It is no breaking news that soon there will be a 4th mobile telco amidst us, widely expected to be MyRepublic. As you would expect, the incumbents are absolutely
delighted not happy about this new threat to their monopoly. The most vocal (and most ridiculous) voice of opposition is that of Chua Sock Koong, the CEO of SingTel.
Two days ago, Ms Chua spoke to Bloomberg Television, complaining that the inclusion of a fourth telco will focus solely on slashing prices. Apparently that’s a bad thing.
The only way that they can gain customers will be by way of reducing prices. The existing operators would look at how best to respond. Clearly just leading prices down, it’s not good for the sustainability of the industry.
– Chua Sock Koong, SingTel CEO
This is the very same Chua Sock Koong that saw Comcast as a good example of an ISP, and the very same Chua Sock Koong who wanted to charge users to use Whatsapp and Skype on top of the existing monthly payments for the plan.
Here’s some food for thought — if your consumer does switch over to the fourth telco for the lower prices and is happy with the service that he/she gets, isn’t it time to have a look at your own?
For those of you reading this from abroad, or for those who aren’t as up to date with local history, here’s a quick run-down on how the telco market operates in Singapore.
In April of the year 2000, the Infocomm and Development Authority (IDA) in Singapore completely deregulated the telecommunications market by removing the limits on the number or type of licences (except when there are physical/resource constraints). The direct and indirect foreign equity limits for all public telecommunications services licences were also removed.
TL;DR – it’s a free market where anyone can set up or pack up shop as they please, and it’s been so for over 15 years.
This deregulation was supposed to have exposed the telcos to free market forces, and (in theory) forced them to improve their products in order to retain customers. Virgin Mobile attempted to enter the Singaporean market in 2001, by leasing the infrastructure required from SingTel and focusing only on services and marketing. 9 months later, they gave up. This failure to penetrate the Singaporean market was attributed to Virgin Mobile’s positioning as a “premium” brand, and a saturated mobile market.
This was 15 years ago. If it was saturated then, it certainly is saturated now. Based on historical precedent, SingTel has nothing to worry about. However, she clearly is, and for good reason.
It is all but confirmed that MyRepublic will be the fourth telco, and if their current efforts in the internet market are anything to go by, expect to get your (mobile) world rocked. Since its establishment in 2011, the company has experienced 300 per cent year-on-year customer growth. Last year, it reported a 5% market penetration, up from 3% in 2014.
With this kind of growth, it is not surprising the current operators are getting the heebie-jeebies. Whether this growth will translate well into the telecom arena is another matter, but it certainly has given Singapore’s oldest telco a lot to chew on.
Such as the fact that SingTel, M1 and Starhub are going to face a major disruption in their business models, which is essentially a cartel, for all three operators have identical offerings in all practicality. A cursory glance at their prices shows hardly a $20 difference in subsidised mobile phones (on-contract), and differences in plan prices are just in single digits. Neither of the three wish to disrupt the harmony in which they currently exist in, which fattens their pockets.
Now I am going to concede a point — oligopolistic firms have no reason to innovate, for their existing methodologies (usually) net them immense profits, and any attempt to differentiate themselves from their current products might end up in disaster. The consumer is not getting any special treatment simply because there is no other choice, and ‘playing nice‘ is not a phrase in the economic dictionary. It is the reason why SingTel can get away with a telco-side downtime in their sub-station for hours on end, make you stand in queues for 2 hours, and generally not give a damn about how the consumer should be treated.
The problem with the Chief Executive’s most recent statement is that it is a brazen acknowledgment of SingTel having been slapping consumers in the face all this while. Or it is the revelation that she knows nothing about basic economics (though we all know it’s not the case — she just desperately wants the status quo to be maintained — but let’s go with what she’s said).
To recap, Ms Chua claims that lower prices will drive consumers away to the fourth telco, and that is bad for the “sustainability of the industry”.
This is of course, making the assumption that all consumers care about is the price no matter the accompanying services. But that is simply not true. Students in junior college learn a very important Latin phrase in Economics — ceteris paribus, meaning “all else being equal“. What I am trying to say here is that the only time when price will be the only concern for consumers is when all else is equal. Equal 4G speeds, equally sized data caps, equal number of free SMS… you get the picture.
If MyRepublic (or whoever) manages to slash prices while keeping all else equal, that would be an impressive feat and would just lay bare the fact that SingTel has been nickel-and-diming consumers all this while.
Let’s assume this does not happen, and MyRepublic actually has some key differences in their telecom offerings. Or let’s continue with the same line of thought. Either way, there will hardly be any danger to the future of the telecom industry.
If a price war does erupt, it will only serve to severely wound the new entrant. Traditionally, price wars are only sparked by incumbents looking to keep newcomers out of the industry by plunging their revenue so greatly they begin to make heavy losses and are eventually forced to exit. Incumbents meanwhile can take the temporary hit in revenue thanks to their previously accumulated profits. Something tells me MyRepublic isn’t really going to start a price war, and their CEO even said as such. Their focus is on shaking up the current system in terms of service options.
We are not looking to destroy the market, we only want that 10 per cent or 12 per cent, but we hope that by doing this, the other operators will come in line and offer more services and more innovation into the marketplace…
…We want to build something disruptive and different. We want to build something completely new and completely different; it’s a different model, it’s a different cost and it should be a different customer experience.
– Malcolm Rodrigues, CEO of MyRepublic
Another option SingTel can adopt to ‘save the future of the telecom industry’ is to simply not play the game. As Mr Rodrigues said, the threat of MyRepublic should spur on the incumbents to innovate. This is known in economics as product differentiation, and is especially imperative when offering an intangible such as mobile or internet service.
While the deregulation of the market did not help kick the incumbents in the rear, it does look like MyRepublic’s foray into telecom will. Not long after MyRepublic had been the first to offer a 1Gbps fibre broadband plan that did not cost $300 a month, other ISPs followed suit and slashed their prices to the range at which MyRepublic had priced them. It is not outlandish, then, to presume that the same pattern will manifest itself in the telco market as well — something Mr Rodrigues is very confident of.
I bet you a day after the government says, ‘Here is the plan for a fourth telco’, data caps will go up in an attempt to diffuse the situation. I think what they don’t realise is that when they go from 12GB to 2GB, they will piss off so many people.
– Malcolm Rodrigues, CEO of MyRepublic
There will certainly not be any ‘doom and gloom’ scenario like Ms Chua has been posturing to the government and the media. What there will be is a wider range of options for the consumer, and hopefully better service quality coupled with lowered prices.
So to end off, I’d say this to SingTel — if you want to retain your customers, it’s high time you started improving your service.