A look at TPG Telecom's impact on Singapore's Big 3

  • TPG Telecom, likely to launch services in 2018, will impact market significantly
  • Company is no stranger to competing against incumbents

A look at TPG Telecom's impact on Singapore's Big 3

LAST Wednesday, the Singapore's Info-communications Media Development Authority (IDA) announced that Australia's TPG Telecom has won the rights to be Singapore's fourth mobile operator. 

The announcement also meant that fixed broadband service provider MyRepublic's dream of becoming a mobile operator has ended, for now.

Although TPG is expected to offer its services some time in 2018, giving the incumbents Singapore Telecoms (SingTel), Starhub and Mobile One (M1) one year to prepare themselves -- the competition, which is already heating up, will likely to get intensify next year.

So, how significant will TPG impact the Singapore telecommunications landscape? Will TPG has what it takes to battle against the big three? Let's explore. 

 

Singapore's mobile telecommunications landscape

Before we look at how significant will TPG impact Singapore telcos, it will be good to have a glance on the Singapore telecommunications sector -- which the total revenue in the sector is at approximately US$2.76 billion (S$4 billion) annually. 

As at September 30, 2016, there are more than 8.37 million mobile subscribers (both prepaid and postpaid) -- representing a mobile penetration rate close to 150%. 

From the amount, more than half of them subscribed to 4G services (3.99 million on postpaid 4G subscription, and 614,200 on prepaid), while another 3.6 million are on 3G subscription.

Like all markets, Singapore mobile users are also increasingly consuming more data services, and using less voice and text messages. 

For the third quarter ended September 30, 2016, mobile users in Singapore consumed 12.14 petabyte of data monthly -- a big contrast when compared to the monthly 5.33 petabytes consumed in the second quarter 2012. 

From the 8.37 million mobile subscribers, SingTel has the lion share of 4.11 million mobile subscribers (2.34 million postpaid, 1.77 million prepaid), Starhub has 2.27 million subscribers (1.37 million postpaid, 902,000 prepaid) and M1 has 1.99 million subscribers (1.23 million postpaid, 762,000 prepaid).

What was interesting is that, despite the saturated market, all three mobile operators managed to grow their subscriber base during the third quarter 2016. 

While subscriber base expanded during the third quarter, all three telcos are showing declining average revenue per user (Arpu) trend -- one of the signs of intense competition. 

 

TPG's impact on the Big 3

According to TPG in a statement, the company is likely to commercially launch its services in 2018. 

While the battle to get a piece of consumers' wallet will begin only in 2018, the four-way battle will likely begin in 2017 -- during the upcoming general spectrum auction. 

Currently, the spectrum caps are being imposed on TPG are: 40MHz for the 700MHz band, 20MHz for the 900MHz band, and total of 75MHz (global cap for both new entrant spectrum auction and general spectrum auction). 

This means, TPG could bid for another 15MHz of spectrum from the 700MHz and 2500MHz band. (Note: TPG's winning bid of S$105 million was for 20MHz of 900MHz and 40MHz of 2300Mhz frequency band)

Analysts expects competition among Big 3 will further intensified in 2017.

"All three incumbents have introduced attractive data upsize options this year. We expect this trend to continue. Incumbents are likely to dangle attractive promotions to attract consumers to re-contract earlier but get locked up in new two-year contracts ahead of the launch by TPG," said Jonathan Koh, an analyst from UOB Kay Hian, in a report.

Besides the increasingly intense competition in the mobile space, which will negatively impact the telcos' margin, the sector is also becoming less attractive for investors.

Traditionally, telecommunications stock are seen as a defensive stock, or stock that can offer investors attractive dividend yields. 

Since Donald Trump won the US Presidential Election, most government bond yields have increased significantly. For example: US Treasury 5-year bond yield is now at the 2.06% level, versus 1.34% level early November; while the 10-year Singapore government bond yield has risen to 2.83% level (from 2.18% level about a month ago).  

"Higher bond yields make yield plays, such as telcos, less attractive as yield spreads narrow," Koh explained.

Next page: What can we expect from TPG?

 
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