SingTel - DBS Research 2018-06-18: Singtel Investor Day 2018 – Q&A

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Singtel Investor Day 2018 – Q&A

Singtel – Singapore Consumer Q&A

How does Singtel differentiate its MVNO strategy?

• Smaller operators are shoring up customers before the entry of TPG, primarily in the SIM only space. A few more MVNOs have expressed interest in partnering with Singtel and the addition of more MVNO players will dilute the revenue pie up for grab for TPG, as MVNOs would have much better network quality.

What is Singtel’s strategy in the SIM Only space?

• Singtel sees a rising trend for SIM only plans in Singapore, which accounts for a single-digit proportion of the subscriber base in Singapore vs. 25% in Australia. Allowing subscribers to lease handsets over 12 months is the key differentiator of Singtel’s SIM only plans as opposed to offering cheaper data, which the other players have resorted to.

Any regulatory support for TPG’s ramp-up?

• Nothing much except Singtel sharing some MRT tunnel infrastructure for the first 72 months of operation as access often takes a lot of time.

What’s Singtel’s view on topline growth in Singapore?

• Mobile revenues are likely to decline over the course of FY19, with the entry of TPG. Over the medium term, Singtel believes that 4- players cannot survive independently and there will be room for consolidation in the market. 
• Singtel’s IoT strategy is primarily focused on the enterprise segment, which is expected to account for ~75-80% IoT revenues of Singtel.

Singtel – Enterprise Business Q&A

What’s Singtel’s strategy for the Singapore enterprise business going forward?

• ~75% of EBITDA still comes from its traditional core businesses which account for ~54% of revenue. 
• Moving forward, Singtel will focus on growing ICT revenues and undertake significant cost transformation programmes to improve EBITDA generation in the enterprise segment. A large chunk of the projected S$500m cost savings planned for FY19 will be derived through the enterprise segment.

What’s Singtel’s monetisation strategy for Trustwave?

• The US$ 85b cybersecurity market is growing at 8% and is a very fragmented marketplace with the top players controlling only 5- 6% market share. 
• Trustwave has been consistently ranked among the top 5 players by Gartner. The cybersecurity arm now has 10 security operation centres around the world to monitor cyber-attacks. Trustwave is now a US$500m business vs. US$200m in 2015 as Singtel has integrated a number of businesses under Trustwave.
• As the business is valued on a revenue multiple basis, exit opportunities through a public listing or through a sale to a strategic investor would be possible when the scale is big enough.

Singtel – Digital Life ! Q&A

Future plans of the Digital advertising business?

• Amobee and Turn are in a strong position, capitalising on the access to data provided by telecom operators, easy access to customers through the telcos and a strong network of advertising agencies. Amobee is expected to be EBIT positive over the next 5-6 quarters. Its strategy is to capture market share from smaller operators and focus on growing video advertising, which expanded 40% y-o-y in FY18. 
• Singtel may look to exit Amobee over the next 2-3 years if Amobee can move towards a self-managed revenue strategy and demonstrate its leadership as a leading independent ad-tech player.

How is the OTT video service, HOOQ, progressing?

• HOOQ is likely to break even at US$100m revenue. Content spending last year largely revolved around Hollywood content but this year ~50% of content expenses will be directed towards local content. 
• Some of the major Indonesian channels have signed up with HOOQ to add it as a Linear TV channel (a channel that broadcasts scheduled programmes in real time).

What’s going on with the data analytics business?

• DataSpark is primarily involved in ingesting data to identify potential use cases and deploying these applications. Advertising, financial services, transportation and telecom are some of the key verticals the company is looking into.

Optus – Australia Consumer Q&A

Is there a risk of TPG adopting a similar strategy to Jio?

• TPG has announced a free mobile plan with unlimited data for the first six months, with a monthly charge of A$10 thereafter in Australia. TPG is unlikely to have good network coverage as its planned capex spend of A$600m in Australia is just half of the annual capex spend of Optus (~A$1.5bn). 
• Jio in India on the other hand spent nearly US$10bn and had a network similar to those of the leading players which allowed it to disrupt the market. TPG also has very few (less than 200) macro cells, which cover a radius of 5KM along with a number of small cells, which provide coverage to much smaller areas.
• The entry of TPG is likely to have an impact on the price-sensitive 25% of the market, which is not targeted by Optus. Optus does see some adverse revenue impact on wholesale (MVNO) and low ARPU segments. However, Optus’s strategy of acquiring high value subscribers in the SME and regional spaces will continue to drive market share gains and Optus’s topline, offsetting any potential declines from the entry of TPG. 
• Optus has also differentiated itself with content, with exclusive rights to broadcast National Geography and the English Premier League.

Possibility of a reduction of capex spend in Australia?

• Densifying metro areas and regional area network expansions will continue with Fixed Wireless Access (FWA). Optus has already recorded a reduction in capex from A$1.6 to A$1.4 in FY18.

Strategy for the upcoming 3.6GHz spectrum auction?

• Optus does not intend to take part for spectrum covering metropolitan areas but may take part for coverage in regional areas. The auction is likely to see more interest from Telstra and TPG.

What is Optus’ 5G rollout strategy?

• Optus has acquired significant 3.4-3.6GHz bandwidth in Australia and hence is deploying FWA as a replacement for fixed bandwidth. FWA offers speeds of up to 100Mbps vs only 20Mbps in certain areas via NBN.

