LEE Siak Kwee - Cloud Object Storage | Store & Retrieve...

DISCONTINUITIES IN THE TELECOM INDUSTRY:

STRATEGIC CHOICES FOR SINGTEL

by

LEE Siak Kwee

MBA in Singapore Programme

2008

A Management Project presented in part consideration for the degree of Master

of Business Administration

Discontinuities in the Telecom Industry: Strategic Choices for SingTel

MBA Management Project 1 Lee Siak Kwee

EXECUTIVE SUMMARY

This report examines the corporate strategy of SingTel and show how they can be

derived from a combined analysis of its internal and external environment. An

outside-in, position-based approach using the Porter’s Five Forces (PFF) model is

used to analyse the complexities and forces shrouding the industry with the aim of

identifying the key opportunities and threats. An inside-out, resource-based approach

using the Resource Based View (RBV) is also undertaken to reveal SingTel’s key

strengths and weaknesses. Interviews were also conducted with two key management

executives within SingTel to gain a first hand understanding of the strategic issues

from an insider perspective.

Integrating the results of these two analysis and insights into a SWOT framework, a

synthesis of the key strategic factors is then performed to match those strengths that

can exploit opportunities and/or neutralize threats, and at the same time, determine

what new competence needs to be acquired by SingTel to overcome the potential of

external threats exploiting its current weaknesses. It is shown that the strategic

choices that SingTel has made as its corporate strategy are congruent and aligned with

the dynamics of its internal and external environment.

SingTel’s three-pronged corporate strategy of leading in local market; inorganic

growth through overseas investment and innovation to mitigate commoditisation, are

intricately shaped by the SWOT analysis as derived from RBV and PFF. This dual

assessment has also highlighted the need for SingTel to seriously consider an asset-

light strategy in view of mounting cost pressures and the reality that the “value” in the

value chain is progressively moving to the edges and outside of the traditional

network boundaries. On top of its innovation strategy, SingTel may need a new

corporate strategy to outsource its network and reinvent itself by focusing on building

new competences like multimedia, alliances and partnerships to tackle the emergence

of non-traditional players.



TABLE OF CONTENTS Page 1. INTRODUCTION…………………………………………… 5

2. BACKGROUND……………………………………………. 7

2.1 Recent History………………………………………………. 7

2.2 SingTel’s Corporate Vision & Strategy………………….…. 8

3. METHODOLOGIES………………………………………….. 12

3.1 Hierarchy of Strategy……………………………………….. 12

3.2 External Analysis- Porter’s Five Forces……………………. 13

3.3 Internal Analysis - Resource Based View………………….. 16

3.4 Other Strategy Concepts……………………………………. 18

4. STRATEGIC ANALYSIS OF THE INDUSTRY ENVIRONMENT

……………………………………………………………….. 19

4.1 Objectives……………………………………………………. 19

4.2 Porter’s Five Forces Analysis………………………………. 19

4.2.1 Industry Competitors……………………………………….. 19

4.2.2. New Entrants ……………………………………………….. 35

4.2.3 Buyers……………………………………………………….. 40

4.2.4 Suppliers…………………………………………………….. 43

4.2.5 Substitutes…………………………………………………… 48

5. STRATEGIC ANALYSIS OF THE INTERNAL

ENVIRONMENT – A RESOURCE BASED VIEW (RBV) 51

5.1 Strengths…………………………………………………….. 51

5.1.1 Strength in Numbers………………………………………… 51

5.1.2 Customer Knowledge……………………………………….. 52

5.1.3 Financial Strengths………………………………………….. 53

5.1.4 Investment Savvy…………………………………………… 54

5.1.5 Brand Equity………………………………………………… 56



TABLE OF CONTENTS

Page

5.2 VRIN Criteria ……………………………………………...... 56

5.3 Potential Weaknesses?.............................................................. 57

5.3.1 Technical Capability – Core Competence or Core Rigidity?. 57

5.3.2 Government Linked – Boon or Bane?...................................... 60

6. SYTHESIS OF EXTERNAL AND INTERNAL ANALYSIS 62

6.1 Leveraging Strengths to Exploit Opportunities

and/or Neutralize Threats……………………………………... 65

6.2 Alleviating Weaknesses and Mitigating External Threats…….. 66

6.3 Exploiting Opportunities to Alleviate Weaknesses……….…… 69

7. SUMMARY AND CONCULSIONS…………………………... 71

REFERENCES………………………………………………………….. 74

ANNEX 1 ……………………………………………………………….. 79

ANNEX 2 ……………………………………………………………….. 80

ANNEX 3 ……………………………………………………………….. 89

ANNEX 4 ……………………………………………………………….. 98

ANNEX 5 ……………………………………………………………….. 107



ACKNOWLEDGEMENT

I would like to thank Dr Rajesh Kumar for his thoughtful and stimulating guidance on

this project. His invaluable advice has been instrumental in steering me onto the right

track and helping me to put the appropriate focus on the important areas.

My sincere appreciation also goes out to the following subject matter expert from

SingTel for agreeing to my email and face to face interview and gather valuable

insights of their thoughts on this subject. They are Mark Chong, Executive Vice

President (Networks) and Chris Lane, Group Chief Strategy Officer.



SECTION ONE: INTRODUCTION

Apple’s iPhone was all the rave in the telecommunications industry in 2007. It was

named Time’s magazine “Gadget of the Year 2007” and Telecom Asia (Dec 2007)

hailed is as “easily the biggest telecom success story of 2007”. It is perhaps not major

news to hear of Apple winning another accolade for yet another iconic product, but

what is more telling is that Apple is making waves in an industry where it is

considered a non-traditional player. Such quantum shift is an unmistakable sign of the

discontinuities shaking up the hitherto stable telecommunication industry.

Technically, the iPhone falls short of what one would consider an industry “standard”;

it does not even support the latest Third Generation (3G) mobile communication

technology. What differentiates iPhone from the dizzying array of handsets in the

market is its ultra-intuitive user interface. But for operators like SingTel, what is

undoubtedly more ominous is that Apple is imposing a new business model for the

iPhone. In the markets where iPhone has been launched, not only is Apple selling it

through just one exclusive mobile operator, it is also taking a cut of the monthly

revenue generated by the iPhone user. This is unprecedented in the mobile business or

for that matter, in the more general telecom industry. It marks the first time that a

device manufacturer can have such bargaining power as to be able to demand a slice

of the operator’s recurring revenue.

The impact of iPhone is a microcosm of the discontinuities taking place in the telecom

landscape and it illustrates how existing rules are being rewritten, not by incumbents,

but by new challengers in the value chain. Besides the advent of such unconventional

new entrants, the telecom industry is also undergoing a state of constant flux through

a confluence of external factors like regulatory changes and disruptive technologies,

among other things. Such revolutionary transformation to the whole ecosystem

portends radical rather than incremental changes. It is unchartered territory and

necessitates traditional players like SingTel to seriously reassess its strategic position

in order to stay relevant in future.

The purpose of this case study is to investigate the strategic choices that SingTel has

made in its corporate strategy and how they can be derived from a combined analysis



of its internal and external environment. In the first part, a detailed analysis is carried

out to understand the strategic position of SingTel vis-à-vis its external environment.

Porter’s Five Forces (Porter, 1979) model is used as it provides an elegant yet

systematic framework to analyse the underlying competitive and disruptive forces at

play within the ecosystem of the industry. The output of this assessment will provide

an incisive view of the different opportunities and threats that SingTel has to contend

with at present and in future.

The second part of the report takes the Resource Based View (RBV) approach to

determine what valuable resources are at SingTel’s disposal. This is an introspective

assessment of the organisation’s capabilities focusing on those strengths that can be

leveraged and how they can be collectively configured as bases of competitive

advantage. Similarly, the weaknesses of SingTel will also be identified so that the

potential resource gaps can be identified and filled.

Apart from the two frameworks, email and face to face interviews have also been

conducted with two top management executives within SingTel to gather their

thoughts on this topic. The strategic outputs from these analysis and discussions will

be synthesised within the familiar SWOT framework and shown how they can guide

and be used to formulate courses of action or strategic choices for SingTel. This part

of the discussion will focus on how the “fit” between the internal resources and the

external opportunities and threats is manifested in SingTel’s current corporate strategy.



SECTION TWO: BACKGROUND

2.1 Recent History

With presence in countries stretching from Australia to India, Singapore

Telecommunications (SingTel) is today widely regarded as a pan-Asian

telecommunications giant. But when the former government statutory board was

listed on the Singapore Exchange in 1993, few could have imagined such a dramatic

transformation 15 years later.

The 1990s witnessed a wave of deregulation sweeping through the telecommunication

industry all over the world. Government monopolies were being dismantled as rapidly

as markets were being liberalized with the injection of more competition. ITU (2002)

reported that from 10% in 1992, more than 60% of all the countries had some form of

competition in the telecom industry by 2000. Singapore was no exception. The first

wave of deregulation hit SingTel in April 1997 with the opening up of the mobile and

paging markets. But the “big bang” came in April 2000, when the whole Singapore

telecommunications market was opened up to unlimited competition (IDA, 2000).

Accompanying the radical changes in the regulatory landscape globally, the 1990s

also saw the advent of digital technology that would revolutionarise the way people

communicate. Voice over Internet Protocol (VOIP) and the internet blurred

geographically boundaries and decimated the highly lucrative International Direct

Dial (IDD) business that was hitherto the major cash cow of traditional telecom

carriers like SingTel. From a 45.3% share of its total revenue in 1996 (Tan, 1999),

IDD revenue today has dropped to no more than 5% of total revenue (SingTel 2008).

The drop in profit margin is even more dramatic: the average IDD call rate dropped

from S$ 2.05 per minute (Foo, 2000) to less than S$0.31 per min in 2007 (SingTel,

2007). This exemplifies how disruptive technologies can cause major discontinuities

in the industry structure.

While deregulation and new technologies caused major shakeup in its domestic

markets, it also meant new opportunities were opening up for SingTel in other

markets. The erstwhile government monopoly which derived most of its profits from

its domestic market is now a major regional player with over three quarter of its


EBITDA (Earnings before interest, tax, depreciation and amortization) coming from

its overseas venture (SingTel, 2007) as shown in Chart 2A. Annex 1 provides a more

detail breakdown of the associates’ contribution to SingTel’s overall bottom line.

SingTel, 24%

Optus, 31%

Others, 1%

Regional Mobile, 44%

Chart 2A: SingTel’s Proportionate EBITDA Distribution as at end Dec 2007 (Source:

SingTel)

2.2 SingTel’s Corporate Vision & Strategy

SingTel’s organization structure as shown in Chart 2B is a direct reflection of its

strategic business focus. Under the Group CEO are three other line CEOs responsible

for SingTel’s three main geographical business units namely: Singapore, Optus

Australia and International.



.

Chart 2B : SingTel Organisational Chart (Source: SingTel Web site: www.singtel.com)

The five elements of SingTel’s corporate strategy (SingTel, 2008) are essentially

tailored to meet its stated corporate vision which is “to be Asia Pacific’s best

communications group”:

(a) Lead in Singapore – to be the leading telecommunications operator in

Singapore with a stable and cash generative business. This is achieved

through its ability to defend its market share and margins by offering a

comprehensive package of communications services and integrated IT

services, coupled with strong brand recognition.

(b) Grow in Australia – Position the wholly-owned subsidiary Optus as

the leading challenger to the incumbent telecommunications operator.

Optus aims to maintain its track record of market share growth, expand

margins, grow profits and cashflow by delivering simple, innovative

and reliable experience for customers; ensure cost leadership in target

markets; establish leadership in attractive new markets; strengthen the


http://www.optus.com.au/



company's "challenger" culture; and leverage the scale of the SingTel

Group as a whole.

(c) Partner across Asia - SingTel key focus is on execution and

maximising the value of existing businesses and regional partnerships.

This has included reviewing opportunities to increase shareholdings in

existing associates and consider new investments. SingTel has

commendable record of making successful acquisitions and

investments. The geographic focus will remain in Asia Pacific, with a

preference for strategic investments where SingTel can add value by

taking an active role in management, and which can be funded from

internal cash flow generation.

(d) Connect Asia – To serve the needs of multinational corporations,

SingTel has a network of 38 offices in 19 countries and territories

throughout Asia Pacific, in Europe and the USA. These offices enable

SingTel to deliver reliable and quality network solutions to its

customers, either on its own or with local partners. It also has an

extensive infrastructure made up of satellite networks and submarine

cable systems throughout Asia Pacific, providing connectivity across

the region and to the rest of the world.

(e) Innovate for the Future - Providing innovative communications

solutions to meet evolving customer needs has been core to SingTel’s

success. SingTel targets to nurture its human and intellectual capital to

achieve organisational excellence in order to enhance its position as an

integrated provider of wireline and wireless services for businesses and

consumers.

Going forward, with the dynamic environment undergoing more sea-change, are these

strategies still relevant for SingTel to maintain its growth? The Singapore market,

especially in the major business areas like mobile and broadband services, is

increasingly being commoditised with market penetration at saturation point.

http://home.singtel.com/about_singtel/global_presence/globalpre_overseasoffices.asp

http://home.singtel.com/about_singtel/network_n_infrastructure/default.asp



Regionally, SingTel has also seen opportunities for acquisition becoming more

restrictive and even financially prohibitive with premium valuations demanded by

potential sellers. And the example of iPhone clearly illustrates the sort of

unconventional competitor that SingTel will have to face-off in future.

Mark Chong, EVP(Networks) of SingTel highlighted that, “The threats to any

business are often multi-faceted. Likewise, SingTel’s business is subject to challenges

from liberalisation which brings in more competition, as well as disruptive

technologies that could potentially render obsolete, investments which had yet to yield

their necessary returns.” Is SingTel’s corporate strategy a sound one vis-à-vis the

external environment that it faces and the internal resources that it can leverage on?

Does it fully uses it competitive advantage to exploit the opportunities or neutralize

threats, both present and in future? The following sections will seek to provide the

answers to these key questions.



SECTION THREE: METHODOLOGIES

The two basic frameworks used in the analysis of external and internal environment

are the Porter’s Five Forces (PFF) and the Resource Based View (RBV) of the firm.

In addition, interviews have also been conducted with two key top management

executives in SingTel to gather their view on this subject. Mark Chong, the Executive

Vice President of SingTel’s Networks Group, gave general feedback through an email

interview on the strategic issues facing SingTel today and for the engineering aspect

in particular. A face to face interview was also conducted with the strategy guru in

SingTel, Chris Lane, who is the Group Chief Strategy Officer. Many of their insights

have been incorporated into the discussions throughout the paper and where

appropriate, quoted for emphasis sake. But before delving into the mechanics of the

methodologies, it is important to clearly define the scope of the “strategy” that this

report is intending to research.

There is no common definition of strategy and Mintzberg (1987), for example,

provided five different definitions although it is widely accepted that the fundamental

purpose of a business is to earn a profit over and above the cost of capital employed.

Hence strategy is basically the means to manage and direct a business in its

environment towards a competitive advantage in the market place (Porter, 1996).

