What The Telco Price War Means For Consumers And Investors

Singapore’s telecommunications scene currently has three operators – namely, Singapore Telecommunications Limited (SGX: Z74), StarHub Ltd (SGX: CC3), and M1 Ltd (SGX: B2F) – and it’s been this way for years. But change is now coming.

Just last Thursday, three companies have thrown their names into the hat to potentially become Singapore’s fourth telco. They are MyRepublic, TPG Telecom, and airYotta. The three newcomers have applied to participate in an upcoming 4G airwave auction which should take place in early October this year.

But before the three contenders were made known, the trio of incumbents had already started a price war back in March to protect their own turf when they increased data allowances for subscribers. Now it appears bigger guns have been brought into the battle.

A few weeks ago, StarHub launched its new SurfHub plan which bundles at least 12GB of data on a 4G postpaid line along with a fibre broadband service. Handset subsidies and free talk time, SMS-es and MMS-es are also part of the bundle. The entire bundle will cost S$96.56 per month for consumers. In contrast, StarHub has a standalone 12GB postpaid plan that costs S$220 per month.

Telcos in Singapore are seeing growth in data usage. For consumers who are heavy users of data, StarHub’s new plan would appear to be an attractive one in comparison to the S$220 per month standalone offer. Moreover, the other two telcos – SingTel and M1 – all have 12GB plans right now that have subscription fees of over S$200 per month, according to media reports. These are clearly higher than what StarHub’s new plan offers.

Given this scenario, if Singtel and M1 do not put up a response, they are at risk of losing customers, or at least those who are very price sensitive.

But StarHub’s moves are not well-received by some market participants. DBS Group Holdings Ltd’s (SGX: D05) brokerage arm had downgraded shares of StarHub on 22 August 2016 following the company’s launch of its aforementioned mobile data plans. The bank’s brokerage arm sees the move as a possible “signal that the risk of a new entrant is not off.” As we now know, there are three contenders in the race to be Singapore’s fourth telco.

DBS’s brokerage report also stated that it expects 5G mobile services (we’re currently at 4G) to be launched in Singapore in four to five years’ time. This launch is also expected to require infrastructure investment on the part of the local telcos.

Investors will have to keep a lookout on how the earnings and balance sheets of the incumbent telcos are changed as a result of the ongoing price war and the impending entrance of a new player in town.

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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 Ong Kai Kiat owns shares in DBS Group Holdings.