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Singtel bolsters regional ties to leverage 570M subscribers

Singtel CEO Chua Sock Koong, top row, third from right, smiles along with participants in the company's mobile app competition in Jakarta on Dec. 8. (Photo by Wataru Suzuki)

JAKARTA/SINGAPORE -- Representatives of tech startups from across Asia were gathered on a stage in a Jakarta hotel on Dec. 8. Bringing them together was an app-development competition sponsored by Singapore Telecommunications, whose CEO, Chua Sock Koong, was at the center of the scrum. Next to her were the founders of Socialgiver, a Thai company that offers discount hotel and restaurant deals and donates part of its revenue to charity. It was the big winner of the Regional Mobile App Challenge, which attracted some 700 applications from 11 countries.     

     By nabbing the top prize, Socialgiver gets a chance to roll out its app in markets where Singtel has partners, including Bharti Airtel of India, Telekomunikasi Selular of Indonesia, Advanced Info Service (AIS) of Thailand, Globe Telecom of the Philippines and Optus of Australia. 

     Singtel's regional network of telecom alliances, covering a total of some 570 million subscribers, has already attracted taxi-hailing app GrabTaxi, which recently agreed to give users in Thailand, the Philippines and Indonesia the option of paying their fares using the telecoms' mobile wallet services.

     A strong presence in Asia's emerging markets has also helped Singtel become the largest listed company in Southeast Asia by market capitalization. Its shares this year have outperformed Singapore's benchmark stock index. Yet, its current price-earnings ratio, about 16 times, is a discount compared to other telecoms with a strong presence in Asia, such as Norway's Telenor, which has a P/E of 30 times, and Malaysia's Axiata Group, 20 times, Bloomberg data shows.

     One aim of the contest is to help Singtel partner with young Internet companies -- a key component of its strategy to turn digital services into a prime revenue source. But more importantly, it offers the company a chance to enhance collaboration with its regional affiliates. On the day before the event, the CEOs of the partner companies held a series of discussions covering such topics as pricing plans, technical issues and the competitive landscapes in their respective markets.

     Singtel began formally organizing such meetings around 2013. The aim, said Mark Chong, CEO of Singtel's international operations, is to "identify which operators have done well in a particular view that is critical to our business." Other carriers can then apply what they have learned in their own markets.

Singtel CEO Chua Sock Koong speaks during an event for the company's mobile-app competition in Jakarta on Dec. 8.

     In 2013, Philippine telecom company Globe launched GoSakto, a prepaid mobile service in which subscribers can customize how much they pay for voice, text and data services. After seeing how the plan boosted Globe's subscriber count, regional affiliates began rolling out similar services. Similarly, an engineering improvement that Thailand's AIS developed was copied by partners across the region, Chong said. He also said stronger alliances help affiliates negotiate lower prices for handsets.

Closer to home

A former state telecom operator, Singtel began venturing overseas in the early 1990s. Its investments initially targeted countries as far away as Norway and Belgium, but the company later narrowed its focus to the Asia-Pacific region. It generates more than 70% of its earnings before interest, tax, depreciation and amortization outside Singapore. Most of its foreign partners hold the top or runner-up positions in their respective markets.

     The latest push for regional cooperation comes as Singtel and its overseas affiliates face the same headwinds. Their traditional voice and messaging services have come under pressure as customers increasingly opt to communicate via social-networking and messaging services. Meanwhile, the fast-growing mobile phone market has attracted deep-pocketed rivals to the region, fueling price competition.

     To better compete, Singtel has been busy trying to promote digital services. In 2012, it set up the Digital Life segment to expand consumer-related digital services. In the same year, it bought then-Silicon Valley-based mobile advertising company Amobee for $321 million.

    With Sony Pictures Television and Warner Bros., Singtel established a joint venture called Hooq to provide Hollywood blockbuster movies to smartphone users across Asia. It launched services in the Philippines in February and is expanding to India, Thailand and Indonesia.

     Investing in the digital business, however, is a long-term strategy. The segment is still losing money and is not expected to turn profitable for a few more years. And investors have shown little interest so far.
     "The share price does not really reflect these initiatives for the very reason that they do not contribute to the bottom line yet," said Carey Wong, a telecom analyst at OCBC Securities. Ramakrishna Maruvada, head of Singapore research at Daiwa Capital Markets Singapore, said, "[Singtel's digital business] is not a game-changer at this point in time." 

     Competition is getting tighter in the digital arena. Philippine Long Distance Telephone took a 10% stake in German startup incubator Rocket Internet last year for 333 million euros ($365 million). "So far, Singtel has taken the early lead," Maruvada said. But the analyst added that it remains to be seen if any of the initiatives will succeed.

     Singtel appears to be aware that its Digital Life segment will not drive earnings in the near future and is therefore also pursuing other areas. It recently bought 98% of American cybersecurity company Trustwave Holdings for $810 million, the largest nontelecom acquisition in the company's history. 

     Meanwhile, other players are making bold moves to grow their presence in Asia. In October, Malaysia's Axiata Group said it will acquire a 75% stake in a telecom tower company in Myanmar, giving it a toehold in a fast-growing market where Singtel has no presence. Qatar-based Ooredoo, which has been on a takeover spree since the late 2000s, has begun rebranding its group subsidiaries under the Ooredoo name to improve its marketing effectiveness.

     With the exception of Optus, Singtel's stakes in overseas telecom companies are less than 50%, limiting its influence on management. This could reduce Singtel's options in the future. With many Asian markets maturing, the "ability [for Singtel] to acquire traditional telecom assets at attractive prices is limited," said Daiwa's Maruvada.

     Singtel's vast telecom network across Asia has been the foundation of investor confidence. Tightening its grip on its regional affiliates despite holding only minority stakes will be just as important as branching out into new businesses.

Nikkei staff writer Cliff Venzon in Manila contributed to this story

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