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StarHub Ltd Is Confronting 4 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 three of the industry challenges and one local challenge.

1. Industry challenge: Global service providers click here

2. Industry challenge: Global Over-The-Top (OTT) players click here

3. Industry challenge: Piracy

Beyond Global OTT players, StarHub has to contend with video content piracy as well. Howie Lau, StarHub’s chief marketing officer, addressed this issue in its 2016 third quarter earnings briefing:

“Obviously, besides the OTT options, there would be also illegal options that would be out there.

We have been working very closely with our content partners where possible to take relevant actions against some of these providers, and this is something that we will continue to do, because it’s important for us to also redirect customers to the valid options and the bona fide options that is available in the market, whether it’s on the Pay TV platform or an OTT platform.”

Lau also said that StarHub has been promoting options beyond its own Pay TV service. He said:

“So as mentioned earlier, that’s the reason why we make sure that for beyond the pay TV option, we make sure that we promote the StarHub Go option, the BBC Player, we promote the Netflix, we promote the HBO options and all this, to give customers the variety.”

Packaging content into a cost competitive online streaming option could work in combating piracy. Studies in Australia and North America suggested that the availability of Netflix helped reduce content piracy in those countries.

4. Local challenge: 4th MNO (mobile network operator)  

Another challenge that StarHub faces is the possible arrival of a fourth telco operator in Singapore.

At the moment, two companies – namely MyRepublic and TPG Telecom – are in the running. In May this year, StarHub’s chief financial officer Dennis Chia hypothesized that the entry of a fourth player could lead to a price war:

“Whether you want to label it a price war or not – certainly it is an unpleasant term – the value-add is through accretive pricing at the onset. As the new kid on the block, it [referring to the fourth telco] will not be able to offer anything better in terms of network quality.”

Chia pointed out that Singapore’s market could be saturated given the mobile penetration rate of 148% here. This is the second highest in Asia, according to World Bank Data, after Hong Kong’s own mobile penetration rate of over 220%.

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.