From 3G to 5G

Terry Clontz, then CEO of StarHub, was a sober voice. In an interview with The Edge Singapore published in Issue 40 (Dec 2, 2002), he warned that the industry might be getting a bit ahead of itself. The three telcos — Singtel, M1 and StarHub — had all committed to rolling out their own 3G mobile networks by the end of 2004 but Clontz wondered if such a rigid schedule was the best way to go. “The way 3G is rolled out in Singapore should depend entirely on the market readiness and business plans of the mobile operators,” he said then.

Since The Edge Singapore was launched in March 2002, the telco industry has been busy. The government found itself in unfamiliar territory both liberalising and regulating an industry dominated by strong players (that were themselves government-linked). New players went toe to toe with the incumbent, with new products, new services, one-ups, and so on.

Along the way, investors in the telcos had quite a ride as well. From the initial trepidation, the three main telcos settled into an oligopoly with a third of the shares each, and with pricing stable and margins comfortable, they transformed into popular dividend plays, offering generous yields in excess of even what some REITs today could give.

However, when new competition was introduced, along with changing consumption patterns, the cash-cows of yesterday became the shrinking business lines of today. As The Edge Singapore marks its 1000th issue, the telcos are in a rough patch. Besides the competitive pressure which hurts earnings, they are feeling the chill from the pandemic as well. There are tentative signs of recovery — or at least, revenue stabilisation. With new technologies, products and services coming out amid competitive prices, it is more exciting to be a telco customer than a telco shareholder.

Top dog

Singtel, or Singapore Telecom before it was known as Singapore Telecommunications, was formed in 1989, following the restructuring of Telecoms, an entity previously formed through the merger of Singapore Tourism Board (STB), Telecommunications Authority of Singapore and the Postal Service Department. It is arguably the widest held stock among all Singapore companies, thanks to the Goh Chok Tong government’s plan to encourage Singaporeans to subscribe to its highly hyped IPO at discounted prices in 1993 as a way to partake in the country’s growth. The issue was huge, with some 1.6 billion shares sold. Yet, the offer was more than 4 times subscribed.

Following its IPO, Singtel went on a shopping spree, acquiring stakes in several regional telco players, making them its associations, as well as expanding into the enterprise market. In the first 10 years of the stock being listed, Singtel acquired stakes in Philippine’s Globe, Thailand’s Advanced Info Service (AIS), India and Africa’s Airtel, Australia’s Optus, Indonesia’s Telkomsel, as well as the enterprise solutions provider NCS.

The various Singtel associates and subsidiaries provided plenty of fodder for the investment community and financial press — including The Edge Singapore — to write about. Following one acquisition after another, there were a few years when investors shunned the stock, citing concerns that Singtel had overpaid for these overseas telcos in a desperate bid to grow an external wing. The A$17 billion acquisition of Optus in 2001— the largest ever by a Singapore company, was but the most visible example.

Nevertheless, the acquisitions began to pay off with a growing contribution of earnings to Singtel’s own bottomline as mobile markets across the region grew. As Issue 164 (May 9, 2005) notes: “Singtel is poised to emerge as a dividend behemoth — CEO Lee Hsien Yang has returned $17 billion to shareholders since the firm’s 1993 listing.”

Chua Sock Koong, Lee’s successor as group CEO, carried on the momentum. As reported in Issue 677 (May 18, 2015): “Singtel is one of the year’s best performing blue chips as all its businesses deliver strong financial numbers.”

Emboldened by acquisitions that worked more often than not, Singtel’s appetite was whet in another area: instead of acquiring another telco, it paid US$321 million in 2012 for Amobee, described as a digital marketing outfit. In June 2014, it paid another US$360 million for three digital advertising firms to be added to its growing Digital Life unit. “In order to take Amobee to the next level in this space, we needed to make a transformative acquisition,” said Allen Lew, the senior Singtel executive in charge of this unit, as reported in Issue 630 (June 16, 2014).

However, things started getting bumpy in the years that followed. Growth tapered off in the regional mobile associates: a particularly brutal price war in India sent Bharti, Singtel’s largest associate market, into a multi-year gush of red. Business conditions worsened with the pandemic breaking out: Amobee, the much-touted digital unit, took an impairment of $589 million earlier this year. Coupled with a similar writedown at Singtel’s cybersecurity unit Trustwave, the telco’s earnings halved to $554 million for the FY2021 ended March 31.

