Competition will force local telcos to consolidate: Moody's
Singapore too small a market to be profitable for the seven telcos expected this year, say analysts
Competitive pressures from an increasingly crowded market will force local telcos to consolidate over the next three years, said analysts this week.
They noted that while Singtel will remain the market leader, its share of industry revenue and the subscriber market could be eroded by newcomers and the price war that will likely happen.
The forecast from financial services company Moody's comes amid the arrival of Australian entrant TPG Telecom, which acquired the rights to operate here in 2016 alongside Singtel, M1 and StarHub.
TPG started mobile trials in certain parts of Singapore this month, although the commercial launch of services is likely to be delayed to the second quarter of the year, the report said.
Moody's noted that Singapore is slated to have at least seven mobile operators this year compared with just three over the past decade.
Three of these are mobile network operators and four are mobile virtual network operators. Virtual network operators do not build their own physical mobile networks but lease them wholesale from existing telcos.
The report, which was released on Tuesday, said: "We expect industry consolidation to take place in the next two to three years, with competition in a saturated market worsened by the arrival of the four low-cost mobile virtual network operators as well as TPG Telecom's commercial launch this year."
The rapid increase in telcos means industry turnover will keep sliding, said Moody's.
"The rapid build-up in competitive pressure in the last two years will lead to continued declines in mobile revenue in Singapore over the next 12 to 24 months, driven by compression in average revenue per user as well as a stagnant subscriber base."
Mr Sachin Mittal, head of telecommunications, media and technology at DBS Group Research, said: "We expect mobile revenue to continue to decline (around) 5 per cent annually due to the rising adoption of SIM-only plans and consumers to benefit from lower prices."
Analysts The Straits Times spoke to agreed that the consolidation of telcos is a likely scenario given Singapore's limited consumer base.
Assistant Professor of finance Aurobindo Ghosh from the Lee Kong Chian School of Business at Singapore Management University said: "With as many as seven players as the report suggests, the market size might be too small for all of them to be profitable. This might lead to severe price competition to capture market share.
"So I think in the medium to long run, for sustainability, existing players will look for strategic partnerships to cater to new demand from fintech services like digital banking services. Data analytics might also play an important role."