Singtel and StarHub bank big on cybersecurity

Singapore

SINGAPORE'S two biggest listed telcos have been ploughing big money into cybersecurity offerings, with industry watchers calling the diversification essential in a tough market.

Singtel said on Wednesday that it would bring its global cybersecurity assets - including resources from units such as NCS and Optus - into Chicago-based Trustwave's portfolio.

The consolidation follows not just Singtel's purchase of Australian security consultancy Hivint in October, but also the headline-grabbing merger - just the month before - of StarHub's Accel Systems & Technologies and Temasek Holdings' Quann.

Analysts here have largely reacted favourably to the telcos' redoubled efforts in cybersecurity services.

For instance, OCBC Investment Research's Joseph Ng bumped up the house's fair value for StarHub from S$1.65 to S$1.92 in mid-November.

KGI Securities analyst Joel Ng said in an e-mail that cybersecurity has become "a necessity rather than a choice" for telcos, amid the decline in their consumer business segments.

He also shrugged off the industry competition, which includes non-telco businesses with information technology and security experience.

"It may seem a crowded market, given established players, but I think a key strength is their ability to tap existing customer relationships," he said, adding that "political considerations" and Singapore's reputation may also burnish these firms' credentials.

He believes that three Singapore-listed firms now stand out for their enterprise and government cybersecurity offerings: Singtel, StarHub and Singapore Technologies Engineering.

After StarHub and Temasek set up pure-play joint venture Ensign InfoSecurity, RHB analysts surmised in September that the deal would likely be earnings-accretive from the get-go, with synergies to accrue over time.

Still, DBS analyst Sachin Mittal predicted in a recent report that, as StarHub and other operators grow their footprint, "Singtel's pricing premiums in the enterprise segment have come under pressure".

And Singtel will continue to feel the price squeeze as rivals' expansions continue, he warned.

Singtel bought 98 per cent of Trustwave in 2015 for US$770 million and scooped up the rest of the business for US$12 million in May this year.

While nowhere near that price tag, other telco cybersecurity deals have also involved eye-watering sums.

StarHub is paying as much as S$45.6 million for Accel, and announced late last year that it would spend up to S$122 million for home-grown cryptography firm D'Crypt.

With the latest consolidation, Trustwave will now house the Singtel Group's roughly 2,000 cybersecurity employees worldwide; it also gains resources such as the 21/2-year-old Singtel Cyber Security Institute here.

Bill Chang, Singtel's chief executive of group enterprise, told The Business Times that Singtel has been parlaying its telecommunications roots and information and communications technology expertise into cybersecurity for enterprise customers.

"Having identified cyber as a new growth driver, we have stepped up our efforts to deepen our cyber capabilities in recent years," he said, pointing to the Trustwave and Hivint deals.

Mr Chang added that uniting all of Singtel's security operations under the Trustwave brand "means adopting a 'security by design' mindset across the group, that puts security at the core of our business solutions".

StarHub CEO Peter Kaliaropoulos, who also observed that the cybersecurity industry is taking off, touted the telco's chosen niche in a recent interview with BT: "There is a product side to cybersecurity - pay fifty dollars a month, you get some software with a firewall to protect you. That's not the business we want to be in.

"There're far too many people in that. The complex work of cybersecurity is what we want to be in, and that's what Ensign is all about."

He added that "it should not be a surprise that we're acquiring companies like D'Crypt", citing the need for wireless connectivity as a reason for cybersecurity's relevance to telcos.

Research firm Gartner estimated in an August report that worldwide digital security spending will grow by 8.7 per cent to US$124.1 billion next year, with Singapore expected to cough up S$1.15 billion of that.

Singtel added S$0.01, or 0.33 per cent, to S$3.08 on Wednesday; StarHub closed flat at S$1.87.