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The bids are in, with MyRepublic, TPG Telecom, and airYotta contending for the position of Singapore's fourth telco. TPG Telecom's market positioning, should they win the bid, is unknown, while the other two have indicated that they will take a data-first approach, with MyRepublic offering unlimited data and airYotta the benefits of Singapore's first 4.5G LTE Advanced Pro network.

Singapore's incumbents, on the other hand, have been far more circumspect about the entry of a fourth telco. Prior to the bidding exercise, incumbents such as Singtel portended the possibility of a "price war" ¹ and warned about the need for "sustainable competition" ² due to the starting bid price of S$35 million under the New Entrant Spectrum Auction (NESA), which is reserved for pre-qualified parties who do not operate a nationwide mobile network in Singapore.

In comparison, incumbents paid sums ranging from S$104 million to S$136 million under the 2013 auction exercise, which did not see the entrance of a fourth telco despite a New Entrant Allocation Stage. Does this mean that there will be an imbalance in the telecommunications industry once the fourth telco comes online in April 2017? Let's look at the facts.

Competition in the telecoms sector - the basics
Part of the competition coming from a new entrant would be in the form of newer capital stock, which, notwithstanding installation and implementation issues, would most likely be easier to maintain and cost relatively less compared to what the incumbents paid for their telecommunications equipment at the time their networks were launched.

This is supported by economic data from the United States' Federal Reserve Board, which indicate that prices for telecommunications equipment have been falling, on average, by 11 percent every year for the past 20 years. This suggests that a new entrant will benefit from more cost-effective equipment and lower legacy costs, in addition to the concessions given to new entrants as part of the NESA.

These factors, however, are unlikely to sustain a fourth telco if competition proves too intense. As of June this year, Singapore's mobile population penetration rate was at 150.1%. This means that the bulk of a new entrant's subscribers will have to come from the existing mobile population, which gives rise to the incumbents' fears of a "price war" above.

Add the existing mobile virtual network operator (MVNO), Circles.Life, to the mix, and one gets a recipe for intense competition over an already saturated consumer services market.

Introducing the IoT / M2M landscape
Given the current state of the business-to-consumer (B2C) mobile services market, what strategic options would a fourth telco - or any of the incumbents, for that matter - have?

The first is to take a more focused approach, with business model innovations targeted towards specific consumer segments. This will be more advantageous to the fourth telco, which has little to lose from unbundling the comprehensive packages offered by the incumbents. Whether this is a realistic strategy for a fourth telco, which needs to incur higher capital expenditure costs compared to MVNOs in pursuing a niche strategy, has yet to be seen.

The second is to retreat into the mobile business-to-business (B2B) segment of the market - an option available only to the incumbents, due to the greater depth of their offerings and their existing ties with business consumers in the Singapore market. This approach may serve incumbents well, for a time, but it is uncertain how this will hold up in the face of increasing retail segmentation and the small size of the local telecommunications market.

The third, however, is a hitherto overlooked segment of the market - the Internet of Things (IoT) / Machine-to-Machine (M2M) landscape, which is driven by the need for interconnected machines and sensors within the B2B segment. There is still room for telcos - both the fourth entrant and incumbents alike - to develop offerings in areas such as fleet management, automated factories, utilities management, and beyond.

In this area, the most prominent example of product innovation comes from Starhub, which partnered San Francisco-based Particle earlier this year to provide mobile data plans to a hardware development platform capable of sending sensor data through a 3G network. Such partnerships may provide channels for future growth, and is a promising start in the telcos' search for growth and new business opportunities in a crowded market.

The verdict?
There are a few potential avenues for differentiation, despite the seeming prospect of a price war over a highly saturated B2C market. Not all of these options will be available to all telcos - for instance, an incumbent's ability to pull off a niche strategy might be limited by the potential cannibalisation of its own service offerings - while others like the third option will require more technical expertise so as to ensure the successful integration of one's M2M services with a customer's equipment and processes.

