How StarHub Ltd’s Management Aims To Reinforce Its Protective Moat

Telecommunications firm StarHub Ltd (SGX:CC3) operates in a competitive environment.

In the second quarter of this year, StarHub revised its 2016 revenue forecast to be “about the the same as last year”. The telco had previously guided toward a low single digit revenue increase for 2016. In the third quarter of the year, both its Pay TV segment and its mobile services segment saw their revenues inch downwards.

Still, StarHub believes that it can defend its subscriber base.

One way is through its Hubbing strategy where StarHub bundles two or three services together at a discount for subscribers.

The Hub Club Advantage

StarHub has been working on its Hubbing strategy for a while.

The graph below shows the historical trend of what StarHub refers to as its Hubbing Scorecard, a summary of customer households with one service, double services, or triple services.

starhub hub club
Source: StarHub’s earnings presentation

From the graph above, we can see that triple service households have been on the rise over the past eight years. Tan Tong Hai, StarHub’s chief executive, stressed the importance of the Hubbing strategy during the company’s 2016’s 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 alternate services.

From this view, the Hubbing strategy can be seen as StarHub’s protective moat.

Cracks on the wall?

Cracks might have started to appear on StarHub’s protective moat.

In the fourth quarter last year, the total number of Hubbing households stagnated. Then, in the first quarter of 2016, the number of Hub Club members started to decline. The next quarter saw the Hub Club member count fall again.

The chart below summarises StarHub’s Hubbing scorecard for the third-quarter of 2016:

Source: StarHub’s earnings presentation

For the third quarter of 2016, the total number of Hubbing households fell by 7,000 compared to a year ago. The losses came from Hubbing households with triple and double services – numbers there fell by 8,000 and 7,000, respectively.

Tan explained the losses during the earnings briefing:

“The number of Hubbing households is now 769,000. It is lower than a year ago because there are less pay TV households that resulted in less hubbing households, but we have also seen a growth in the single-service households from 311,000 to 320,000.”

It appears that not every analyst at the briefing was satisfied by Tan’s answer. One analyst questioned whether StarHub will be changing its Hubbing strategy. Howie Lau, StarHub’s chief marketing officer, responded:

“So we do see that from a plan standpoint, there will be continued interest by customers to take the different kind of plans available, and at the same time, we also recognise that customers still see a lot of strong value in hubbing.

So beyond the traditional hubbing of a home hub, where we put TV and broadband together, we’ve also introduced a new hubbing plan last quarter, which is SurfHub, which is a combination of mobile as well as broadband. So this caters to customers who look for seamless connectivity.”

For perspective, StarHub has lost 38,000 Pay TV subscribers over the past fifteen months. Over the same period, the company has lost 7,000 Hubbing households.

Time will tell if the company’s new SurfHub Hubbing plan will catch on.

Investors may want to observe if StarHub’s Hubbing approach is able to protect it from future competition, as suggested by management. Competition could come in the form of alternate online streaming services and the impending arrival of Singapore’s fourth telco.

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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.