M1’s Year in Review: Can Fixed Services Arrest The Company’s Slump?

M1 Ltd (SGX: B2F) reported its full year earnings for 2016 in late January 2017.

For 2016, M1 reported $805.5 million in Service revenue, a figure that was 2% lower than in 2015. M1 derives its Service revenue from three business segments: Mobile services, Fixed services, and International call services.

Let’s take a look at the Fixed services business segment.

A bird’s eye view

2017-02-07 M1 Revenue Segments
Source: M1’s earnings presentation

Unlike the rest of M1’s business segments, the Fixed services segment grew its top-line by almost 21% from around $86 million in 2015 to $104 million in 2016. On the whole, the Fixed services segment contributed almost 13% to M1’s 2016 Service revenue.

The saviour of M1?

2017-02-08 M1 Broadband Fixed Services
Source: M1’s earnings presentation

In 2016, M1 registered a big jump in subscribers for its Fixed services segment, which is primarily involved with providing high-speed internet access.

At the end of 2016, M1 had 160,000 subscribers in the segment, up from 128,000 a year ago. In contrast, M1’s local rival StarHub Ltd (SGX: CC3) did not show any growth in subscriber count for 2016 at its Broadband business segment. StarHub, though, has a much larger base of subscribers in that business at 473,000.

But, M1’s average revenue per user (ARPU) for the Fixed services segment has been on a downtrend. The company had an ARPU of $47.50 in the fourth quarter of 2015. This figure has drifted down to $43.10 in the fourth quarter of 2016. StarHub, in contrast, recorded an increase in ARPU for 2016.

M1 said that the ARPU for the Fixed services segment in the fourth quarter of 2016 was down due to promotions and a year-end IT show.

The company is also looking for corporate customers in this space. Lee Kok Chew, M1’s chief commercial officer, said the following during the company’s 2016 fourth quarter earnings presentation:

“We are also expanding the reach of our fiber infrastructure to capture growth opportunities in the corporate space. To improve efficiency and time-to-market, we continue to digitize our operations to ensure we have the right cost structure to remain competitive.”

Lee also believes that there is an opportunity for M1 to grow further:

“There’s plenty of opportunities out there. There are new homes have been built, there are people switching from, in terms of technology, that’s out there. I think there are a lot of opportunities. We are also looking at corporate customers. There are new commercial buildings being wired up. So to us there are real opportunities out there for us.”

At the moment, the Fixed services business is not big enough to drive growth in M1’s overall Service revenue. We will have to see if the segment can continue growing.

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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.