Industry Perspective The future of telecommunication companies - Technology, Media & Telecommunications - UOB Group
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Technology, Media &
Telecommunications
Industry Perspective
The future of
telecommunication companies
Industry Perspective
Technology, Media & Telecommunications 2
(This page is left blank intentionally)
Industry Perspective
Technology, Media & Telecommunications 3
Executive summary
In the past, telecommunication operators (telcos) used to just be pure utility
players focused on building extensive networks and monetising their
traditional services by charging for voice, short message system (SMS),
international calls and roaming. However, in recent years, over-the-top (OTT)
service providers have disrupted the traditional business of telcos by offering
Technology, Media & communication services through their various applications (apps), resulting in
Telecommunications
a drop in revenue for telcos’ traditional businesses.
Figure 1 on page 4 illustrates the evolution in telcos’ business models as
they move from being pure utility players to digital players through
expansion in the digital space. Most telcos are already “digital enablers”
and are continuing to seek new areas of growth to extend their reach
across the digital space. We believe it is important for them to do so to
remain competitive, especially via increasing services/platforms as that will
result in greater stickiness and revenue from consumers. Essentially, as
telcos seek to increase their share in the digital space, they need to:
a) Ensure that their connectivity services are sufficiently advanced to
protect their core business;
b) Create content while driving partnerships with various OTT players; and
c) Create new areas of growth and services to target consumers as well
as businesses in the different sectors
Impact on telco dynamics
a) Telcos will face challenges as they venture into the digital space, such
as long gestation periods and losses in the initial years. Partnering with
the same OTT providers will limit content differentiation, as original
content development entails high cash burn rate with low guaranteed
Most telcos hit rates.
are already b) Telcos will also need to grapple with strong competition from tech giants
“digital in the digital space as well as data privacy issues. Nonetheless, a
measured approach towards digital investments should keep debt at
enablers” manageable levels. However, regulatory risk still remains a key
concern, particularly in China and Thailand.
as they seek new
areas of growth to
extend their reach
across the digital
space
Industry Perspective
Technology, Media & Telecommunications 4
Figure 1: Evolving nature of telcos’ business models
Most telcos are trying to streamline their core business and
move towards becoming digital players
Telco as a utility player Telco as a digital player
Digital Enabler
• Infrastructure and network • Partnerships with: Entertainment
provider players, banks, OTT players
• Mobile Virtual Network • E-Wallet player
Operator (MVNO) • Content aggregator
• Digital advertising
• Data analytics
• Cybersecurity
• IoT
• Industry 4.0
Source: UOB analysis
Connectivity and infrastructure are the core of the telcos’ business. Hence, telcos need to ensure that
they are sufficiently advanced in this area to protect their core business before expanding into new
business areas.
UOB offers sector solutions to tackle rising competition within the telecommunications space. For
more information on UOB’s value chain solutions for the telecommunications sub-sector, please
reach out to us at industry-insights@UOBgroup.com.
June 2019
Industry Perspective
Technology, Media & Telecommunications 5
Content
03 Executive summary
06 Telco as a
utility player
Sector:
Technology,
Media &
Telecommunications
Transitioning from a utility
The Future
10 player to a digital player
of Telcos
12 Telco as a digital playerIndustry Perspective
Technology, Media & Telecommunications 6
Telco as a utility player
Decline in traditional business areas amid intense
competition
Telcos globally have faced a significant drop in their traditional business and this In Singapore,
has led to a decline in the average revenue per user (ARPU) across all regions.
From Table 1, it can be seen that the pre-paid and post-paid ARPU for most
competition has
countries in Southeast Asia faced a decline in 2017. been heightened
due to the entry
Table 1: Post-paid and pre-paid ARPU growth rate for the various markets
of MyRepublic,
YoY (Post-paid) YoY (Pre-paid)
Market-average ARPU TPG, Circles.Life
FY2016 FY2017 FY2016 FY2017
Hong Kong 11% -5% - -
and Zero Mobile
Indonesia 12% -9% -2% -10%
Malaysia 3% -2% -3% 3%
Singapore -3% -4% -7% -5%
Thailand 0% -1% 4% -3%
Source: Company data, UOB Analysis
Operating margins are also challenged by the shift towards lower-margin data
business from the more lucrative legacy business. While consumers’ data
usage has been increasing, there has been a decline in SMS and Voice ARPU
due to consumers switching to data-based OTT services.
