IMDA's ruling on StarHub-MyRepublic deal will signal regulator tolerance for consolidation
But telcos might still be hard-pressed to strike similar deals, watchers say
Singapore
AMONG the hurdles StarHub has to clear before it can buy a controlling stake in MyRepublic's broadband business is the go-ahead from the Infocomm Media Development Authority (IMDA). The IMDA's ruling could be a signal of the regulator's appetite for continued consolidation in the industry - but telcos might still be hard-pressed to strike similar deals, watchers said.
Mainboard-listed telco StarHub last week announced plans to take a 50.1 per cent stake in MyRepublic's Singapore broadband business for up to S$162.8 million, with the option of pursuing full ownership in future.
The deal would take StarHub's broadband market share to 40 per cent - a threshold that the regulator considers as one factor likely to increase the risk of unilateral anti-competitive conduct, under Singapore's Telecom Competition Code. Market leader Singtel has a 43 per cent share.
"Given the size of the acquisition, regulatory approval is needed for the transaction," said Reed Smith counsel Charmian Aw, who specialises in technology-related rules. Since the proposed transaction involves the telecom sector, it comes under the purview of the IMDA - rather than the Competition and Consumer Commission of Singapore (CCCS), which enforces the Competition Act.
In response to queries from The Business Times on whether the IMDA was consulted ahead of the announcement, what feedback it has received from the industry and the public, and what action it is planning to take, an agency spokesperson said only: "IMDA notes the announcement and that the transaction is subject to the necessary regulatory approvals, including IMDA's approval. IMDA will assess the proposed consolidation."
In general, Lawrence Loh, professor of strategy and policy at NUS Business School, told BT that telecom consolidation could well boost efficiency and innovation - especially since "the last thing (regulators) want is a highly fragmented competitive landscape where it is dog eat dog".
"We need to understand the unique context of this industry. It is not like other industries, where we apply very strictly the anti-competitive market rules... My expectation is that this acquisition action will not be seen unfavourably by the regulator."
Industry observers by and large expect the deal to pass muster with the IMDA since it is unlikely to alter the level of competition in the residential broadband market, which is already dominated by StarHub and Singtel.
StarHub also said that it plans to keep the MyRepublic brand in the market, with the company's management team to remain intact as well.
As such, Daphne Lui, associate professor of accounting at Essec Business School Asia Pacific, said that it is "unlikely that the acquisition will lead to any significant shift in the consumer market dynamics in the short run, which would otherwise draw concerns from the regulator".
Yet doubts linger over whether the green light for the StarHub-MyRepublic deal will set the stage for consolidation in other parts of the telco market.
Jeremiah Chew, associate director at Ascendant Legal, acknowledged that regulatory approval may encourage similar action in the industry.
"But the increased market concentration resulting from this deal may make it more difficult for similar deals to be approved in future," he added in a call with BT.
"Consolidations in the telecoms industry would also run counter to the current regulatory trend of allowing new entrants to increase competition in the market."
The consumer mobile scene is chock-a-block with players of varying sizes, including mobile virtual network operators that lease frequency spectrum from telco asset owners.
On the other hand, Prof Lui called the residential fibre market "quite saturated", adding that the small size and limited portfolio of the remaining Internet service players - a combined 17 per cent of the market - may render them unattractive targets.
Approval of the StarHub deal thus "cannot be seen as a potential endorsement of consolidation in other markets" - that is, possible rationalisation of the crowded mobile segment - as broadband is "just one specific vertical" in the business, said Prof Loh.
Ms Aw also noted that the IMDA has the power to impose conditions on any approval, "including any post-transaction accounting and structural separation between the entities".
She cited similar conditional approvals by the CCCS for the London Stock Exchange Group's acquisition of certain Refinitiv Holdings assets in May, and Pathology Asia Holdings' acquisition of Innovative Diagnostics and Quest Laboratories in 2019.
And Mr Chew added that, as telecom rules are not identical to the Competition Act's provisions, "the IMDA's decision on this acquisition will not set any legal precedent for transactions outside the telecoms industry".
