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StarHub Ltd Is Confronting 2 Major Challenges In The Rapidly Changing Telco Industry

Every company has its challenges to face. As investors, it could be useful to understand what these challenges are.

In a presentation last November, Singapore’s second largest telco, StarHub Ltd (SGX: CC3), outlined the major industry and local challenges that it is facing. This is summarised in the slide below.

2016-11-23-starhub-challenges
Source: Luncheon with Chairman Presentation

I would like to focus on two of the industry challenges that were highlighted.

Global service providers

As already mentioned, StarHub is the second largest telco in Singapore. But, the company is not immune to competition from global service providers such as social media juggernaut Facebook.

In this case, Facebook offers messaging services (through Whatsapp and Facebook Messenger) that could replace the traditional voice and/or SMS services that telcos offer.

In the first quarter of 2016, StarHub recorded a 2.4% revenue decline for its Mobile business segment. On that matter, the company’s chief commercial officer Kevin Lim had the following comment to share:

“Declines in mobile revenue, as we have explained, comes primarily from the usage revenue. So there is substitution in terms of roaming, voice roaming. So there has been lower voice roaming, lower IDD usages but our subscription revenues are still growing. It’s just the usage revenue that has come off.”

StarHub then saw its Mobile revenue decline by 1.8% year-on-year in the second quarter of 2016. In that quarter’s earnings presentation, Lim said:

“… as we reported the voice business seems to be facing a little bit of challenges because of some of the price erosion from competition as well as the declining consumption of IDD for example.”

There was no let-up in the third quarter of this year as well, as StarHub’s Mobile revenue declined yet again. Here’s what the company’s chief marketing officer Howie Lau had to say about the lower revenue seen for Mobile in the quarter:

“You’re right in that the mobile revenue decline is largely due to the decline in IDD and roaming. And that’s just an industry trend that we see.”

Overall, the decline in mobile revenue for StarHub in the first nine months of 2016 is likely due to customers shifting usage of mobile voice, IDD, and messaging services to other service providers. This is one major challenge that StarHub has to confront.

Global Over-The-Top (OTT) players

The Mobile segment is not the only segment for StarHub that is under threat.

StarHub has lost 38,000 Pay TV subscribers between the second quarter of 2015 and the third quarter of 2016. This represents a 7% decline. In the latest reporting quarter (third quarter of 2016), Lau explained the reasons for the decline:

“One is that the OOC, the out of contract base for quarter three was large. But at the same time, we also do recognise that the customers have many other alternative viewing options out in the market, and those options continue to be widely available and in fact increase in options.”

Other alternate viewing options (that Lau refers to) may include global over-the-top (OTT) service providers such as the US-based online streaming outfit Netflix. In essence, OTT services could have compelling alternatives that could replace StarHub’s Pay TV service.

This would be another challenge that StarHub has to overcome.

What’s next?

The slide shown earlier in the article is to highlight the challenges that StarHub faces. To be sure, the local telco has plans to counter the challenges that it faces. But that will be a story for another day.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Apple. Motley Fool Singapore contributor Chin Hui Leong owns shares in Netflix, Apple, Alphabet (parent company to Google) and Facebook.