Besides intense competition, particularly in Singapore and Malaysia, telcos in
the region face different challenges and are therefore changing their strategies.
In Singapore, competition has heightened due to the entry of the fourth operator
(TPG) as well as MVNOs such as MyRepublic, Circles.Life and Zero Mobile.
The new entrants will likely experiment with aggressive pricing to gain market
share, while existing telcos will be pressured to introduce cheaper data price
plans in response. This will lead to lower average data ARPUs for incumbents.
Smaller players may be more vulnerable to failure amid intense competition.
In Indonesia, the pre-paid market makes up a large percentage of Indonesian
telcos’ revenue. Consumers previously would often change their pre-paid SIM
cards to get the best deal. However, the government has tightened its regulation
on the usage of SIM cards by ensuring that each citizen ID is only linked to a
maximum of three pre-paid SIM cards to reduce misuse. In April 2018,
Indonesia’s Ministry of Communication and Information Technology blocked 83
million unregistered SIM cards. This and stricter regulations meant lower revenues
for telcos in the first half of 2018. For example, Indosat saw a year-on-year (YoY)
decline in operating revenue of more than 20% in FY 2018. However, this
decline is likely to be temporary. Telcos such as Telkomsel also raised their data
prices by 5-10% in early July 2018 in an attempt to increase revenue.Industry Perspective
Technology, Media & Telecommunications 7
Telcos’ investments in infrastructure
With OTT players driving a rise in data consumption, telcos need to constantly Telcos have
invest in their networks to handle the increased data flow. In Thailand,
Indonesia and Malaysia, various telcos are still bidding or were just awarded
been investing
additional 4G spectrum. in their
networks to
There are specific coverage and quality requirements requested by the
handle
regulators after the award of a spectrum. This means that telcos will have to
continue with their investments in 4G infrastructure to ensure that they meet increased
regulators’ requirements. data flow
Back in 2016, Thai telcos migrated their users from 2G to
3G/4G as True and AIS had to shut down their 2G networks.
As they completed the final stages of their 3G coverage, AIS
and True also acquired new 4G spectrum. As a result, they
extended their capital expenditure cycle as they will continue
to ramp up 4G coverage in the coming years.
The Malaysian Communications and Multimedia Commission
(MCMC) reallocated the 700 megahertz (MHz) spectrum in
2018 and these frequencies will be made available to cellular
telcos in 2019. This means that Malaysian telcos will also be
investing more to improve their 4G network coverage in the
coming years.
In Indonesia, Telkomsel was awarded the 2.3 gigahertz
(GHz) spectrum in October 2017 while Three Indonesia and
Indosat Ooredoo won additional 2.1GHz frequencies in the
same month. These operators will have extensive capital
expenditure programmes.
The Indonesian government has also made infrastructure
investments to extend LTE coverage so as to drive wider 4G
adoption in Indonesia. The 2.1GHz and 2.3 GHz spectrum
bands can also be used to deliver 5G coverage in the future.
Investments in the infrastructure for these spectrum bands will
help telcos in their preparations for 5G rollout in the future.Industry Perspective
Technology, Media & Telecommunications 8
Countries such as Myanmar and Vietnam are late to the 4G space
The Vietnam telecommunications market is heavily regulated by the government, and the introduction of 4G
technology was deliberately delayed till 2016 to give the state-owned operators more time to monetise their
3G networks. Given that Vietnam is late to the 4G game (VNPT-Vinaphone launched 4G services only at
the end of 2016, Viettel and MobiFone launched 4G services in 20171), we can expect Vietnamese telcos to
continue to invest in 4G infrastructure in the coming years as their network rollout plans progress. GMobile
has been slow with its 4G rollout and Vietnamobile will only start to deploy 4G in 2019.
