'Virtual telcos' switch focus to enterprise as their tussle for Singapore consumers hits a wall

MOBILE virtual network operators (MVNOs) may be backing away from the cut-throat price war that they have helped sustain in the Singapore consumer mobile market.

Circles.Life and MyRepublic - two of the larger and more established challengers to incumbent mobile network operators (MNOs) - are ramping up business-to-business (B2B) telco services, in a signal that competition for consumers is hitting a limit.

Granted, increased demand for Internet and mobile services during the pandemic may have benefited providers of cheap, data-heavy plans.

McKinsey partner Sai Tunuguntla, citing third-party research providers, said pure-play MVNOs saw their Singapore market share rise from 7.2 per cent in March 2020 to 9.2 per cent in June 2021.

But the upsurge of consumer interest is unlikely to have translated into profits for MVNOs, especially as it comes after years of downward pressure on consumer mobile prices.

Since Circles.Life set up shop in mid-2016, MNOs' monthly postpaid average revenues per user have fallen steadily. They have stabilised at about S$28 - a fraction of what they used to be.

MVNOs, meanwhile, are still struggling to turn a profit. Circles.Life parent Liberty Wireless saw full-year revenue grow by 17.3 per cent year on year to S$103.6 million for the 12 months to Dec 31, 2020, corporate records showed.

But reported net losses still came up to S$14.9 million; and net liabilities ballooned to S$29.0 million, from S$19.1 million in the year before.

With their business model, MVNOs "have limited opportunity to cut costs as 70 per cent to 80 per cent of their opex is network cost that is variable and is locked in with the wholesale provider", said Mr Tunuguntla. They could also face a "natural ceiling" in the market, as was the case in South Korea and Hong Kong, he added.

New revenue streams

It should be no surprise, then, that recent moves point to a fresh focus on the B2B market for MVNOs.

"As the consumer space has become so competitive, there's a need for new sources of revenue streams," said Asia-Pacific principal analyst at Omdia Jensen Ooi.

"We see some MVNOs moving towards monetising the digital infrastructure by building next-generation platform-as-a-service," said Yang Chi Chih, technology, media and telecoms leader at Deloitte, adding that such services can be pitched at helping other firms to transform.

Indeed, Circles.Life reiterated in a press release on Tuesday its goal of offering a "100 per cent cloud based, full-stack vertical software-as-a-service (SaaS) telco business". It already provides its "cloud-native Circles X OS" platform to telco clients in Indonesia and, most lately, Japan.

Similarly, MyRepublic - which likes to bill itself a "telcotech" - has provided digital services for telcos in Indonesia and Brunei.

The B2B segment could be a promising new market for MVNOs, especially as the expansion headroom in the consumer space starts to run out.

Darren Yong, head of technology, media and telecoms at KPMG, noted that the newfound focus on data and services illustrates "possible ways to compensate for the anticipated downward price pressure on traditional rate plans and roaming revenue".

There could be other advantages down the road. Besides possibly sustaining MVNOs' financials, Mr Ooi said that a potential outcome of diversification is "the acquisition of the MVNOs' B2B units by MNOs, enabling MNOs to gain access to new clients and potentially new capabilities".

Telcos - whether they are MVNOs or MNOs - may be even more alive to the M&A opportunities after StarHub's S$162.8 million offer for MyRepublic's Singapore broadband business last month.

Up against incumbents

But making a leap from consumer mobile providers to B2B companies may be easier said than done, since metamorphosing MVNOs have to contend with established heavyweights.

Citing the relative lack of experience and resources, Mr Ooi said "competing head-to-head with MNOs may be a little far-fetched for now". Meanwhile, Mr Tunuguntla told BT: "The margins and, therefore, viability largely depend on the service portfolio MVNOs are able to credibly build and the extent of value addition they have."

Indeed, Singtel, StarHub and M1 have been doubling down on their enterprise businesses amid worsening consumer revenue erosion.

The stakes are even higher because Circles.Life and MyRepublic have opted to aim their B2B service offerings at the telecom space, rather than a broader B2B hunting ground.

The two MVNOs' B2B units even risk competing directly with the new "Telco+" wing at Singtel's enterprise services subsidiary NCS, which targets the business digitalisation needs of regional telecoms players.

The million-dollar question is whether they can successfully carve out market niches in B2B, just as they attempted to do with consumer services.

Good news for bigger telcos

A pivot, however, is not an exit. Mr Yang of Deloitte noted that these moves by MyRepublic and Circles.Life do not make Singapore any less attractive for the business-to-consumer (B2C) segment.

But other Singapore-based MVNOs have also been making exits. Among them: Zero Mobile, which had its licence suspended last year by the Infocomm Media Development Authority; and the migrant worker-focused VivoBee, which bowed out in mid-2020.

Besides the weaker business climate, the bar for MVNOs to succeed has been raised by MNOs' belated but successful roll-out of digital brands - such as Singtel's Gomo and StarHub's Giga - that compete for similar users.

Both as a numbers game and in the face of structural challenges, B2C could recede as the primary business for MVNOs. While they could well remain as a feature of the mature Singapore telecom market for a long while yet, they no longer look like serious disruptors in the consumer space. After years of depressed mobile revenues, this should be good news for the incumbent MNOs.