Will Singapore see mass adoption of 4G?

Find out major hurdles for Singapore to reap the benefits of 4G now enjoyed by countries like US and Korea.

The prospect of Singapore receiving a universal 4G network has been on the cards with widespread use of smartphones and recently with the launch of iPhone5 which attracted long queues. More importantly, optimism for services dependent on this new network to fully flourish has grown.

DBS Vickers in a research report however argued that 4G penetration in Singapore may only hit 8% in 2013 and 20% in 2014 despite the widespread 4G network. These projections, DBS explained are based on experience in countries like the US where 4G penetration reached around 9% after 18 months of launch, while in Korea, penetration hit 17% after 13 months of launch. According to DBS, 4G network coverage and handset availability are the two most important factors but 4G is not priced at a premium in the two countries.

In June, SingTel lowered the data-caps to 2GB from 12GB. During the 3G era, c.22% of M1’s users exceeded the 2GB limit without paying an extra cent. Hence, with higher 4G speeds or five times higher than 3G, DBS said that more users are likely to exceed the 2GB data-cap to end up paying S$5.35 per extra GB. In addition, SingTel will charge S$10.70 per GB for exceeding the data-cap from Jan 2013 onwards.

M1 took it one step further in September and announced that it will charge an additional S$10.70 in subscription fees for 4G versus its 3G ARPU of S$53. StarHub has also put in place higher 4G pricing of an additional S$10.70 for 4G plans from March 31, 2013 onwards when its 4G coverage will be significantly higher. StarHub will charge slightly higher S$6.42 per GB for exceeding the data- cap. An additional S$10 per month works out to be 19% of M1’s, 14% of StarHub’s and 12% of SingTel’s reported postpaid ARPUs.

Here are other views from other analysts:

Ken Ang WeiYu, analyst, PhillipCapital

In terms of 4G penetration, I think that the 4G penetration in Singapore would be higher than that in the US and Korea.

First, a majority of handphone users in Singapore are using Smartphones. Furthermore, there has been an increase in Smartphone that are compatible with 4G. These include the upcoming IPhone 5 slated to be launched soon, and a few popular Samsung phones.

Second, a typical contract allows the postpaid subscriber to change a subsidized handset every 21 months. Assuming that all users change their phone every 21 months, this would imply that 57% of users will be changing their handphone in a year.

The availability of popular 4G compatible handphones, together with the large percentage of postpaid users with their contracts due for renewal would likely drive up adoption rates for 4G.

Major hurdles may include maintaining a high quality of 4G service. Should the speed be slower than user’s expectation, due to higher than expected adoption or very high traffic, this may deter users from purchasing a 4G compatible phone or from using the 4G service.

We see the introduction of 4G as being positive for the mobile operators. The higher speed may encourage increase in data usage. Based on a few articles, this increase in data usage is expected to be around 2X to 10X current usage levels. This may occur with an increase in higher data consuming services, such as iPhone 5’s FaceTime application over cellular data. With the lowered data caps, this presents an opportunity for these operators to better monetize data, thus leading to an increase in profits. Furthermore, 4G data is expected more efficient, thus costs may decrease even with the expected increase in data usage.

Iain Johnston, analyst, New Street Research

I would think the rate of 4G adoption will be faster than the US, given the decision of operators to wait until a wider variety of handsets is available at this phase of LTE, especially the sensible decision to launch at the time of apple’s iPhone 5. With a small market that is smartphone savvy and tech literate, with a high level of data usage already evidenty in Singapore, achieving the rate of growth implied by the Korean number is not out of the question.

The decision of operators to recalibrate and tier data pricing in LTE, whilst I think financially sensible for the operators, might meet some consumer resistance - although in practice the data caps now being put in place for 4G are still, based on average data usage today, looking pretty generous. without consumers beginning to migrate through the data tiers, it will be difficult to monetise the data opportunity as swiftly as operators would like.
LTE will boost revenues, though I suspect only marginally, as the data tiers still look very generous but better LTE speeds can boost data usage, particularly with more and more apps, social networking, and other content driving volumes up. In the longer term, that can only be of value.

Profitability will be driven in part by the level of subsidy required to get subscribers onto 4G – this is difficult to judge, as it depends on ASPS, but in general smartphone pricing hasn’t fallen as fast as I think historic trends would have predicted, making SRCS and SACS high. We would also highlight the revenue offset – if you can drive data revenues up, provided voice doesn’t collapse (and Singapore has an unusually high level of voice pricing, and is more dependent on voice overage) – then you can see an NPV positive impact.

Jeffrey Tan Jing Keat, analyst, OSK-DMG Research

I think 4G adoption in Singapore will probably come in between both the U.S and Korea. Key here is really educating data users and pricing (monetizing) data appropriately to mitigate some of the value destruction seen across 3g networks today. LTE will be eventually priced to ensure that those who require high speed Internet bandwidth pay accordingly. globally there has been a progressive shift from unlimited data plans to tired pricing model which addresses the issue of a small percentage of users hogging the bulk of the bandwidth.

There is somewhat lack of compelling factors to drive immediate take-up of 4G as most subscribers would be fairly happy with their current 3G data plans . With falling price points over time and availability of a wider pool of handsets eventually- should stoke interest and take-up.

Contribution to the telcos would depend on how aggressively they woulda want to drive take-up. I foresee contribution to be insignifant in the initial years due to higher handset subsidies and promotions thrown in.