8 things I learned from the 2019 StarHub AGM

StarHub is a ‘quad play’ telecommunications (telco) provider that delivers services in mobile, fixed broadband, pay TV and enterprise solutions. The liberalisation of the Singapore telco industry has seen the entry of five virtual telcos and TPG Telecom – which won the bid to become the country’s fourth major telco. In total, there are now nine operators offering mobile subscription plans in a market of 5.6 million people.

The heightened competition has seen a price war erupt among players with each offering more data at ever lower prices in a bid to win (or protect) market share. As a result, StarHub’s profit has fallen over the last few years, accompanied by steady drop in share price:

Chart: Google

Once favoured by investors for its steady dividend, StarHub also announced a significant cut in its quarterly dividend from 4 cents per share to 2.25 cents. It looks as if the headwinds are blowing stronger in the local telco industry before the dust has a chance to settle.

I attended StarHub’s annual general meeting to find out how its management planned to navigate the ultra-competitive business landscape and whether there were still areas of growth for the embattled telecommunications company.

Here are eight things I learned from the 2019 StarHub AGM:

1. Revenue fell 2% year-on year to S$2.36 billion in 2018. Mobile revenue fell 8% year-on-year but remained the largest segment contributing 34.9% (S$824.5 million) of total service revenue. Pay TV revenue fell 11.9% to S$311.3 million as cord cutters continued to migrate to OTT providers like Netflix. Enterprise continued to post strong growth and is StarHub’s second largest segment contributing 21.6% of total service revenue.

Source: StarHub 2018 annual report

2. While total revenue fell 2%, net income fell 26.1% year-on-year to S$201.7 million in 2018. CEO Peter Kaliaropoulos explained that the higher mix of Enterprise revenue – which is lower margin than Mobile — was the reason for the larger fall in net income. The higher cost of marketing and promotions due to competition also contributed to the fall in net income.

3. Kaliaropoulos shared that StarHub needs to focus on a ‘branded customer experience’ to differentiate itself from its competition. Singapore is a mature market where low prices and high product quality are already a given in the marketplace due to competition. In order to remain relevant with customers, it’s more important that StarHub continually improves its customer experience while ensuring its product offerings are ‘leading edge’ and value for money. Some initiatives include simplified mobile pricing plans, unlimited local calls for prepaid customers, and unlimited weekend data for our postpaid customers.

4. The CEO believes that the future of the telco industry is about network sharing. Singapore has an oversupply of wireless and fixed network infrastructure, and investing more capital to build multiple networks which overlap one another doesn’t give a telco a competitive advantage. Traditionally, telcos had to build up their network infrastructure as they entered the market to deliver services to customers. But in a mature market with full penetration rates, players need to differentiate themselves by their brand and customer experience, not by their network infrastructure. He believes that consolidation in the telco industry is inevitable in order for competition to be sustainable, as seen in other mature markets like the U.S. and Australia. StarHub is in discussions with industry players on network sharing but a viable commercial model has to be ironed out before it happens.

5. A shareholder wanted to know how StarHub planned to handle the ongoing disruption in the pay TV industry. The CEO pointed out that even though pay TV is declining, broadband use is increasing which means consumers are simply moving elsewhere to consume content. At the same time, StarHub is looking to move to a variable cost model where it only pays a fee to content providers based on the number of Pay TV subscribers it has, compared to the old model where StarHub had to pay a higher fixed fee regardless of the number of subscribers.

6. The CEO is consolidating its broadband and pay TV delivery onto one platform – fibre – and terminating the rest in order to streamline operations and reduce cost. All StarHub customers have to shift to fibre platform by 30 June in order to continue receiving broadband and pay TV services. The CEO shared that there are around 100,000 customers left to make the shift. There some challenges for certain customers that live in landed homes that have yet to install a fibre point, but the exercise is progressing well and expects the entire customer base to be migrated by the deadline.

7. StarHub has partnered with Temasek Holdings to form Ensign, which will become one of the largest cybersecurity firms in Asia. Kaliaropoulos says that Ensign is a long-term growth opportunity and StarHub will make significant investments in the cybersecurity firm in the next 2-3 years. Unlike telecommunications which is a capex-intensive industry, cybersecurity is a ‘people business’ which relies on hiring top talent to create the cybersecurity algorithms that drive the business. He expects Ensign to make a positive impact on the top line from Q1 2019 onward.

8. A shareholder asked if StarHub could be acquired and potentially taken private since its competitor, M1, was recently taken private. The CEO said there’s no deal on the table and whether StarHub is acquired is a matter for shareholders to decide. As part of the executive management team, his focus is to run the business responsibly and successfully.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Adam Wong

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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