3.1 Hierarchy of Strategy

Johnson & Scholes (1999) defined strategy in 3 different levels based on a descending

hierarchy:

(a) Corporate Strategy - concerned with the overall purpose and scope of

the organisation

(b) Business Unit Strategy – focus on how to compete successfully in a

particular market

(c) Operational Strategies – deals with how the components part of the

organization in terms of resources, processes, people and their skills

effectively deliver the corporate and business level strategic direction.

Porter (1987), on the other hand, simply defines strategy in two levels: corporate and

business (or competitive) unit. It also alluded to corporate strategy as been an



essential attribute of a diversified company and defines it as one concerning “what

businesses the corporation should be in and how the corporate office should manage

the array of business units”.

This case analysis primarily targets the corporate level strategy of SingTel and this is

typically embodied in the context of the company’s vision i.e. what the company does

and what it is intended to become. It is not concerned with how the different

individual line of business should compete in order to succeed in their respective

market place but more with what businesses and markets that SingTel should aspire to

compete in. In an era of convergence in the IT, telecom and the internet/media,

between the fixed and mobile industry, and where services (e.g. “triple pay” of

broadband, mobile and pay-TV) are sold in a bundle, the concept of business level

strategy cannot be easily segregated. The organisation structure of SingTel into

geographical and customer facing units also serve to further reinforce this

phenomenon. Correspondingly, it is more relevant for the PFF and RBV analysis to

focus on those factors accruing to and affecting the corporate level strategy. Wheelen

& Hunger (2000) concisely sums up the definition of corporate strategy that this

report is focusing on:

(a) The firm’s overall orientation towards growth or stability

(b) The industries or markets in which the firm competes

(c) The manner in which management coordinates activities/resources and

cultivates capabilities among product lines and business units.

3.2 External Analysis- Porter’s Five Forces

The external analysis approach is based on the idea of “strategic positioning”, and it

has in Michael E. Porter its main protagonist. Industry structure and positioning

within the industry are the two broad thrusts on which Porter’s Five Forces (PFF)

model is based on and it is used as the main concept to analyse the outside forces

surrounding SingTel.

PFF postulates that the industry that a firm competes in and its strategic position

within that industry are the two key determinants of profitability. A firm has to


understand the nature of its competitive environment if it is to be successful in

formulating the correct strategies. If an organization fully appreciates the competitive

forces underpinning the industry, it will be in an informed position to counteract

against any threats and will also be able influence the forces with the appropriate

strategies. Like most technology industry, the telecom industry is extremely fluid and

this means that the nature and relative power of the forces will be constantly changing

over time. Hence, the analysis will concurrently look at what the environmental

ecosystem is today and also seek to predict how they will evolve in future. Diagram

3A captures the five industry forces underlying Porter’s model as well as macro-

environmental factors that can also exert a direct influence on the industry dynamics.

New Entrants

Substitutes

BuyersSuppliers

Industry Competitors

Intensity of Rivals

Political Economical

Social

Technological

Diagram 3A: Porter’s Five Forces Model (Source: Porter, 1979)

As its name implies, this model breaks the industry structure into five competitive

elements: industry competitors, threat of new entrants, power of suppliers, power of

buyers and threat of substitute products. These five forces are what is called the

“near” environment i.e. the industry specific factors. Encompassing them is the “far”

environment i.e. the macro environment in which the industry operates in. These




macro-environmental issues comprising of political, economical, social and

technological factors will also be concurrently incorporated in the appraisal so that

their respective impact on the five forces can be properly accounted for.

The PFF is specifically chosen because the telecom industry is intricately intertwined

and profoundly impacted by forces in its external environment e.g. competition,

technology, regulatory policies etc. Having a sophisticated understanding of the

different competitive elements in the industry will allow a firm to devise the correct

strategy to counter, influence and/or change the current rules of the game. Porter

(1979) stated that “The strategist, wanting to position his company to cope best with

its industry environment or to influence that environment in the company’s favour,

must learn what makes the environment tick”. This is the core logic of adopting the

PFF model for this study i.e. it is an excellent framework as it elegantly addresses the

key competitive thrust and underlying causes encircling SingTel within the telecom

industry.

By eliciting the source of competitive forces at play in the telecom industry, the PFF

will not only identify the threats but more critically, the potential opportunities that

can be strategically exploited. However, implicit in Porter’s model is a generalisation

that firms competing within the industry have access to those resources that is

instrumental to the strategy that they pursue. Barney (1991), has argued that such

simplification “effectively eliminate firm resource heterogeneity and immobility as

possible source of competitive advantage”. Indeed, a strategy designed to capitalize

on the opportunities based on just a one-sided understanding of the industry dynamics

is unlikely to be successful if it cannot be executed due to a mismatch with the firm’s

resources and capabilities.

By introducing the value chain concept to facilitate identifying sources of firm’s

strengths and weaknesses, Porter (1985) seemed to also acknowledge that looking at

external factor alone is incomplete in formulating a strategy. Cool & Schendel (1988)

have also shown that significant performance differences exist among firms having

similar “positioning” within the same industry while others (Rumelt, 1991, Hansen &

Wernfelt, 1989) have shown that variance in firm performance between industries is



substantially less than that within industries. This substantiates the contention that

corporate strategy based on industry positioning alone is inadequate and superior

performance must be the result of some other complementary factors.

An internal assessment of the firm is thus necessary to identify its valuable resources

as the ability of the firm to outperform its rivals depends on both the industry

attractiveness as well as its ability to establish competitive advantage (Grant, 1991).

By “valuable” resources, it means those resources that can generate economic rent for

SingTel within the context of the external environment i.e. a source of competitive

advantage. For this purpose, the RBV approach is examined in conjunction with the

Porterian framework so that both an outside-in (PFF) and inside-out (RBV)

perspective are captured, and the right “strategic fit” between its capabilities and the

environment can be matched.

3.3 Internal Analysis - Resource Based View

The RBV view of the firm considers that every organisation has a different collection

of physical and intangible assets, and suggests that these resources are the primary

determinants of the firm’s performance. No two companies are alike because they will

invariably be different in terms of experience, culture, management etc. Barney

(1991), Collis & Montgomery (1995) and Daft (1983) posited that these resources

enable the firm to conceive of and implement strategies that improve its efficiency

and effectiveness. These are the so-called resource portfolio and an in-depth

understanding of the possibilities presented by these resources are critical as they

form the basis on which a firm can formulate a strategy that makes the most effective

use of these resources. Such resources can be in physical form like financial resources,

intellectual rights or more intangible ones like brand name, production/technical

know-how, organisation culture etc. Technically, RBV is more of a theory than a

framework per se, although there are attempts like Grant (1991) to propose a more

formalised and structured model.

Barney (1991) and Collis & Montgomery (1995) suggested that in order to identify

the sources of sustained competitive advantage in a firm, the focus must be placed on



resources that are heterogeneous and immobile. Specifically, Barney stated that

resources must pass the following market test of its value:

(a) Valuable (V)- enables a firm to employ a value-creating strategy, by

either improving efficiency or effectiveness

(b) Rare (R)– resource is limited and not easily acquired by competitors

(c) Imperfectly inimitable (I)– resource cannot be duplicated

(d) Non-substitutable (N)– no equivalent or similar resources that can

replace or act as replacement

Closer examination will reveal that conditions (a) and (b) generally produce

competitive advantage while conditions (c) and (d) can result in sustainability. In

short, these four VRIN attributes determine the degree of heterogeneity and

immobility of the resources, and consequently how useful they are in helping a firm

gain sustainable competitive advantage. The more a resource meets the VRIN

conditions, the more pivotal a role it plays in shaping the strategy of a firm. Naturally,

if all firms in the industry possess homogenous resources or is capable of gaining

access to such resources (i.e. resources are mobile), then it is hard to imagine how any

firm can possibly have a competitive advantage over the competitors in a sustained

manner since everyone is capable of eventually implementing the same strategies and

effectively nullifying each other.

In this study, RBV is used interchangeably to the concept of core competences

(Hamel & Pralahad, 1990). In general, resources are a more basic unit of analysis

while core competences is about how these resources are combined, mixed and

integrated or “the collective learning in the organization, especially how to

coordinate diverse production skills and integrate multiple streams of technologies.”

(Hamel & Pralahad, 1990).

It should be noted that the RBV of a firm is not centered around the existing resources

alone; it is equally concerned about the firm’s weaknesses especially those that can be

exploited by external threats. Consequently, the analysis will also identify the current

resource “gap” and what needs to be done to fill this gap.



Combining both the PFF and RBV concepts will facilitate a more holistic approach to

the strategy formulation process and result in a hybrid resource and industry

positioning strategy. Simply put, PFF states where a firm wants to be, while RBV

provides the how of getting there.

3.4 Other Strategy Concepts

Apart from the choice of a “fit” concept as the basis of strategic management, the

other possible and popular concept is that of “stretch”. Notion of “Strategic Intent”

(Hamel & Pralahad, 1989) generally focuses on stretching the limited resources of the

organization by forcing it to be more innovative in order to compete against a much

bigger competitor. Strategic Intent identifies the firm’s ideal state and is associated

with a mind-set that the firm seeks to imbue in the organization. Although this notion

of strategy as “stretch” gives both the internal and external view of the firm, it

essentially creates “an extreme misfit between resources and ambitions” rather than

focusing on “the degree of fit between existing resources and current opportunities”

(Hamal & Pralahad, 1989).

It is felt that such an approach to strategy development is more relevant for nascent

firms with limited resources and targeting to beat a much bigger incumbent. In fact, in

Hamel & Pralahad (1989), examples of Komatsu and Canon were used as case studies

to demonstrate how fledgling companies outfox their more established competitor by

having a clear strategic intent. Hamel & Pralahad indeed also stated that “to achieve a

strategic intent, a company must usually take on a larger, better financed competitor”.

Clearly, being an incumbent and market leader, SingTel does not fit into this category

especially in the context of Singapore and even amongst its regional

telecommunication peers. It is extremely well endowed with resources, as subsequent

sections will reveal, and its main challenge is in deciding how to deploy these

resources rather than having to stretch them.

In summary, “stretch” concepts like Strategic Intent are less appropriate in this

context and Porter’s Five Forces and RBV are used as the key methodologies to

analyse the strategic choices for SingTel.


SECTION FOUR: STRATEGIC ANALYSIS OF THE INDUSTRY

ENVIRONMENT

4.1 Objectives

The stability and dynamism of the environment are critical considerations in the

strategy of any firm. The more volatile these parameters are, the greater the

uncertainty and the more complex the analysis becomes. The telecommunication

industry is one that is heavily influenced by its external environment, both industry-

specific as well as those pertaining to the broader macro environment. Not least of

which are for example, the regulatory regime in which it operates in, the economic

prospect, disruptive technologies etc.

The key objectives of this section are to size up the external environment for the

purpose of gaining a strategic understanding of the key threats and opportunities

facing SingTel. To this end, Porter’s Five Forces (PFF) (1979) model is used as the

broad framework on which the main analysis is developed. The output will provide a

clear perspective of the industry dynamics and collective forces that SingTel is up

against and what it can do to re-orientate itself for the future. Specifically, it looks at

the prevailing forces at play in the industry today and also attempts to extrapolate the

developments that can shape the industry in future. The diagram below outlines the

key steps in this analysis:

Assess nature & dynamics of the environment

Understand main competitive

forces & position

Identify key opportunities &

threats

4.2 Porter’s Five Forces Analysis

4.2.1 Industry Competitors

This section drills down into the rivalry that exists among the competitors in the

telecom industry. It looks at the various determinants that shape the competitive

forces and hence factors like strength/diversity of competitors, attractiveness of

market, state of market maturity, exit barriers etc will be evaluated.




4.2.1.1 Strength of Competitors

In Singapore

(a) Market Position

Although the Singapore telecommunications market has been fully liberalized since

2000 (IDA, 2000), most of the new entrants are typically niche players focusing on

targeted segments like IDD, international leased lines etc. Indeed, although a total of

29 facilities based operators (FBOs) and 535 service based operators (SBOs) were

licensed to provide telecommunications services, the International

Telecommunications Union (ITU, 2001) reported that “Although many new operators

have been licensed following the introduction of full competition, Singapore’s

telecommunications market remains dominated by SingTel, StarHub, M1 and

SCV,…...” In fact, StarHub acquired SCV (the only pay-TV operator in Singapore at

that time) in 2002 (StarHub, 2002), effectively reducing the telecom market to three

major players: SingTel, StarHub and M1.

It is only in the two key business of mobile and fixed broadband that competition can

be classified as intense. Even then, SingTel only faces two competitors in the mobile

market viz. StarHub and M1. In the fixed broadband market, the heavy capital

investment itself is a deterrent which limits the market to basically a two horse race

between SingTel and StarHub.

StarHub and M1 are both backed by experienced global telecom operators as well as

strong local partners. This has invariably contributed to their formidable presence and

success in the market. StarHub’s major local shareholders are Singapore Technologies

Telemedia (49.36% share) which is a government-owned company with interest in

wide-ranging infocomm businesses and Mediacorp (7.6%), the monopoly TV/radio

broadcaster. Its foreign partners are NTT Communications of Japan and British

Telecom (BT), although BT has since sold off its entire stake in 2004 when StarHub

was publicly listed.

M1 also has a very strong local partner in Keppel Telecom and SPH, both well

established government-related conglomerates and its foreign partner is Sunshare, a

subsidiary of Telekom Malaysia.


Chart 4A & B below show the market share of SingTel versus the competitors in

mobile and fixed broadband respectively:

0%5%

10%15%20%25%30%35%40%45%

2004 2005 2006 2007

End Year

Mar

ket S

hare

(Mob

ile)

SingTel StarHubM1

Chart 4A: Mobile Market Share in Singapore (Source: M1, StarHub and SingTel

Annual Reports FY2004-2007)

0%

10%

20%

30%

40%

50%

60%

2004 2005 2006 2007

End Year

Mar

ket S

hare

(Fix

ed B

raod

band

)

SingTel StarHub

Chart 4B: Broadband Market Share in Singapore (Source: Infocomm Development

Authority of Singapore (IDA) Web Site: www.ida.gov.sg)

SingTel has over the past four years managed to maintain its average market share of

40% and 55% for mobile and fixed broadband respectively. The key takeaway from



these charts is that SingTel is still the clear market leader. M1 is gradually losing

ground and the main reason is that being a pure mobile-only player, it has severely

limited its ability to compete with SingTel and StarHub both of whom are able to

bundle their mobile offerings with their fixed broadband as well as their pay-TV

services.

Market share from a revenue perspective also establishes SingTel as the market leader,

as depicted in Chart 4C. Taking mobile revenue as an indicator, SingTel’s revenue

share of the mobile market is in fact higher than its subscriber market share (44%

versus 41%), implying that it has higher ARPU (average revenue per user) and hence

a more valuable customer base than StarHub and especially M1. This can be

attributed to the fact that it still retains a reputation of being a trusted and high quality

company. As such, many valuable corporate businesses are prepared to pay a

premium to stay with SingTel.

