Spurned by price-sensitive consumers, telcos are training their sights on companies and organisations for growth
TPG Telecom, Singapore’s fourth telco, recently launched a new plan to grow its share in what is already an oversaturated market.
On Jan 14, TPG introduced a SIM-only plan offering 80GB of data, 500 local outgoing minutes and 300 IDD minutes. Priced at just $18, this package is meant to steal the hearts (and wallets) of price-sensitive consumers.
For years, incumbents Singapore Telecommunications (Singtel), M1 and StarHub have enjoyed fat and recurring margins getting customers to sign multi-year plans. However, in the face of aggressive price-cutting moves by newer rivals like TPG, there is clearly a limit as to how much incremental revenue they can eke out from a stagnant consumer base.
Apart from TPG, Singtel and StarHub that have their own mobile networks, fighting for the same shrinking market are mobile virtual network operators (MNVOs) like MyRepublic and Circles.Life who do not have their own network capacity but buy it from the incumbents.
Veteran telco analyst Foong King Yew sees incumbent mobile operators losing pricing power in a matured, oversaturated and fiercely competitive market. Between July and September 2020, Singtel and StarHub’s postpaid mobile average revenue per user (ARPU) in Singapore each fell about 29% y-o-y to $29. The drop comes as consumers switch to cheaper SIM-only plans that do not come with handset subsidies unlike those offered by the incumbents.
Foong says there is little meaningful differentiation among the pricing plans from different telcos, other than costing less or offering more. “It’s somewhat a race to the bottom,” he says.
New CEOs, new priorities
Singtel and StarHub started the new year with their respective new CEOs at the helm. Yuen Kuan Moon now leads Singtel while Nikhil Eapen replaces Peter Kaliaropoulos at StarHub.
As the struggle to improve earnings from the consumer business likely to persist, both new CEOs are expected to place heavier emphasis on capturing bigger slices of the enterprise business, especially amid the disruption wrought by the Covid-19 pandemic that is forcing companies to turn to technology to connect with customers and market their products.
The telcos are now able to offer a range of ICT services to MNCs, local SMEs and start-ups alike, with service offerings ranging from data-hosting to digital security. However, the biggest growth market is that of enterprise services delivered via 5G networks. While consumers can use 5G to watch 4K Netflix movies on the go or play Fortnite with their friends, companies will benefit from lightning-fast data transfer speeds and improved network reliability.
“We think that enterprise ICT segment is a bright spot. Growth will be driven by an increase in Singapore government’s ICT spending to accelerate digitalisation and promote wider use of technology across industries,” Maybank Kim Eng analyst Kareen Chan tells The Edge Singapore. So does Foong who believes the enterprise business can replace the consumer business to generate new growth.
On Dec 31, 2020, Singtel announced it was reorganising its business units to capture new growth. Yuen, in a New Year’s message posted on LinkedIn, explains that the reorganisation will let Singtel operate with “greater agility in the age of disruption” and “make smarter decisions”, amid 2021 that is “set to be another challenging year with many uncertainties”.
Key to this is the creation of a new portfolio under its group enterprise division dedicated to driving 5G enterprise business across the region. The move will help businesses accelerate their digital transformation journey as companies embrace new business models in response to pandemic-linked travel restrictions, physical store closures and nationwide lockdowns.
From Jan 1, Singtel’s NCS division, the largest provider of ICT services in Southeast Asia, will report directly to Yuen, to accelerate its expansion in Asia Pacific, with special focuses on Australia and China. Previously, NCS reports to another layer of management below the group CEO. Ng Kuo Pin, who spent 24 years at technology consultancy Accenture, was appointed CEO of NCS in August 2019 to bring a fresh perspective to the business.
The enterprise push will also enable telcos to grow overseas revenue. On Jan 18, NCS launched the NEXT Shenzhen Innovation Centre (SIC) to help enterprise clients accelerate digital transformation. Located in Tian’an Cloud Park in Shenzhen, it will develop 5G-enabled Internet of Things (IoT) applications as well as digital twin and blockchain solutions.
Digital twins are virtual replicas of physical devices that engineers can use to run simulations before actual devices are built or put into use.
“It forms the perfect gateway for us to serve Singaporean clients who are looking to enter and expand into the Chinese market, and for our Chinese clients to venture into Southeast Asia and Asia Pacific,” says Ng.
SIC represents part of NCS’s wider regional ambitions under its NEXT Innovation Triangle comprising Singapore, Melbourne and Shenzhen. “NCS has set our sights beyond Singapore and we aspire to be the digital catalyst of governments and enterprises across Asia Pacific,” Ng adds.
To be sure, the enterprise business is susceptible to the wider vagaries of the economy as well. For the January to September 2020 period, Singtel’s revenue from its ICT business, which includes managed services, business application services, cybersecurity and also communications engineering, grew 6.9% y-o-y.
Singtel says the increase in ICT revenue was lifted by system infrastructure services, cloud and maintenance projects, as well as higher data centre revenue even though the nine months included the “circuit breaker” months between March and July where many business activities were halted and projects delayed.
However, sales from other key enterprise segments such as data and internet as well as enterprise voice fell. As such, Singtel’s overall enterprise revenue dipped 3.6% y-o-y to $3.53 billion.
Looking ahead, DBS analyst Sachin Mittal notes that Singtel’s ICT business, which accounted for just over half of Singtel’s overall enterprise revenue in the January to September 2020 period, will enjoy a lift as Covid-19 has created new business opportunities. These include the implementation of stay-home-notice smart tagging platforms and development of new temperature self-check kiosks. Last October, Singtel also launched Singapore’s first 5G standalone trial network for enterprises at its 5G Garage testing facility.