For Myanmar, major operators are continuing with their push in the 4G space. Myanma Posts and
Telecommunications (MPT), Ooredoo and Telenor Myanmar have been investing heavily in their 4G
services as they await the arrival of Mytel, an operator that was given a licence in January 2017.
Mytel will be offering advanced 4G services at highly competitive prices across the country2. Hence,
countries that have been slow to introduce 3G and 4G capabilities will still be investing in 4G infrastructure
in the coming years.
Figure 2: Carriers’ network equipment spending for Indonesia, Malaysia, Singapore, Thailand and Vietnam
12,000 30%
25%
10,000
20%
8,000
15%
6,000 10%
5%
4,000
0%
2,000
-5%
0 -10%
2015 2016 2017 2018 2019 2020 2021
Combined Total for 5 countries (US$ million) YoY growth
Source: UOB Analysis3
From Figure 2, it can be seen that Southeast Asian telcos’ spending on network equipment is expected to
see a slight year-on-year (YoY) decline from 2018 to 2021. This is due to a respite from the heavy
investments that they have made for 3G and 4G in 2013 to 2017. However, telcos have started to invest in
beefing up their optical fibre network to improve their network architecture in order to boost 4G performance
and prepare for 5G deployment. Telcos are likely to see an increase in their capex spending again once
they start deploying 5G networks in the region.
1 VietnamTelecommunications Report 2Q2018, BMI Research
2 Cambodia,Laos and Myanmar Report 3Q2018, BMI Research
3 UOB AnalysisIndustry Perspective
Technology, Media & Telecommunications 9
Telcos’ new handset plans attempt to lock consumers
in for a longer period of time
Operators are constantly experimenting with new strategies to attract a
wider customer base. Singtel is the first operator in Singapore to introduce
the handset leasing model.
The two-year post-paid contract model is the dominant model in Singapore,
where consumers would pay an upfront cost for a handset (usually subsidised
by the telco) and commit to a two-year contract.
However, telcos soon faced strong competition from Chinese vendors such as
Xiaomi, OPPO and OnePlus that were selling phones with good specifications
and with lower prices than that of Apple or Samsung.
Consumers started to buy these phones online or from other open channels,
reducing their reliance on telcos for handsets. To cater to this group of
consumers, telcos started to introduce SIM only plans in Singapore, where
consumers were offered lower priced post-paid plans for pure
telecommunication services without the handset.
In June 2018, Singtel started offering leasing plans for its higher end
flagship phones, in a bid to diversify its product offering. This was Singtel’s
Handset leasing
strategy to increase stickiness with consumers who are on SIM-only plans
to commit to a fixed plan for handsets with the telco.
plan provides
an alternative
While the revenue upfront for a telco based on the leasing plan can be lower way to tie
than that of a consumer paying for a device upfront and committing to a two- subscribers
year plan, the handset leasing plan provides an alternative way to tie
to telcos and
subscribers to telcos. At the end of the two years, Singtel’s revenue will depend
on how much the handsets are worth and how much they can be sold for.
increase
stickiness
In our view, Singtel’s leasing plan targets two key groups of consumers:
a) those who would like to change their phones more frequently; and
b) those who may not be able to pay a huge sum upfront for a handset.
This includes students.
By choosing the leasing option, consumers can choose to upgrade to a
brand new phone every year. We are of the view that this is Singtel’s way of
trying to win back consumers who have chosen to purchase phones on the
open market and who do not want to not commit to a two-year post-paid
contract by giving them the option of changing phones more frequently.Industry Perspective
Technology, Media & Telecommunications 10
Transitioning from a utility player
to a digital player
In this section, we will discuss how certain telcos have shifted from
‘traditional’ services as they evolve to become more digital. Telcos such as
StarHub and Singtel ventured into Pay TV services, which were
Important for
considered basic services provided by a telco utility player. They managed telcos to have
to garner a large subscriber base before facing the onset of competition their own
from OTT players and alternative platforms. content and to
strengthen this
To adapt to the digital change, StarHub introduced a multi-screen service
called StarHub Go. This allows users to go online and access a wide
portfolio along
variety of content by paying a monthly fee starting from S$9.90. with their
partnerships
StarHub also allows its StarHub Mobile users to stream StarHub Go with various
without using their existing data. Amid telcos’ digital shift, we can see how
OTT players
they have adapted and made changes to their traditional services.
