Disclosure: Write is invested in both Starhub and Singtel.
I wrote in the past about the fundamentals of investing in Singapore Telecoms and what is the future are in store (Singtel,M1 and Starhub analysis here). I also wrote about the coming changes in the industry, how it is going to be bad for developed market telcos (article here).
Many of my friends do not agree with me. It is still perceived that
- People still need voice calls therefore the telcos will not die
- Telcos are inevitably backed by Temasek therefore they will not die
- More smartphone will definitely increase revenue
These are very dangerous assumptions and we are starting to see my scenarios played out.
As a recap, technologically
- ARPU for voice will fall. People will change communication means. With telcos competing, consumers are not likely to still pay your standard 25 bucks or 50 bucks for voice. What telco earn from voice will fall
- ARPU for data will increase. More devices and telcos will come up with more 3G and 4G plans for consumers.
- ARPU for data is to make up for the loss of voice.
- Delivering voice is super cheap for telcos versus Data and telcos will switch to giving voice and sms free.
- The capex for 3G and 4G to deliver good quality of service is high. Expect capex to increase
- All this will result in telcos status quo and likely to make less due to higher capex and stiffer competition
Starhub, M1 and Singtel will only increase cashflow to pay more dividends
- Technological advancement reduces capex or controls capex
- Monetize content better (cloud computing services, mobile retail services)
- Population demand increase
Today, a report on US Telecom trends points to what I deduced happening. You can read the reports here and here.
Here is what is interesting from those reports:
AT&T to compete with Verizon is offering free voice mobile to mobile calls within US. This goes to underline how cheap it is to deliver voice.
We can joke that AT&T clearly thought that all along (hello, dropped calls) but the pricing here signals that operators are ready to put all their eggs in the data basket. Sure, there are strings attached(customers need to have an unlimited texting plan and already subscribe to a plan of 450 minutes or higher) but allowing customers to call any mobile numbers in the U.S. without using allotted minutes turns a 450 minute plan for $40 and the corresponding $20 texting plan (for individuals) into an unlimited voice plan.
ARPU trends have shown that what I highlight in (1) and (2) in recap is true:
AT&T have shown that the way going forward could be
- no all you can eat data plans
- more services when you vertical integrated
Here is a good explanation on this
While 2010 started quite active on the regulatory front as the national broadband plan was unveiled in March little substantive progress has been made w.r.t. the spectrum, net-neutrality, and other broadband related issues.
To start planning for 4G, 5G, and beyond, US should think about rolling a 50 year broadband plan. While more spectrum is always helpful, will we have all the spectrum we need in 2050? or do we need to invent new technologies and business models that use spectrum more wisely? This topic will keep the industry occupied for some time to come.
ITU christened LTE-A and Wireless MAN-Advanced as the “official” 4G technologies but the marketing departments cared less. (We will be releasing the next edition of our “State of the “Mobile” Broadband Nation” in the coming months.
As we had mentioned last year, the mobile data traffic kept on growing disproportional to the revenues. A series of solutions have come into the market from players big and small. We released the second edition of our in-depth research paper on data growth – “Managing Growth and Profits in the Yottabyte Era” earlier this year.
Finally, operators are starting to diversify more aggressively than in the past. AT&T’s mobile enterprise business is a leading indicator of this trend. Their focus by verticals has yielded new revenue streams and positioning them to become a one-stop shop for devices, access, and services in the enterprise market.
We will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.
The key to being a good investor is always to ask yourself why is this a bad investment and what could go wrong. It is even more dangerous to be lulled into a state of mind that your investment is always safe. Cost and Strategy will play out more.
The economic moat for Telco is
- Favorable Government Regulation for High barrier to entry
- A defensive utility that everyone would use
In Singapore it is difficult because government regulation is trying to make telcos fight each other to death. People say that eventually everything goes back to Temasek but hell a lot of supernormal profits are really loss.
A lot of going forward depends very much on management and capacity.
- Singtel have the best to do this. Their developing market might cushion Optus and Singapore falling ARPU but monetizing content is a difficult proposition and not man will do it well
- Starhub really suck at monetizing their content. they are the most vulnerable to the future
- M1 Limited have shown that they are innovative to this. But as I said, monetizing content to Singaporeans is very very difficult.
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