Singapore Telecommunications Ltd - When will digital initiatives really pay off?

28/3/2014 – Comments by SingTel CEO Chua Sock Koong that telecoms companies should be able to charge so-called over-the-top (OTT) messaging systems such as Whatsapp, Skype and Facebook for using their networks shows how traditional carriers are still grappling with new digital realities.

As Ms Chua herself said at the Mobile World Congress in Barcelona in late February, "The main problem we have as an industry is we have been unable to monetise this increased demand ... and [average revenue per user] has fallen over time.

"I think the pace of change in our industry is relentless so clearly we can't afford to stand still,” she said, "if we are not careful we could stand the risk of being totally disintermediated.”

SingTel has actively tried to diversify by investing in digital businesses, and is now looking to replicate its Singaporean Digital Life operations with a similarly-named business at Optus in Australia.

On December 23, 2013, SingTel Optus incorporated a wholly-owned subsidiary, Optus Digital Life Pty Limited.

SingTel announced these Q3FY13 results in late February:

Revenue: -7.3% to S$4.26 bln
Profit: +5.5% to S$872 mln
Cash flow from operations: S$1.03 bln vs S$1.2 bln
Dividend: 6.8 cents per share vs 6.8 cents per share

Revenue declined 7.4% because of a 9% depreciation of the Australian dollar, and poorer performances in the Group Consumer and Group Enterprise divisions, partially offset by strong contributions from the Group Digital Life segment.

Group Consumer revenue dropped 11.3% because of lower mobile termination rates from January 1, 2013, lower equipment sales and higher service credits for device repayment plans.

Group Enterprise revenue inched down by 0.2% but it is otherwise at the same level of contribution as the corresponding quarter, because of government sector contract wins from Singapore and Hong Kong, and one contract from UGL for managed ICT and mobility services in Australia.

Also comprising Group Enterprise performance for this quarter is revenue previously deferred from fibre rollout and the write-back of provisions no longer needed.

Group Digital Life revenue spiked to S$48 mln from S$34 mln previously, because of growth in digital advertising.

Amobee's revenue grew four times in the last seven quarters since its acquisition, management said in its discussion and analysis on page 33, but no figures were indicated in the Q3FY13 report.

And it’s not like this business is already firing on all cylinders.

EBITDA for Group Digital Life though, was negative S$42 mln, because of start-up costs and higher investments in the digital business.

It took an impairment charge of S$14 mln for certain venture investments under the “Innov8” banner.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. When will digital initiatives really pay off?

Group Digital Life may not be profitable, but is it at least on target.

Question

2. How will Optus Digital Life be different from the Singapore Digital Life business?

(Total number of questions in the full story: 5)

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message).

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