OMG! Have You Heard? SMRT Corporation Ltd Wants To Challenge the Likes of Starhub Ltd and M1 Ltd

There has been talk around town for a while now that the government is keen to open up the telecommunications sector in Singapore for a fourth telco.

And interestingly, land transport outfit SMRT Corporation Ltd (SGX: S53) has entered the fray. Earlier in the week, SMRT announced that it has been given the option to invest up to S$34.5 million into OMGTel, a company which will be bidding for the fourth wireless telecommunications carrier licence in Singapore.

Any investment that would be made in OMGTel in the future is up to the discretion of SMRT and is subject to, amongst other factors, OMGTel winning the licence bid.

The announcement also revealed that SMRT would be collaborating with OMGTel with regard to the licence. SMRT feels that there are synergies which can be achieved between a telecommunications business and its current “extensive media presence and commuter reach.”

Potential areas for synergies to develop were spelled out by Forrester Research analyst Clement Teo. Channel News Asia quoted Teo as saying that “[OMGTel] will probably get access to [SMRT’s] train tunnels, and that might give them better coverage.”

This might be an advantage for OMGTel over fellow licence-contender MyRepublic given that the latter would have to build the relevant infrastructure from scratch. MyRepublic announced its intentions to become Singapore’s fourth telco in the middle of last year.

If OMGTel is indeed successful in winning the fourth licence, SMRT might indirectly become a competitor to the current big trio of Singapore’s telecommunications industry: Singapore Telecommunications Limited (SGX: Z74)Starhub Ltd (SGX: CC3), and M1 Ltd (SGX: B2F).

However, as the details involved in running a fourth telco in Singapore is still not fully disclosed, it is hard to see at the moment, what impacts the collaboration with OMGTel might have for SMRT in the long term (assuming that OMGTel wins the bid).

It seems that the market might be confused as well, given that SMRT’s share price has hardly budged after the OMGTel announcement was made.

Although we might not be able to predict if SMRT and OMGTel might turn out to be a winner in the telecommunications field, it might still make sense to conclude that there will be more competition in the sector going forward.

That’s especially true for the incumbents with Singapore-only operations like Starhub and M1. SingTel, with its geographic diversification, should be less affected by any extra competition developing here.

In any case, the situation we’re seeing now reminds me of a story that billionaire investor Warren Buffett once shared:

“All told, there appear to have been at least 2,000 car makes, in an industry that had an incredible impact on people’s lives. If you had foreseen in the early days of cars how this industry would develop, you would have said, “Here is the road to riches.” So what did we progress to by the 1990s?

After corporate carnage that never let up, we came down to three U.S. car companies–themselves no lollapaloozas for investors. So here is an industry that had an enormous impact on America–and also an enormous impact, though not the anticipated one, on investors.

Sometimes, incidentally, it’s much easier in these transforming events to figure out the losers. You could have grasped the importance of the auto when it came along but still found it hard to pick companies that would make you money.

But there was one obvious decision you could have made back then–it’s better sometimes to turn these things upside down–and that was to short horses. Frankly, I’m disappointed that the Buffett family was not short horses through this entire period. And we really had no excuse: Living in Nebraska, we would have found it super-easy to borrow horses and avoid a “short squeeze.””

What Buffett is suggesting is that predicting the winner within a competitive landscape with many players is hard work and sometimes it will only become clearer on hindsight. And, instead of wracking our brains to pick the winner, it might be easier to spot the ultimate losers instead.

In this case, it seems that even if we won’t know whether SMRT and OMGTel might turn out to be a winner in the future, it seems rather clear that the incumbents in Singapore’s telco space have much to lose and nothing to gain from the development.

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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 writer Stanley Lim doesn't own shares in any company mentioned.