StarHub is competing aggressively on the ICT front with the market leader, an analyst revealed.
StarHub’s go-to strategy of bundling mobile, broadband, and Pay-TV services continues to face declines due to the proliferation of over-the-top (OTT) TV services. According to DBS Equity Research, nearly 24,000 customers (7%) with subscriptions to three or more services have downgraded since 1Q2016.
“Majority of these customers are moving away from Pay-TV to cheaper alternatives such as Netflix, despite losing the discount available on bundled services in the process,” said DBS Equity Research analyst Sachin Mittal. “We believe downgrades of hubbing subscriptions would accelerate amidst the increasing appeal of OTT TV services among high-end Pay TV customers and rising pressure on the broadband segment from M1 and MyRepublic.”
As this is a critical success factor for StarHub, there could be near-term impact on the company's share price as the structural decline is unlikely to reverse, he added.
Moreover, its postpaid average revenue per user (ARPU) continues to face downward pressures and is expected to contract by 3.5% annually in 2018 to 2020 no thanks to the growing uptake of SIM-only plans and the entry of TPG Telecom.
SIM-only plans are expected to rise in popularity over the medium term, with lengthening smartphone replacement cycles and aggressive promotions by mobile virtual network operators (MVNO). StarHub’s 1Q2018 postpaid ARPU declined by around 4% with the rising uptake of SIM-only plans and higher uptake of unlimited weekend data plans.
“We have also assumed StarHub to record 5% annual contraction of mobile revenues over FY2018-2020F, in line with our industry base case, versus our previous assumption of ~2% annual contraction of mobile revenues,” said.
What then for StarHub? Mittal noted the telco managed to expand revenues from the enterprise segment by 18% YoY in FY2018, largely driven by the consolidation of Accel Systems and D’Crypt.
“The acquisitions made in the cybersecurity and cryptographic technology space should further augment StarHub’s ICT service portfolio, which continues to drive the telco’s enterprise segment,” he said. “The newly acquired capabilities would also pave way for StarHub to capitalise on major government and commercial cyber security tenders pertaining to the ongoing Smart City projects.”
Moreover, DBS Equity Research’s channel checks revealed that StarHub is competing aggressively on the ICT front with the market leader. “We expect some market share grab by StarHub through competitive pricing. As such, we believe the enterprise segment would remain a key driver of StarHub’s topline going forward,” Mittal added.
However, as ICT services carry lower margins, the telco’s incremental EBITDA is not expected to be substantial enough to offset any potential EBITDA losses in the Pay-TV and mobile segments.
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