0%5%

10%15%20%25%30%35%40%45%50%

2004 2005 2006 2007

End Financial Year

Mar

ket S

hare

(Mob

ile R

even

ue)

SingTelStarhubM1

Chart 4C: Mobile Revenue Share (Source: CIMB Telecommunication Sector Analyst

Report, 26 Nov 2007)

(b) Financials

Financially, SingTel is the largest company by market capitalization on the Singapore

Exchange. The following analyses the relative strength of the three telcos over the

past 3 years with respect to some key financial ratios. The detailed financial

statements of each company are provided in Annex 2 to 4 while the definition of each

of the ratios is provided in Annex 5. It should be noted that the financial year of



SingTel is from 01 Apr to end March while M1 and StarHub follows the calendar

year.

-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%

2005 2006 2007

Year

Rev

enue

Gro

wth

SingTelStarHubM1

Chart 4D: Revenue growth for past 3 years for SingTel, M1 and StarHub. (Source:

SingTel, M1 and StarHub)

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

2005 2006 2007

Year

EBI

TDA

Gro

wth

SingTelStarHubM1

Chart 4E: EBITDA growth for past 3 years for SingTel, M1 and StarHub

(Source: SingTel, M1 and StarHub)

EBITDA & REVENUE Growth: Chart 4D & E compares the Revenue and EBIDTA

growth of the three telcos for the past three financial years. StarHub is by far the best

performer with an enviable double digit growth in both revenue and EBITDA. This is

in sharp contrast to the flat top line growth and slight erosion of EBITDA for both M1

and SingTel. This shows that not only is StarHub growing and snatching revenue



market share at the expense of both operators, it is also doing this at a much lower

cost as shown in its relatively higher EBITDA.

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

2005 2006 2007

Year End

EBIT

DA

Mar

gin

SingTelStarHubM1

Chart 4F: EBITDA Margin for past 3 years for SingTel, M1 and StarHub


EBITDA Margin: Although SingTel still shows the highest absolute EBITDA or

operating margin as illustrated in Chart 4F, a worrying sign is that it is trending

downwards, implying that its expenses is growing at a faster rate than its revenue.

Comparatively, StarHub has been impressively improving on its margin and still

growing its top and bottom line at the same time. Its margin is lower than M1

because it is dragged down by its pay-TV business which is generally a high capital

investment and low margin business.



0200400600800

1,0001,2001,4001,6001,8002,000

SingTel StarHub M1

Operator

Free

Cas

h Fl

ow in

S$

mils

200520062007

Chart 4G: Free Cash Flow for the past 3 years for SingTel, M1 and StarHub (Source:

SingTel, M1 and StarHub)

Free Cash Flow/Dividend : Looking at Chart 4G, SingTel’s free cash flow stands

heads and shoulders above the rest and this cash holding gives it tremendous

flexibility to take advantage of any investment opportunity both in Singapore and

overseas. On the other hand, M1 and StarHub have no regional ambition and have

consistently chosen to return surplus cash to its shareholders instead. Table 4H below

shows the declared dividend policy of the three telcos:

SingTel Pay 50% of underlying net profit after tax as ordinary dividends. (SingTel

15th AGM, 2007)

StarHub 18cts per share or about 90% of net profit after tax (StarHub, 2008)

M1 For FY2007, aim to make a total cash distribution to shareholders

equivalent to at least 80% of full-year net profit after tax. (M1, 2008)

Table 4H: Dividend Policies of SingTel, StarHub & M1 (Source: SingTel, StarHub &

M1)

This high dividend payout ratio of M1 and StarHub is also reflected in their respective

dividend yield and in absolute terms, both operators actually pay out more dividends

per share than SingTel despite their relatively smaller size. But the implication is that

they are considered as dividend yield stocks in the market and their share price may

take a direct hit, at least in the short term, if they decide to divert some of these cash




to a new venture. SingTel, on the other hand, has much more scope to deploy its cash

on hand.

Leverage: From a debt/equity ratio basis, SingTel’s capital structure is still quite

conservative compared to M1 and StarHub. This is shown in the Table 4I:

SingTel StarHub M1 2005 2006 2007 2005 2006 2007 2005 2006 2007 Interest Cover 15.00 17.0 21.3 38.7 40.0 24.5 32.4 32.3 33.9 Debt/Equity 0.26 0.19 0.22 0.01 0.40 0.77 0.2 0.2 1.3 Table 4I: Interest Cover & Debt/Equity comparison of the three telcos (source: SingTel,

M1 and StarHub)

Its gearing is the lowest and with its interest cover still a very healthy 21.3 times of

EBITDA, SingTel can still afford to leverage upwards without affecting its credit

ratings (Currently at S& P A+ and Moody’s Aa2). This means that it still has great

financial flexibility to add more debts to finance any attractive investment or new

technology, while still using its operating cash flow to maintain its dividend payout

policy.

4.2.1.2 Product Differentiation

Being the only other full service provider, StarHub undoubtedly poses the greatest

competitive threat to SingTel. It is the only player that is able to offer a full-suite of

telecom services like SingTel and has proven since its inception in 2000 that it is a

formidable competitor. In fact, with its monopoly in cable TV between 2002 to 2007,

StarHub had an additional edge which SingTel was unable to match until it launched a

similar pay-TV product in mid-2007 called Mio TV.

With pay-TV in its portfolio, StarHub was able to position itself as a “triple-play”

operator offering an integrate bundle of mobile, broadband and cable TV services.

StarHub’s bundling strategy, branded as “hubbing”, became synonymous with value-

for-money since subscribers were able to enjoy substantial discount if they bought all

three services from StarHub. By offering these services as a package, not only did

customers benefit from lower total cost of usage, but it also benefited StarHub as it



saved on marketing/distributing the products individually. Technically, StarHub’s

newer cable infrastructure is also more superior to SingTel’s legacy copper lines; it is

already able to offer 100Mbps download speed compared to SingTel’s 10Mbps.

This wildly successful strategy propelled StarHub from zero market share at its

inception in 2000 to almost 33% today (versus SingTel’s 40%). In the process, it also

overtook M1, even though M1 had entered the market 3 years earlier in 1997. Without

an equivalent pay-TV offering, SingTel was not able to counter this key

differentiation until its Mio TV premiered in 2007. Even then, being first in the pay

TV market has allowed StarHub to lock-in key TV programs on long term contracts.

Staple like the English Premier League (EPL) soccer telecast is a “must-have” for the

majority of viewers in Singapore and it was reported that StarHub paid S$250 mil in

2007 to acquire the rights to broadcast EPL for the next 3 years (Siew, 2007). This

was 4 times higher than what it paid for the existing rights and it highlights both the

intensity of the rivalry as well as how critical such popular content is to the pay-TV

business.

Traditionally, SingTel has been heavily dependent on voice services, especially IDD

as its main revenue stream. But technology like Voice over IP has all but destroyed

that lucrative business model and IDD has been relegated to commodity status today.

Similarly, mobile services risk following down this slippery path if it still continues to

be driven by voice traffic. Even data traffic generated by the strong take up of

broadband internet service is also being commoditised with operators offering fixed

subscription for unlimited access. This state of affairs has all but reduced operators

like SingTel into “bit-pipe” carriers.

4.2.1.3 Industry Attractiveness

The Table 4J and 4K below show the latest IDA statistics on the mobile and

broadband services market in Singapore respectively:


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2004200520062007

End Year

Num

ber o

f Mob

ile

Sub

scri

bers

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

Pene

tratio

n R

ate

MobileMobile Penetration

Table 4J: Number of Mobile Subscribers and Market Penetration in Singapore (Source:

IDA Statistics on Telecom Services 2004-2007 (www.ida.gov.sg))

-100,000200,000300,000400,000500,000600,000700,000800,000900,000

1,000,000

2004 2005 2006 2007

End Year

Num

ber

of R

esid

entia

l Br

oadb

and

Con

nect

ions

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

Hous

ehol

d P

enet

raio

n R

ate

Broadband

BroadbandHouseholdPenetration

Table 4K: Number of Residential Broadband Connections and Household Penetration

Rate in Singapore (Source: IDA Statistics of Telecom Services 2004 -2007

(ww.ida.gov.sg))

With mobile penetration already exceeding more than 100% of population and

broadband connecting over 77% of the households, the telecom market in Singapore

can be considered a highly mature one. Although the market still grew from 2006 to

2007 with the mobile and broadband penetration rate by about 20 and 10 percentage

points respectively, the revenue growth rate tells a slightly different story.


http://www.ida.gov.sg)/



In financial year 2007, the best performer StarHub achieved only 11.6% growth while

the other two were mostly flat. Even though the absolute number of subscribers has

grown, revenue growth has not followed proportionately, signifying that the new

subscribers are of much lower value. This is a tell-tale sign that the market is reaching

the lower tiers where the customers are usually extremely price sensitive. Such

developments entail that going forward, the emphasis for SingTel will be in

maintaining efficiency and a low cost structure in order to protect the margins.

Realistically, the market is likely to be capped by the rate of the population growth.

Statistics Singapore (2007) showed that the total population of Singapore grew by

4.3% to 4.59mil in 2007 as illustrated in Table 4L below.

2004 2005 2006 2007

Total Population ('000) 4,167 4,266 4,401 4,589

% Growth 2.4% 3.2% 4.3%

Residential ('000) 3,413 3,468 3,526 3,583

% Growth 1.6% 1.7% 1.6%

Non-Residential ('000) 753 798 876 1,006

% Growth 5.9% 9.7% 14.8%

Table 4L: Singapore’s Population Growth Source: Statistics Singapore (2007)

But closer analysis shows that only 1.6 % is due to growth in resident population (i.e.

Singapore citizen and permanent residents) and the rest, a stunning 14.8%, is due to

non-residents like foreign workers.

In all, Singapore had a non-resident population of roughly 1 million at end 2007. Key

implication for the telecom industry is that this market segment is highly dependent

on the economic well-being of Singapore to be sustained. Any prolonged economic

downturn will result in a sudden and drastic drop in this substantial group of

customers with detrimental impact to every player in the market.

Even if the subscriber growth can keep pace with the resident population growth, the

industry is also plagued with the trend of services being priced at a flat, “all-you-can-

eat” rate rather than based on traffic. This is a consequence of the intensity of the



competition in a mature market and a further testament that traditional telco services

like broadband and mobile are already behaving like commodities.

With flat rate pricing, there is very little upside for the telcos but instead, more

resources must be put in place to bear the additional cost of carrying the traffic e.g.

through network expansion. Video-type services which are bandwidth guzzler (like

the popular YouTube), has generated tremendous amount of internet traffic, but

unfortunately for the telcos, it has not translated into a new revenue stream.

Despite the apparent gloomy picture that has been painted for the telecom industry,

there is yet some silver lining. The ubiquitous accessibility to broadband mobile

coupled with user-friendly multimedia handheld devices is a potential catalyst to

make the internet go “mobile”. iPhone for example, has been claimed by Renee

Obermann (CEO of Deutsche Telekom) to drive mobile internet data usage by 30

times more than other phones (Unstrung, 2008). This “anywhere, anytime”

connectivity paradigm will be the next driver of traffic for the mobile operators. Of

course, traffic alone will not make the industry any more attractive than it is today but

such pervasive mobile usage will facilitate operators to offer more on-line (and

chargeable) services and more dramatically, opens up the possibility for operators to

emulate the advertisement-funded business model of the internet. This is a distinct

possibility as operators can leverage on their knowledge of e.g. the location of the

subscribers to sell such information to advertisers. With user generated content, social

networking, blogging and other similar Web 2.0 type services becoming the rage,

such “contextual” information will become extremely relevant.

In a nutshell, the Singapore telecom industry has reached a maturity stage in the life

cycle of the market and market share can either be gained by stealing current higher

value customers from other competitors or cutting prices to entice a new segment of

price sensitive subscribers. Even though growth rate has tapered off and competition

is rife, it is unlikely to decline as the telecom services are used on a recurring basis

and subscribers are usually charged monthly subscription or usage fee. In addition, the

trend towards mobile internet presents an attractive proposition that can be exploited.

The telecom industry is without doubt still an attractive industry that provides strong



recurring cash flow, relatively healthy profit margins, and potential for an internet-

based business model in future.

4.2.1.4 Capacity/Fixed Cost

High fixed cost is a natural trait of the telecom industry. Infrastructure cost typically

run into 10s and even 100s of millions of dollars even for a small country like

Singapore. Although the Singapore market is fairly mature, investment is still

constantly needed to upgrade the network e.g. to support the latest mobile technology

like 3G, upgrade from ADSL to ADSL+ to support higher broadband access, etc.

Each of the three mobile operators paid S$100mil for their respective 3G license, and

this was just for the rights to use the frequency. It excludes the cost of the

infrastructure as well any operating cost necessary to get the network up and running.

Such is the magnitude of investment required in the telecom industry. Obviously, with

such high upfront capital expenditure, having the minimum economy of scale is

critical to at least cover the running cost and hopefully, get a decent return on the

initial investment in the long run. This is a reason why it is common to see operators

subsidizing handsets, modems etc, and locking in customers with long term contract

in order to ramp up to the desired subscriber scale. Although the incumbent operators

are all saddled with high operating and network upgrade cost, they do not face any

more such pressure to gain customers quickly since they have all attained a sufficient

size to be highly profitable while controlling their cost/margins. However, the danger

is that this does not preclude a new operator coming into the market e.g. with a new

disruptive and cheaper technology, and shake the market with a low cost strategy to

obtain the turnover required.

4.2.1.5 Acquisition

A shakeout in the telecom industry in Singapore is an unlikely scenario with all the

three incumbents having sufficiently large market share to remain sufficiently

profitable. Mergers and acquisition activities between the big three is also not a

probable event as first, the regulator will not be keen to see a duopoly develop.

Moreover, the current telecommunications code has very stringent guidelines

regarding any consolidation that eliminates direct competitors resulting in what IDA



would call “significant market power”. Secondly, there is also very little incentive for

the incumbents to merge or acquire each other since the market is already flattening

out and there is little to gain strategically from such a move.

Foreign acquisition, however, is a more probable scenario. Foreign players taking a

strategic stake have already happened with M1, with the investment by Telekom

Malaysia’s subsidiary Sunshare in 2005. Such an acquisition could result in new

players with “very different personalities” (Porter, 1979) entering and attempting to

re-write the rules of the market. Although so far, Sunshare has proven to be a

relatively quiet partner, the fact that there is now no regulatory restriction on foreign

ownership means that in future, SingTel may be faced with fighting a truly global

operator in its own backyards. Likewise, new technologies may create the window of

opportunity for foreign players to acquire a stake in one of the operators so as to gain

immediate access to the existing subscriber base, distribution channels and brand

name.

4.2.1.6 Regionally

SingTel early forays into the regional market were helped by two key developments:

the Asian financial crisis in 1997 and the dot.com bust of 2001. In the fallout of the

1997 crisis, cash-rich SingTel took advantage of the opportunity to buy out distressed

assets and AIS in Thailand was one of these companies that SingTel invested to help

pay off its massive US$ denominated debts.

During the short lived euphoria of the dot.com era, many European operators bought

into the madness and bid an estimated US$100 bil for new 3rd generation (3G) mobile

licenses throughout Western Europe. When the bubble burst in 2001, all these

operators were left holding on to massive debts and on business models that can no

longer justify the astronomical price tag. Consequently, many operators had to off-

load their stake in their ventures around the world in order to pay off their debts.

