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What Investors Should Know About The Latest Collaboration Between StarHub Ltd and M1 Ltd

Last week, two of Singapore’s four telcos signed a Memorandum of Understanding (MOU).

The two telcos in question are StarHub Ltd (SGX: CC3) and M1 Ltd (SGX: B2F) and the MOU is for the pair to study the potential for further collaboration in sharing mobile infrastructure. According to their joint press release, the focus would be on sharing radio access network, backhaul, and access assets.

This move by StarHub and M1 comes after Australia-based TPG Telecom was named in December 2016 as Singapore’s fourth telco after it won a spectrum auction held by the Infocomm Development Authority. TPG Telecom has yet to introduce any services in Singapore and has plans to do so only in 2018.

Prior to TPG Telecom’s entry, Singapore’s telco market had for many years contained only three players, namely, Singapore Telecommunications Limited (SGX: Z74), StarHub, and M1.

The latest cooperation

StarHub and M1 have actually been working together for many years, sharing mobile infrastructure such as combined antenna systems, in-building fibre, and tunnel cables.

The latest MOU between the two telcos has an aim to “enable both companies to optimise use of certain network elements through sharing, and improve network coverage and capacity for the benefit of their respective customers.”

There are other potential benefits for the two telcos in working together more closely.

Firstly, cooperation between StarHub and M1 could remove significant duplication in capital expenditure and thus free up cash and lead to lower operating expenses for them. If capital expenditure requirements are lesser in the future for both companies, it increases the chances of them being able to sustain their current dividend payments.

Secondly, collaboration can also increase the overall scale for both companies, thus allowing them to pursue investments that would not have happened on an individual basis. Both companies can also respond faster to any need for new technological investments.

Going forward

Although StarHub and M1 will be working more closely in the future, investors should not be mistaken that such a collaboration will reduce competition. The comments given by StarHub’s chief executive, Tan Tong Hai, on the MOU alludes to this (emphasis is mine)

“We are cooperating to bring the Singapore infocomm industry to the next level, to compete not on pure infrastructure ownership, but at a higher level of customer service and innovative value creation.

Sharing mobile network radio elements with M1, but keeping our individual mobile core networks, will allow StarHub to provide better mobile service (in particular, mobile coverage) and still be able to differentiate ourselves.”

Given Tan’s words, investors can probably expect the level of competition to remain intensive within Singapore’s telco industry!

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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.