Had a nice chat with Suan Wei today regarding telcos in Singapore and did some reading up on Verizon, At&T, China Mobile, Vodafone and NTT Docomo’s annual report.
I would like to have this article as a point of reference for my current view of the future of the 3 telcos.
This is a build on to my Guide on Dividend Investing in Singapore telcos.
i would really like to say that telecom stocks are a good and sustainable business but sadly its got alot of bad economics working against it.
imo currently our most prevalent plan is 40 dollars give u 100 outgoing minues + 500 sms.
the latest data plan gives you 40 dollars => 100 outgoing minutes + 500 sms + 12GB data
in the near future, mobile msging, email and voip will be the main form of communication. it is very possible for the 3 telcos to give unlimited outgoing calls since under the new infra the cost to transmit voice is really low.
in that case would you still pay 40 dollars for that? perhaps for a while the telcos will try to hold it at that price. then one of them such as M1 will lose market share. they began to compete agressively like the recent iphone case study. what they do? slash the price of the plan to 30 bucks.
the rest of the 2 telcos have to *censored* do the same as well. these intense competition (game theory) will end with eveyr one only able to earn 25-30 bucks. revenue for this will go down. and it will be difficult to get to 40 dollars again.
this is one side of the equation. when all your internet surfing is done mobile, your service QOS is important. you don’t want to pay for internet like starhub when you cannot get reception in underground mrt train. the telcos will compete based on service. The outgoing Starhub CEO Clontz have said that in his the EDGE article this week. in that case capex will rise. note that capex cost have gone down due to tech advancement but likely to provide that their capex will go up.
when ur operating cashflow down and capex up it is given that your div will need to go down.
now you will say that what i say may or may not come through but take a look at what is happening to NTT Docomo in japan. japan telco is light years in front of us on this. The distinct trend is that intense competition have increase their marketing cost and their plan cost. their voice rev have gone down but packet data have gone up. overall their capex have gone up by quite abit.
points to ponder.