SingTel was on hand to capitalize. In 2001, it paid US$602 mil for a 22.3% stake in

Telkomsel in Indonesia from KPN (the Dutch mobile operator) (Clark, 2001) and in

the same year, it bought wholesale from Cable & Wireless a 53% stake in Optus in

Australia.



7 years later however, many of these global telcos have got rid of these excesses and

are making their forays into the Asia Pacific region again. These competitors that

SingTel face in the regional arena are telcos with similar profile: cash-rich former

government monopoly faced with a saturated home market. These are the likes of

Vodafone, NTT Docomo of Japan, etc. However, in terms of size, these competitors

dwarf SingTel considerably. Vodafone for example, has a market capitalization of

£99 bil (as at end Dec 07) and a subscriber base in excess of 252 mil spread over a

global footprint covering USA, Europe, Middle East, Africa and Asia Pacific

(Vodafone, 2008).

Naturally, SingTel faces an up hill task competing against these global giants

especially if they are prepared to pay over the top premium to buy stakes in other

companies. Group CEO of SingTel, Ms Chua Sock Koong, admitted as much in reply

to question in a recent press interview: “More overseas companies are targeting Asia

for acquisitions…….for SingTel, ``the challenge is not lack of capital…” (Bloomberg,

2008).

Notwithstanding the tough competition that SingTel faces for new acquisition, its

focus on the Asia Pacific region and on mobile business in particular positions it in a

market that still has enormous potential for growth. Chart 4M illustrates how mobile

has overtaken fixed line as a main form of telecommunication in the Asia Pacific

region and this is not surprising considering that in big countries like China and India,

going wireless is a much faster and cheaper route. The attractiveness of the Asia

Pacific market is underscored by the relatively low mobile penetration rates compared

to developed regions like America and Europe in Chart 4N. This augurs well for

every player in this highly attractive industry in Asia Pacific which is also SingTel’s

main battle ground.


Chart 4M: Mobile Overtaking Fixed As Main Telecommunication Service in Asia

Pacific (Source: International Telecom Union)

2005 2006 2007 2008 2009 2010

North America 67.3 72.9 77.5 81.1 83.9 86.1

Japan 74.3 77.6 80.6 83.6 86.4 88.9

Western Europe 100.5 105.5 108.9 110.8 112.2 113.1

Transition economies 82.7 92.8 97.0 99.7 101.6 103.6

Asia & Australasia (excl Japan)

20.4 23.2 25.9 28.0 29.5 30.8

Latin America 47.9 54.7 59.5 62.9 65.2 64.5

Middle East & Africa 28.0 35.9 41.6 45.8 48.8 52.2

World 39.0 43.3 46.7 49.3 51.1 52.7

Chart 4N: Comparison of Mobile Penetration Rates and Forecast (Source: Economic

Intelligence Unit, Nov 2006)

Globalisation has also been a boon to SingTel’s regional ambitions. With an extensive

network of 38 offices all over the key business centres in Asia Pacific, Europe and the

USA, SingTel is well positioned to ride on the coat tails of MNCs expanding overseas.

Moreover, with the trend of outsourcing, SingTel is well positioned to go beyond its

traditional international leased line service and into managed services e.g. providing


http://home.singtel.com/about_singtel/global_presence/globalpre_overseasoffices.asp


end to end service from hosting of servers, to network security and round the clock

maintenance. But of course, the global market place is also the playground of the likes

of big boys like AT&T, Deutsche Telekom and Verizon, and hence competition will

be extremely intense.

Summary of Industry Rivalry

Key Opportunities:

• Ubiquitous access facilitated by fixed and mobile broadband, together with

demand for internet based services creates new revenue opportunity for

SingTel to reduce its dependence on carriage services and move vertically into

new space in the value chain.

• Regional telecom markets are lowly penetrated and offers SingTel many

investment opportunities especially in the mobile market

Key Threats:

• StarHub , as the only other full service provider with strong partner, healthy

financial position and superior broadband network, poses the greatest threat to

SingTel’s number one position in the market

• The local market is reaching a mature stage in the industry life cycle. This is

exacerbated by intense competition, little product differentiation and eroding

margins due to prevalence of flat pricing.

• Big global operators are competing with SingTel for investment opportunities

in the region

4.2.2 New Entrants

The threat of new players in the industry is very much a factor of whether there are

barriers of entry and five major sources are discussed:

4.2.2.1 Capital Requirements & Economies of Scale

With the market penetration in excess of 120% for mobile and over 77% for

broadband, SingTel and the other two incumbent operators are enjoying high level of

economies of scale. This also implies that they will have significant cost advantage




over any new players coming into the market. SingTel’s well established

infrastructure has taken it years to build and this creates an extremely high entry

barrier. Its fixed line local loop reaches into virtually every household and

commercial buildings in Singapore and its mobile network has also the whole of

Singapore well blanketed. Any new entrants intending to match the breadth and depth

of SingTel’s network would naturally be discouraged by both the high capital

investment and long gestation period, not to mention that the need to undercut the

incumbents in terms of pricing to gain any significant foothold in the market place.

It is primarily due to this entry barrier that most of the newcomers do not focus on

being facility-based operator (FBO) that requires high capital investment but rather

service-based operators owning minimal asset, and unrestricted by regulatory license

quota. These are usually boutique outfit that buys wholesale capacity from the FBOs

(e.g. SingTel) and target specific market segments (e.g. lucrative corporate customers)

and value added service like IDD services, ringtone download etc.

4.2.2.2 Brand Equity

The success of StarHub and M1 has proven that brand equity is not a high barrier to

entry. Within 3 months of its launch in April 2000, StarHub had gained 79,000 mobile

subscribers and 60% of the incremental market share, 260,000 dial-up subscribers (or

a whopping 24% of the TOTAL market share) and a more modest 5% of the IDD

market share (StarHub, 2000). These numbers bear testimony that brand equity can be

overcome if a new competitor can create highly differentiated value propositions

which StarHub has done with its innovative “per-second” billing and “free incoming

call” offerings.

Call tariff in Singapore had long been charged on a 6-seconds charging block basis

and users were also charged for incoming calls. Both these charging schemes were

“legacy” used by SingTel for all its time-based services like fixed line, IDD and

mobile. When M1 entered the market in 1997, it also saw no reason to upset this

cushy arrangement and instead depended on its status as the first challenger to

SingTel to capture market share. So when StarHub stormed the industry with such



revolutionary ideas, it quickly established itself as a value-for-money player and

gained market share quickly.

With such intense competition and commoditisation, brand equity has only limited

effect, perhaps only to more quality conscious corporate customers. But to the mass

market consumers, even a household name like SingTel count for little if an

alternative service provider is perceived to offer a more attractive value proposition.

4.2.2.3 Access to Distribution Channels

With Singapore being such a small and densely built-up country, access to

distribution channels is not a major source of barriers to entry. Again, the success of

StarHub demonstrates that even a new operator with sufficient resources can penetrate

into the market relatively quickly.

Access to physical distribution channels may not even be a factor as a barrier to entry

in the internet era. MobTV, an internet based pay-TV services offered by the local

broadcaster, MediaCorp, behaves like any internet based service provider or so called

“e-tailer”; it does not need any brick and mortar distribution channel to sell its

services. Users can just use any existing internet connection to access the services,

effectively diminishing the role played by broadband provider like SingTel to that of a

bit pipe. With cost per bandwidth of internet access trending ever lower, these

internet-based content providers are effectively getting a cheap ride.

4.2.2.4 Cost Disadvantages Independent of Size

Although new players may potentially face cost disadvantages pertaining to

experience, lack of market/operating knowledge, access to favourable location (e.g. to

build base station for mobile coverage) etc, this barrier to entry is not a potential

show-stopper as shown by M1 and StarHub.

Both used the same strategy to overcome this source of barrier to entry when they

entered the competitive fray. While they have the local knowledge of the Singapore

market, they lack the technology competence to operate a telecom network. This was

easily overcome by roping in experienced foreign telcos as their technology partner

and this enabled them to shorten their learning curve as well as time to market.



4.2.2.5 Government Policy

The telecom market is fully liberalised since 2000 but for markets like mobile

services, the threat of new entrant is low as the three incumbent operators including

SingTel have exclusive rights for the next 15 years for 3G (and 8 years for 2G). But

for other services like IDD, call back, international leased circuit, content services etc,

it is a completely open field and SingTel faces a myriad of both small and global

operators competing for the same market.

Hamel & Pralahad (1989) stated that “assessing the current tactical advantages of

known competitors will not help you understand the resolution, stamina and

inventiveness of potential competitors”. Indeed, SingTel’s greatest challenge going

forward is not against these known competitors but against non-traditional

competitors bent on shaking up the existing value chain and with a strategic intent of

redrawing the industry rules. With an open market and borderless internet world, such

competitors can literally come from anywhere.

The astounding success of Apple’s iPhone is a preview of things to come for the

telecom industry. Although on face value it is a partnership, iPhone’s business model

of taking a share of subscriber’s monthly revenue and working with only one operator

in each market makes it as real a competitor as anyone else in the market. In fact, it is

even more surreptitious as it feeds on the operator’s subscriber without needing to

expense any direct acquisition cost.

Similarly, the example of StarHub paying premium price for exclusive rights to the

English Premier League shows the type of leverage content owner has over the

success of pay TV business. It exemplifies why ownership of content is becoming a

vital competitive differentiator and more worryingly, the dependency of telcos on

such content owners for their fortunes. Hence, the threat of media players and content

owners developing into mainstream competitors and dominating the value chain is a

very strong possibility.

The award by IDA in Oct 2006 of three licenses to implement nationwide Wifi

services (IDA, Oct 2006) shows that a regulatory regime that is welcoming of new



technology can also open doors to new entrants to the market. Although SingTel is

one of the three winners, the more noteworthy points are:

• the other 2 winners, Qmax and iCell are “greenfield” new comers into

the wireless broadband market. Incumbents StarHub and M1 both bid

but were not selected.

• The rollout is heavily funded by the government. In fact, not only is

the network subsidised, licensees are also required to provide basic

public Wifi free of charge for at least 2 years.

At the moment, IDA has also embarked on a highly ambitious plan called “The Next

Generation National Broadband Network” to be put in place by 2012 (IDA, Sept

2006). This new network is capable of delivering broadband speeds up to 1 Gbps

(compared to the highest 100Mbps offered today), and aims to offer pervasive

connectivity and fibre-to-the-home for every household in Singapore.

Besides funding this costly initiative, IDA is revolutionarising how the services are to

be provided. The new framework distinctly separates the operation of the network

from the service provider function. Traditionally, these functions are all owned by the

telcos and new service-based operator wanting to offer service has no choice but to

buy capacity from a facility-based operator e.g. SingTel. Needless to say, such a

model puts the service based operator at a serious disadvantage since SingTel is also a

competitor. With this new open-access model, the playing field is totally leveled and

ANY service provider can compete equally and on non-discriminatory terms with the

rest.

Potentially, such government policy can have dire effect on SingTel’s position in the

market as it will eradicate any competitive advantage that SingTel has build up over

the years on its legacy network.

By June 2008, Singapore will finally have a true number portability facility available

for all the mobile and fixed line subscribers. IDA has mandated this requirement so

that users switching service provider can still retain their current phone number. This


lowers the barrier to switching as previously, having to give up a number known to

business associates and social contacts was a high deterrent for users to switch service

provider. This regulation is expected to increase the churn rate, and SingTel, with the

largest group of customers, will naturally have the most to lose.

With the telecom market constantly evolving with new technologies, and a

progressive regulator in IDA that is determined to push for open access and more

consumer choice, it is but a foregone conclusion that liberal government policies will

continue to favour and encourage the entry of new players into the industry. Chris

Lane goes as far as saying that regulatory “poses the biggest risk, it is the most

immediate and threatens to destroy value for SingTel”.

Summary of New Entrant Coming into the Industry.

Key Opportunities:

• Nil

Key Threats:

• Brand equity and access to distribution channels are not significant barriers to

entry. In addition, the evolution towards internet-based transaction may even

negate the value of having physical retail outlets.

• Regulatory framework favours competition, open access and introduction of

new disruptive technologies.

• Non-traditional players not saddled with high cost legacy network poses a

serious threat to incumbents like SingTel.

• Differentiation in future telecom services will come from the “edge” of the

network which is currently not the expertise of SingTel e.g the handset makers

and content owners.

4.2.3 Buyers

4.2.3.1 Is Buyer Group Concentrated or Purchase in Volume?

Telecom services are purchased by both corporate business and wholesalers (e.g.

service based operators buying capacity from SingTel), but consumers still make up




the majority of the buyers as well as the revenue contribution. Take for example

broadband services: there were only 71,100 corporate customers as opposed to

879,300 residential customers as at end 2007 in Singapore (IDA, 2007). Hence

consumers are considered the major buying group.

Although in absolute numbers this consumer buyer group can number to the millions

e.g. SingTel has more than 2 million mobile subscribers and over 471,000 broadband

subscribers at end 2007, they are after all individual buyers that do not buy in bulk nor

are in any way concentrated. On the other hand, with effectively only 3 mobile

operators and two broadband operators competing, the concentrated nature of industry

players also translates into weak bargaining power of the buyers. For fixed line

services like leased circuits, SingTel has even greater leverage over the buyers since

they virtually hold a monopoly position being the only operator with nationwide

network of copper and fiber links.

4.2.3.2 Are Products Standard or Undifferentiated?

Except for content oriented services like pay-TV, just about the rest of the other

telecom services are standard in nature or can achieve the same functionality using

different technology. SingTel, M1 and StarHub all use GSM and 3G standard for the

mobile services. Not only does it make little difference to the user in terms of

functionality, the same subscriber terminal (i.e. hand phone) can be used seamlessly

on any network. This lowers switching cost for the subscriber.

For broadband, StarHub has an edge as its cable technology can achieve a higher

speed than SingTel’s copper-based ADSL (Asynchronous Digital Subscriber Loop)

network. This has given StarHub a “halo” effect although in actual fact, the 10 Mbps

provided by SingTel is sufficient for most internet applications today. But going

forward, with more bandwidth hungry applications gaining traction, this factor may

become a serious competitive disadvantage to SingTel.

To alleviate the problem of commoditisation, the operators tend not to compete

directly but rather make their offerings hard to compare. For example, such “price-to-

confuse” strategy is very evident in different mobile subscription plans offered by the



3 operators. Each plan can come with a mish-mash of different bundles of free air

time, SMS, value-added services, etc. But such strategy at containing buyer power is

only sustainable in areas where owning the network gives the operator power to

control access and hence price e.g mobile and broadband. Where such competitive

advantage do not exist and new and cheaper technology can easily provide a

substitute, e.g. in the area of international direct dial services, buyer power reigns.

In the earlier section, it was also highlighted that the regulator will be imposing true

number portability to allow subscribers to retain their current phone number even

after switching to a new service provider. This may not be as serious a threat as it is

standard industry practice to require customers to sign on for 2 years contract in

exchange for heavily subsidised customer equipment e.g. handset. Thus the customer

is locked-in to an operator and has to pay a substantial penalty if the contract is

terminated prematurely. This imposes a high switching cost to the customer during

the contract period but once the contract is over, the customer is again free to choose a

new service provider.

