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Nikkei Markets

StarHub bears brunt of market aversion for telecom companies

Mobile, pay TV business hurt by shifting trends, competition

StarHub has been hit by the rise of web-based video services such as Netflix, which are able to offer a wider selection of programming at lower prices.   © Reuters

SINGAPORE (Nikkei Markets) -- Singapore's telecommunication companies are having a tough year as changes disrupt the industry, undermining once-reliable sources of revenue even as competition heats up.

But none has had it worse than StarHub, the No. 2 player that's dependent on the domestic consumer for its mobile, pay TV and broadband businesses.

Since the start of the year, the company's stock has lost nearly 44%, making it the worst performer in the Straits Times Index. By comparison, shares of market leader Singapore Telecommunications, or Singtel, which derives a large part of its revenue from other Asian countries, and those of M1, the smallest operator, have each fallen around 11-12%.

A big chunk of the decline in StarHub's stock came last month, when the company announced tepid earnings and flagged the possible removal of Discovery's popular TV channels from its line-up due to a price dispute with the U.S. company.

Adding to the pressure, MSCI, which compiles widely tracked equity benchmarks, demoted StarHub to its Singapore Small Cap Index from its main MSCI Singapore Index following a mid-year review.

The developments have coincided with a change at the top. The company announced the exit of Tan Tong Hai as chief executive in November. His replacement, Peter Kaliaropoulos, a telecom veteran who helped launch StarHub in 2000 as part of its executive team, won't take the helm until early July.

Similarly to cable TV operators in other countries, StarHub has been hit by the rise of web-based video services such as Netflix, which are able to offer a wider selection of programming at lower prices.

Although the company has made some efforts to counter the slide in its core businesses, analysts remain bearish about its prospects.

In the first quarter, mobile revenue, which accounts for a little over a third of total revenue, fell by 7.1% year on year as more users switched to free data-based calls and messages. Revenue from pay TV services, which contributes some 14% to the total, fell 10% in the period. The company had 449,000 TV subscribers as of the end of March, 38,000 fewer than a year ago.

StarHub has pointed to its enterprise segment, which offers companies cybersecurity solutions and data and internet services, as a bright spot.

However, the thin margins in that segment are not enough to offset the decline in the mainstay mobile and pay TV segments, HSBC said in a recent report. The bank cut its net profit estimates for the company by 8-15% over 2018-20 and downgraded the stock to "reduce" from "hold."

With a fourth player, Australia's TPG Telecom, set to enter the market later this year, analysts expect further pressure on rates for mobile and data packages.

Mobile penetration is around 150% in Singapore's market and many industry observers say even three operators are too many for the 5.8-million population.

In a bid to preserve market share, all three have teamed up with mobile virtual network operators, or MVNOs, which buy voice and data capacity at wholesale prices from operators and resell them in packages, often to niche, price-sensitive customer groups.

M1's partnership with MVNO Circles.Life is widely cited as the reason it was able to increase service revenue by 3% in the first quarter.

Still, the growing number of MVNOs catering to even more customer segments has heightened concerns about a price war.

Oliver Wilkinson, entertainment and media leader at PwC, said MVNOs could cannibalize an operator's existing customers without increasing the total number.

In May, StarHub said it was teaming up with broadband operator MyRepublic, the fourth MVNO to enter the fray after Zero Mobile and Zero1, which lease capacity from Singtel.

MyRepublic, which said then that it plans to target a younger, more tech-savvy crowd, unveiled its mobile plans Thursday.

According to the Straits Times, chief executive Malcolm Rodrigues said the company is aiming for a 5% share of the mobile market. The paper quoted Rodrigues as saying that MyRepublic had a good take-up rate after launching its service a month ago for existing broadband customers. "People have switched away from the incumbents to new operators and the door is open for us to take customers," Rodrigues said.

StarHub shares lost 4.7% on Thursday to end at 1.61 Singapore dollars ($1.19).

--Leslie Shaffer

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