DBS: Fourth Singapore telco likely unviable amid aggressive MVNO expansion

SingTel outlet in SingaporeSingTel outlet in Singapore

Singapore’s incumbent telecommunications players will face a few years of pain ahead as aggressive moves into mobile virtual network operators (MVNOs) hit revenue, but that will likely render the fourth telco, TPG, unviable, DBS said in a note this week.

“As the majority of MVNOs’ revenue will flow back to their telco partners, telcos are better off losing revenue share to MVNOs than TPG by offering flexible wholesale pricing to their MVNOs,” DBS said. “TPG is likely to compete on cheaper pricing but will be challenged by MVNOs that offer superior network quality and differentiated services.”

DBS forecast Singapore’s mobile industry revenue would contract 4 percent over 2017-22, compared with its previous forecast for 1 percent contraction, due to higher take-up of cheaper SIM-only plans.

It projected that TPG would show EBITDA losses, compared with its previous forecast for positive EBITDA in 2022, gaining just 4 percent revenue share that year, versus its previous forecast for 5.5 percent share. EBITDA stands for earnings before interest, taxes, depreciation and amortization.

DBS said that would likely force TPG to seek exit opportunities or make it a target for acquisition.

Among the incumbent telcos, DBS tipped Singtel as better able to weather the storm as Singapore mobile accounts for only 13 percent of its service revenues, compared with 84 percent for M1 and 54 percent for StarHub.

It said StarHub’s shares still weren’t attractive, despite falling around 44 percent so far this year.

In a note earlier this month, DBS trimmed Singtel’s target to S$3.70 from S$3.85, but kept a Hold call.

DBS cut M1’s target to S$1.46 from S$1.76 in a note this week, keeping a Hold call.

It slashed StarHub’s target to S$1.42 from S$2.05, but upgraded the stock to Hold from Fully Valued.