[SINGAPORE] The entry of a fourth mobile network operator (MNO) in Singapore should have only a limited impact on the mobile telecommunications sector in the short term, says Fitch Ratings. There is potential for the new entrant to have a greater effect on the competitive environment and profitability of incumbents over the longer term, but the implications will depend on the extent to which the regulator facilitates a more conducive competitive environment for the new operator.
Fitch believes that the potential for a new MNO to build market share over the next five years is limited. The three incumbents -Singtel, Starhub and M1 - will continue to hold much more spectrum, while the new entrant will face significant capital investment costs at the outset to build out its infrastructure. We expect large cash burn for the MNO, limiting its ability to compete aggressively in terms of pricing in the initial period.
Furthermore, Singapore's mobile market is saturated, with mobile and wireless broadband penetration rates at 149 per cent and 186 per cent, respectively, at end-April 2015, constraining growth potential.
Precedent also suggests challenges for a new operator. Virgin Mobile exited the Singapore market in October 2001 just one year after its launch. Notably, too, MyRepublic has failed to achieve more than a 5 per cent market share in Singapore's fixed broadband market after it entered as a fourth operator in 2011.
The earliest rollout date for a fourth operator is April 2017. The regulator Infocomm Development Authority (IDA) will auction spectrum in early 2016, setting aside 60MHz of 225MHz at a price (SGD40m) below where the three incumbents will pay - thereby lowering the entry barriers. Any new entrant will have to utilise the incumbents' networks up until 2018. The IDA is setting an 18-month deadline for nationwide rollout from the time the spectrum is auctioned. Fitch believes a new incumbent will have few cost advantages to pass down to consumers to build its competitive position, as the IDA does not regulate wholesale pricing on mobile services.
In addition, spectrum at the 700MHz frequency will not become available for the new MNO until 2018, once analog TV signals are vacated for mobile use. The 700MHz frequency is more cost-efficient to develop - given better in-building coverage, particularly in underground basement levels and subway stations. Until then, the new entrant will have to build out its spectrum on the 2300MHz and 900MHz frequencies.
Yet there is potential for a new MNO to build market share despite these challenges, should the IDA facilitate a more conducive competitive environment. A new MNO would benefit substantially should the IDA regulate wholesale pricing for the mobile market and/or implement infrastructure sharing. Thus far the IDA has opted for more of a light-touch regulatory approach, with minimal regulatory intervention in the mobile market.
Singtel is the least exposed of the incumbents to the entry of a new MNO from a funds from operations (FFO) perspective, owing to its diversified income stream. Only 34 per cent of Singtel's FFO comes from its Singapore home market. M1 could be the most exposed, in light of its large focus on the domestic mobile market and being the smallest of the incumbent MNOs.
The IDA proposed allocating spectrum for a fourth mobile operator in a consultation paper published on July 7.