Speculation grows over StarHub, M1 merger by June 2025 as telcos defer spectrum payment
Analysts say the companies could be aiming to close the merger by then to avoid the payment fees
SPECULATION is growing around a merger between telcos StarHub and M1 after a Macquarie report had analyst Foo Zhiwei noting that StarHub has deferred the payment for its 700-megahertz (MHz) spectrum to somewhere between November 2024 and end-June 2025.
Similarly, M1’s parent company Keppel has also deferred its payment for the same spectrum to June next year, Foo reported on Nov 5.
These moves suggest that one party may try to close the deal before June to avoid the spectrum fees.
The 700 MHz spectrum is a frequency of radio waves used to carry mobile broadband signals.
It was allotted to both companies in an auction that was awarded in April 2017. The terms required M1 to pay S$188 million for two lots of 700 MHz spectrum, while StarHub would pay S$282 million for three lots.
Price moves and growth in subscribers
Foo said in his Nov 13 report that at StarHub’s third-quarter earnings call with analysts, the telco reiterated it was “well-positioned for sector consolidation” in the Singapore market.
He also noted that StarHub’s mobile revenues fell 6 per cent year on year as consumers continued to switch to SIM-only plans. As at Sep 30, the company had 1.7 million subscribers, a year-on-year increase of 83,000 subscribers.
In May this year, mobile virtual network operator Eight began to distribute free SIM cards with 88 gigabytes (GB) of mobile data. It then began offering 228 GB of mobile data for S$8 in October. (*see amendment note)
A StarHub spokesperson has since confirmed that Eight is working with the company to deliver 4G to customers.
Similarly, Maxx, M1’s SIM-only brand, is offering 290 GB of mobile data for S$7.90 until Dec 2.
These price moves have not gone unnoticed and could be a form of posturing between the two parties to secure a larger subscriber base, said Paul Chew, head of research at Phillip Securities Research.
He added that StarHub’s subscriber increase was an “exceptional and unusual surge”, and that the telco now has more subscribers than it has had in more than a decade.
This could be a sign that they are jostling for a higher valuation, to better position themselves ahead of StarHub’s long-rumoured acquisition of the latter.
While the merged entity will not be able to avoid paying for both sets of the 700 MHz spectrum, delaying the payment could take negotiations a step forward between the two companies, Chew noted.
“It might help catalyse (the deal) on the seller’s side – that to avoid this payment, maybe the merger might help,” he said, adding that the delay itself will not be enough to seal the deal.
DBS analyst Sachin Mittal declined to speculate on the timing of the deal, although he said that such an arrangement continues to have its merits.
“There are some good benefits, whether in terms of how they can manage their cost structure, how they can increase their cross-selling. There is a strong business case.”
In a report in May this year, Mittal noted that Singtel continues to command outsized earnings before interest, taxes, depreciation and amortisation (Ebitda) margins in Singapore of 37 per cent.
This suggests that there could be room for a merged entity between StarHub and M1 to improve their Ebitda margins too, which were about 20 per cent at the time of the report.
“Admittedly, Singtel commands higher-end consumer and enterprise customers, but it also reflects sub-optimal scale of StarHub’s and M1’s (businesses),” Mittal said.
In response to media queries about the 700 MHz spectrum during Singtel’s earnings briefing on Nov 13, chief executive Yuen Kuan Moon said the telco has paid for its allotted share of the spectrum.
Ng Tian Chong, chief executive of Singtel Singapore, said that the company is “super excited” to take on the spectrum now that it has been made available.
“At this low-band spectrum, (700 MHz) will add a lot more coverage capability,” he said, adding that the company will share its plans for the spectrum “in good time”.
*Amendment note: The article earlier said that Eight sold 288 GB plans for $8, when it in fact sold 228 GB plans.
