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The Competitive Risks That Singapore Telecommunications Limited Is Facing, And How It Plans To Address Them

Singapore Telecommunications Limited (SGX: Z74) is a giant telecommunications company with annual revenues of over S$16 billion.

But being big does not mean that the company does not face competition. In its latest annual report – for its fiscal year ended 31 March 2016 – Singtel discussed the competitive risks that it is facing and its plans to address them.

I thought it’d be very useful to share Singtel’s discussion.

Understanding the company’s competitive risks and how it intends to deal with the risks can help investors better evaluate Singtel’s standing in its industry over the long-term and hence, its future profitability.

Competitive risks in the Group Consumer segment

In Singapore, regulations require Singtel to grant its competitors access to its networks. This has resulted in declines in prices for some of Singtel’s products and services. The company’s market share in some segments have also been affected.

In Australia, Singtel’s competitors have made large investments which are now sunk costs. The company thus thinks that its Australian arm – Optus – is exposed to “the risk of irrational pricing being introduced by such competitors.” Singtel also sees the situation worsening as the deployment of the Australian NBN (National Broadband Network) will introduce more competitors.

SIngtel has investments in a number of telcos in Asia and the company calls these telcos its regional associates. The growth of Singtel’s regional associates depend partly on an increase in mobile data usage. But the associates have experienced and “could continue to experience keen price competition for mobile data services from smaller-scale competitors, leading to lower profitability and potential loss of market share.”

To manage the risks mentioned above, SingTel’s focus is on improving efficiencies and innovation. In other words, the telco is looking at managing its costs and providing better and/or newer services to retain its customers’ loyalty.

Competitive risks in the Group Enterprise segment

Singtel provides a wide range of services to enterprise customers, including fixed, mobile, cyber security, cloud, managed services, IT services, and consulting.

In the Group Enterprise segment, Singtel’s competitors are generally multinational IT (information technology) and telecommunications companies. Over in Australia, the enterprise market is dominated by the incumbent.

In the enterprise market, telcos are competing primarily on price and service quality. The prices for some enterprise services have “declined significantly in recent years” due to pricing competition and an increase in capacity.

To address the risks here, Singtel is focusing on “offering companies comprehensive and integrated infocomm technology (ICT) solutions and initiatives to strengthen customer engagement.” The company went on to explain that “this includes broadening [its] solution portfolio to cover new areas of customer needs, such as cloud computing, cyber security and solutions for smart cities.”

Competitive risks in the Group Digital Life segment

Group Digital Life is Singtel’s smallest business segment. The digital products and services that Singtel offers here are primarily in the areas of digital marketing, digital video, and data analytics.

In Singtel’s latest annual report, the company commented that competition is “intense, with many over-the-top (OTT) operators offering services over the internet and facing low entry barriers.”

According to Singtel, the Group Digital Life segment aims to differentiate itself by deliveringdistinctive products and services” in its target markets and launching them quickly to capture market share. The segment will also continue harnessing its valuable assets, such as extensive customer knowledge, touch points, intelligent networks, and the scale of its customer base.

Final Foolish musings

What I have above is a quick summary of the competitive risks outlined by SingTel in its latest annual report.

Given that risks and the management of risks are part and parcel of running a company successfully, it is important that investors understand the risks associated with a company before investing in it.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.