Singtel, StarHub lack clear enterprise strategy to drive longer-term performance

AS macroeconomic factors weigh on companies, telcos have historically been seen as a relative safe haven – a way to generate stable returns in a more volatile market.

But the recent numbers for locally listed telcos Singtel and StarHub suggest some cause for concern. Both telcos will need to convince investors they have a long-term strategy to bring in new revenue streams, especially in their enterprise segments.

StarHub appears to have stumbled somewhat in its latest quarter. While revenue grew 14.2 per cent to S$590.8 million in the first nine months of this year, net profit declined 32 per cent to S$27.4 million. After accounting for one-off Premier League and Dare+ investments, net profit after tax would still have declined 19.8 per cent to S$32.3 million.

Announced in November last year, Dare+ refers to a five-year transformation plan that includes the establishment of StarHub’s 5G network and other IT expenditures.

StarHub attributed the decline in profitability to rising energy and staff costs in an inflationary environment. The company also posted a 25 per cent decline in operating profit from its regional ICT services business.

Singtel, meanwhile, appears at first glance to have done much better. Net profit for its first half ended September rose 23 per cent to S$1.2 billion on exceptional gains from disposal of some of its stake in Airtel.

Dig deeper, however, and similar troubles emerge.

NCS, Singtel’s ICT arm, saw revenue grow 16 per cent to S$1.3 billion. But earnings before interest, taxes, depreciation and amortisation (Ebitda) fell 26 per cent to S$110 million, partly due to some one-off costs and also higher wages and digital investments.

The group’s enterprise business saw Ebitda rise marginally by 0.3 per cent to S$544 million, as revenue climbed 2 per cent to S$1.3 billion.

Granted, both telcos still have very substantial and profitable consumer operations. But their margins on consumer services have been shrinking for years, and it is hard to envision a reversal of this trend given the stiff competition.

As Singtel and StarHub put money into capital expenditures, much of it to build their 5G networks, returns will have to come from the enterprise segment, where customers have deeper pockets and can make full use of the vastly lower latencies and higher speeds that the technology can offer.

Both Singtel and StarHub have made much of their investments in 5G and other enterprise-grade technologies, hoping to offer new solutions to corporate clients.

Singtel, for instance, said it has seen “increasing enterprise customer momentum” for its enterprise 5G offering. It also signed agreements with Hyundai Motor Group and Micron for 5G-related services. But there is little evidence yet of any positive impact.

Neither of the two telcos has sketched out compelling plans for how they will monetise 5G in an enterprise setting at scale. Until they do so, any uplift in their shares will not stick.