Telcos' dilemma: How to scale up to 5G without breaking the bank

Singapore

SHARED infrastructure, coupled with a more gradual service roll-out, could alleviate a sharp, immediate capex pinch as Singapore's mobile network operators (MNOs) look to invest in fifth-generation (5G) mobile network technology.

But with other expenses already high - and business portfolios increasingly convoluted - balancing the balance-sheet is a delicate job.

Singapore's Infocomm Media Development Authority (IMDA) opened a second industry consultation on Tuesday for feedback on plans to start making 5G available next year.

The IMDA is weighing the benefits of expanding the infrastructure components that can be shared, against potential drawbacks such as lower service differentiation and less technological innovation, it has said.

Alex Siow, professor at the National University of Singapore's School of Computing, predicted in March: "If the service providers cannot come to an agreement on sharing, the regulator will have to intervene."

Sachin Mittal, research analyst at DBS, noted on Wednesday that 5G capex could be two to three times as much as 4G, so "telcos must share the 5G network to justify" the costs.

Expenses are a pressing concern for Singapore telcos, which are waging wars on many fronts as consumer revenue takes a big hit.

StarHub saw a 14.2 per cent drop in its first-quarter earnings - dragged down by a loss-making cyber security segment, where it has run up steep opex to expand. Singtel's debts, pushed up by investments in Bharti Airtel, have led credit agencies to warn it is flirting with a ratings downgrade.

Janice Chong, director of corporates at Fitch Ratings, told The Business Times over the phone that Singtel, which her firm covers, has "little ratings headroom to take on new acquisitions and investments".

The two telcos have put up a brave front.

Singtel has said that it is "committed to maintaining our investment-grade credit ratings", while StarHub chief executive Peter Kaliaropoulos last week called StarHub's debt level - 1.5 times its earnings before interest, tax, depreciation and amortisation, as at March 31 - "fairly respectable".

Mr Mittal believes that telcos could rack up between S$1 billion and S$1.5 billion in 5G capex over 10 years. Still, he noted that it represents "similar or slightly higher annual capex as incurred for 4G and hence not a major cause (for) concern".

Meanwhile, the median clearing price for 100MHz of unrestricted spectrum in the 3.5GHz band - which is offered for the initial roll-out - is S$70 million, based on international benchmarks, the IMDA has said.

Given the infrastructure spending on the horizon, national fibre operator NetLink Trust will be a winner, Citi analysts argued in a report last week.

They cited the cost of the fibre connectivity needed to hook up 5G small cells on public infrastructure such as lamp posts and bus stops, and added that NetLink's regulated fibre pricing would give telcos peace of mind "and thus an incentive for sharing, rather than building on their own".

Prof Siow added, ahead of the consultation, that "it does not make sense if every service provider deploys their own cells on the lamp posts".

To spark "sustainable competition" for facilities and services, the IMDA plans to award 5G spectrum to two providers. They must be either be one of Singapore's four MNOs - Singtel, StarHub, M1 and TPG Telecom - or a consortium featuring an MNO.

Fitch's Ms Chong told BT that she expects Singtel to be a 5G provider, whether alone or in a joint venture, with the other operator is "likely to involve at least two" of the other MNOs.

She also noted that the requirement to offer wholesale services to others could be to the advantage of mobile virtual network operators, which lease 3G and 4G from MNOs.