Is Facebook Eating Singapore Telcos’ Mobile Lunches?

Singapore’s telcos are feeling the heat when it comes to their mobile businesses.

In the third-quarter of 2016StarHub Ltd (SGX: CC3)’s mobile segment sales slipped 3.6% year-on-year. Meanwhile, M1 Ltd’s (SGX: B2F) mobile segment reported a 6.6% decline in revenue for the same period. Elsewhere, Singapore Telecommunications Limited’s (SGX: Z74) Singapore mobile revenue fell by 2.1% .

It’s worth noting too that all three telcos recorded higher subscriber counts but lower average revenues per user.

What is happening

Yuen Kuan Moon, Singtel’s chief executive of its Consumer Singapore business, commented on the mobile revenue decline in the company’s latest earnings briefing:

“I think this is not a new trend.

It’s just that the recent quarters we have seen the increase in pace of substitution from voice to data. This has to do with a few things.

Firstly, the penetration of smartphones, both in Singapore as well as in the regional countries where we see our regional neighbors all building up data networks and having higher smartphone penetration.

When that happens, you see that the way to use OTT apps [over-the-top] to replace the traditional voice calling becomes more apparent and a lot easier for customers to do it.

Therefore, when we look at the voice substitution, it’s not just the local voice, but it’s also the international IDD voice that has declined at a faster pace than before, as well as the roaming voice.

When our customers roam into overseas market, they also use the smartphone apps to communicate. Similarly, inbound roamers coming into Singapore will also be using that.

So this is actually accelerated in the recent quarter because of smartphone and network penetration.”

Yuen referred to the shift in consumer usage from traditional voice and roaming services to OTT apps. An example of such an app would be Whatsapp, which is owned by social media giant Facebook. Whatsapp added a voice calling service in 2015 and had rolled out a video chat functionality last month.

The wide availability and ease of use of apps such as Whatsapp could be eating into parts of Singtel’s Singapore mobile revenue.

StarHub appears to share similar sentiments. Howie Lau, the company’s chief marketing officer, said this in StarHub’s latest earnings call:

“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. We are happy to see that we continue to be able to add subscribers and the data usage continues to go up as well.”

In an investor presentation earlier this year, StarHub also listed Facebook as one of the global service providers that may allow users to bypass local mobile operators.

Elsewhere, M1’s chief financial officer Nicholas Tan said the following in the company’s 2016 third-quarter earnings briefing:

“For this quarter compared to last quarter it’s very much roaming. And, like I say, roaming continues to decline. I’m not sure where you have found a floor here.”

When we put together all of the comments seen above that Singtel, StarHub, and M1 have made on their mobile business, it appears that all three mobile operators have had to contend with OTT apps that may offer an alternative for users to traditional mobile services such as voice calls, SMS, and roaming.

And the result of the competition is lower revenue earned per user.

To be sure, the mobile operators have been placing a higher emphasis on data usage as this transition occurs. Investors will have to see whether higher data usage from users can offset the loss from traditional mobile services.

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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 owns shares in Facebook.