Importance of being a content aggregator
As telcos shift from a utility player to becoming more of a digital player, it is
insufficient for telcos to simply partner OTT players and depend on their
content to drive revenue. This is to ensure that telcos will not be
disadvantaged by OTT players for content, while still being able to
monetise their own content using different platforms.
For telcos that do not provide Pay TV services, we see mergers or
acquisitions of content providers becoming more common. In the US, we
witnessed mergers between telcos and media entertainment providers
such as AT&T’s acquisition of Time Warner, which included Warner Bros.,
HBO and Turner under its arm.
We are beginning to see this trend being mirrored in Southeast Asia.
According to media reports, Ananda Krishnan, who owns a 62.4% stake in
Maxis and a 40% stake in Astro, is considering a corporate exercise which
may include a merger between the two listed entities4.
This could be advantageous to both entities given that Maxis is facing
great pressure from the competitive plans offered by its rivals and OTT
players while Astro’s subscriber base has also fallen due to competition
from other Pay TV and OTT competitors.
4 Source: Various media sourcesIndustry Perspective
Technology, Media & Telecommunications 11
The merger would help both entities to strengthen their overall offerings by
packaging Maxis’ mobile and home fibre plans with that of Astro’s, thereby Telcos may also
enabling content to be streamed to consumers’ mobile devices.
consider mergers
Other than mergers, we see telcos investing in other areas pertaining to
and acquisitions
content. China Mobile, the largest telco in China, launched a new media to strengthen
arm in 2015 known as Migu. It is now the largest licensed digital content digital offerings
aggregator in China with a portfolio comprising 17 million songs and 4.3
million videos5.
StarHub also acquired a 10% stake in MM2 Asia, a local video content
producer, back in 2016. Singtel has also been expanding the reach of
HOOQ across the Southeast Asia region.
Other than Netflix (global player), OTT
key Southeast Asian OTT players players
include iflix and HOOQ.
Malaysia-based iflix is a subscription-based video-on-demand service which
has formed partnerships with telcos around the region to deliver OTT
content. HOOQ, a joint-venture between Singtel, Sony Pictures and Warner
Brothers, has expanded its reach in Southeast Asia largely through Singtel’s
regional subsidiaries. AIS in Thailand has expanded its collaboration with
multiple domestic and international partners for more digital content.
5 Source: Various media sourcesIndustry Perspective
Technology, Media & Telecommunications 12
Telco as a digital player
Digital/targeted
advertising
B2B services Value Added
Cybersecurity, data centres,
cloud, internet of things (IoT) Telco Services (VAS)
for enterprise consumers
seeks new
growth
e OTT
Payments/ Partnerships
E-Wallets/ with OTT players
Mobile payments
Analysing &
monetising
consumer information
As the digital space becomes more embedded in the lives of consumers, telcos need to seek new growth
areas where they can increase the number of services to drive consumer stickiness, as well as to look for
areas to monetise their data and services. These are some of the approaches taken by telcos.
Partnerships with OTT players
Our analysis of various industry sources, including media, suggests that selected telcos view OTT players
as an opportunity rather than a threat. Through partnering OTT players, telcos can offer bundled services to
add more value to their subscribers.
