Telco newcomers may be on track to reach the black this year

Singapore

NEW entrants to the telecom scene have put incumbents on the back foot, even while loss-making.

Still, losses are shrinking at mobile virtual network operators (MVNOs) Circles.Life and MyRepublic, with industry watchers expecting the mobile market to pave the way to profit. The duo are the most established of the new kids on the telco block, with big backers and global plans to boot.

But it may be a different tale with Australia's TPG Telecom, which hit Singapore as an infrastructure-building network operator late last year, as startup costs could continue apace.

Circles.Life, which joined the fray in early 2016, more than doubled revenue in the year to Dec 31, 2018, according to an audited filing by parent company Liberty Wireless last week.

Turnover rose to S$68.5 million, up from S$31.9 million before, largely on growth in mobile services.

Liberty Wireless also posted a gross profit of S$5.39 million, reversing a previous S$2.79 million loss. Net loss narrowed to S$4.04 million, against S$4.87 million the year prior.

The Circles.Life management declined to comment for this story, but market observers who spoke to The Business Times were quite encouraged by Circles.Life's financials.

Based on its earnings before interest, tax, depreciation and amortisation (Ebitda), Circle.Life was close to breaking even by the end of 2018, noted DBS analyst Sachin Mittal. Coming on an estimated mobile market share of 2.2 per cent at that point, such a margin "just shows how lean and clean is their business model".

By February this year, Circles.Life, which set up shop in 2016, claimed to have won a 5 per cent market share.

UOB Kay Hian analyst Chong Lee Len also told BT that Circles.Life was likely to be in the black this year for Singapore mobile operations, as "they have hit their subscriber numbers".

But, with Circles.Life embarking on an ambitious global expansion, Ms Chong cautioned that losses could still come from other new segments.

The company has launched MVNO services in Taiwan and Australia since mid-year, with plans for back-end services in Indonesia, as well as insurance and lifestyle products.

Separately, Malcolm Rodrigues, chief executive of broadband operator MyRepublic - no stranger to expansion costs - blamed customer acquisition in Australia for losses of S$5.56 million in the year to June 30, 2018.

Still, eight-year-old MyRepublic, which narrowed losses from S$6.09 million in the year before, reported revenue growth of 22.3 per cent to S$54.9 million, on broadband sales.

The company is active in Singapore, Indonesia, Australia, New Zealand, East Malaysia and Brunei - almost exclusively in the fibre space.

MyRepublic's mobile services, which were gradually rolled out here from May last year, brought in some S$77,400 in the first weeks of the MVNO debut, audited results showed.

"You have to appreciate, we're not an MVNO," Mr Rodrigues said, calling mobile services "an add-on" to fibre. But he added that mobile, which is now offered only in Singapore, "was almost profitable from day one".

"Singapore has been profitable for a couple of years now. New Zealand turned profitable last month. Australia will turn profitable, I think, in the first quarter of next year," Mr Rodrigues added. "We'll be profitable early next year, that's kind of our plan."

For its part, Australia-listed TPG may have found the Singapore mobile market an uphill slog since pilot services began at the close of 2018.

TPG posted A$2.48 billion (S$2.3 billion) in revenue for the year to July 31, 2019. Earnings took a heavy blow from scuppered plans for an Australian mobile network, but Singapore mobile losses also widened to A$2.7 million, from A$1.4 million in the year prior.

JP Morgan analyst Eric Pan has an "overweight" rating on TPG, but warned last month that the next financial year could also bring A$23 million in losses before interest, tax, depreciation and amortisation and A$80 million in capex, on the launch of Singapore commercial services.

"It's likely that Singapore could require up to A$100 million of funding," Mr Pan added in a Sept 5 report.

TPG had roughly 300,000 subscribers in Singapore as at end-July.

As MVNOs lease frequency from network operators, they - unlike TPG - do not incur infrastructure capex, instead running up operating costs like rent, marketing and network fees.

But a telecom analyst, who asked to be unnamed, warned that MVNOs' performance "may not really be a gauge of future actions" until TPG rolls out commercially: "Until everyone has shown their cards, it is difficult for the industry to fully adjust."