Singapore Telcos - Maybank Kim Eng 2019-02-07: Our Survey Says Incumbents Still Have Edge

Singapore Telcos - Maybank Kim Eng Research | M1 LIMITED (SGX:B2F) SINGTEL (SGX:Z74) STARHUB LTD (SGX:CC3) NETLINK NBN TRUST (SGX:CJLU)

Singapore Telcos - Our Survey Says: Incumbents Still Have Edge

High retention limits churn risks

  • Results of our recent 150-respondent survey of subscriber decisions and preferences suggest that incumbent telcos continue to have an edge in subscriber retention, amid the proliferation of new MVNOs and a new MNO.
  • Some 81% of our respondents had stuck to their providers for more than 24 months. This supports our NEUTRAL view on the sector as churn and potential 100% loss-of-revenue risks from such appear limited. The sector, however, lacks immediate catalysts.
  • NETLINK NBN TRUST (SGX:CJLU) remains our top pick, given its virtual monopoly of residential fibre connections.

What's New

  • We recently conducted a 1-week survey that garnered 150 respondents. Our survey centered on 10 questions on telecom services, mostly wireless. Our findings and assessment are summarised below:

1. How long have you kept your primary mobile number with your current operator?

  • With over 80% of our respondents having stuck to their service providers for over 24 months and less than 10% having switched, incumbent telcos seem to have a subscriber-retention advantage over the newer brands. It is not clear whether the retention was driven more by loyalty or inertia.

2. If you are currently under a lock up contract with a wireless service provider for your main mobile number what is the contract based on?

  • Handset subsidies remain the main mode of locking up subscribers, not so much the telcos’ recent spate of 12-month-based contracts that offer extra wireless data allocation. Some 25% of our respondents were not under contracts and might evaluate this slew of wireless-data promotions in the market. It is unlikely that the survey reflects the end-Dec 2018 up to present no contract, SIM-only data promotions. It is quite possible for the number of subscribers not under contracts to jump this year.

3. How many SIM cards do you currently have for personal use (including for tablet/data use only)?

  • With SIM penetration at close to 150% as of Oct 2018, it is not surprising that nearly one-third of the respondents had two or more SIM cards for personal use. However, the majority utilised only one service provider for their personal mobile phones. A telco that is able to swing over a subscriber theoretically has a higher probability of capturing significant industry wallet share. Given this, keeping a subscriber is clearly a key priority. Based on the answers to question 1, retention seems to have been generally successful thus far.
  • This is more or less reflected in the quick flurry of reaction promotions that follow any moves by incumbent telcos. The reactionary moves do not necessarily lift the competition ante but send the message to their existing subscribers that they are not being neglected.

4. In the next 12 months do you expect to have less or more SIM cards for personal use?

  • The findings of our previous question are reinforced by the response to Question 4, which suggests that 96% of the respondents did not expect to change their current numbers or SIMs. For those with multiple SIMs, this can entail switching providers but since the majority only have one, we think there is much impetus for SINGTEL (SGX:Z74), STARHUB LTD (SGX:CC3) and M1 LIMITED (SGX:B2F) to keep a subscriber sticky to their networks.

5. Of the new wireless operator brands which have you or would you want to try out?

  • There may be some relief that more than half the respondents were not inclined to try out the newer brands, whether MNO or MVNO. Among the new brands, unlisted Circles.Life and MyRepublic were ahead of TPG (TPM AU, Not Rated) for them to try out but this may be due to their full-fledged commercial operations while TPG remains in a trial phase. What we did not cover in this question or survey was whether those not keen to try the new brands were willing to shift among the three incumbents.

6. If you have tried out or will try out one of the new promotions/plans that your current operator does not provide, how would you go about it?

  • Where there is danger to any operator, it seems, is that 83% of the respondents willing to try new plans would port their numbers rather than turn to a new SIM. This is consistent with answers to Question 4 which indicate that respondents generally do not want to increase the number of SIMs they use. This creates the prospect of churn and 100% revenue loss for operators, not just partial revenue leakage, if a subscriber takes an additional SIM from a competitor.

7. What do you value the most among the following (rank in order of priority)?

  • Respondents ranked their top three priorities in choosing wireless services in this order: wireless data allocation and/or pricing, network quality and handset discounts. We do not expect TPG to engage in a handset subsidies for its services. In the first two categories, incumbents have the edge, at least in the short-to medium term. Even the next-highest category of service bundling is in their favour. That said, by piggy-backing on the incumbents’ networks, however, the MVNOs have the same network quality and have catalysed the value-pricing of data that has led to the current competitive environment.

8. How many wireless service providers should Singapore have ?

  • Despite the fact that 81% of the respondents had remained with their telco service providers for more than 24 months, they were clearly in favour of having numerous competitors, believing that this could drive better-value deals from their existing providers.

9. If 5G is launched with speeds comparable to fixed broadband will you disconnect your fixed broadband at home?

  • There was a dead even split on “cutting the cord” on fibre broadband if 5G can provide comparable speeds sometime in the future. This is a potential risk for our favoured Singapore telco pick, NetLink NBN Trust, once 5G becomes a mass-market service potentially from 2020.
  • What we did not qualify in this survey, however, is that fibre-broadband speeds are also being scaled higher. As such, the speed gap between 5G and fibre may continue to exist. Also, given the video, gaming and applications that developers are creating and content that increasingly consumes more bandwidth, fibre fixed broadband might continue to be the optimal means of keeping ahead.
  • Nonetheless, we believe the threat perception from 5G could be the major reason for the range-bound NetLink Trust’s share price. This is despite the fact that it has a virtual monopoly in residential fibre with 6% prospective dividend yields for the next two years.

10. How often do you use your phone to make mobile payments (tap and pay; QR code type of payment and not using mobile browser to enter a pay site)?

  • With only 10% of our respondents using mobile payments daily and 33% never using, there could be some way to go before the service becomes part of their routine. Nonetheless, the potential is apparently driving various parties, including SingTel, to be the first movers and shakers in the space.

Luis Hilado Maybank Kim Eng Research | 2019-02-07
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