Singapore Telecommunications Limited’s Mobile Business: 1 Reason to be Optimistic

Singapore Telecommunications Limited (SGX: Z74) reported its fiscal first-quarter results earlier this month.

For the reporting quarter, Singtel registered a 2% rise in revenue for its Singapore consumer business, which recorded $567 million in sales. However, there was a weakness in its mobile communications revenue, which declined from $323 million a year ago to $318 million in the latest fiscal quarter.

Despite the gloom, there might be a reason to be optimistic.

A bird’s eye view

The diagram below summarises the Singapore consumer business performance.

Source: Singtel’s earnings presentation

As you can see, the mobile communications segment accounted for 56% of Singtel’s Singapore consumer business and by far is the most important piece of the Singapore business.

The mobile segment has been under pressure from voice to data substitution.

In simple terms, alternative services such as messaging apps and voice call apps have been eating into Singtel’s mobile business. In fact, Singtel’s chief executive for the Singapore consumer business, Yuen Kuan Moon, said in a recent earnings briefing:

“Mobile comms revenue if you look at our guidance at the start of the Financial Year we have guided the market that we are expecting a low single digit decline in mobile service revenue.”

But amid the gloom, there is a silver lining. As voice switches over to data, Singtel can benefit from selling data roaming packages. Yuen added:

“Of course we are also seeing a bit more positive trend that now a lot of our mobile customers – roaming customers have taken up data roaming packs.”

More importantly, Yuen believes that Singtel will eventually get “over the hump” and growth will return. He said:  

“This actually bodes well that once we get over the hump when the switch from voice to data is completed we will then be back on track on growth.

So apart from roaming if you look at the core local business we have seen the turnaround and the local data business is growing and able to compensate the decline in the local voice piece.

We are just now washing out the roaming portion, which we will see happening in the next two or three quarters.”

While the trend of data substitution continues to happen, Yuen believes that the data roaming packages will eventually increase to a level where it offsets the decline in voice roaming. He pointed towards the trends within the local data business which have started to compensate for declines in local voice.   

We will have to continue watching developments in this space.

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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.