Beyond bundling, many telcos in Southeast Asia also offer consumers the use of selected platforms such
as Facebook, WhatsApp and WeChat without incurring any additional data charges. The key idea is that
once consumers get used to connecting to these platforms, they will be willing to pay for more data usage
once the free service is taken away and this can help telcos to drive data revenue.Industry Perspective
Technology, Media & Telecommunications 13
As for OTT players, forming a partnership enables them to tap on the
telco’s large subscriber base. Both parties have the same goal – to drive
higher subscription rates and higher usage of the various services which
Telcos generate
will generate higher ARPU for telcos. a huge amount
of data that
Payments/E-Wallets/Mobile payments could be
Besides partnering OTT players, another opportunity for telcos to drive
customer acquisition is for customers to make payment through direct anonymised
operator billing. For example, Digi subscribers can purchase items from the and monetised
Google Play Store and charge these purchases to their Digi account.
Many telcos especially those in Indonesia and Thailand are also present in
the e-Wallet space. Singtel has also announced its plans to roll out mobile
wallet interoperability across its network of regional associates.
Singtel’s mobile wallet customers and its associate telcos would then be able
to make cashless payments at physical merchants while abroad6. These
payments will be made in their home currency through their home telco’s app.
This will also present an opportunity for banks to work with telcos.
Analysing and monetising of consumer information
Dataspark is Singtel’s data analytics subsidiary and insights generated from
the anonymised and aggregated data have drawn great interest from a
large range of industries6. For example, AIS has also invested in CellOS
Software, a provider of real-time big data analytics, while M1 has invested
in Trakomatic a provider of B2B video analytics solutions to retailers.
Other than potentially using data to upsell their services or to use it for internal
analysis, there has been an increasing trend of telcos selling anonymised and
aggregated versions of their data to external parties. We believe more telcos
are expected to move into this space in the coming years.
Digital/targeted advertising
Telcos in the region have also entered the digital advertising space to
compete against tech giants such as Google and Facebook.
Telkomsel has invested in digital advertising thus encouraging more brands
to follow suit and to use digital media to reach targeted consumer
segments. As a result, Telkomsel’s digital advertising revenue grew more
than 60% YoY in 2016 7.
6 Source: Singtel’s 2017 Annual Report
7 Source: Telkomsel’s 2016 Annual ReportIndustry Perspective
Technology, Media & Telecommunications 14
Back in 2012, SingTel invested in the digital advertising space by acquiring
digital advertising firm Amobee. Subsequently, Amobee acquired Turn, a
leading data management platform and multi-channel programmatic media Regional telcos
buying platform in the first half of 2017. This has enabled Singtel to provide have started
targeted advertising solutions for its clients. stepping up their
investments in
B2B services: Cybersecurity, data centres, cloud, the B2B space in
internet of things (IoT)
Telcos in the region have also started stepping up their investments in the the form of data
B2B space in the form of data centres, cloud computing, cybersecurity as centres, cloud
well as IoT services. computing,
cybersecurity
This is a space that will be growing dynamically in the coming years. Given
and IoT services
the need for telcos to serve as enablers, there is potential for them to
acquire new revenue growth from this space. Even in emerging markets,
telcos such as Indosat, Maxis and Digi have started investing in data
centres along with other B2B services.
Value Added Services (VAS) for enterprise consumers
Other than trying to win more consumers over by providing more content,
telcos are also pursuing VAS to provide specialised services and capabilities
to enterprise customers.
An example would be Singtel’s Connected Restaurant initiative, where it
offers enterprises an efficient way to run their restaurants directly from their
devices through a solution provided on a reliable and secure network.
StarHub has also taken similar steps with its Smart Retail Solution that
offers data analytics, digital signage, video and WiFi analytics and profit
intelligence POS solutions as one complete offering to enterprise
customers. This has enabled telcos to differentiate themselves and to
create greater stickiness with end consumers.Industry Perspective
Technology, Media & Telecommunications 15
Contacts
Technology, Media & Telecommunications Team
Chai Weizhe Tay Xiaohan
Centre Of Excellence Business Insights & Analytics
Chai.Weizhe@UOBgroup.com Tay.Xiaohan@UOBgroup.com
UOB’s Industry Insights brings you the latest trends across industries
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