Under new group CEO Yuen Kuan Moon, the telco embarked on a “strategic reset”. In his May 27 statement, Yuen, who took over from Chua at the beginning of 2021, states his aim to “refocus the business and capitalise on technology proliferation and large-scale digitalisation”.

As a result of the pandemic, consumers’ behaviours have changed, and digitalisation of businesses has accelerated. To Yuen, it is now an opportunity to “make profound changes, restructure and reposition to emerge stronger”.

The first of many

For more than a century, Singtel was the telephone monopoly. That changed in the mobile era. In 1997, M1 made history by becoming Singapore’s second telco. Riding on attractive propositions and meeting consumers’ yearning for an alternative, it quickly captured 10% of the mobile market share within a month alone.

M1’s IPO was launched in December 2002, and after a couple of years of bruising market share tussle with Singtel and StarHub (which launched after M1), the three mobile operators each garnered around a third of the market share. With most of the customers tied to twoyear plans, the telcos had plenty of visibility and cash flow, and while they did not promise shareholders strong growth, they assured them plenty of steady dividends.

Yet, M1 found itself a focus of improving ties between Singapore and Malaysia. In August 2005, Telekom Malaysia made a surprising purchase of a 17.7% stake in M1. Taking such significant cross-border stakes in government-linked companies, either way, either side of the border, was not a daily occurrence. The move, as reported in Issue 179 (Aug 22, 2005), baffled analysts then. “M1 is a dividend delight, but has limited growth prospects in a mature market. We see benefits from cross-border synergies and TM’s regional footprint as limited,” said Citigroup analyst Anand Ramachandran then.

In any case, investors did not take notice of any political strings. M1, like Singtel and StarHub, grew steadily and its share price rose in tandem. From the IPO price of $1.39, M1 traded as high as $3.99 in 2015, as prospects of better earnings from then newly-introduced 4G networks excited the market.

Soon, however, came the period that competition within the telco space started to increase and the earnings came under additional strain. For M1’s FY2015 ended Dec 31, 2015, it was first among the three telcos to cut its dividend, citing the need to pay for spectrum cost and for additional investments in related business, underpinned by an uncertain economic outlook.

As reported in Issue 712 (Jan 25, 2016), M1’s then CEO Karen Kooi stressed that M1 has not changed its dividend policy, which has long been to distribute at least 80% of earnings. But investors are used to expecting more of M1.

The next couple of years were increasingly tough, as more consumers decided they no longer wanted to tie themselves to two-year contracts even though they enjoyed handset subsidies. More people preferred the cheaper SIM-only plans amid growing competition from mobile virtual network operators (MVNO) popping up.

Luckily for M1, as competition heated up and its share price dwindled to just a fraction of its high in 2015, majority shareholders Keppel Corp and Singapore Press Holdings (SPH) announced in September 2018 that they would offer to privatise M1. Both parties offered $2.06 apiece for all the remaining shares in M1 that they did not own. The majority of M1’s investors, including Bursa Malaysia-listed telco Axiata Group (the mobile arm spun off from Telekom Malaysia), who was then M1’s largest shareholder with a 28.7% stake, accepted the offer.

After the two parties, via a jointly owned vehicle Konnectivity, secured 94.55% of shares in M1 in Mar 2019, M1 was delisted. After compulsory acquisition, Konnectivity is held 80.69% of M1 with the remaining 19.31% being held by Keppel Telecommunications and Transportation (Keppel T&T), a company related to Keppel.

Since its delisting, Keppel and SPH have been busy repositioning M1 for growth. On Feb 23, M1 unveiled a refreshed brand identity and renewed its subscription plans. It has also announced it has its sights on becoming Singapore’s first digital network operator.

More importantly, the revamp of M1 is aligned with Keppel’s new strategy. The latter wants to become an integrated company offering sustainable urbanisation solutions, which can ride on M1’s 5G mobile networking infrastructure. M1, in a joint venture with StarHub, had won the bid by the Infocomm Media Development Authority (IMDA) to operate 5G networks across Singapore, while Singtel won the other bid.

Under Keppel’s Vision 2030, M1 has been reclassified under Keppel’s connectivity business together with Keppel Data Centres and Keppel Logistics. The telco was previously housed under the company’s investment business, which included Keppel Capital, Keppel Urban Solutions (KUS) and KrisEnergy.

Loh Chin Hua, CEO of Keppel, says: “These are very exciting times for M1 — with its new identity and enhanced offerings; for Keppel, as we execute vision 2030; and for the broader public through the many digital connectivity solutions that we will provide as we contribute to a better, more connected and more sustainable world.”

