In the blockbuster science fiction film The Matrix, human beings live in a virtual world while lying in a state of suspended animation to serve as living batteries for diabolical machines. Covid-19 has, for better or worse, turned science fiction into reality as safe distancing measures forced the entire world into their homes and compelled much of human interaction to migrate online. Only that instead of human brain impulses, it is mobile data that powers this brave new online world.
According to consulting firm Deloitte, many telcos have reported skyrocketing demand for data. “MyRepublic saw a 70% increase in daytime internet traffic in May as compared to December 2019,” observes spokesman Lawrence Chan, who also reports a 60% increase in demand for internet connectivity and bandwidth usage. Fellow telco Circles.Life, moreover, says that data consumption has shot up to an average 15GB per month compared to 11GB per month in 2019, as users go online for both work and entertainment.
However, the surge in data traffic did not lead to a corresponding rise in earnings, as telcos are compelled to offer larger data bundles at lower prices. The established players, in fact, suffered from the economic downturn. In its 1QFY2020 business update, StarHub reported mobile revenue of $163.5 million, down 15% y-o-y and 14.3% q-o-q, due to a combination of lower average revenue per user (ARPU) and cheaper price plans. Yet, overall average usage per subscriber chalks up yet another gain to 10.6GB, from 9.9GB in the preceding 4QFY2019, and a further increase from 6.3GB in 1QFY2019. Singtel, on the other hand, saw its mobile revenue in Singapore drop by 12% y-o-y to $218 million for its 4QFY2020 ended March 31, 2020.
Both telcos attribute the drop in roaming revenue as a key reason for the decline in revenue. Roaming revenue accounts for between 12% and 20% of total mobile revenue and according to DBS analyst Sachin Mittal, revenue from this segment will drop by as much as half this year. Not only are Singapore-based subscribers hardly travelling, there aren’t that many inbound travellers who incur roaming charges as well. Together with the curb on the flow of foreign workers, prepaid roaming revenue is likely to suffer a 20% drop.
While it is convenient to blame Covid-19 for the lacklustre numbers in the most recent quarters, technology and consulting firm Capgemini warns that telcos are facing a longerterm decline in traditional fixed-line businesses and maturing mobile voice services, with popular web services eroding traditional telco revenue streams. It found that telcos often find difficulty in monetising new services like mobile broadband — a 2010 study found that while data generated by mobile broadband dongles accounted for over 66% of traffic volume, it only contributed 5% of revenues.
“While global mobile data traffic increased 40 times from 2008 to 2013, the revenues associated with it barely tripled. Mobile data nevertheless represents the strongest revenue growth opportunity for operators,” observes a 2014 McKinsey report. OCBC Investment Research estimated in 2017 that if local telcos fail to monetise data usage sufficiently, their combined mobile revenue could fall 13.6% between 2016 and 2021. The rapid digitalisation of the global economy in the wake of Covid-19 has only stepped up the pace of this technological disruption.
Even for telcos that have already begun shifting their strategy towards data, the post-Covid19 environment will need them to re-adapt core assumptions within their business models to the reality of the “new normal”.
The market previously prioritised internet speed and leisure content. But Damien Dujacquier, managing director of consulting firm Roland Berger, sees telcos increasingly emphasising reliability and work/education content, with customers likely to prize remote working and cybersecurity over freebies and convenience when selecting mobile plans.
“[Telcos] must evaluate how to ensure a safe transition towards the new normal. It involves closely monitoring for network capacity strains, which may eventually justify structural changes,” observes the management consultant.
Deloitte partners Mark Casey and Craig Wigginton also anticipate telcos will look into infrastructure investments going forward in a bid to improve network reliability — which has been sorely tested by the Covid-19 usage spike — to better cater to higher volumes of internet usage. This may even include accelerating 5G development, they argue, since telcos may want to better tap its increased reliability and speeds.
The age of unlimited data
Telcos have begun adapting their products to cater to fast-growing consumer demand for data. Circles.Life co-founder Rameez Ansar tells The Edge Singapore that social media interaction with customers has revealed greater demand for unlimited data plans following the onset of Covid-19. MyRepublic spokesman Chan further notes that more people are making use of e-commerce sites for shopping as well as using streaming and mobile gaming to pass the time, necessitating fast and reliable connectivity.