For the January to September 2020 period, Singtel’s enterprise operating margins in Singapore was 30%, versus the corresponding figure of 33% for its Singapore consumer business.
For the current financial year ending March 2022, Mittal expects Singtel’s enterprise revenue to re-enter growth territory with a low single-digit y-o-y rise as the impact of Covid-19 on businesses wanes.
Deeper capabilities and new markets
StarHub have similar ideas for the enterprise business too. Eapen, who also started his CEO appointment on Jan 1, was formerly the deputy CEO of ST Telemedia, StarHub’s controlling shareholder, and president and group CEO of ST Telemedia’s Infrastructure Technology (InfraTech).
Before joining STT, Eapen had spent nearly two decades at Citigroup’s investment banking arm. In his last appointment, he led the technology, media and telecommunications team, where he helped with deals such as the 2014 acquisition of STATS ChipPAC by Jiangsu Changjiang Electronics Technology Co or JCET Group Co.
According to his LinkedIn profile, Eapen’s focus at STT was on enterprise technology, including Big Data, Internet of Things (IoT), machine learning, cybersecurity, data infrastructure and traditional telecom and media.
Appointing a CEO with more enterprise experience is not new for StarHub, whose once popular cable TV consumer business is struggling. Under previous CEOs Kaliaropoulos and his predecessor Tan Tong Hai, the telco had already started to move in the direction of growing its enterprise business.
Under Tan, StarHub acquired Accel Systems & Technologies (ASTL) and D’Crypt. Terry Clontz, chairman of StarHub, said that Tan had grown the group’s enterprise business “by more than twofold and has struck numerous strategic partnerships with established partners to give StarHub a global presence”.
Meanwhile, Kaliaropoulos led StarHub to enter into a joint venture with Leone Investments, a wholly-owned subsidiary of Temasek Holdings in 2018 to create Ensign, the largest cybersecurity company in Asia.
In addition, Kaliaropoulos also led the acquisition of an 88.3% stake in Malaysia-based IT company Strateq for $82.1 million in March 2020. This acquisition marked both a significant expansion into a new market with a new range of capabilities.
“The ways in which we serve our society — broadband, content, 5G, connectivity solutions, cybersecurity — are a backbone for working, playing and growing in the digital world. Specifically, we are focused this year on accelerating digitalisation, driving customer value, developing our talent and hence delivering sustainable business results — to create value for all our stakeholders,” Eapen tells The Edge Singapore in an email interview.
He notes that StarHub’s enterprise business is growing steadily. With connectivity services as the infrastructure base, the company has broadened its offerings to include cybersecurity (Ensign and D’Crypt), ICT (Strateq) and other capabilities. “You will see us deepen our capabilities over time yet continue to move into adjacent segments and new markets,” adds Eapen.
In its 9MFY2020 ended September update, StarHub’s enterprise business was the only bright spot, increasing revenue by 9% y-o-y to $457.5 million. The gain was largely due to higher sales from cybersecurity services and Strateq, whose acquisition was completed on July 30, 2020.
Like Singtel, there were certain segments within StarHub’s overall enterprise business that suffered from a revenue drop in 9MFY2020. For instance, sales from managed services and enterprise voice fell by 22% and 21% y-o-y respectively.
According to Mittal of DBS, StarHub will be using Strateq in FY2021 more actively to pursue growth in areas like cloud services, data analytics and Software-as-a-Service (SaaS) to tap growing digitalisation trends.
Mittal believes that StarHub can accelerate the growth of its enterprise business revenue to the mid-teens in FY2021, as the impact of Covid-19 softens and halted projects restart.
The long and winding enterprise route
Singtel and StarHub are not the only local telcos showing interest in the enterprise business. On Jan 20, M1 says it is collaborating with Continental Automotive Singapore and JTC to conduct autonomous transport systems 5G standalone trials for Autonomous Mobile Robots (AMRs). With support from the Infocomm Media Development Authority (IMDA), the joint partnership will explore the operations of 5G-enabled AMRs in a live environment based on newly-developed network and infrastructure solutions for consumers as well as enhance construction safety using analytics. The trio will create the infrastructure and deep dive into the operations of AMRs for last-mile delivery of goods and food to support the burgeoning growth of e-commerce and drive Singapore’s progress as a global innovation hub for connected mobility.
In 2018, when it was still very consumer-oriented, M1 muscled into the enterprise space with the $20-million acquisition of AsiaPac Distribution. Three months later, Keppel Corp and Singapore Press Holdings made the joint buyout offer of other M1 shareholders, citing this was an opportunity for them to exit as the planned transformation will take many years to realise and the company could be better managed as a privately-held entity.
AsiaPac started as a distributor of computer devices but over the years, it has grown to become an IT devices and services provider to enterprise and public sector customers in Singapore. Specialising in enterprise solutions, systems integration and cloud-related services, Asiapac now partners with some of the big names in the ICT industry, including Asustek, Cisco Systems, Amazon’s AWS, Microsoft, Hewlett Packard Enterprise and Huawei.
Still, growing enterprise market share will not be easy for the three telcos. According to estimates by IT consultancy IDC, this is a global market worth than US$4 trillion ($5.3 trillion) annually and just about every tech company wants a piece of the action. Many possess bleeding-edge technology some have a cult following and big marketing budget while others have home-ground advantage or state protection or support. The way Foong sees it, each telco will have to play to their strengths and “pick their battles”, while finding the right partners to gain visibility and reputation.