4.2.3.3 Is the Buyer Price Sensitive?

SingTel’s average revenue per user (ARPU) for all its mobile services is about S$62

per month (SingTel, Feb 2008) while StarHub’s broadband services average S$66 per

user per month (StarHub, Feb 2008). Compared to the average household income of

$6,280 of all resident households (Singapore Department of Statistics, 2008), the cost

of owning mobile and broadband services is extremely low relative to the overall

household income. Thus it can be safely concluded that for those who are already

subscribing to mobile services, these buyers are generally not price sensitive. Coupled

with being offered a myriad of handset subsidies for different models of handset, and

the “price to confuse” strategy of the operators, the buyer has also limited scope to

compare prices logically.

The same cannot be said for the majority of new subscribers being added to the

network. They are typically from the lower tier income segments of the market and

hence naturally, more price sensitive. This trend stood out starkly in SingTel’s latest

quarterly result ending Dec 2007 (SingTel, Feb 2008). Of the total increase of


197,000 mobile subscribers added in the quarter, a total of 163,000 were due to

prepaid users, predominantly from the blue collar foreign workers (SingTel, Feb

2008). This segment commands an ARPU of only S16 per month compared to $93 for

a postpaid subscriber. Without a doubt, in order to reach this segment of the market,

SingTel as well as the other operators have to offer a very price competitive product

with lowered margins.

Summary of Power of Buyer

.Key Opportunities:

• “Cartel-like” behaviour of operators weakens bargaining power of buyers

• Buyers are agnostic to operator since current telecom services are

predominantly standardised in nature (except pay TV); operator that can

differentiate in future with unique offerings (e.g. content) will be possible to

charge a premium.

Key Threats:

• Buyers are able to switch freely between operators due to standardized nature

of telecom services and upcoming number portability will to make it easier for

users to switch

• New segment of buyers are highly price sensitive; this will deteriorate

operating margins further

4.2.4 Suppliers

The two main suppliers to SingTel are: the infrastructure vendors that supply the

network and the terminal vendors that supply the end user equipment like handsets.

Where the infrastructure providers are still considered a specialized domain and form

some kind of quasi-partnership with the telcos, the same cannot be said of the

terminal vendors. This section will look at the relative power that these two groups

possess in the telecom industry and how the terminal vendors will increasingly tilt the

balance of the forces in their favour.




4.2.4.1 Is the Supplier Group Dominated by a Few Powerful Companies?

The telecom infrastructure vendor community has seen a wave of merger and

acquisition in recent years. This reflects the extreme competition of an industry that is

also heavily dependent on high R&D fund to keep up the technology development.

The merger of Alcatel and Lucent in 2006 and that between Nokia and Siemens in

2007 have reduced the telecom markets to even a more select group among the

traditional vendors like Ericsson, Alcatel Lucent, Motorola and Nokia Siemens. But

this wave of consolidation is also driven by the emergent of low cost players from

China like ZTE and Huawei. This has kept the supplier group’s power in check and

nullified any emergent dominance by any single vendor.

Even without these new vendors, the fact that the operator community is also a small

one also makes it hard for the vendor to gain dominance. In Singapore, for example,

the 6 vendors have to compete for business from only 3 major operators. With the

continuing erosion of operator’s margin, the days of fat margins are also gone for the

vendors. To offset this, vendors are aggressively offering higher margin managed

services or outsourcing to the operators. Their value proposition is that by operating

on a global scale, they are able manage the network more cost efficiently and

effectively than the operators.

On the handset supplier side, the current value chain of the industry is fairly straight

forward. Handset vendors are operator-agnostic and typically rely on the operators as

their main sales channel, primary also because of the heavy subsidy that operators are

willing to incur to acquire a subscriber. This makes the upfront acquisition cost of the

subscriber high for the operator but the handset vendor gain from the handset sold

through the telcos.

The handset market today is currently dominated by Nokia, with over 40% of the

global market share (Strategy Analytics, 2008). The nearest rival, Samsung, is a

distant second with less than 15% market share which implies that Nokia definitely

has a stranglehold over the market and the operators. This empowers Nokia to exert a

disproportionate amount of pressure on the telcos whether in commanding a higher

premium on their selling price and hence increasing the acquisition cost for the



operators, or a new business model which they may pursue in future. The latter is

especially threatening to the telcos as technology have enabled handset terminals now

with processing power and screen size that are ergonomically designed to function as

a handheld multimedia device. This coupled with wireless broadband now being

offered with speeds of up to 7.2 Mbps, such PDA-type devices have all it takes to

handle bandwidth-guzzling applications like video streaming.

Nokia launched its on-line “Ovi” services in August 2007 (Nokia, 2007). Ovi, which

is Finnish for “door”, is literally what it means; a door to Nokia’s internet services

like music store, maps, games etc. Like Apple’s iPhone, it is not a free site and users

have to pay to download content. But the user experience is made much more

seamless because Nokia is able to design and customized their handset to ensure that

user can access the on-line store and make transaction with minimal hassle.

Although the telco’s role is still fundamental to the whole value chain, it risked being

marginalized and reduced to that of a basic data carrier. This is not helped by flat-rate

pricing which is accelerating the shift of value to the contents provided by the likes of

Nokia and not in the ability to provide the middle man role i.e. the telco. The carrier

role is just a means and not an end in itself as far as the subscriber value is concerned.

This strategy shows Nokia’s clear intention of moving away from its long-standing

model of just selling handset and having an indirect relationship with the customers

through the operators. Nokia is transforming itself from just a manufacturer into a

service-provider and competing with the operators in the content space. Or as Chris

Lane describes it: “targeting for the same incremental revenue”.

Besides heavyweights like Nokia, such a direct handset-to-customer relationship is

also gaining traction with the arrival of new players like Apple’s iPhone. Even before

Apple dabbled into the mobile handset market, its music download iTunes is already a

runaway success on its iPod platform. If Apple is able to replicate this model on its

iPhone, then it can ride on the cheap access provided by the telcos to sell more iTunes,

lending further credence to the mantra that “content is king”. In addition, Apple’s

model of revenue share of the recurring subscription fee is even more revolutionary as



it is a direct encroachment to the operator’s bread and butter revenue stream. If

Apple’s model gains sufficient momentum, it may spur the other handset vendors

especially the big ones like Nokia to go down the same path.

Besides handset vendors gradually taking greater dominance in the value chain, even

content providers may potentially get into the act. Mobile Virtual Network Operators

(MVNOs) are service provider that lease network capacity from facility-based

operators and then resell the service. Essentially, MVNO’s treat the network as a

given and focus instead on their marketing strength and to some extent, cross-selling

the mobile services together with their other core businesses.

Virgin Mobile is a fairly successful MVNO player in countries like UK, USA, India

etc. Although Virgin Mobile failed miserably in a short lived venture (lasting only 9

months) with SingTel to implement the MVNO model in Singapore in 2000, it may

be because it was well ahead of its time. While voice and SMS were predominant

services at that time, the network has now evolved to handle broadband traffic. The

recent announcement by Walt Disney to set up a MVNO in Japan with the number

three mobile carrier SoftBank that “capitalizes on Disney’s strong position in the

mobile content market” (Softbank, 2007) is worth noting. Even Google has stated its

intention to bid for a spectrum in the US to operate its own mobile network. Its

commitment to bid at least US$4.6 bil (von Fuchs, 2007) just for the rights, not even

counting the cost to rollout out a nationwide network, shows how much is at stake.

More critically, it shows how big content providers are manoeuvring to re-position

themselves in the value chain.

4.2.4.2 Is it Easy to Switch Supplier?

The high value of telecom infrastructure project typically gives SingTel high

bargaining power, but this is arguably only true during the initial procurement stage

when a tender is called. Because telecom projects typically run into millions of dollars,

the few potential vendors tend to bid aggressively. However, once a vendor is selected

and because it also takes long lead time to implement the network, SingTel is

essentially locked-in to the vendor and would have to incur high switching cost to

change-out the legacy infrastructure.



In recent years, however, new low cost competitors from the China like ZTE and

Huawei have progressively eaten into the market share of more established players

like Ericsson and Nokia Siemens. In particular, Huawei, who only started to sell GSM

equipment in 1997 (Huawei,1997), has already garnered 30% market share (Business

Wire, 2007) of the GSM based infrastructure market. Just in 2007, Huawei swapped

out all the 3G infrastructure of Nokia Siemens network of StarHub in Singapore

(Huawei, 2007). Considering that StarHub has been a customer of Nokia Siemens

since 2000, this is a remarkable development and firmly shows that these low price

manufacturers have now substantially lowered the switching cost for operators. It also

shows the relentless pursue of a lower cost structure by operators pressured by

shrinking margins.

Another distinctive feature of the telecom industry is the constant drive for

standardisation so as to achieve economy of scale and lower cost for the end user. For

example, there is the 3GPP (3rd Generation Partnership Project) established “to

produce globally applicable Technical Specifications and Technical Reports for a 3rd

Generation Mobile System….” (3GPP, 2008). On the broadband side, there is the DSL

Forum whose work “ensures that service providers are able to rollout, as well as

introduce new services quickly and effectively, using common platforms and

practices………” (DSL Forum, 2008). Such standardisation result in very little

differentiation and hence operators are not locked in to the vendor because of any

unique or proprietary features.

Content however, is a different ball game altogether. The case of StarHub paying

almost $250 mil for the exclusive content rights to the English Premier League for 3

seasons demonstrates the high switching cost should the content is lost to a competitor,

especially when the content is highly differentiated. The popularity and uniqueness of

the content makes the switching cost high but on the other hand, its exclusivity gives

it monopoly-like market power. This explains why StarHub is able to increase its

monthly subscription fee for the sports program package from $15 to $25 following

the expensive bid, a whopping 67% increase. Despite this and the initial subscriber

uproar over the price hike, its subscriber base has continued to grow unabated,


showing the high stickiness of the content resulting in relative price inelasticity of the

customer.

Summary of Power of Suppliers

Key Opportunities:

• Emergent of low cost vendor creates potential to reduce network cost, lower

switching cost for operator and outsourcing opportunities

• “Content is King” and gaining exclusive access to such content can create a

monopolistic market position

Key Threats:

• Handset vendors playing an increasing pivotal role in the value chain

• Criticality of unique and exclusive content e.g for Pay TV, makes switching

cost high

• Dominance of runaway market leader like Nokia and brand equity players like

Apple weakens position of operators in the market.

4.2.5 Substitutes

“Disruptive” technologies have regularly posed serious threat to traditional Telco’s

like SingTel. Porter (1979) highlighted that substitute products that are “subject to

trends improving their price-performance trade-off with the industry’s product”

deserve the most attention strategically. Skype is an excellent case in point. Users can

now bypass SingTel’s IDD facility to make cheap and even free international calls

using Voice over IP (VOIP) technology. Such internet based technology is basically

software driven and undergo similar kind of price-performance improvement as

Moore’s Law over time. Skype rides on the global shared internet infrastructure and

the cost structure is also much lower than a dedicated network operated by traditional

telcos. The ever-increasing bandwidth of both the fixed and mobile network has also

greatly enhanced the reliability and the resultant price-performance value is as good if

not better, than regular IDD.




Mobile services, previously a domain dictated by high spectrum fee and tightly

controlled licensee quota, is undergoing a technology-driven revolution. Anyone can

own a Wifi access point at home without needing to pay any spectrum fee since it

operates in an unlicensed band. What was once a niche product associated with only

internet geeks, is now a common fixture in most households in Singapore. With

economy of scale driven by Intel enabling its chips with native Wifi support, it is hard

to find a laptop today without Wifi capability. This has caused widespread adoption of

the technology that can allow user to surf the net, make video/VOIP call, download

files etc at a very low cost, making it a viable substitute over using the public mobile

network.

Now this free Wifi service has gone “national”, enabled by IDA’s initiative of a

nationwide free Wifi services (IDA, 2006) at high human density area like shopping

malls, cafes, parks etc. Even the handset vendor is jumping on the bandwagon with

Wifi-enabled mobile phone being launched in the market. Nokia is aggressively

pushing these “dual- mode” hand sets which facilitate users to easily make calls over

the free Wifi network instead of the mobile network, bypassing the telcos altogether.

With wireless network increasing its bandwidth exponentially, there will come a time

where it will make no difference from a user’s experience perspective whether it is 10

Mbps on the wireless or 100 Mbps on the fixed line network. This means that SingTel

fixed line network, once considered its key competitive advantage, could well be

rendered insignificant. Wireless technology allows competitors to install coverage

where the needs are quickly without incurring high expenses and a long lead time to

dig road and lay cables. Qmax is one such operator taking advantage of a new

wireless technology, called Wimax. While Wifi is used mainly for small localized

coverage, Wimax is touted as the wide-area counterpart with coverage as good if not

better than current mobile technologies.

In March 2006, Qmax commercialised home broadband services with a monthly

subscription rate starting from $22.95 – the first under-$30 subscription rate in 10

years of Singapore broadband history (Qmax, 2006). Such aggressive pricing which

severely undermines the prevailing industry price structure is an indication that


Qmax’s business model is distinctly different, and noticeably lower than that of the

fixed line incumbents like SingTel. It has not been made known publicly the amount

that Qmax has paid for its Wimax frequency, but it should not be too far from the $2

mil coughed out by SingTel who bid for a similar chunk of spectrum in 2005.

Compare this amount to the $100mil paid by each operator for the 3G license in 2001,

it is obvious that Qmax will have a significant cost advantage to start with.

Summary of Threats of Substitute Products

Key Opportunities:

• Nil

Key Threats:

• Disruptive technologies especially in the wireless arena threaten the current

comfortable market position of the mobile operators.

• Regulator is pro-competition; constantly opening up market to more players

using different and often, cheaper technologies.



SECTION FIVE: STRATEGIC ANALYSIS OF THE INTERNAL

ENVIRONMENT – A RESOURCE BASED VIEW (RBV)

This Section looks internally into SingTel; at what kind of resources that SingTel

possesses that are valuable, rare, inimitable and non-substitutable (VRIN). In short,

resources that are bases of strengths and which can be used to exploit opportunities or

neutralize threats. It also discusses some key resources which, going forward, are

debatable if they will become a strength or a source of weaknesses for SingTel.

Assess internal resource

Identify key Strengths & Weaknesses

What are the VRIN resources? What is currently lacking that can be exploited by external threats?

5.1 Strengths

5.1.1 Strength in Numbers

As at end of Dec 2007, SingTel and it associates have an aggregated mobile

subscriber base of over 170mil as shown in Table 5A below. Aggregate Subscriber Base

(million)

SingTel’s Proportionate

Subscriber Base (million)

Dec 07 Sep 07 Dec 06 Dec 07 Sep 07 Dec 06

SingTel 2.33 2.13 1.77 2.33 2.13 1.77

Optus 7.00 6.89 6.68 7.00 6.89 6.68

Regional

associates

162.21 148.95 103.83 52.05 47.85 33.70

Total 171.54 157.97 112.28 61.38 56.87 42.14

Table 5A: SingTel’s Mobile Subscribers (Source: SingTel)

This makes SingTel the biggest operator in the Asia Pacific region outside of China, a

phenomenal achievement for an operator that has only 2.33 mil subscribers in its

home country. More importantly, this gives SingTel a regional scale unmatched by its

peers and a significant source of competitive advantage. There is a distinct possibility

for SingTel and its associates to cross sell, create unique product (e.g. handsets), make

joint procurement of content/infrastructure/handsets etc and in the process, help to

defray total cost over a wider base and lower the per unit cost. This is a significant




antly

esides strength in absolute numbers, SingTel’s subscribers are also increasingly

competitive advantage that SingTel and its associates can exploit to counter the

competition in their respective markets, especially when margins are being const

eroded.

