SINGAPORE - Telcos here will be forced to consolidate within three years as the Singapore market gets ever more crowded, analysts from credit rating agency Moody's warned in a report this week.
And, while the analysts believe that Singtel will remain the market leader, they cautioned that the arrival of newcomers such as mobile virtual network operators (MVNOs), and the attendant competition-driven price war, could wear down its market share despite any revenue contributions from those MVNOs.
Moody's added in the report published on Tuesday (Jan 22) that MVNOs, which lease network capacity from incumbents, are being used as a defensive strategy by their hosts against Australian entrant TPG Telecom.
Mr Peter Kaliaropoulos, chief executive of rival StarHub, told The Business Times in November: "We don't know how it's going to happen. We don't know if it's two years from now or five years from now. But the fundamentals of our industry are such that they will lead us towards consolidation.
"If you've got such a fragmented industry, very few operators will invest... If your capex, paid back, becomes very, very long-term because your customer base is so small, it doesn't make sense to invest. So then you consolidate."
With the Republic set to entertain at least seven mobile service providers in 2019, industry revenues will keep on sliding, the Moody's analysts added.
M1 was the first telco to debut an MVNO partner - Circles.Life - in recent years, and Moody's noted that it has raised its mobile revenue market share by three percentage points since bringing the latter on board in May 2016.
But StarHub, which tied up with fibre broadband player MyRepublic two years later, saw its own share shrink by about that margin in the same period.
"The telcos would prefer losing revenue share to their respective MVNOs rather than to TPG because a large part of an MVNO's revenue is paid to the telco partner," the analysts wrote.
But, calling Singtel's partners, Zero Mobile and Zero 1, "not very active in the market" compared with the other MVNOs, they added: "It remains to be seen how much Singtel will benefit from this strategy."
Earnings before interest, tax, depreciation and amortisation (Ebitda) margins for Singtel's Singapore business - which contributed close to half of its revenue in its latest full year - will decline by one to two points in the coming 18 months, the analysts have predicted.
A1-rated Singtel's dominance at home used to underpin its credit quality, but that domestic profitability is now under threat, they said. Still, Singtel's wide geographic footprint, overseas operations and "significantly larger revenue scale will offset stress in its domestic market".
"Singtel has built a portfolio of investments in other regional telecommunications companies, principally cellular providers in high-growth markets," they noted, pointing to insulation from Singapore pressures through its ownership of Australia's Optus.
"Singtel has typically invested in two to three major-player markets and acquired a sizeable stake in one of the top three players in these markets, giving it scope to influence these players' strategic directions through board representation and dividend policies."
Separately, KGI Securities analyst Marc Tan on Thursday recommended Singtel's 3.4875 per cent bonds due 2020 to "investors looking to park cash in short-term corporate credit".