Will SingTel and M1 Follow Starhub In Raising Prices For Telco Services?

Game theory is a fascinating branch of mathematics that has surprising implications for how business owners might react to their competitors’ actions in the corporate battleground.

At its core, game theory looks at how interactive decision-making between two or more competitors will impact the eventual outcome of an event. And in the realm of business, what’s interesting is that sometimes, the most logical steps that a company should take, would be to cooperate with its competitors instead of trying to compete with them.

Given Starhub’s (SGX: CC3) recent announcement that it would be increasing fees for its 4G or LTE mobile data network services, it seems that we now have a chance to observe if the local telecommunications operators would follow a cooperative approach.

Just last week, Starhub revealed that its subscribers would have to start paying S$2.14 a month on 1 June 2014 onward for its 4G services which was previously available for free. In addition, the price of S$2.14 is actually a promotional price as the service has a standard monthly price of S$10.70. In the past, Singapore’s three telcos – Starhub, M1 (SGX: B2F) and SingTel (SGX: Z74) – had been offering the value-added 4G service for free to their customers (M1 and SingTel still do, unlike Starhub).

Under game theory, if the other telcos react to Starhub’s action of charging a fee for 4G services, all three companies might enjoy a revenue boost without the risk of losing customers as there are no alternatives to turn to.

Therefore, it can make sense for investors to be looking to Singtel and M1 for any intention on their part to also raise prices for their 4G services.

Singtel has indicated that the usual price for its 4G service is the same as Starhub’s at S$10.70 per month. It is also only offering the service for free temporarily ”till a date SingTel determines”.  M1 on the other hand has indicated that its 4G service will stay free only till the end of the year. Therefore, it would be interesting to see if Singtel does raise its prices going forward and what impact it would have on the profitability of all three telcos after M1’s price increase kicks in.

In any case, like I mentioned earlier, it might be in the best interests of shareholders of the three telcos for the companies to foster a more cooperative environment instead of engaging in aggressive competition in a race to the bottom.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.