B

using mobile for non-voice services like internet access, SMS etc. As at end 2007,

SingTel has over 31% of its revenue not coming form its more traditional source of

voice services as depicted in Chart 5B.

10%

15%

20%

25%

30%

35%

2003 2005 2007

Year

% N

on-V

oice

Ver

sus

Voic

e R

even

ue SingTelStarHubM1

Chart 5B: Non-voice revenue as percentage of revenue of SingTel, M1 and StarHub

has the highest percentage among the operators in Singapore and it is still trending

.1.2 Customer Knowledge

raw subscriber numbers, its existing billing

vantage.


It

impressively upwards. This augurs well for its prospect since future usage and traffic

growth will clearly come from increasing adoption of wireless broadband and the

“mobile” internet.

5

Besides possessing the strength in

relationship with its customer is another considerable source of competitive ad

The reason is fairly simple: it provides a convenient channel for any content provider

wishing to go to market quickly to use SingTel as a bill-collecting agent.



Besides billing information, SingTel has other assets relating to the end user that it

can mine from the Customer Relationship Management (CRM) systems or from the

network itself. User-related information like identification, location, authorisation,

credit history etc is valuable data that others in the value chain do not possess. This

information is coveted by content owners as they can be used to create richer

customer experience. Being the only operator that provides all the commercially

available communication services i.e. fixed broadband, mobile and Wifi, SingTel is

also in the unique position of being the only operator that can claim to provide

ubiquitous multiple-platform access from almost any where in Singapore with

different technologies. Such intimate knowledge of the customer, right to the where

he is at any moment, is a strategic asset that no other in the value chain can boast of.

Combining “Location-based” information and the customer profiling capability that

SingTel possesses, very targeted promotions can be pushed directly to the user’s

mobile phone or laptop (when using Wifi) to spur impulse buying at specific shopping

outlets for example. To advertisers more used to traditional media like TV,

newspaper etc, such specific, tailored made “segment of one” (Dibb, 2001) marketing

opens up a whole new world of possibilities.

5.1.3 Financial Strength

Telecommunication being a high capital business is a boon to SingTel when it comes

to overseas operators looking for foreign investors to help fund their network. With

free cash flows of $2.8 bil generated in FY 06/07 (SingTel, 2007), SingTel possesses

a strategic asset that few of its peers in the region can match and this makes it an

attractive partner for such cash-strapped operators.

Chart 5C shows the free cash flow in the past four FYs contributed by the three main

sources: dividends paid by associates, from wholly owned subsidiary Optus and from

the SingTel operations itself.


1246 1171 1200 1298

1369 15361011 891

299 355

561 606

0

500

1000

1500

2000

2500

3000

3500

FY 04 FY05 FY06 FY07

Financial Year

Free

Cas

h Fl

ow (

'000

)

Associates DividendOptusSingTel

Chart 5C: SingTel’s Source of Cash (Source: SingTel)

Particularly, the Singapore operation is a cash cow providing a very consistent and

stable source of cash over a 4 year period. What is even more promising is the

continued growth in the dividends paid by associate which will help to mitigate the

more volatile contribution from Optus. So far, SingTel has been judiciously using this

regular cash flow; balancing the need to repay shareholders investment through

dividends or capital reduction, and keeping the rest as a war chest ready to pounce on

any attractive investment opportunities.

Besides drawing on its internal source of cash, SingTel can also rely on its healthy

gearing position to use debt as a source of new funds. With a low debt/equity ratio of

0.22 (SingTel, 2007) and a comfortable credit rating (A+ by S&P and Aa2 by Moody),

SingTel still has sufficient flexibility in its capital structure to take on more financial

leverage.

5.1.4 Investment Savvy

The success of SingTel’s many overseas investments is testimony of its management

acumen in conducting M&A activities. Table 5D compares the total investment that

SingTel has made to date versus the current market capitalization of its three main

associates: Bharti, Globe and AIS.



Table 5D: Data of SingTel’s Key Associates (Source: SingTel)

Bharti

(India)

Globe (Philippines) AIS (Thailand)

Year of Investment 2000 1993 1999

Investment to Date S$1.55 bil S$882 mil S$870 mil

Effective Shareholding 30.45% 44.47% 21.38%

Market Capitalisation as

of 31 Dec 07 (SingTel’s

proportionate share)

S$21.05 bil S$3.23 bil S$2.95 bil

Without a doubt, SingTel has made some very astute investments, and these are only

the list of those associates that are publicly listed. Among those not listed, the

performance has been equally impressive: Telkomsel is the number one mobile

operator in Indonesia with over 47.9mil subscribers as at end December 07 and is the

largest contributor of associate’s profits to SingTel’s bottom line with S$687mil in FY

06/07 (SingTel, 2007).

A number of SingTel’s overseas investments would not have materialised if not for

the fortitude and far-sightedness of its management as a few of these were made

during times when the market conditions were uncertain and the perceived risk

heightened. AIS was bought at the tail-end of the Asian financial crisis in 1999. Optus

and Telkomsel were both purchased just after the internet bubble burst in 2000. On

hindsight, it is apparent that if SingTel had not gone in during those distressed times,

it may not have such opportunity in future as the incumbents would be reluctant to

sell and SingTel would also be resistant to pay over-the-top premium.

Besides these investments which have done remarkably well, SingTel has also proven

its investment mettle by not overpaying just to close a deal. In an interview (CFO

Asia, 2006), the then CEO (International) of SingTel commented, “We’ve been very

disciplined in our approach to new investments. If there are deals where we’re not

comfortable, we won’t overpay. I think you’ve seen this with the Pakistan Telecom

privatization. We put in a price that we felt was appropriate but which turned out to




be the lowest. We lost the deal, but we weren’t unhappy. We felt we should only bid

to a level where we know that if we won we would be creating value for shareholders.

We are not deal-junkies.”

5.1.5 Brand Equity

Regionally, it is arguable if the brand equity of SingTel has made it more attractive to

buy into the many foreign markets that it operates in today. But certainly, having a

reputation as a well managed company with experience operating and competing

successfully in highly competitive environments, it has at least facilitated its entry as a

strategic partner. Winning Awards like “Asia Mobile Operator of the Year” (Asian

Mobile News) and “Service Provider of the Year” (Frost & Sullivan) for three

consecutive years can only increase its brand equity and value proposition to its

partners. For sure, SingTel’s strong brand equity and track records are critical success

factors when competing against other big global operators for a slice of the

international corporate business, where network quality and reliability are often key

considerations.

This is perhaps why SingTel has strategically bid for and won the Title Sponsor for

the inaugural Formula One night race in Singapore in September 2008. SingTel

Group CEO admitted as much, “The world is watching, and this is a great event upon

which to position the SingTel brand on an international level….” (SingTel Press

Release, 2007)

5.2 VRIN Criteria

Does the collection of strength meet the VRIN Criteria? Table 5C summarises how

the five strengths identified compare against the VRIN criteria:

Criteria How do they meet the conditions?

Valuable Subscriber Numbers: enable it to lower the unit cost of developing

new products or acquire content.

Financial Strength, M&A Expertise & Brand Equity: proven

success that SingTel can leverage on against other global operators



especially in the Asia Pacific region

Customer Knowledge: it is an asset that allow SingTel to

customize and differentiate against new competitors like the media

players or phone manufacturers who has no existing relationship

Rare Subscriber Numbers & Customer Knowledge, M&A expertise:

unmatched by any operator in the Asia Pacific region outside

China.

Financial Strength: is rare in the context of specific

operator/country that SingTel is operating in

Inimitable Subscriber Numbers, M&A Expertise, Financial Strength : such

unique resource cannot be easily replicated by competitor

Customer Knowledge: intimate knowledge of SingTel’s customer

is an accumulated asset and cannot be acquired by competitor

partly because of path dependency

Non-

substitutable

Subscriber Numbers, Financial Strength, M&A Expertise,

Customer Knowledge & Brand Equity: all five are highly specific

resources that cannot be easily substituted by another resource.

Table 5C: Strengths Versus VRIN Criteria

It must be stressed that although individually the resource may fulfill the VRIN by

itself, that alone may not be sufficient to create any sustained competitive advantage.

For example, having the financial strength alone will not be sufficient without the

M&A expertise or vice versa. In the context of making an overseas investment, both

have to go hand in hand. Collectively or in combinations, the portfolio of strengths as

described above can give SingTel the sustained competitive advantage on which to

build its corporate strategies.

5.3 Potential Weaknesses?

5.3.1 Technical Capability – Core Competence or Core Rigidity?

In 2009, SingTel will be celebrating its 130th birthday. Over the years, it has

established itself as a technically competent company that is on the forefront of new

technology. Whether it is digital mobile technology like 3G or fixed line ADSL or

IPTV, SingTel has always led the technology curve not only in Singapore but also in



the Asia pacific region. And it is on this strength that SingTel is able to “export” its

expertise to the various overseas ventures that it has bought into.

SingTel’s value position to its associates companies in developing countries like

Philippines, Thailand, India and Indonesia is that of a technology partner.

SingTel offers technical expertise that it has accumulated in its home country while

the local partner focuses on country specific domain like sales and marketing. But

technically, traditional telecommunication is evolving towards internet technology.

The future evolution of the current 3G technology is about an all-IP architecture from

the handset to network and to the internet. Ditto for the fixed line world where

monolithic, proprietary telephone switches are replaced by standards-based computer

servers. Can SingTel with its almost 130 years of experience in traditional technology

be able to transform itself to take on the converged world of IP and

telecommunication?

Although SingTel is the only telco that can boast of a nationwide hybrid copper/fibre

network in Singapore, it is debatable if this in itself actually constitutes a valuable

resource. The aging copper network is one which entails a huge running cost to

maintain, and as it is today, has a considerable speed disadvantage compared to

StarHub’s cable network. Upgrading it to be all-fibre will incur equally prohibitive

capital investment cost relative to the potential return in a flat-rate pricing

environment. With new technology like broadband wireless being introduced into the

market by new players, such legacy network can prove to be a huge albatross for

SingTel.

In the era of 3G technology, there has been an emerging trend of operators co-sharing

infrastructure in a bid to lower their overall cost structure. SingTel’s wholly-owned

subsidiary in Australia, Optus, entered into a 3G network sharing arrangement for

over 2000 base stations with its competitor Vodafone (Optus, 2004). Granted that

such co-share arrangement poses unique operational, administrative and logistical

challenges, but the financial implication is significant enough to make it a compelling

option. Optus estimates its capital expenditure will be reduced by A$100 million in

the first three years, compared to a go-it-alone approach. Operating expenditure for



maintenance, operations and site leases will be reduced by approximately A$10

million per year.

Another key indicator of the decreasing perceived value of the network is the trend of

outsourcing and managed capacity (i.e. pay vendor based on actual capacity used

rather than purchase and install capacity upfront in anticipation of demand). SingTel’s

associate company in India, Bharti Airtel, is an excellent example of a relatively new

company not hampered by legacy network and being able to outsource all its

engineering function from day one of operation. This is not just limited to the network

but also to non-core functions like call centre and IT.

This development is worrying for SingTel, as it shows that industry players recognise

that in the converged world, the network is just another channel to access information

and not a strategic asset. Its competitive value is being gradually evaporated as the

real differentiation lies in what the user wants rather than how to access it. SingTel is

in a precarious dilemma as it is beset with these legacy networks and the

corresponding manpower to support it. Even if it is objectively and financial viable to

relinquish control of the network, the emotional attachment that SingTel has over its

traditional asset may prove to be a higher hurdle to overcome.

The regulator in Singapore is also playing its part to neutralize any remaining

advantage in network ownership, at least in the fixed network. In the earlier section, it

was highlighted that in the tender for the “The Next Generation National Broadband

Network”, IDA has put in place a new framework delineating the operation of the

network from the service provider function. This normalises the network cost

structure for everyone, essentially pushing the value out of the network so that players

are now forced to compete on products and services rather than network quality.

Going forward, there is every likelihood that such technological competence either in

owning the network or having the technical skills will in fact become a core rigidity

(Leonard-Barton, 1992). Indeed, what was once a competitive advantage for SingTel

may become much less valuable in the fast changing structure of the telecom industry.



SingTel, by all indications, has to reinvent itself to be a new generation multimedia

telco.

5.3.2 Government Linked – Boon or Bane?

Having Temasek Holdings (the Singapore government’s investment arm) as a

substantial 56% majority shareholder has time and again resulted in SingTel being

perceived as not just a government-linked but a government-controlled organisation.

SingTel is currently embroiled in a legal tussle with Indonesia’s anti-monopoly

watchdog, KPPU. KPPU has alleged that Temasek has breached Indonesian

competition rules by holding stakes, albeit indirectly, in Telkomsel and Indosat.

SingTel has 35% stake in Telkomsel while ST Telemedia, another Temasek

subsidiary, holds a 45% stake in Indosat. KPPU charged that Temasek has been able

to overcharge consumers due to its control of these two firms and has imposed a fine

of 25 bil Rp each on Temasek, SingTel and ST Telemedia (Danarkesa Research

Institute, 2007). This was despite the fact that when SingTel acquired a stake in

Telkomsel in 2001, it sought and obtained all the regulatory approvals from the

relevant Indonesian authorities. In addition, PT Telkom, which is majority owned by

the Government of Indonesia, in fact controls the joint venture by virtue of its 65-per

cent shareholding.

Such nationalistic backlash is not uncommon to SingTel as it faced such issues when

it purchased Optus in 2002 and when former Thai Prime Minister Thaksin was ousted

in a coup in 2007, the new Thai leader also raised concern over SingTel’s investment

in AIS (Devan, 2007). In 2000, SingTel was widely believed to have been thwarted in

its bid to buy into Time Engineering and HK Telecom because of its perceived

government connections. Till today, the Hong Kong and Malaysia are the two key

Asian markets that remained elusive to SingTel.

SingTel’s link to Temasek and being in a business that is always considered a national

security asset, makes it a convenient scapegoat. Recently, the increasing awareness of

the power and intent of so called “Sovereign Wealth Funds” (SWF) will continue to

be a distraction even as SingTel searches for more overseas opportunities. Its former



CEO, Lee Hsien Yang has stated unequivocally that, “We look at al our transactions

on a purely commercial basis and we have always said that we will do transactions

only if they create value for our shareholders” (Meyer, Mar, Richter and Williamson,

2005). Despite such a public declaration, SingTel has to recognize that in some

situation, perception may be harder to change than reality.



