Telecommunications firm StarHub Ltd (SGX: CC3), which does business mostly in Singapore, operates in a competitive environment. The company released its 2016 second-quarter earnings results two weeks ago. StarHub reported that its Pay TV segment and its Mobile services segment saw their revenues inch downward during the quarter – it is the second quarter in a row that this has happened. Furthermore, StarHub revised its 2016 revenue forecast to be “about the same” as 2015. Previously, the telco had guided toward a low single-digit revenue increase for the year. StarHub believes it can defend its subscriber base. One way is through…
Telecommunications firm StarHub Ltd (SGX: CC3), which does business mostly in Singapore, operates in a competitive environment.
The company released its 2016 second-quarter earnings results two weeks ago. StarHub reported that its Pay TV segment and its Mobile services segment saw their revenues inch downward during the quarter – it is the second quarter in a row that this has happened.
Furthermore, StarHub revised its 2016 revenue forecast to be “about the same” as 2015. Previously, the telco had guided toward a low single-digit revenue increase for the year.
StarHub believes it can defend its subscriber base. One way is through its Hubbing strategy, which essentially sees StarHub bundling two or three services together and offering discounts for Hub Club members.
The Hub Club Moat
StarHub has been working on its Hubbing strategy for a while.
The graph below shows the historical trend from 2007 to 2015 of what StarHub refers to as its Hubbing Scorecard, a summary of customer households with one service, double services, or triples services.
Source: StarHub’s earnings presentations
From the graph above, we can see that the number of triple service households has been on the rise over the past eight years. Tan Tong Hai, StarHub’s chief executive, stressed the importance of the Hubbing strategy in the company’s 2016 first-quarter earnings briefing:
“The Hubbing remains a very important part of our overall strategy because it clearly differentiates us and we will continue to drive the Hubbing household.”
Hub Club Members benefit from discounts offered as they sign on for more services. With discounts and other benefits, StarHub might be looking to keep its Hub Club members from moving to other service providers.
From this view, the Hubbing strategy can be seen as StarHub’s protective moat.
A question: Are cracks on the wall appearing
Unfortunately, cracks might have started to appear on StarHub’s protective moat.
In the fourth-quarter of 2015, the total number of Hubbing households stagnated. In the first-quarter of 2016, the number of Hub Club members started to decline. The second-quarter wasn’t any better and this is summarised in the chart below. As you can observe, the number of Hubbing households had declined from 776,000 to 769,000:
Source: Starhub’s earnings presentation
Tan covered the loss of customers in the 2016 second-quarter earnings briefing:
“We have less households this quarter, mainly because we have less pay TV households as a result of the higher out of contract base resulting in the drop in the pay TV households and the hubbing households.”
Tan’s explanation did not appear to satisfy all analysts who were tuning in to the briefing. One analyst noted that the fall in Hubbing households presented a thorny question – if the Hub Club’s appeal is no longer there, how can StarHub differentiate itself?
Howie Lau, StarHub’s chief marketing officer, answered:
“The home – Hubbing households – I think the key is that customers are still telling us that Hubbing continues to be a key proposition that is valuable for them because of convenience, because of ease. While the numbers have come down because of the lower TV sub base we will continue to fine tune our Hubbing propositions and offer – whether it is HomeHub or HomeHub Go or variants of which.
So I think two key messages: we do see that TV continues to be integral and the Hubbing proposition continues to be valued by our customers.”
Tan also waded into the conversation:
“You mentioned about the competition on potential entrants. We take them seriously.
That’s why you notice that we’ve introduced very attractive plans. Certainly, of course, as a market evolves we still want to make sure our plans are most competitive, but pricing is always a factor of how intense the competition is. You notice that for StarHub we have been able to make sure that our plans are always competitive.”
For perspective, StarHub has lost 27,000 Pay TV subscribers and 7,000 Hubbing households over the last 12 months.
Investors may want to observe if Starhub’s Hubbing approach is able to protect it from future competition which could come in the form of alternate internet TV streaming services or a potential fourth telco in Singapore.
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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.