In 2016, telecom regulator Infocomm Media Development Authority (IMDA) endeavored to instill a fresh lease of life in Singapore's mobile sector. The incumbent operators now face competition from two new players in a saturated market. Australian broadband provider TPG Telecom, one of the new players, won Singapore's new entrant spectrum auction in December 2016 and has become the country's fourth mobile network operator (MNO). It outbid local firm MyRepublic to win 60MHz of spectrum – 20MHz in the 900MHz band and 40MHz in the 2.3GHz band – and is expected to launch services before 1H18. Circles.Life, the other new player, entered the market as a mobile virtual network operator (MVNO) in May 2016 to offer 4G services. It targets a niche segment of online-savvy and data-hungry users with a business model based on online channels and service delivery. These developments are significant because it marks the first time in 15 years that the three-way hold on Singapore's mobile market by the three incumbents, Singtel, StarHub, and M1, has ultimately loosened. Ovum believes the introduction of a fourth MNO has kicked the market out of complacency.
For a long time, Singapore represented a stagnant market, one that lacked competition. The incumbents offered almost the same products, which returned high ARPU and profitability. As a result, the regulator encouraged the entry of a new player to bring in competition to the mobile sector.
In the lead-up to the spectrum allocation to TPG, the mobile market witnessed price competition over the past 12–15 months as the reality of a fourth mobile operator gained momentum. For example, all of the incumbents launched aggressive data add-on plans for a flat fee, and they aggressively promoted SIM-only plans over the past year. The rise in competition is already visible with the sector's service revenue and ARPU declining over the last nine months. More aggressive data pricing in the future is expected to take its toll on data monetization across the industry and put pressure on service revenues.
Price competition is not the best way to compete as it erodes profitability. Instead, the incumbents have a good opportunity to roll out innovative products and services that will help to differentiate against rivals. Circles.Life, the new MVNO, has adopted a service innovation approach rather than merely offering the cheapest data plan. A key Circles.Life innovation is the ability for its users to customize monthly plans in real time through a dedicated mobile app.
The entry of TPG Telecom as an MNO has certainly unsettled the incumbents. They find themselves amid aggressive price promotions and declining service revenues. TPG has acquired an advantageous mix of spectrum. The low-band 900MHz frequency has better propagation characteristics with longer range and better in-building coverage, which minimize capex and are appealing from an economic standpoint. The 2.3GHz frequency band provides capacity for high data throughput. These spectrum assets will enable TPG to compete on a level playing field with the incumbents. TPG has a vast experience in operating the broadband business in a mature Australian market, which it can effectively put to use in Singapore. It is worth noting that TPG is Australia's second-largest fixed broadband (FBB) service provider, even larger than Optus. It has experience in operating a low-cost FBB business, which is aimed at value-seeking users.
It is not going to be an easy sail for TPG. The IMDA has laid out strict network coverage targets for the new MNO. TPG will be required to provide a nationwide street-level 4G coverage within 18 months from the commencement of the new spectrum rights in April 2017. TPG could face multiple challenges in rolling out a competitive network, including capex outlay, a lack of access to base station sites (mandatory site sharing was not part of the license win), and network coverage gaps. Depth of network coverage (e.g. in elevators, stairwells) is a key factor in Singapore.
Singapore is a saturated market with well-established incumbent players and a SIM card penetration rate of more than 150%. Although aggressive pricing will delay TPG's breakeven period, its ability to bundle services and differentiate on customer service will enhance its competitiveness. TPG is relatively unknown in Singapore, and it will need to run a lean operation in the initial years as it spent S$105m to win the spectrum at the auction. However, the Australian broadband provider can leverage Singapore's Nationwide Broadband Network (NBN) to open up bundling possibilities in the long run. TPG should consider new bundling opportunities as traditional multiplay bundles in the Singapore market are under pressure.
Who is the winner in the new market? It is the customer. As competition rises with new players entering the market, customers will receive more attention and better offers from existing players. The existing operators will need to walk that "extra" mile to keep customers happy, which is going to be their greatest challenge.
Singapore Update, November 2016, TE0016-000321 (December 2016)
Vivek Roy, Analyst, Asia-Pacific
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