All of this will cost money, and may cause incumbents organisational pains as they restructure areas affected by increasing market segmentation. While this is not a pleasant combination, incumbents should realise that this is more the result of derailed investment decisions due to the entrance of a smaller and hence much more focused competitor, as opposed to a price war or unsustainable competition per se.

As such, the recent shake-up is a call for all industry players to be quick on their feet, and to find new areas where they can contribute to the local community and telecommunications industry. Recent government spending on automation, productivity, and Singapore's Smart Nation vision will mean that more telecommunications-based goods and services will be needed in the future, and at that point, it will be up to Singapore's most innovative telcos to meet those needs.

¹"'Absolutely not the case' that Singtel does not want competition, lower prices, says CEO" Channel News Asia, 12 Feb 2016
²Kwang, Kevin "Spectrum auction expected in Q3 this year to facilitate entry of 4th telco" Channel News Asia, 18 Feb 2016

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Singapore's 4th telco: Is there room for differentiation?

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The bids are in, with MyRepublic, TPG Telecom, and airYotta contending for the position of Singapore's fourth telco. TPG Telecom's market positioning, should they win the bid, is unknown, while the other two have indicated that they will take a data-first approach, with MyRepublic offering unlimited data and airYotta the benefits of Singapore's first 4.5G LTE Advanced Pro network.

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Singapore's telecommunications scene currently has three operators - namely, Singapore Telecommunications Limited (SGX: Z74), StarHub Ltd (SGX: CC3), and M1 Ltd (SGX: B2F) - and it's been this way for years. But change is now coming.

Just last Thursday, three companies have thrown their names into the hat to potentially become Singapore's fourth telco. They are MyRepublic, TPG Telecom, and airYotta. The three newcomers have applied to participate in an upcoming 4G airwave auction which should take place in early October this year.

But before the three contenders were made known, the trio of incumbents had already started a price war back in March to protect their own turf when they increased data allowances for subscribers. Now it appears bigger guns have been brought into the battle.

A few weeks ago, StarHub launched its new SurfHub plan which bundles at least 12GB of data on a 4G postpaid line along with a fibre broadband service. Handset subsidies and free talk time, SMS-es and MMS-es are also part of the bundle. The entire bundle will cost S$96.56 per month for consumers. In contrast, StarHub has a standalone 12GB postpaid plan that costs S$220 per month.

Telcos in Singapore are seeing growth in data usage. For consumers who are heavy users of data, StarHub's new plan would appear to be an attractive one in comparison to the S$220 per month standalone offer. Moreover, the other two telcos - SingTel and M1 - all have 12GB plans right now that have subscription fees of over S$200 per month, according to media reports. These are clearly higher than what StarHub's new plan offers.

Given this scenario, if Singtel and M1 do not put up a response, they are at risk of losing customers, or at least those who are very price sensitive.

But StarHub's moves are not well-received by some market participants. DBS Group Holdings Ltd's (SGX: D05) brokerage arm had downgraded shares of StarHub on 22 August 2016 following the company's launch of its aforementioned mobile data plans. The bank's brokerage arm sees the move as a possible "signal that the risk of a new entrant is not off." As we now know, there are three contenders in the race to be Singapore's fourth telco.

DBS's brokerage report also stated that it expects 5G mobile services (we're currently at 4G) to be launched in Singapore in four to five years' time. This launch is also expected to require infrastructure investment on the part of the local telcos.

Investors will have to keep a lookout on how the earnings and balance sheets of the incumbent telcos are changed as a result of the ongoing price war and the impending entrance of a new player in town.

For more investing insights and to keep up to date on the latest financial and stock market news, you can sign up for a subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat owns shares in DBS Group Holdings.

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What The Telco Price War Means For Consumers And Investors

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Singapore's telecommunications scene currently has three operators - namely, Singapore Telecommunications Limited (SGX: Z74), StarHub Ltd (SGX: CC3), and M1 Ltd (SGX: B2F) - and it's been this way for years. But change is now coming. Just last Thursday, three companies have thrown their names into the hat to potentially become Singapore's fourth telco.