Collapse of M1-Simba deal reveals chinks in Singapore’s cursed telco consolidation dream
A rollback to a three-player market is inevitable; the tragedy is how difficult the exit has become
[SINGAPORE] Everything in Singapore feels like it is getting more expensive, from hawker meals and groceries to public transport and utility bills. But the cost of one basic necessity has bucked that trend: mobile phone plans.
You might remember the bad old days when a basic mobile phone plan cost upwards of S$40 a month for a measly two gigabytes of data. Today, you can easily find plans for under S$10 offering a hundred times that amount.
Singapore’s push to liberalise the telecommunications sector and open the market to a fourth operator – now more than a decade on – was meant to shake up the incumbents and lower consumer prices. It worked perfectly.
But now, the country’s dream of a vibrant telecoms scene has collided with a painful economic reality. Rolling back this liberalisation experiment to shrink the market is turning out to be harder than anyone imagined.
On Monday (May 18), the Infocomm Media Development Authority revealed that it is investigating allegations that Simba Telecom used radio frequency bands that had not been assigned to it.
This abrupt announcement, just days before the expiry of the extended long-stop date of May 21 for the sale of M1 to Simba, all but put an end to the S$1.43 billion deal.
Keppel, the parent company and majority owner of M1, looks ready to let the sale-and-purchase agreement lapse.
Sure, Simba’s alleged rule breach came out of the blue and left market watchers stunned. But even without this final nail in the coffin, the deal was already struggling.
The truth is, Singapore’s telecoms sector is cursed by its own design.
The problem with price wars
When Simba entered the fray in the mid-2010s with aggressive price-war tactics, it triggered a race to the bottom.
Consumers cheered for cheap data, while industry profits collapsed. This led to a state of low-margin exhaustion.
What this means is telecommunications companies earned very little profit from each subscriber, but were forced to spend billions of dollars continuously upgrading their networks to stay relevant.
To be fair, having four operators in a market of less than six million people was unlikely to be economically sustainable in the long haul.
Capital expenditure for 5G infrastructure is immense, and a fragmented market simply cannot generate the returns necessary to justify that continuous investment.
Everyone knew a rollback to a three-player market was inevitable; the tragedy is how difficult the exit has become.
One of the biggest hurdles to overcome is the shared-infrastructure trap.
Building separate nationwide 5G networks is prohibitively expensive. To cope, M1 and StarHub, for example, formed a joint venture called Antina to share 5G infrastructure.
When Simba tried to buy M1, it was indirectly buying its way into that shared marriage.
Understandably, StarHub was not happy. Injecting Simba’s massive, budget-conscious user base into the shared network threatened to crowd out StarHub’s premium users and degrade speeds.
Take a closer look and a deeper truth is revealed: In modern telecoms, networks are so deeply intertwined through joint ventures and wholesale agreements that you cannot cleanly carve one operator out and hand it to a rival without sparking a civil war among the remaining players.
Then, there is the problem of spectrum dominance.
Consolidation concentrates power, which Singapore’s strict competition guidelines explicitly forbid.
Had the Simba deal progressed, the combined entity would have held half of the premium 900 MHz spectrum, a low-band frequency that is crucial for widespread 4G and 5G network coverage.
Here, we are in a catch-22 situation.
The regulator wants consolidation to save the industry from low-margin exhaustion.
However, the moment a deal is proposed, it creates a spectrum monopoly that violates the state’s own anti-competition rules.
To fix the deal, the buyer would likely have to strip out and surrender chunks of the asset it is paying S$1.43 billion to acquire.
Changing dynamics
Meanwhile, Keppel is left holding an asset it clearly wants to shed.
Management quickly announced a 90-day “Plan B” to drive efficiency at M1. The plan promises to rightsize the company, deploy artificial intelligence and slash costs to improve run rate earnings.
Run rate earnings refer to taking a company’s current financial performance over a short period and projecting it out to predict future annual profits.
It is not difficult to imagine that Keppel wants to boost these numbers quickly to make the business look healthier.
But this swift pivot raises an uncomfortable question. If M1 could be fixed with a sudden 90-day efficiency drive, why was it struggling in a brutal four-player market for years?
This rushed restructuring screams of a defensive scramble.
To be sure, the power dynamic has completely flipped.
StarHub is the most obvious remaining buyer in the room. It now holds all the leverage. It knows Keppel wants to meet its broader asset monetisation targets and that M1 is undergoing a rapid, disruptive internal overhaul.
Crucially, StarHub has absolutely zero incentive to match Simba’s S$1.43 billion all-cash valuation.
But where does that leave Keppel?
On its part, StarHub said in response to queries from The Business Times that it “would not want to speculate beyond the information publicly available at this stage”.
The ambitious consolidation of Singapore’s telecoms market was supposed to fix a broken industry.
For now, though, it has shown that putting the liberalisation genie back in the bottle is nearly impossible.
