Can SingTel fight gravity?

Hailed by many analysts as Asia top telecommunication company, SingTel is facing heightened competition from emerging players seeking to knock it from the perch. Australia’s TPG Telecom stunned the market by not only becoming Singapore’s 4^th telecommunication player in late 2016, but also Australia’s 4^th telecommunication player in early 2017. Given the increased competition in Singapore, Australia and India, can SingTel fight gravity?

To put things into perspective, SingTel did not sleep walk into the dominant position in Asia by chance. Listed in SGX main board back in 1993, the company embarked on a slew of overseas acquisitions spree, with backing from Singapore sovereign wealth fund, Temasek Holdings.

As a result, SingTel enjoyed a massive investment moat of 600 million mobile phone subscribers across South East Asia countries like India, Philippines, Thailand, Indonesia, Singapore and Australia. This is an impressive feat that took more than 24 years to establish. In this regard, it is unlikely that TPG Telecom’s entry would pose short-term threat to SingTel.

In Singapore, the telecom industry is regulated by IMDA. When the regulator announced that a fourth license would be issued a couple of years ago, many investors and industry players were puzzled. While consumers certainly wish for a price war in light of the increased competition, having four players in Singapore wireless market does not make sense. After all, with a population of 5 million, Singapore’s market is just too small and saturated for another mobile phone player to gain a meaningful foothold.

The local pie is just not big enough for the new firm to generate efficient network scale and earn reasonable returns on invested capital. Indeed, scaling is important as it allows telecom players to efficiently deploy new network technologies, reduce overhead costs and marketing costs. For TPG Telecom, it needs to roll out the entire network from scratch after winning the spectrum rights from IMDA.

Although analysts may argue that the network deployment would not be a challenge in a small country like Singapore, it should be noted that IMDA set very high service standards for telco players. For example, operators must ensure 4G networks cover at least 95% of outdoor areas, increasing to 99% from July 2017. For a new player to achieve this requirement is an uphill task and would certainly take massive investment and resources. Furthermore, in about 5 years, the new 5G network is expected to be rolled out. So by the time TPG Telecom roll out its entire 4G network in Singapore, the trend could be on 5G technology already.

According to SingTel’s 2014 sustainability report, it still control significant market share in [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

Read my other articles on SingTel:

1. SingTel’s NetLink Trust IPO application approved
2. SingTel at a cross road
3. Short selling on SingTel shares
4. SingTel shares to rocket on NetLink Trust IPO?
5. SingTel share in supreme form
6. SingTel increased investment moat aggressively

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