The Business Times

Irrelevance, thy name is telco bundling

Annabeth Leow
Published Mon, Feb 25, 2019 · 09:50 PM

THIS year saw the opposite of a happy Valen-tine's Day for Singtel and StarHub, which both reported lower profits when they released their quarterly financial results on Feb 14.

Pay television again saw subscriber numbers and revenue shrink.

Mobile average revenues per user (ARPUs) remain on an annual decline.

And StarHub delivered a shock 61.8 per cent plunge in net profit for the three months to Dec 31, 2018, on a 9.8 per cent fall in the top line.

The market is now not so much crowded as suffocating - and companies have paid the price for taking customers for granted in the boom time.

On the one hand is a fierce price war for the mobile consumer dollar, among incumbents and virtual operators alike. On the other, a plethora of over-the-top (OTT) services makes the all-you-can-eat bundles telcos lob at customers quite redundant.

While handset margins are practically negligible for telcos, the resemblance between phone sales data and cliffside lemmings warns of diminishing interest in what telcos have to offer. Consumers can take their pick of SIM-only plans and skip the biennial upgrade, or turn to third-party e-commerce if they need new devices.

In dollar terms, StarHub revenue was down by S$67.4 million for the quarter. More than half of that drop was from the 17.3 per cent decline in equipment sales, with the telco acknowledging elsewhere that it saw "lower volume of premium handsets sold, partially offset by the increase in sales of smart home equipment".

Leaving aside the persistent profitability problems at its regional associates, Singtel's earnings before interest and taxes (Ebit) for its Singapore consumer business were still down by 4.8 per cent in its latest quarter, to S$132 million, as revenue fell by 5.7 per cent to S$598 million.

One culprit for the lower turnover? Equipment sales, where the revenue contribution was 7.4 per cent lower, at S$188 million.

The new income stream of handset leasing, which Singtel's Optus tried in Australia has not yet taken off, on paper.

At first glance, M1 bucked the handset trend, with a 13.3 per cent jump in sales to S$125 million. But a closer read showed that the boost was due to a new acquisition, which deals in information technology for businesses (laptops for pencil-pushers, in other words - less glamorous).

Telcos are selling more and more for less - a strategy epitomised by the contract lock-ins for handsets - but not everyone is buying that approach. And, in a vicious circle, telcos' strategic pivot to enterprise customers risks cementing their growing irrelevance to consumers.


Along those lines, much ink has been spilt about pay-TV, which was thrust into the limelight during last year's falling out between StarHub and channel company Discovery.

StarHub bet on its subscribers not missing Discovery, after the twain parted ways over carriage fees.

But subscriber numbers are 10.8 per cent lower year on year, at 409,000, while pay-TV ARPU was down on both a lower basic-tier subscriber base and - wait for it - rebates for the channels that were dropped.

Did the move just accelerate consumers' departure from pay-TV?

With Parliament looking into banning set-top boxes that now screen pirated content, Singtel consumer group chief Yuen Kuan Moon told the results briefing that "when the law gets updated to stop illegal streaming devices, then I think consumers will come back to the legitimate sources".

Mr Yuen did not seem fazed when asked if consumers might turn exclusively to other media providers, like OTT services, and cut out traditional sources like his.

"We do have customers on our platform watching Netflix as well, so it's not an issue having Netflix in the market," he said.

The strategy at media industry digital solutions provider TiVo Corp appears to run along the same lines, as regional senior vice-president Samuel Sweet has told The Business Times that "one of the long-standing features of our content discovery products is that consumers want their life to be easy".

"We see a bright future in providing a super-aggregation service," he added. "We were the first company to integrate Netflix into a pay-TV product with Virgin Media in 2013 and now integrate multiple OTT sources for our customers around the globe."

Singtel first gave customers Netflix access through its set-top boxes in April 2016. But, between that quarter and the latest, pay-TV revenue went down by 9.3 per cent to S$49 million, while subscription figures dropped by 8.4 per cent to 381,000.

Amid upheaval, pay-TV stakeholders are sticking to what they've historically banked on: product bundling.

With customer loyalty effectively dead (if it ever existed), whether that gamble pays off is the big question.


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