Singapore's 4th telco: Is there room for differentiation?

The bids are in, with MyRepublic, TPG Telecom, and airYotta contending for the position of Singapore's fourth telco. TPG Telecom's market positioning, should they win the bid, is unknown, while the other two have indicated that they will take a data-first approach, with MyRepublic offering unlimited data and airYotta the benefits of Singapore's first 4.5G LTE Advanced Pro network.

Singapore's incumbents, on the other hand, have been far more circumspect about the entry of a fourth telco. Prior to the bidding exercise, incumbents such as Singtel portended the possibility of a "price war"¹ and warned about the need for "sustainable competition"² due to the starting bid price of S$35 million under the New Entrant Spectrum Auction (NESA), which is reserved for pre-qualified parties who do not operate a nationwide mobile network in Singapore.

In comparison, incumbents paid sums ranging from S$104 million to S$136 million under the 2013 auction exercise, which did not see the entrance of a fourth telco despite a New Entrant Allocation Stage. Does this mean that there will be an imbalance in the telecommunications industry once the fourth telco comes online in April 2017? Let's look at the facts.

Competition in the telecoms sector – the basics
Part of the competition coming from a new entrant would be in the form of newer capital stock, which, notwithstanding installation and implementation issues, would most likely be easier to maintain and cost relatively less compared to what the incumbents paid for their telecommunications equipment at the time their networks were launched.

This is supported by economic data from the United States' Federal Reserve Board, which indicate that prices for telecommunications equipment have been falling, on average, by 11 percent every year for the past 20 years. This suggests that a new entrant will benefit from more cost-effective equipment and lower legacy costs, in addition to the concessions given to new entrants as part of the NESA.

These factors, however, are unlikely to sustain a fourth telco if competition proves too intense. As of June this year, Singapore's mobile population penetration rate was at 150.1%. This means that the bulk of a new entrant's subscribers will have to come from the existing mobile population, which gives rise to the incumbents' fears of a "price war" above.

Add the existing mobile virtual network operator (MVNO), Circles.Life, to the mix, and one gets a recipe for intense competition over an already saturated consumer services market.

Introducing the IoT / M2M landscape
Given the current state of the business-to-consumer (B2C) mobile services market, what strategic options would a fourth telco – or any of the incumbents, for that matter – have?

The first is to take a more focused approach, with business model innovations targeted towards specific consumer segments. This will be more advantageous to the fourth telco, which has little to lose from unbundling the comprehensive packages offered by the incumbents. Whether this is a realistic strategy for a fourth telco, which needs to incur higher capital expenditure costs compared to MVNOs in pursuing a niche strategy, has yet to be seen.

The second is to retreat into the mobile business-to-business (B2B) segment of the market – an option available only to the incumbents, due to the greater depth of their offerings and their existing ties with business consumers in the Singapore market. This approach may serve incumbents well, for a time, but it is uncertain how this will hold up in the face of increasing retail segmentation and the small size of the local telecommunications market.

The third, however, is a hitherto overlooked segment of the market – the Internet of Things (IoT) / Machine-to-Machine (M2M) landscape, which is driven by the need for interconnected machines and sensors within the B2B segment. There is still room for telcos – both the fourth entrant and incumbents alike – to develop offerings in areas such as fleet management, automated factories, utilities management, and beyond.

In this area, the most prominent example of product innovation comes from Starhub, which partnered San Francisco-based Particle earlier this year to provide mobile data plans to a hardware development platform capable of sending sensor data through a 3G network. Such partnerships may provide channels for future growth, and is a promising start in the telcos' search for growth and new business opportunities in a crowded market.

The verdict?
There are a few potential avenues for differentiation, despite the seeming prospect of a price war over a highly saturated B2C market. Not all of these options will be available to all telcos – for instance, an incumbent's ability to pull off a niche strategy might be limited by the potential cannibalisation of its own service offerings – while others like the third option will require more technical expertise so as to ensure the successful integration of one's M2M services with a customer's equipment and processes.

All of this will cost money, and may cause incumbents organisational pains as they restructure areas affected by increasing market segmentation. While this is not a pleasant combination, incumbents should realise that this is more the result of derailed investment decisions due to the entrance of a smaller and hence much more focused competitor, as opposed to a price war or unsustainable competition per se.

As such, the recent shake-up is a call for all industry players to be quick on their feet, and to find new areas where they can contribute to the local community and telecommunications industry. Recent government spending on automation, productivity, and Singapore's Smart Nation vision will mean that more telecommunications-based goods and services will be needed in the future, and at that point, it will be up to Singapore's most innovative telcos to meet those needs.

¹"'Absolutely not the case' that Singtel does not want competition, lower prices, says CEO" Channel News Asia, 12 Feb 2016
²Kwang, Kevin "Spectrum auction expected in Q3 this year to facilitate entry of 4th telco" Channel News Asia, 18 Feb 2016