Regional Associates Bharti Airtel Q&A

How has Bharti Airtel’s revenue share changed following the recent mergers?

• The Indian telco industry is effectively a three- player market following the Bharti Airtel-Telenor India integration and Bharti Airtel-Tata India telecoms and Vodafone-Idea mergers. 
• Following the mergers, market share based on revenue, places Vodafone-Idea at 38%, Bharti Airtel at 32% and Reliance Jio at 20%.

Is the Indian telco sector facing revenue share stabilisation?

• The Vodafone-Idea merger is expected to be fraught with complications due to contracts with multiple vendors and staff issues. Vodafone is currently facing net debt to EBITDA of 6.5x while also losing customers since the telco has not adopted cheaper bundled plans due to the lack of capacity. Vodafone is also losing subscribers although it has not been evident in the revenue share as they have not lowered their pricing to the same level as Bharti’s bundled plans. The Rs49 VoLTE feature phone plan is driving Reliance Jio further towards a lower quality customer base.
• Taking all these into consideration, we foresee that Bharti Airtel will have the opportunity to increase its revenue share over the next 12-15 months.

Has ARPU bottomed out in India?

• During the last six months prices have been relatively stable. ARPU is unlikely to drop over the next 12-15 months after bottoming out at INR135 with subscribers moving from feature phones to smart phones. Bharti Airtel is opting to place products such as device insurance and free Netflix access in the post paid category rather than lowering prices to defend the telco’s revenue.
• Bharti Airtel is the clear leader in the over INR20,000 per device segment while it is neck-to-neck with the competition in the INR7,000-15,000 segment.

What’s Bharti Airtel’s forecasted capex spend?

• Bharti Airtel plans to invest US$4bn as capex to drive down customer complaints.

Any proposed new business ventures?

• Plans are underway to launch music and TV business separately under Wink. Also, the launch of micro enterprises with fibre is expected to be a big step-up in the home fibre broadband market.

Strategy for operations in Africa?

• Bharti Airtel’s African operations are likely to see a 30-40% revenue growth in FY19, and a planned public listing commanding 8-12x EV/EBITDA in early 2019 is underway.

Telkomsel Q&A

Price hike potential in the post-prepaid SIM registration era?

• After Lebaran, Telkomsel plans to increase pricing by 5-10% to prevent further declines in data tariffs. Already there are one or two instances of competitors reducing data allowances in existing packages. More incentives are being handed out via renewal packages now as the SIM starter pack sales have slowed down due to the slow process of validation. Subscribers are only allowed to hold a maximum of three SIM cards per operator.

AIS Q&A

Is the current spectrum and network capacity sufficient?

• AIS finds the existing spectrum sufficient to operate efficiently over the next two years using newer technologies with higher efficiency.

Efficiency of contiguous vs. non-contiguous spectrum?

• The telecom regulator has stated that the winner of the1,800MHz spectrum auction will be able to freely reshuffle the spectrum with other operators’ 1,800MHz slots. Reshuffling will be carried out if AIS feels that this will lead to gain more efficiency in frequency management.

Is there evidence of rising marketing cost after the auctions?

• During the last two years, competition was intense since True was competing to grab the #2 spot. However, at the moment the level of competition is back to normal and benign compared to last year.

What’s AIS’s plan to counteract True’s market share gains?

• AIS does not intend to lose out on revenue share. The telco plans to cut back on unlimited data plans.

Projections for the fixed broadband segment?

• Fixed broadband ARPU has been stable at Bt600 for several years and is unlikely to change during this year. The telco is targeting a 20% share in the fixed broadband segment.

Future capex spend?

• AIS has already passed the time period of peak capex spend. Capex on 5G technology is expected only around FY22.

Globe Telecom Q&A

Current state of the telecom market in the Philippines?

• Capex is likely to remain high going forward. Population coverage at the moment hovers around 97%. Competition is rather intense in the mobile segment with PLDT leading the pricing revisions while it is more sustainable on the fixed broadband segment.

What is the key differentiator of Globe vs. PLDT?

• Globe’s branding strategy appeals to the millennial population, which forms a substantial segment of the market, and has been a key strength for Globe. Globe has seen many parties interested in forming partnerships because of the positioning of the Globe brand.
• While PLDT has closed much of its network coverage gap with Globe, the perception in the market is that Globe still possesses superior network quality, which is working well in Globe’s favour. Even employees prefer to work at Globe compared to PLDT.

Key regulatory concerns?

• The government is trying to bring in a 3rd player but things are not clear at this point as any new player, if any, may not be allowed to sell its spectrum and resources to the existing players.
• Several bills related to the telecom industry are also in the works.
  1. Bill to declassify the telecom industry as a utility – Amendments to the Public Service Act or Commonwealth Act have been proposed to remove “telecommunication services” from the definition of “public utility”
  2. Ownership Bill – The government is contemplating a readjustment of the 40% cap on foreign ownership in the telecom sector. According to reports, the cap could be increased up to 70%.
  3. Removal of the franchise tax exemption – The government is also contemplating the re-imposition of a 3-8% franchise tax, that the telecom industry is currently exempted from.

Sachin MITTAL DBS Vickers | https://www.dbsvickers.com/ 2018-06-18

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