6.5% decline in the mobile sector over 2019 in view of these new plans by M1. “The new handset-bundled plans are likely to cause further deterioration in the industry’s postpaid ARPU, especially if Singtel and StarHub revamp their bundled plans in light of M1’s new offerings, which we think is likely,” Mittal said.

“However, such revisions would make handset-bundled plans more attractive to users, which in turn could decelerate the migration towards SIM-Only offerings, partially offsetting the negative impact on postpaid ARPU,” he added.

Despite the anticipated short-term declines, telcos’ move towards more attractive handset-bundled plans is positive in the long run. Mittal argued handset-bundled offerings are more difficult for TPG and MVNOs to enter, given the inherent difficulties in setting up handset distribution channels and supply chains.

He added, “Handset-bundled plans ensure much greater customer loyalty than SIM-Only offerings, given the 24-month contract lock-in. Handset-bundled offerings also generate higher ARPU vs. SIM-Only offerings although the impact on the bottom line remains quite similar with the lack of handset subsidies on SIM-Only offerings.”

Amongst the telcos, M1’s new plans with better flexibility would be of greater appeal to the millennials that all three operators are aggressively targeting, Mittal claimed. “We believe M1’s new offerings have taken a page out of the ‘GOMO’ (20GB for $20) and ‘giga’ (25GB for $25) SIM-Only plans launched by Singtel and StarHub over the past few months, except M1 has extended its offerings to the handset-bundled space and offers much greater customisability,” he said.

“The most significant impact of M1’s renewed plans, in our view, is in the handset-bundled segment. M1 has reduced the entry point of handset-bundled plans from $40 to $30 per month with a marginal curtailment of the data quota,” he added.

This marks what could be the key shift in M1’s pricing strategy, the analyst said. “Competition within the mobile sector over the past year was largely limited to SIM-Only offerings with all three incumbents aggressively revising their plans with bigger data bundles at lower price points.”

M1 has taken a swing at the handset-bundled offerings, a segment in which it has a lower traction in, when compared with its larger peers. “We believe this could indicate a shift in M1’s strategy after being taken private by Keppel Corporation and Singapore Press Holdings, with M1 potentially trying to target the corporate bundled-plan segment that is dominated by Singtel and StarHub,” Mittal said.

Moreover, with the revamped handset-bundled offerings, M1 could be trying to poach high-value handset-bundled users from Singtel and StarHub as M1’s new plans are cheaper and offers very competitive data quotas. It could also be trying to decelerate the shift towards SIM-Only offerings.

“M1’s handset-bundled plans are now only $5 more expensive, at $25 vs. $20 per month before, offers an attractive data quota of 12GB (vs. average smartphone data usage of 4.7GB in Singapore) and requires a lower cash outlay from subscribers (e.g. $190 lesser for an iPhone XS on an entry level handset-bundled plan). This could result in a deceleration of subscriber migration towards SIM-Only offerings, in our view,” Mittal said.