Telecommunications Sector - UOB Kay Hian 2016-06-20: A User's Review Of Liberty Wireless’s MVNO Circles.Life

Telecommunications Sector - UOB Kay Hian 2016-06-20: A User's Review Of Liberty Wireless’s MVNO Circles.Life Telecommunications Sector M1 LIMITED B2F.SI  SINGTEL Z74.SI  STARHUB LTD CC3.SI 

Telecommunications – Singapore: A User’s Review Of Liberty Wireless’s MVNO Circles.Life

  • Liberty Wireless’s MVNO Circles.Life has showcased a new model for customer services, which is entirely based on its website, mobile app and live chat. It also differentiates itself through unlimited/free usage of WhatsApp for voice calls and messaging. 
  • Competition has intensified to secure more spectrum during the upcoming auction in 4Q16. 
  • StarHub has amassed a war chest after raising S$300m through its medium term note programme in May 16. 
  • Maintain UNDERWEIGHT.


WHAT’S NEW

  • I signed up as a SIM-only subscriber to test drive Liberty Wireless’ new mobile virtual network operator (MVNO) branded as Circles.Life.

A long wait before approval. 

  • I registered online by simply filling in my name and contact details. Unfortunately, this was followed by a long wait. I understand that Circles.Life takes great care to ensure a pleasant customer experience. Nevertheless, I estimated it takes an average of 19 days before potential customers receive their approval email, which is longer than what a typical customer would be willing to bear.

Best in user friendliness of user interface. 

  • I log in at Circles.Life’s website upon receiving the approval email.
    1. Step 1: Build my base plan. The entry-level plan starts with talk time of 100mins and data of 5GB (3GB + promotional 2GB bonus) at S$28/month. I could add talk time at S$4.00 per 100mins (maximum: 500mins), SMS at S$4.00 per 100 SMSes (maximum: 400 SMSes) and data at S$6.00 per 1GB (maximum: 20GB).
    2. Step 2: Choose additional pluses. Potential customers are reminded that the pluses, such as flexibility to change the base plan, caller number display, registration for roaming and unlimited usage of WhatsApp, comes free of charge.
    3. Step 3: Pick my new mobile number. Potential customers could choose between golden numbers and free numbers. The golden numbers are auspicious or easy-to- remember numbers that cost S$388 each. Alternatively, potential customers could port over their existing mobile numbers with incumbent mobile operators.
    4. Step 4: Buy a smartphone. Circles.Life offers Apple iPhone 6S Plus at S$1,388, 6S at S$1,218 and SE at S$828 (64GB). Samsung Galaxy S7 4G+ retails at S$998 (32GB). These prices are similar to those offered by Apple iStore.
  • The process to sign up is straight forward and painless. It sure beat sitting and waiting at retail outlets for an hour to get customer service and signing stacks of contacts.

Happy with the quality of network. 

  • I find the quality of voice calls to be satisfactory. Connection of calls was instantaneous and I have, so far, not experienced any dropped calls. I find the data speed to be faster compared to those provided by my existing incumbent operator. I am able to view Youtube videos in the lifts and on MRT trains. However, I have also consumed data more rapidly due to the faster data speed.
  • The quality of network should be similar to M1, given that Circles.Life is hosted by M1.

Customer care through mobile app Circles Care. 

  • I find Circles Care easy to navigate and intuitive. It has three features:
    1. A comprehensive dashboard that allows customers to track their usage of talk time, SMS and data. Customers could also “boost” or top up their quota for talk time, SMS and data.
    2. Customers could view their usage history to discern their consumption pattern, thus helping them tweak their base plan if necessary.
    3. Customers could get customer service through live chat with Circles.Life’s Happiness Experts through its website or Circles Care. I got my queries addressed and answered promptly on various occasions.
  • Is usage of WhatsApp for voice calls and messaging. This advantage is offset by Circles.Life charging customers for both incoming and outgoing calls.

Circles.Life cheaper? 

  • The attractiveness of Circles.Life lies in the unlimited/free usage of WhatsApp for voice calls and messaging. This advantage is offset by Circles.Life charging customers for both incoming and outgoing calls.
  • A SIM-only plan from Singtel with talk time of 200mins and data of 5GB (ignoring WiFi data of 2GB) costs S$36.05/month. A comparable plan from Circles.Life costs a similar S$34/month with the promotional bonus data of 2GB. Circles.Life would be more expensive at S$46/month if the promotion ends and excludes the bonus data of 2GB.


ACTION


A new model for engaging customers. 

  • Circles.Life has showcased a new model for customer services, which is entirely based on its website, mobile app and live chat. I find this very convenient and intuitive. It saves customers a lot of time compared to re- contracting and getting customer service at retail outlets, which involves a lot of queuing and waiting.
  • Circles.Life would appeal to avid users of WhatsApp. Unfortunately, its progress could be hampered by a lack of advertising and promotional activities.

M1 (SELL/S$2.41/Target: S$2.14)

  • Have to compete for more spectrum. The iDA would allocate each incumbent mobile operator, including M1, 2x5MHz of the 900MHz frequency band at reserve price. However, M1 would have to bid competitively to get its fair share of the 700MHz and 2500MHz frequency bands during the upcoming auction in 3Q16.
  • Growth from enterprise customers. Enterprise customers account for 10-12% of M1’s fibre broadband subscriber base but contribute half of its revenue from fibre broadband. M1 is a sub-contractor to NetLink Trust. Thus, it is able to influence the timeliness of services provided to its enterprise customers. It has also made inroads into providing connectivity for government agencies.

StarHub (SELL/S$3.57/Target: S$2.30)

  • Digging in for a tough fight. StarHub has raise fresh funding of S$300m through its medium term note programme in May 16. Management intends to utilise the proceeds for new acquisitions and investments. So far, StarHub has invested S$18m for a 9.1% stake in mm2, a producer of content for TV and films. The additional funds could be a war chest to acquire more spectrum during the upcoming auction in 3Q16.
  • Continuing to cross carry EPL. StarHub would be able to cross carry English Premier League (EPL) when the new football season starts on 13 Aug 16.

Singtel (BUY/S$3.79/Target: S$4.35)

  • Maintain BUY. Singtel is our top BUY as the mobile business in Singapore accounts for 13% of group revenue (only 7% if we include the proportionate share of associates’ revenue).
  • Singtel has a higher beta of 0.88x vs 0.62x for M1 and 0.61x for StarHub. Accumulate the stock on weakness caused by concerns over Brexit.


SECTOR CATALYSTS

  • Investors buying into Singtel as a defensive shelter.
  • Progress in fund raising at ConsisTel/OMGtel and MyRepublic. 


ASSUMPTION CHANGES

  • Maintain SELL on M1 and StarHub and UNDERWEIGHT the telco sector. 


RISKS

  • Entry of a fourth mobile operator that uses low pricing to win market share.


PEER COMPARISON 







Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-06-20
UOB Kay Hian SGX Stock Analyst Report SELL Maintain SELL 2.14 Same 2.14
BUY Maintain BUY 4.35 Same 4.35
SELL Maintain SELL 2.30 Same 2.30


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