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Is It All Doom and Gloom For M1?

M1 Ltd (SGX: B2F) is finding itself in a bit of a pickle.

Firstly, the telco’s major shareholders, namely, Keppel Corporation Limited  (SGX: BN4), Singapore Press Holdings Limited (SGX: T39), and the Malaysia-based telco Axiata Group Berhad (KLSE: 6888.KL) threw in the towel in trying to sell their stake. Then, M1 lowered dividends by 25% in its second-quarter earnings.

With all that’s happening, the burning question is – where is M1 headed next?

Competition is going to get tougher

We can look to its latest earnings briefing for clues.

Source: M1’s earnings presentation

M1’s Chief Financial Officer and Chief Commercial Officer, Lee Kok Chew, summed up the challenges ahead:

“The impending entry of new players in the mobile industry will lead to an increase in competitive activities. OTT (Over-the-top) services will also continue to impact traditional telecom usage, telecom revenue, invoice, messaging and roaming.”

Most likely, Lee is referring to the pending arrival of TPG Telecom, which is expected to heighten competition within the mobile space. That could have an impact on M1, which derives 78% of its services revenue from mobile services .

In addition, M1 has to deal with OTT services which offer alternatives to voice calls and messaging. In the second-quarter, M1’s postpaid and prepaid average revenue per user (ARPU) declined 6.8% and 14.6% year on year respectively.

In another comment, M1’s Chief Marketing Officer, Poopalasingam Subramaniam, attributed the lower prepaid ARPU to the reduced usage in voice:

“Prepaid revenue for second quarter 2017 remained stable quarter-on-quarter at $15 million. Prepaid ARPU for the quarter decreased to $10.50 due to lower voice usage.”   

However, Lee remained optimistic for the future. He said:

“Nevertheless, the transition to a digital economy will present new opportunities. We’ll continue to enhance our service propositions to address changing customer preferences and ensure that we remain competitive.”

In the second-quarter, the all-important mobile services segment experienced a 2% year on year decline in sales. In our next article, we’ll look at what M1 plans to do in the future.

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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.