Telco consolidation may not necessarily lead to recovery in mobile revenues

COMPETITION for mobile revenues among Singapore’s telcos has been intense, and it appears that prices for mobile phone plans have yet to find a bottom.

Prices have been tumbling since mobile virtual network operator (MVNO) Circles.Life was launched on telco M1’s network in 2016.

More recently, Eight – an MVNO that runs on StarHub’s network – offered 88,888 free SIM cards with 88 gigabytes (GB) of data for 88 days. Since October, the company has been offering 228 GB of mobile data for S$8 a month.

In response to rising price pressures, M1’s SIM-only brand, M1 Maxx, offered 290 GB of mobile data for S$7.90 a month until Dec 2. The promotion appears to be still running for the first 10,000 customers who port-in.

Theoretically, these aggressive price moves, which have affected average revenue per user (ARPU), could ease if the four-player mobile network operator market – comprising Singtel, StarHub, M1 and Simba – is cut to three players with the long-rumoured consolidation of StarHub and M1.

But investors hoping for a recovery in mobile-plan pricing and ARPU with a merger may be disappointed.

Revenues under pressure

As at the quarter ended Sep 30, 2024, ARPU for postpaid customers at Singtel and StarHub stood at S$32 and S$30, respectively, down from S$33 and S$32 a year earlier.

Singtel’s Singapore mobile revenue for the half year ended Sep 30 gained 2.6 per cent year on year to S$915 million, while StarHub’s mobile revenue for the third quarter ended Sep 30 declined 6.5 per cent to S$143.3 million.

If StarHub merges with Keppel’s M1, they could embark on more rational price competition. Instead of offering postpaid mobile plans with more data for less than S$10, they could slowly allow their prices to recover.

Yet, this does not consider how Simba might react to such a consolidation.

It might be worth noting the company has not responded to the recent round of price competition among the telcos, and has continued to offer 200 GB of data for S$10 a month.

Meanwhile, the company has continued to grow its ARPU year on year. As at the quarter ended Jul 31, 2024, the its ARPU increased to S$9.68, from S$9.37 a year earlier.

Meanwhile, the company’s net loss narrowed to S$4.4 million for the full year ended Jul 31, from S$15.3 million the year before. It also maintains an earnings before interest, taxes, depreciation and amortisation margin of 42.4 per cent, and generates net cash from its operations.

To be clear, I am not suggesting that Singtel or a merged StarHub-M1 entity would see their ARPUs fall to the level of Simba’s. After all, Simba eschews bundling phones with its plans – a strategy favoured by the incumbents, which allows them to generate significantly higher ARPU.

However, users are holding on to their phones for longer and no longer refresh their phones at two-year intervals.

The difference between phones released two years apart, such as an iPhone 14 and iPhone 16 or a Samsung Galaxy S22 and Samsung Galaxy S24, will not be perceptible to lighter phone users.

As a result, it is likely that customers will port out of their bundled mobile phone plans into SIM-only plans when their contract periods are up.

Such SIM-only plans could continue to compete towards a price floor of about S$10 even after StarHub and M1 merge, since Simba comfortably occupies that niche in the market.

Moving away from price wars

In a report published on Oct 29, Maybank analyst Hussaini Saifee noted that even in the event of a consolidation in the industry, Simba may prioritise market share gains over profitability, even as its financials improve.

“Given these dynamics, we think the desired results of industry consolidation may not percolate to the incumbents,” he said.

Even though Simba’s network coverage is comparably weaker than its competitors, the analyst said that this may not hinder its ability to grow market share.

“While Simba’s performance pales on the 5G spectrum, we note that 5G use cases in the consumer space are relatively limited, and thus are not a major competitive disadvantage,” he said.

With such an efficient player in the market, the incumbent telcos will need to double down on becoming even more efficient in managing their networks, whether they consolidate or not.

Furthermore, they will need to move fast to offer compelling services to consumers and businesses beyond phone bundles.

To be fair, the incumbent telcos have taken action.

Singtel’s focus has shifted towards its enterprise business through its NCS and Digital InfraCo offerings.

Meanwhile, StarHub is also completing its set of Dare+ initiatives, which are due to be fully expensed by 2025. These are a set of initiatives meant to deliver S$280 million in cost savings and S$220 million in gross profit growth cumulatively between FY2022 and FY2026.

The company also has plans to leverage enterprise offerings that were made possible by these initiatives, such as partnerships with out-of-home advertising platforms to take advantage of its trove of user data.

Still, incumbent telcos ought to look further afield elsewhere to generate more revenue.

Simply hoping for a recovery in mobile revenues may not play out as hoped if Simba holds the line and keeps prices low.