SECTION SIX: SYTHESIS OF EXTERNAL AND INTERNAL ANALYSIS

Based on the PFF analysis of the external forces, it is obvious that a single factor can

straddle across a few of the five forces being analysed. For example, a pro-

competition regulatory environment will favour new entrants into the industry, new

technologies and ultimately result in substitute products i.e. affecting three of the five

forces. Parsing through the array of opportunities and threats summarized in the

earlier sections will allow us to consolidate the encompassing factors listed in Table

6A. Similarly, SingTel’s key Strengths and Weaknesses have also been extracted

through the RBV analysis. The combination of the two frameworks generates the

familiar Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of

SingTel.

Strengths:

- strong financial position measured in

terms of cash flow and low gearing

ratio

- huge and growing subscriber base can

help to drive down average unit cost

- well-established billing relationship

with subscribers

- knowledge of customer e.g. location,

buying habits, expenditure etc

- management with proven M&A

pedigree

- Strong brand equity in the region

Opportunities:

- deregulation opening up new markets

- low penetration rate especially for

the mobile market in SingTel’s

theatre of operation i.e. Asia Pacific

- rapid adoption of broadband access

technology opens up new source of

revenue

- telecom market marked by

standardization which means

operators that can differentiate will

prosper

- opportunity to reduce cost structure

through low cost supplier,

outsourcing and/or network sharing

Weaknesses:

- evolution of telecom towards internet

based technology may render

traditional telecom skill irrelevant or

incur high cost and lead time to re-

skill

Threats:

- commoditisation is eroding margin

and makes switching cost low

- mature industry in Singapore marked

by slowing growth, intense

competition and lower margin



- higher cost structure due to legacy

network; costly to maintain and

upgrade;

- value not in carrying traffic in future

- perceived government linkage could

hinder future M&A activities

- no culture of innovation

subscribers

- StarHub establishing itself as the

second full-fledge service provider

with superior broadband network

- regulatory body favours more

competition and level playing field

- non-traditional players entering the

value chain e.g. internet/media,

handset vendors, content provider

- constant threat of disruptive

technologies like VOIP

- regional M&A getting more

competitive with more mega

operators entering the fray

Table 6A: SWOT Summary Based on Porter’s Five Forces & Resourced Based View

This synthesis facilitates the identification of the strategic “fit” between the internal

and external environment. This is depicted pictorially in Diagram 6B below, where

the areas of overlap represent the “fit” from which strategic choices can be drawn out.

Fundamentally, the strategic choices emanate from a combination of:

• Strategies that leverage the appropriate strengths to exploit

opportunities and/or nullify threats; and

• Strategies that mitigate the potential of weaknesses being exploited by

external threats.

• Strategies that alleviate weaknesses by exploiting opportunities in the

industry


Strategies to mitigate

Weaknesses that can be exploited

by Threats

Weaknesses

Strengths

Opportunities Threats

Strategies to Neutralise Threats

with Strengths

Strategies to Exploit

Opportunities with Strengths

Strategies to mitigate

Weaknesses by exploiting

opportunities

Diagram 6B: SWOT Analysis and Strategic Choices For SingTel

To recap, SingTel’s stated corporate strategy as described in Section 2 is outlined

below:

(a) To lead in Singapore

(b) Grow in Australia

(c) Partner in Asia

(d) Connect Asia

(e) Innovate for the Future

Strategy (a) is obviously a local strategy to maintain leadership position in a saturated

market, while (b) to (d) are regional strategies emphasising on growth through

geographical diversification. Strategy (e) is a generic strategy stressing on

differentiation that is applicable in both the local and overseas context, and across the

entire telecom services market in general. In a nutshell, SingTel’s corporate strategy is

relatively straightforward: “act local, grow regional, be different”. How does these

strategies map into the SWOT that is derived from the PFF and RBV analysis?




6.1 Leveraging Strengths to Exploit Opportunities and/or Neutralize Threats

To Lead in Singapore

Strategically, SingTel’s leadership position in its home market gave it the “moral

standing” and credibility to play the role of technology and business partner with its

regional associates. Therefore it is no coincident that “To lead in Singapore” is a

cornerstone of SingTel’s corporate strategy. But to continue to lead in the Singapore

market, SingTel has to capitalize on the emerging trend of non-voice services (e.g.

content services by consumers, managed services by corporate business etc) while

neutralising the threats posed by non-traditional players (e.g. media/IT, handset

vendors etc).

The ability to offer unique content or services is critical to overcome the

commoditization quagmire and will also facilitate SingTel to offer integrated products.

Enabled by ubiquitous access through fixed and mobile technologies, such “service

convergence” will become prevalent as user can assess the same content (e.g. watch

the same video) either through home PC or a mobile device. This will create a

seamless product/service experience for the customer and more strategically, increase

stickiness. Conversely, SingTel will not be able to differentiate itself if it continues to

focus on predominantly selling voice minutes or bandwidth. To overcome this

deficiency, SingTel needs to diversify through vertical integration up the value chain.

SingTel can either acquire or strike alliances with content owners or other service

providers through equity ownership or non-equity exclusive tie-ups. Instead of facing

non-traditional players as competitors, SingTel could possibly “win without fighting”

(Hamel & Pralahad, 1989) by collaborating with them. Or in the words of Chris Lane,

“it will be win-win if both promote rather than compete against each other”. In short,

SingTel should adopt a pragmatic as opposed to a paranoid approach towards these

non-traditional players.

SingTel can strategically leverage on its scale, relationship and intimate knowledge of

its existing subscribers as value proposition to any potential ally. Besides this, having

a huge cash hoard would also come in handy in any equity investment. Its network of

corporate customers all over the region also makes it an attractive partner for joint

collaboration to ride on the trend of outsourcing e.g. providing managed services by



partnering Cisco to deliver end to end IT services from Singapore to Australia. Such

value-added services which SingTel can add on to its traditional telecom carrier role

is the competitive advantage that differentiates SingTel from the crowd and help it to

lead in the Singapore market.

Regional Growth Strategies

With an almost saturated local market in Singapore, SingTel has to look outside of its

home to fuel its growth. Its corporate strategy of growth through investing in regional

mobile businesses and extending its international reach through its network

connectivity is a logical one. Mark Chong commented that, “SingTel’s strengths are

in recognizing that its strengths are in Asia; we know the culture, the peoples and we

know the telecommunication business.” This is especially pertinent within the context

of rapid deregulation and low penetration rate of the mobile telecom markets in the

Asia Pacific region, as well as the trend of globalisation creating the need for cross

border connectivity. This proffers great opportunities for SingTel whether in

exploring new investments, increasing its shareholding in the current associates or

providing end to end IT/telecom services for MNCs.

With a constant source of cash flow from its Singapore and Australia operations, and

growing dividends paid by its associates, SingTel will have funds that can be easily

drawn on for investment purpose. Combined with a shrewd management that

possesses an enviable track record of past M&A activities, SingTel’s ambition is

evenly matched by its human and financial resources. Besides its financial asset,

SingTel also brings with it a strong, regional brand equity to the partnership. Scale is

another value proposition that SingTel can offer to entice any potential associates as it

will be able to value-add to the partnership by helping to reduce cost through

activities like joint procurement for infrastructure/handset/content, joint development

of products, etc.

6.2 Alleviating Weaknesses and Mitigating External Threats.

Innovation

Differentiation, or rather the lack of it, emerges as the key strategic threat facing

SingTel today either in Singapore or regionally as the phenomenon is industry wide.



This recurring theme has resulted in commoditisation, low switching cost and new

competitors with differentiated contents stealing a march on SingTel. In the Singapore

market, this is exacerbated by a maturing industry with intense competition. What

strategy can SingTel adopt to neutralise these threats? Innovation. This is a new

resource that SingTel has to develop to overcome its current weakness and generate a

new core competence that can be used to differentiate.

Through innovation, SingTel will be able to elaborate on its core business (Mintzberg

et al, 2003) either through internally developed product and services, or collaboration

with third party. Being able to innovate will not only benefit SingTel in Singapore but

this can also be transferred to its regional associates. As the Singapore market is at a

much mature stage of the industry life cycle, it can be used as a test bed and

incubation ground for innovative and creative ideas. It is thus not surprising that

innovation is chosen as one of the key pillars of SingTel’s corporate strategies.

Dr John Kao, author of “Innovation Nation” which was chosen by Business Week

magazine as one of the top 10 best books in 2007, stated that innovation enables

people to “adapt to the waves of disruptive changes, including new business models,

demographic…… and new and emerging technologies.” (Oon, 2008).

But internal innovation is easier said than done. Indeed, it is said that the pace of

innovation is inversely proportional to the size of the organisation. With a staff

strength of 10,000 and vestiges as a former government monopoly still evident,

SingTel has to create an “innovation culture” within the large organisation. Risk

taking, “try a lot of stuff and keep what works” (Collins & Porras, 1994) etc, is the

kind of ethos that SingTel needs to imbue throughout the organisation in order to

create an innovation culture. With SingTel being more familiar with a top-down

driven and hierarchical culture, Chris Lane is cognizant of the immense task facing

SingTel in this aspect as he feels that SingTel is “not innovation- friendly” and it will

take a Herculean effort of “turning the organisation pyramid upside down” in order to

succeed. Alternatively, SingTel can accelerate the process by choosing to work with

others who have already a tradition of innovation by collaborating on joint

development/research, strategic alliance etc.



Another dimension of innovation that SingTel has to put in place is the need to re-

skill the competencies of the organization from one that is telecom centric to one that

is more internet- or “multimedia”-oriented .With the convergence of Telecom, IT and

intern/media, and increasing prevalence of broadband/TV content, SingTel is

becoming more like a multimedia rather than a plain old telephone carrier providing

basic voice services. Current competencies in traditional telecom skills will certainly

limit its ability to innovate and will have to be expanded for SingTel to stay ahead of

the curve. Concurring on this, Mark Chong stated that, “We have in recent years

started to diversify into the media and content businesses. These businesses are

natural extensions of our core telecommunication businesses and represent another

chapter in way SingTel adapts to the ever changing business landscape. Carrying

advertisements on our mobile and IPTV platforms are natural extensions of our

carriage businesses. To develop our competencies for these new businesses, we will

need people who are able to understand the dynamics and opportunities in these new

areas and be able to execute and deliver in these new arenas. It doesn't mean we don't

need the current telecom skilled people though. The telecom businesses continue to be

very good profitable businesses”. Chris Lane also shared the same sentiments and

added that as SingTel moves into the unchartered “digital content” field, it has to

acquire new skills like knowing how to buy content, understanding the value of the

content so that you don’t overpay etc.

Lind (2004) argued that if the industry boundaries are being redefined by

technological changes (e.g. convergence), then the firms need to re-configure their

capabilities to stay competitive and successful. This is the significant resource “gap”

that SingTel needs to fill in order to re-position itself as an innovative service provider

and not merely a bit-pipe carrier.

Regional Growth Strategies

Given that the regional diversification is so critical to its growth strategy, SingTel has

to overcome the perception of it being a company still controlled and influenced in its

strategic operations by the Singapore government. Although for obvious reason this is

not overtly stated as a corporate strategy, SingTel has to consciously ensure that that it

is an independent and purely commercially driven entity. To this end, its track record



in the management of its current associates is an important and visible avenue for it to

prove to outside world that it is not operationally beholden to Temasek Holdings. In

addition, its appointment of non-Singaporean and non-Government related

independent Directors to its Board is an apt move. Since August 2003, it has even

gone further by appointing a Thai national, Chumpol NaLamlieng as the Chairman of

the SingTel Group. Mr. Chumpong is the former President of Siam Cement, one of

the largest conglomerate in Thailand. Such key holders appointment and multi-

national makeup of the Board have to be maintained, not least to send the right signal

to the outside world.

6.3 Exploiting Opportunities to Alleviate Weaknesses

It is doubtful whether ownership of and expertise in the infrastructure will be

considered a core competence for a Telco company in future. Is it as strategic an asset

as it was in the good old days when voice was the predominant traffic? Value is

increasingly being shifted to the edge of the network both downstream and upstream

of the value chain, and unfortunately, not in the network itself. Telecom network by

definition is characterised by industry standardization, literally implying that

differentiation is intentionally avoided.

New players unencumbered by legacy network could take advantage of disruptive

technologies to seize the initiative from SingTel. It also does not help that the

regulator clearly intends to make sure that network owners do not possess competitive

advantage over non-network service providers.

In view of this, an asset-light strategy in the form of outsourcing, managed services

etc is a sensible option that SingTel should consider seriously. The emergent of low

cost vendor could potentially make this proposition even more tantalizing.

Outsourcing to the vendor makes a lot of sense as they can offer an operational scale

on a global level and can run a network more efficiently and cost effectively than an

operator on its own. With constant pressure on margins, it will be a never-ending

struggle for SingTel to reduce its cost structure as there is only so much more that the

network can be further optimized especially for a mature one like SingTel’s.

Vodafone, one of the biggest operators in the world, is also taking active steps to



reduce its cost structure and go asset-light with outsourcing (at least in the IT and

maintenance activities) as one of its key strategies (3G, 2006). Such an asset-light

strategy can free up management time and financial resources on increasingly non-

core network/engineering activities and orientate on new areas where differentiation

can really be made and sustained i.e. value-creating activities like building

alliances/partnerships and new product innovation, or building new competences in

multimedia.



SECTION SEVEN: SUMMARY AND CONCLUSIONS

The focus of this study is on SingTel’s corporate level strategy and how coherent

these strategies are vis-à-vis the external industry forces as well as SingTel’s internal

resources, particularly those valuable core competences that constitute a source of

competitive advantage.

This study has used the PFF and RBV as the two main models in order to firstly,

identify the key factors at play in the industry and within the firm, and secondly, how

these factors are used to find the strategic “fit” between SingTel’s competitive

advantage and the dynamic structure of the external environment. It is about how to

achieve competitive advantage for the organization through careful configuration of

its portfolio of resources in the midst of a fluid and fast-changing industry landscape.

Interviews were also conducted with two SingTel’s top management to gather their

views on the strategic issues facing the firm.

The Five Forces championed by Porter are discussed in detail and the analysis has

shown how different factors within each force can exert a direct albeit varying degree

of impact on the competitive drivers in the external environment. Key opportunities in

the industry identified are: new markets opening up due to deregulation; low

penetration rate in regional countries; potential for new non-voice revenue enabled by

broadband technology; industry standardisation which means operators that can

differentiate will prosper; industry trend of outsourcing, network sharing and low-cost

supplier unlocking possibility to lower cost structure.

Major threats that surfaced are: commoditisation eroding margin and lower switching

cost; mature and competitive Singapore market limiting growth and facing declining

margins; StarHub is a serious competitor with a superior fixed broadband network;

regulatory body favouring more competition and level playing field; non-traditional

players entering the value chain; threat of disruptive technologies; regional M&A

getting more competitive.

From the RBV perspective, the analysis has revealed that SingTel’s strong and stable

cash flow, huge subscriber base, well established billing relationship with subscribers,



knowledge of customer, the management’s proven M&A capabilities and brand

equity, are strengths that when melded together meet the market test on the VRIN

conditions. On the other hand, SingTel’s traditional core competence in technology,

both in physical assets as well as knowledge, may not be relevant as a source of

competitive advantage in a converged telecom/IT scenario. In the worse case, it may

become a source of core rigidity. SingTel’s linked to the Singapore government,

whether perceived or real, need to be managed delicately especially when it still

harbours ambition of regional expansion.