Local flavour

StarHub might be newer than both Singtel and M1 but the company’s ups and downs over the past two decades are no less remarkable. When it launched in April 2000, StarHub quickly won over new subscribers with then-innovative offerings such as free incoming calls and per-second billing.

Nikhil Eapen, StarHub’s new CEO that took the helm earlier this year, says: “Our rallying cry was ‘A Change for the Better’ — applying technology to transform the world for good. We were at the time the third mobile entrant. We quickly became an agent of change, disrupting the market and challenging norms to deliver new products and services to our customers.”

More than just mobile services, StarHub, via a merger with Singapore Cable Vision and the acquisition of Internet service provider CyberWay, turned into a so-called “quad-play” service provider: mobile, Internet access, fixed-line telephony, and cable TV.

“Our multi-service offering called ‘Hubbing’ quickly became popular with our customers. We are expanding on those principles around delivering convenience and value to our customers, as we now move from quad-play and Hubbing to infinity-play with a continuum of connectivity, OTT streaming entertainment, cloud gaming and digital solutions. We want to drive experiences on top of connectivity, to enrich our customers’ lives,” says Eapen.

When StarHub’s IPO was launched in September 2004, response was lukewarm. Yet, as StarHub’s “hubbing” strategy took root, it delivered not only high yields, it offered capital appreciation as well. Its star was shining especially bright in 2012.

In Issue 554 (Dec 17, 2012), Neil Montefiore, a former M1 CEO who took the job subsequently at StarHub, explained that the company’s stable, domestic-oriented business could be relied on to deliver a steady return: “I knew, with the sort of economic uncertainties, that there would be a view of us as a pretty safe stock.” Its yield of 5.5% was the highest that year among all STI component stocks — and that was after a “blistering run” of 35.1% thus far that year.

Along with changes in technology and markets, there will be winners and losers. For StarHub, it began to see a decline in 2013 in its pay TV subscriber numbers. One way then-CEO Tan Tong Hai wanted to reverse the drop was to produce original video content, especially those with a local flavour. “This is something that StarHub will be doing a bit more of from now on. But our focus will be selective production, with proven formats,” said Tan in Issue 578 (June 10, 2013).

However, more forceful measures were needed as the earnings slide could not be stemmed quickly enough over the next few years. Along with the lower demand from consumers for services such as pay TV, pricing competition for mobile persists, as the fourth mobile operator TPG secures its beachhead.

These aggressive price wars may have worked in the past, but today, there is only so much a telco can slash its price until it starts harming the group’s margins and profitability. Former Starhub CEO Peter Kaliaropoulos said in an interview that his strategy to restore growth to the company was not to fight the price war that could not be won, but instead to lead the company towards a transformation, which will focus on its enterprise segment.

As Kaliaropoulos embarked on the turnaround plan, he put forward two options. “One is to downsize and stay in Singapore, play that game, which is not very smart and before you know it, you are running an anorexic company. You cannot shrink to greatness,” he told The Edge Singapore in Issue 927 (Apr 6, 2020). And the other, as Kaliaropoulos explained, is the acquisition of new businesses, to accelerate growth.

With the responsibility for leading the turnaround now on Eapen, he is determined to continue Kaliaropoulus’ turnaround plan and more. With consumers spoilt for choices and reluctant to spend more than necessary, growth has to be captured from business customers instead. “Our strategy, built on connectivity plus enriching experiences in consumer and our business repositioning in enterprise, is starting to work,” said Eapen in Issue 979 (April 12, 2021) — his first interview with the media.

Unlike his predecessor Clontz (who is now StarHub’s chairman) who had a relatively restrained view on the business benefits that the then-fledgling 3G networks can bring, Eapen, tasked with leading StarHub in the 5G era, is more upbeat.

The way he sees it, the future is in 5G and StarHub intends to leverage on this newer and faster network to grab opportunities for both its consumer and enterprise segments. With 5G, organisations can harness the power of the Internet of Things and improve their operations and productivity.

“With a whole-new 5G core network and the best-ever connectivity for every product, service, experience or solution, we are extending our lead in network quality for customers while seeking new opportunities to provide businesses and the government with customised secure and private services,” says Eapen.

With 5G, Eapen intends to allow StarHub to drive experiences and enrich the lives of its consumers. “We want to deliver to everyone worldclass personal digital experiences. Our products and services must be simple and intuitive for customers, and the technology we enable must make a positive impact in the society in which we live.”

Photo: The Edge Singapore