Inside StarHub Ltd’s Big Bet On A US$27 Billion Industry

Last week, telecommunications outfit StarHub Ltd (SGX: CC3) announced plans to launch a centre of excellence (COE) for cyber-security.

The COE will be supported by Singapore’s Economic Development Board (EDB) and will bring together the best brains on cyber-security to tackle cyber threats. As part of the program, StarHub plans to train at least 300 cyber-security specialists over the next five years.

StarHub will also be partnering five industry partners to invest S$200 million over the next five years to support a cyber-security ecosystem. This represents a sizable bet.

It’s in the name

StarHub’s enterprise space is growing in importance.

So important, that StarHub has changed the name of its fixed network services segment to enterprise fixed services. Kevin Lim, StarHub’s chief commercial officer, explained in a recent earnings call:

“Let me draw attention to the fact that we have renamed our fixed – what we used to call our fixed network services to enterprise fixed and this is to clarify that the bulk of the revenue in this particular segment is actually B2B [business to business] or enterprise services.”

The segment’s importance goes beyond the name. The enterprise fixed services segment is the only one that has grown in each of the last four years. This is shown in the graph below:

Starhub business segment
Source: StarHub’s earnings reports

Tan Tong Hai, StarHub’s chief executive, also made this point during the same earnings call:

“Over the last few years while you may not see the revenue growth and mix have changed, we have actually, if you look at this quarter, the enterprise content is actually our second largest contribution, slightly ahead of the TV. In terms of margin wise, enterprise fixed gives us a really good margin, almost the same level as mobile.”

In StarHub’s latest quarter (the three months ended 31 March 2016), the enterprise fixed services segment contributed 16.2% to total revenue. Tan also noted that the move into enterprise could well benefit StarHub’s margins.

It’s a big, big world

Yet, StarHub is not the first one to make a big splash in the cyber-security space.

In February last year, Singapore Telecommunications Limited (SGX: Z74) struck a partnership with US-based FireEye Inc, a firm which offers managed security services, to launch the first joint Advanced Security Operations Centre (ASOC). A couple of months later, Singtel splashed out US$810 million to acquire a 98% stake in the US-based Trustwave, a managed securities services firm.

Singtel and StarHub could be placing significant bets for good reasons.

According to the 2015 Gartner Information Security Forecast report, the global market for managed security services is projected to nearly double from US$15 billion in 2015 to US$27 billion in 2019. In other words, the prize could be significant.

According to a news report, Tan said that StarHub will be offering the service to businesses through its new StarHub Security Operations Centre. It hopes to detect threats before it reaches the corporate firewall. For StarHub’s investors, they might want to look at the results of the enterprise fixed services segment in the future to see if the company’s investments are paying off.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.