The SWOT analysis sums up the key internal and external elements and identifies the

areas of strategic “fit” i.e. the strategic choices on which SingTel’s corporate

strategies can be formulated. These are:

• Strategies that leverage the appropriate strengths to exploit

opportunities and/or nullify threats; and

• Strategies that mitigate the potential of weaknesses being exploited by

external threats.

• Strategies that alleviate weaknesses by exploiting opportunities in the

industry

It is concluded that SingTel’ three pronged corporate strategy of: leading in local

market; inorganic expansion through overseas investment and acquisition and

innovation to mitigate commoditisation in traditional carriage business, are very much

in tandem with and shaped by the SWOT analysis as derived from RBV and PFF. In

addition, it is also suggested that SingTel should seriously consider if ownership of

the network is still relevant as a source of competitive advantage especially when

viewed with the need to ensure a competitive cost structure. Considering that

innovation and differentiation are predominantly due to content services or user

device, SingTel may need a new asset-light corporate strategy to train its management

and financial resources so that it can reinvent itself by building new competences like

multimedia, alliances and partnerships that are outside of the traditional network

boundaries, and less on building physical networks.



SingTel stands at the cusp of an industry revolution that will bring about greater

collective competitive forces and threats from non-traditional sources.

Commoditisation is real and threatens to make competition more cut throat then it

already is. This is further exacerbated by a regulatory environment that is determined

to lower the barrier for new entrant and encourages the use of disruptive technologies.

Non-traditional competitors are also entering the fray to create further discontinuities

to the prevailing value chain. But amidst these seismic shifts in the industry structure,

opportunities abound and SingTel possesses a set of VRIN resources that it can

capitalise on to gain an edge over other players in the industry. The study has shown

that the strategic choices that SingTel has adopted are geared towards meeting these

discontinuities in the industry head on. Indeed, its corporate strategies will enable it to

lead and shape the market, and accelerate SingTel towards achieving its vision “to be

Asia Pacific’s best communications group”.



REFERENCES

1. 3G (2006). “Mobile Industry Strategy Update from Vodafone”.

http://www.3g.co.uk/PR/May2006/3115.htm (Accessed 12 April 2008)

2. 3GPP (2008). “About 3GPP”. http://www.3gpp.org/About/about.htm

(Accessed 28 Feb 2008)

3. Barney, J.B., (1991). “Firm Resources and Sustained Competitive

Advantage”. Journal of Management; Vol. 17, (1), pp.99-120 1991.

4. Bloomberg (2008). “Singapore Telecom says Asia Takeovers a Challenge”. 05

Feb 2008.

5. Business Wire (2007). “GSM/GPRS/EDGE Boosts Mobile Infrastructure

Market in the Second Quarter, According to Dell'Oro Group”. Business Wire,

20 August 2007

6. CFO Asia (2006). “CFO Profiles. Chua Sock Koong”.

http://www.cfoasia.com/archives/200602-07.htm (accessed 02 April 2008).

7. Collis, D.J & Montgomery, C.A (1995), “Competing on resources: Strategy in

the 1990’s”. Harvard Business Review; July -August; 118 - 128.

8. Cool, K.O., & Chendel, D. (1988). “Performance Differences Among

Strategic Group Members”. Strategic Management Journal, 9(3): 207-223.

9. Daft, R.L. (1983). “Organisation theory and design”. New York: West

Publihsing.

10. Danarkesa Research Institute (2007). “Weekly Economic News Update”.

Weekly Market Commentary, 26 Nov 2007.

11. Devan, Janadas (2007). “Thai Telco Fuss: Dialling for Nationalism”. Straits

Times, 27 Jan 2007.

12. Dibb, Sally (2001). “New Millennium, New Segments: Moving Towards the

Segment of One?”. Journal of Strategic Marketing, 9 pp193-213

13. DSL Forum (2008). “Who we are”.

http://www.dslforum.org/about/whoweare.shtml (Accessed 29 Feb 08)

14. Foo, Hwei Wen (2000), “”10% Decline In Revenue Due To Rate Cuts”, The

Straits Times, 04 June 2000

http://www.3g.co.uk/PR/May2006/3115.htm

http://www.3gpp.org/About/about.htm

http://www.cfoasia.com/archives/200602-07.htm

http://www.dslforum.org/about/whoweare.shtml



15. Grant (1991), Robert M. “The Resource-Based Theory of Competitive

Advantage: Implications for Strategy Formulation”. California Management

Review , Spring 1991, pp 114-135.

16. Hamel, Gary & Pralahad, C.K. (1989), “Strategic Intent”, Harvard Business

Review, May-June 1989.

17. Hamel, Gary & Pralahad, C.K. (1990), “The Core Competence of the

Corporation”, Harvard Business Review, May-June 1990.

18. Hansen, G.S. & Wernerfelt, B. (1989). ”Determinants of firm performance:

the relative importance of economic and organisational factors.” Strategic

Management Journal, 10 (5), pp 399-411

19. Huawei, (1997). “Milestones”.

http://www.huawei.com/corporate_information/milestones.do (accessed 28

Feb 08)

20. Huawei (2007). “Huawei successfully deploys Asia Pacific's first HSUPA

commercial network for StarHub in Singapore”. Press Release 27 August

2007.

21. Infocomm Development Authority (IDA) of Singapore (2000), “Full

Competition in Telecommunications Sector”.

http://www.ida.gov.sg/idaweb/pnr/infopage.jsp?infopagecategory=&infopagei

d=I489 (Accessed 12 Feb 2008)

22. Infocomm Development Authority (IDA) of Singapore (June 2006),

“Singapore iN2015 Masterplan Offers a Digital Future for Everyone”.

http://www.ida.gov.sg/News%20and%20Events/20050703161451.aspx?getPa

getype=20 (Accessed 25 Feb 2008)

23. Infocomm Development Authority (IDA) of Singapore (Oct 2006),

“Singapore Offers Free Wi-Fi in Public Areas”.

http://www.ida.gov.sg/News%20and%20Events/20061013120532.aspx?getPa

getype=20 (Accessed 14 Feb 2008)

24. Infocomm Development Authority (IDA) of Singapore (Oct 2006), “Corporate

& Residential Broadband Subscriptions (Singapore) 2004-2007 Annual.”

http://www.ida.gov.sg/Publications/20070822130650.aspx (accessed 25 Feb

08)

http://www.huawei.com/corporate_information/milestones.do

http://www.ida.gov.sg/News%20and%20Events/20061013120532.aspx?getPagetype=20

http://www.ida.gov.sg/News%20and%20Events/20061013120532.aspx?getPagetype=20

http://www.ida.gov.sg/Publications/20070822130650.aspx



25. Johnson, G. & Scholes, K.(1999). “Exploring Corporate Strategy”. Prentice

Hall, 5th Edition 1999.

26. Leonard-Barton, D. (1992), “Core Capabilities and Core Rigidities: A paradox

in managing new product development”. Strategic Management Journal, 13:

pp 111-125.

27. Lind, Jonas (2004). “The Convergence Hype Cycle: Usage in Management

Practice During an Impending Market Redefinition”. Center for Information

and Communications Research, Stockholm School of Economics, 11 April

2004.

28. M1 (2008). “Investor FAQs”.

http://m1.com.sg/M1/site/M1Corp/menuitem.bbba2e1e0cd45957f15a947b3f2

000a0/?vgnextoid=c0541b7faba72010VgnVCM100000275a160aRCRD&vgn

extfmt=pdate:0802171212: (Accessed 20 Feb, 2008)

29. Meyer, A., Mar, P., Richter, F. and Williamson, P. (2005). “Global Future:

The Next Challenge for Asian Business”. John Wiley & Sons (Asia), pp 119.

30. Mintzberg, H. (1987). “The Strategy Concept 1: Five Ps for Strategy”.

California Management Review, 30, 11-24.

31. Mintzberg, H, Lampel, J., Quinn J.B., & Ghosal S. (2003), “The Strategy

Process”. (Fourth Edition), Prentice Hall (MLQG).

32. Nokia (2007). “Meet Ovi, the Door to Nokia’s Internet Services”. Nokia Press

Release, 29th August 2007.

33. OCBC Investment Research (2007). “Telecom Sector”. 27 November 2007

34. Oon, Clarissa (2008). “The Innovation Evangelist”. The Straits Times, 29 Feb

2008.

35. Optus (2004). “Optus and Vodafone Australia finalise agreement to roll out

shared 3G network”. Optus Press Release, 19 Nov 2004.

36. Porter Michael (1979), “How Competitive Forces Shape Strategy”, Harvard

Business Review, March-April 1979.

37. Porter, Michael (1985), “Competitive Advantage”. The Free Press, New York.

38. Porter, Michael (1987), “From Competitive Advantage to Corporate Strategy”,

Harvard Business Review, May-June 1987.

39. Porter Michael (1996), “What is strategy?”, Harvard Business Review,

November – December, 1996.

http://m1.com.sg/M1/site/M1Corp/menuitem.bbba2e1e0cd45957f15a947b3f2000a0/?vgnextoid=c0541b7faba72010VgnVCM100000275a160aRCRD&vgnextfmt=pdate:0802171212





40. Qmax (2006). “Milestones March 2006”. http://www.qmax.com.sg/aboutus/

(accessed 03 March 2008)

41. Rumelt, R.P. (1991). “How much does industry matter?” Strategic

Management Journal. 12 (3): 167-185

42. Siew, Alfred (2007), “StarHub Scores Winner with its Varied EPL Offers”. The Straits Times, 05 Aug 2007.

43. Singapore Department of Statistics (2008). “Key Household Income Trends

2007”. Occasional Paper on Income Statistics, Feb 2008.

44. SingTel (2007), “The SingTel Group’s results for the fourth quarter and year

ended 31 March 2007”.

http://home.singtel.com/news_centre/news_releases/2007_05_09.asp.

(Accessed 10 Jan 2008)

45. SingTel 15th AGM (2007). “15th Annual General Meeting Presentation Slides”.

http://home.singtel.com/investor_relations/capital_reduction/default.asp


46. SingTel Press Release (2007). “SingTel races ahead of the pack with the

world’s first ever night race”. Press Release, 16 Nov 2007.

47. SingTel (2008).

http://home.singtel.com/about_singtel/company_profile/vision_n_mission/com

panypro_visionmission.asp (Accessed 01 Feb 08)

48. SingTel (Feb, 2008). “Management Discussion and Analysis of Financial

Condition, Results of Operations and Cash Flows for the Third quarter and

Nine Months ended 31 Dec 2007”.

http://home.singtel.com/investor_relations/financial_results/default.asp


49. Softbank (2007). “SOFTBANK and Disney collaborate to launch a new

mobile phone service “Disney Mobile” in Japan”. Softbank Press Release, 12

Nov 2007.

50. StarHub (2000). “StarHub exceeds first quarter expectations”.

http://www.starhub.com.sg/newsroom/newsrm_results.asp?id=91&method=1

&keyword1=. (Accessed 26 Feb 08)

http://www.qmax.com.sg/aboutus/

http://home.singtel.com/news_centre/news_releases/2007_05_09.asp

http://home.singtel.com/investor_relations/capital_reduction/default.asp

http://home.singtel.com/about_singtel/company_profile/vision_n_mission/companypro_visionmission.asp

http://home.singtel.com/about_singtel/company_profile/vision_n_mission/companypro_visionmission.asp

http://home.singtel.com/investor_relations/financial_results/default.asp



51. StarHub (2002). ”StarHub and SCV seal merger agreement”.

http://www.starhub.com.sg/newsroom/newsrm_results.asp?id=1951&method=

1&keyword1=scv+merge (Accessed 20 Feb 2008)

52. StarHub (Feb, 2008). “StarHub’s FY 2007 Results Presentation”.

http://www.listedcompany.com/ir/starhub/newsroom/PSFY2007.pdf


53. Statistics Singapore (2007). “Latest Data Population”

http://www.singstat.gov.sg/stats/latestdata.html#12 (accessed 20 Feb 08)

54. Strategy Analytics (2008). “Nokia Achieves 40% Global Handset Market

Share”. Strategy Analytics, 24 Jan 2008

55. Tan, Tammy (1999), “SingTel Profits Near $2 b”. The Straits Times, 10 May

1999.

56. Temasek (2008). “Is Temasek Holdings a statutory board or a government

agency?”. Temasek Holdings FAQ.

http://www.temasekholdings.com.sg/media_centre_faq.htm (Accessed 10

March 08)

57. Unstrung, (2008). “iPhone that Booms at T-Mobile”.

http://www.unstrung.com/document.asp?doc_id=144563&f_src=unstrung_gne

ws (accessed 18 April 08)

58. Vodafone (2008). “We will be the communications leader in an increasingly

connected world”.

http://www.vodafone.com/start/about_vodafone/who_we_are.html (Accessed

02 Apr 2008).

59. Von Fuchs, Teresa (2007). “Google will 'Probably' Bid on Spectrum”.

Wirelessweek, 22 August 2007.

60. Wheelen, L. Thomas & Hunger, J. David (2000). ”Strategic Management and

Business Policy”. Prentice Hall International, 7 Edition. th

http://www.listedcompany.com/ir/starhub/newsroom/PSFY2007.pdf

http://www.singstat.gov.sg/stats/latestdata.html#12

http://www.temasekholdings.com.sg/media_centre_faq.htm

http://www.unstrung.com/document.asp?doc_id=144563&f_src=unstrung_gnews

http://www.unstrung.com/document.asp?doc_id=144563&f_src=unstrung_gnews

http://www.vodafone.com/start/about_vodafone/who_we_are.html


Annex 1 Contribution of Overseas Associates to SingTel’s Net Profit (as at end Dec 2007)



Annex 2-1a SingTel’s Consolidated Income FY 2007



Annex 2-1b SingTel’s Balance Sheets FY 2007



Annex 2-1c SingTel Consolidated Cash Flow FY 2007



Annex 2-2c SingTel’s Consolidated Cash Flow FY 2006



Annex 2-3c SingTel’s Consolidated Cash Flow FY 2005



Annex 3-1a M1’s Consolidated P&L FY 2007



Annex 3-1b M1’s Balance Sheets FY 2007



Annex 3-1c M1’s Consolidated Cash Flow FY 2007



Annex 4-1a StarHub’s P&L FY 2007



Annex 4-1b StarHub’s Balance Sheets FY 2007



Annex 4-1c StarHub’s Consolidated Cash Flow FY 2007




Annex 5: Formula for Financial Ratios & Its Meaning

Ratio Formula What it Shows

EBITDA Margin (Profit before Interest, Tax, Depreciation & Amortisation) / Revenue

Firm’s profitability from regular operations

Cash Flow Operating Cash less Cash Capital Expenditure

How much free cash available

Debt / Equity Total Debt/ Total Shareholders Equity

Borrowed funds versus funds provided by shareholders

Interest Cover EBITDA / Net Interest Expense Firm’s ability to meet all interest payment

Dividend Payout Annual Dividends / After Tax Earnings

Indication of dividends paid out as percentage of net profits

LEE Siak Kwee - Cloud Object Storage | Store & Retrieve...

Documents

Transcript of LEE Siak Kwee - Cloud Object Storage | Store & Retrieve...