SINGAPORE (Nikkei Markets) -- The underperformance of Singapore telecommunication companies looks set to continue with the arrival of new players even as technological changes undermine traditional revenue sources.
Singapore Telecommunications, StarHub and M1, the three major service providers, saw earnings fall in the last quarter. Their share prices have reflected diminishing prospects, declining an average 15% over the past year. That's in sharp contrast to the benchmark Straits Times Index, which has risen around 12% over the same period.
The entry of Zero1 and MyRepublic, expected later this month, is likely to further pressure revenues. More consumers are switching to cheaper calls and messages made over applications such as WhatsApp and Skype resulting in fewer paid international calls and text messages.
The new players could stymie the incumbents' ability to charge customers for additional data usage.
Zero1 has already started accepting pre-registration for a mobile plan with unlimited data usage, 200 minutes of talk time and 200 free SMS messages that will cost as little as 19 Singapore dollars ($14.40) a month.
Although the cost is comparable to the entry-level plans of the incumbents, those typically cap the amount of mobile data at 5 gigabytes a month. Unlimited data plans from the established players tend to be pricier.
MyRepublic is yet to reveal its hand, but a spokesman recently reaffirmed the company's plan to launch its service in the first quarter of 2018.
Besides Zero1 and MyRepublic, which are mobile virtual network operators, or MVNOs, that do not own networks but lease capacity from existing operators, a fourth mobile operator is set to enter the scene. Australian company TPG will begin offering its service towards the end of the year.
Circles.Life, an MVNO that began operations in Singapore less than two years ago, has already made its mark with its low-cost offerings - a spokeswoman claims the company is well on track to meeting its target of achieving a 3-5% share of post-paid subscribers.
Circles.Life declined to provide subscriber numbers, citing a confidentiality agreement with M1 from which it leases capacity.
In its report on the Singapore telecom sector last week, OCBC Investment Research said recent financial results pointed to heightened competition in a saturated market and forecast that margins would remain under pressure.
OCBC was particularly bearish about StarHub, which posted a 74% drop in fourth-quarter net profit to just S$14.1 million.
One-off items were partly to blame for the dismal showing by Singapore's second-largest telecom operator. Nevertheless, StarHub's revenue from mobile declined 4% on-year while pay TV revenue contracted by 7%.
Like cable TV operators in other countries, StarHub's pay TV service has been hit by the rise of new web-based video services like Netflix that are able to offer a wider selection at lower prices.
Market leader Singtel saw mobile communications revenue fall 3% in Singapore from a year ago, hurt by continued voice-to-data substitution and as more subscribers switched to lower cost plans. Its pay TV revenue declined by 8%.
Singtel, which also owns Optus in Australia and has large stakes in regional mobile phone operators such as India's Bharti Airtel and Indonesia's Telkomsel, posted an 8.5% drop in net profit to S$890 million in its fiscal third quarter ended December.
M1 managed to grow mobile revenues by 4% on-year during the October-December quarter, although analysts said the better-than-average performance reflected payments from Circles.Life. Net profit fell 2.5% to S$31 million.
DBS Equity Research said StarHub remained expensive as its shares trade at a forward price-to-earnings ratio of 21 times as against a sector average of 15.
While StarHub maintained an annual dividend per share of 16 Singapore cents in 2017, that could be cut to 14 cents in 2019 to keep debt in check, the securities research arm of DBS Bank said in a recent report.
Singtel, however, still continues to find favor. Both DBS and OCBC retained their "buy" recommendations on the stock, citing its low valuations relative to other telecom companies in the region as well as its more diversified businesses, which include cybersecurity and digital advertising.