Telcos are now looking to expand their product offerings into the mobile data space; Ansar says that his strategy now is to provide more data and less talktime or SMS use on Circles.Life’s mobile plans. Based on customer feedback, it launched a 4G Rollover feature earlier this year which allows users on unlimited data plans to roll over their unused data to the next few months with a 300GB cap. Similarly, MyRepublic has introduced unlimited data at managed speeds beyond the data cap for all mobile plans at no extra charge.
“When you’re looking at these tools, [they] mainly point towards the upward trend that people no longer use SMS or calls as a form of communication, especially during this period. Zoom, for example, has over 300 million participants daily,” observes Ansar.
Still, he does not see this migration to online communication tools like Zoom to be a threat to his business. While many of such services purport to be free, customers still have to pay for the data required to use these apps, strengthening Circles.Life’s data revenue stream. The firm is looking to release further products soon and tap other non-telco growth streams.
MyRepublic has even begun to actively refresh its mobile offerings in previous months in response to emerging consumer behaviour, such as offering a free data upsize. It has also re-purposed event product offerings into flexible business connectivity packages to help firms stay agile, offering them flexible mobile and fixed broadband solutions with customisable duration and format.
More established players are even looking to win consumer goodwill by providing some of these benefits for free. In its annual report, market leader Singtel claimed to have provided 95,000 hours of free entertainment and data-free WhatsApp messaging services in Singapore as well as free use of its business solutions to SMEs to enable working from home. “We hope our efforts ... will provide some relief to vulnerable individuals, families and small businesses and tide them through these uncertain times,” says group CEO Chua Sock Koong.
MyRepublic, meanwhile, has ventured beyond the world of networks and bytes to generate online content that could serve to promote network use among customers. For example, it launched LIVE by MyRepublic in April, a series of live streamed music performances featuring artistes whose livelihoods have been affected by Singapore’s “circuit breaker”, reaching some 42,000 views.
The power of 5(G)
In the long run, however, it is likely that 5G connectivity will prove to be the crucial decider of the telco battle royale. So far, only two 5G licences have been awarded by the government to Singtel and a joint bid by Starhub and M1. Though TPG also sought a licence, it will have to make do with a limited licence where, instead of running its own 5G network, it has to buy capacity wholesale from the winning bidders.
Beyond providing faster internet connection, 5G also enables emerging technology like self-driving cars, drones, virtual reality and the internet of things (IoT), thereby unleashing the full potential of concepts such as Industry 4.0.
Seeking to tap the potential of this technology, Singtel has sought to rebuild its business around data and digitalisation, potentially giving it first mover advantage in a rapidly digitising economy. “We’ll deliver not only super-fast mobile broadband speeds, but also differentiated 5G capabilities that will allow businesses to accelerate their digital transformation and consumers to enjoy new digital services,” says Singtel group technology officer Mark Chong. Having already embarked on its group-wide 5G rollout starting with Optus in Australia, it expects to halve network response times and raise throughput speed 10-fold.
DBS’s Mittal believes that market consolidation could potentially take place following the introduction of the licences, which all went to Singapore’s three largest and most established telcos. Wholesale charges can not only lead to extra revenue for Singtel, StarHub and M1, but also weaken the competitiveness of competitors by imposing extra costs on them. These additional costs will likely be passed on to the consumer, making their future 5G packages less price-competitive vis-a-vis the incumbents going forward.
But some smaller players seem poised to capitalise on the new advancements promised by 5G: MyRepublic, in particular, is looking to strengthen its brand association with the gaming industry, which has grown exponentially since the pandemic began. Not only is MyRepublic looking to create a new live stream for gaming content, it also has brought forward the launch of its Achievement Unlocked gamer engagement programme and is hosting the Gamer Arena 2020 Season 2 esports tournament series. This could help it generate demand for 5G services from the gaming and esports segment of the telecoms consumer market going forward.
Despite the difficult times and teething problems, Emma Mohr-McClune, technology service director at data analytics and consulting firm GlobalData, believes telcos will have a bright future post-Covid-19. If anything, people need to be connected more than ever and digital tools, created for a wider range of purposes, will all need telecoms companies to provide the connectivity infrastructure.
“Coming out of Covid-19, millions of users worldwide will be more connected and more familiar with digital tools. Telco networks will have gained first-hand experience in dynamic network traffic management, while businesses and their telco partners will have a better understanding of the challenges of homeworking,” she says.
