Investors Take Note: A New Player Has Entered Singapore’s Telecommunications Industry

M1 Ltd (SGX: B2F) is the smallest of Singapore’s three telecommunications companies, with the other two being Singapore Telecommunications Limited (SGX: Z74) and StarHub Ltd (SGX: CC3).

Last week, it was reported in the press that M1 has signed a leasing agreement with Circles.Life that will enable the latter to offer telecommunications services via the former’s existing network.

Said another way, a new player will soon enter Singapore’s telecommunications industry as a mobile virtual network operator (MVNO). Previously, there was already talk that a potential fourth-player in the telecommunications scene will emerge given that the authorities will be allowing new bidders for an upcoming network spectrum auction.

The lowdown on a MVNO

A MVNO leases network services from a mobile network operator at a wholesale rate, repackages the services, and then resells it to end-customers. By way of analogy, it is like buying goods from a factory at wholesale prices, repackaging the goods, and then selling it at a mark-up to retail customers.

The key to a MVNO’s success therefore lies in its marketing and selling abilities.

Changes to the competitive landscape

It’s unclear how Circle.Life will eventually impact the incumbent trio of telecommunications operators. But, it’s possible to make some educated guesses on potential outcomes.

To gain customers, a new telco needs to offer a compelling service and/or a compelling price. So, it’s likely that there would be more competition among the various telcos in terms of both price and service offerings.

Yet, it’s unlikely that unrealistic price competition will develop, especially since a MVNO will still need to consider the cost of purchasing network services from existing network operators. In the case of Circle.Life, the operator will be M1. Rationally, M1 would have sold its services at a reasonable rate that should not encourage excessive price competition.

Interestingly, the presence of a MVNO might even benefit some of the incumbents. As a MVNO is not bringing any new capacity into the industry, it merely utilises existing infrastructure to sell to customers. If done properly, this could provide a reasonable return for both the MVNO and its telco partner.

Foolish takeaway

Competition is likely to intensify in Singapore’s telecommunications industry given the introduction of Circle.Life. But, the outcomes may not be all negative.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.