SingTel banks on core markets to support pan-Asian ambitions - Subsidiaries in Singapore and Australia remain key to operator's group earnings

SingTel describes itself as the "largest multi-market operator in Asia" with stakes in eight operators in the region serving some 198 million customers in total. In terms of subscriber numbers, only China Mobile is larger in Asia- Pacific. However, SingTel's market footprint is unusual as it is split between highly-developed, mature markets (Singapore, Australia) and low-penetrated, emerging markets (Indonesia, the Philippines etc.). Singapore (SingTel) and Australia (Optus) are its only two 100% wholly-owned subsidiaries. By end of second-quarter 2008 (the group's fiscal first-quarter) Singapore accounted for 26% of group earnings (EBITDA), Australia accounted for 31% and its remaining markets contributed 42%. The financial importance of Singapore and Australia to the group is also reflected in their respective ARPU figures, both among the highest in the Asia-Pacific region.

In these two markets, SingTel is focused on migrating customers onto higher-speed connections and ramping up data services. For example, in Singapore, SingTel is focusing on its 'mio TV' mobile TV service and had signed up 45,000 subscribers by end of second-quarter 2008. It also had 66,000 Singapore subscribers signed-up to its mobile broadband data plans. In Australia, the group had signed-up 182,000 mobile broadband subscribers by June 2008 and calculates that non-SMS data revenue currently accounts for around 7% of ARPU. SingTel also began offering iPhone 3G in both markets this year (as has its related operators in the Philippines and India).

However, as our calculations show, even on a proportional basis, SingTel's associate operators in the highly- populated markets of India, Indonesia and the Philippines - the world's second, sixth and fourteenth largest mobile markets, respectively - account for more of its connections than either Singapore or Australia. In each instance, SingTel has a significant stake in the country's market-leading operator. Its 30.4% stake in India's Bharti is becoming particularly important to the group. The unit reported a 26% rise in pretax profit (in Indian rupee terms) as it added a further 7.4 million customers during the quarter.

This year, SingTel was involved in Bharti's ultimately unsuccessful attempt to acquire a majority stake in South Africa's MTN (subsequent talks between MTN and Bharti's rival Indian operator, Reliance, also came to nothing). SingTel has also been linked this year with a possible acquisition of a minority stake in China Telecom, the soon- to-launch CDMA-based mobile operator created out of the recent restructuring in the Chinese telecoms market.

However, while SingTel still appears keen to expand its Asia-Pacific footprint it is facing some significant challenges in its existing markets. Underlying net profit at the group was flat at S$865 million (US$603 million) in its first quarter. This was mainly due to unfavourable currency fluctuations, but also because of challenges in Indonesia, the Philippines and Pakistan. In Indonesia (Telkomsel) pretax ordinary profit declined 11 percent (in local currency) as operating costs and depreciation from network enhancements increased faster than its revenue growth; in the Philippines (Globe Telecom) SingTel cited a decline in service revenue as higher fuel and food prices affected discretionary spending; and in Pakistan the group's share of pretax losses at fourth-placed mobile operator Warid hit S$22 million (US$15 million) as the operator invested heavily in marketing and advertising and network expansion in a bid to grow the subscriber base.

Matt Ablott, Analyst, GSMA Intelligence:

Despite its shareholdings in some of the largest and fastest- growing mobile operators in the world, SingTel’s wholly-owned subsidiaries in Singapore and Australia still remain central to the group. Both these markets are performing well, with revenues from mobile broadband and other data services beginning to make significant contributions, and connections growth remaining stable despite high mobile penetration in both markets. Elsewhere, SingTel faces a myriad of challenges in a variety of different market scenarios. Where its stake is in a smaller operator with a small market-share – PBTL in Bangladesh, and Warid in Pakistan – revenues risk being affected by subscriber acquisition costs and network build-out. Meanwhile, its market-leaders in developing markets are preparing to migrate to high-speed networks; at AIS in Thailand, for example, capex currently accounts for just 2.7% of revenue, according to our calculations, which compares to an industry average of around 10%. However, all this could change as AIS and its domestic competitors begin to rollout WCDMA next year.