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Customers welcome telco price war, but analysts ring warning bells

SINGAPORE — Customers have welcomed the price war erupting among the telcos in the high-speed fibre broadband market, although analysts warned that it could be unsustainable for the companies, which are suffering from falling revenues in this segment.

A Singtel store. TODAY file photo

A Singtel store. TODAY file photo

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SINGAPORE — Customers have welcomed the price war erupting among the telcos in the high-speed fibre broadband market, although analysts warned that it could be unsustainable for the companies, which are suffering from falling revenues in this segment.

With the telcos drastically slashing the prices of their plans, consumers wondered if they would be increasingly susceptible to a situation where they would sign up with a telco only for it to significantly reduce the price of the same plan months later or even offer a better plan at a lower price.

For example, last month, SingTel started offering an Unlimited Fibre plan at S$69.90 per month, which has “no speed limit” and allows users to reach average typical speeds of 800Mbps. However, it is still offering a 500Mbps fibre broadband plan at S$79.90 per month.

Earlier this year, M1 had reduced the price of its 1Gbps fibre broadband plan from S$399 to S$99 per month, before slashing it further on Thursday to S$49 per month.

In response to TODAY’s queries, M1 said it is contacting all its existing 1Gbps fibre broadband plan customers to offer them the promotional rate. They will have to recontract for another two years.

Dog trainer Poh Wee Boon, 25, subscribed to a 1Gbps plan with M1 more than a year ago. He is paying almost S$200 a month.

Mr Poh said he would rather shop around than recontract with the telco at the latest price — which is the cheapest in town for now.

“After all, it’s a price war out there. Consumers tend to benefit (from it),” he said. “I’m feeling infuriated that we actually paid so much for the plan.”

Business owner Jessie Tan, who is a fibre broadband subscriber with StarHub, shared the same sentiments. “As a consumer, I would feel unjust, being locked in at this price. I would probably try to demand something from the telco.” However, she added: “To be fair, it could happen with other types of services as well.”

StarHub, which has stopped offering its S$395.90 1Gbps fibre broadband plan, has said that it is revising its package. Its spokesman said: “In general, broadband customers will continue on their subscription till the end of their existing contract. StarHub will make available details to its 1Gbps fibre broadband customers when its new offer is commercially ready.”

Consumers Association of Singapore executive director Seah Seng Choon said telcos may want to consider lowering the charges for customers who are locked in at higher prices as this will generate goodwill and brand loyalty. “Otherwise, consumers can always vote with their wallets and sign up with telcos that gives them long-term value for their money,” he said.

 

PRICE WAR COULD TURN BLOODY

 

With telcos reeling from falling broadband revenues, a price war in the long run could cause the companies to bleed, analysts said.

A Nomura report last month estimated that the established telcos — M1, SingTel and StarHub — have suffered a decline of 15 to 20 per cent in broadband average revenue per user (ARPU) since start-up MyRepublic entered the market.

In January, MyRepublic shook up the sector with its S$49.99 1Gbps fibre broadband plan, which was about eight times cheaper than what M1 and StarHub were offering then.

An OCBC report released on Monday pointed to “intense broadband competition” as a reason for lower profitability among the telcos.

It noted that the smaller players, including M1, had been using low pricing to snatch market share away from the bigger players. As a result, ARPU could continue to fall in the coming quarters, the report said. M1 told TODAY that its new S$49 plan is expected to improve its ARPU.

Mr Clement Teo, senior analyst at Forrester Research, pointed out that slashing prices to gain market share is sustainable only if the telcos have deep pockets. “In the long term, it is not sustainable. Profit margins are lowered, ARPU is down. Less money from users also mean less money for innovation and improving customer experience. Bad services may result, which will lead to less revenue from users ultimately. It is a downward spiral.”

But Mr Ryan Huang, an IG market strategist, said the telcos may be forced to review their offerings and this could spur innovation.

Initial price cuts for a relatively new and niche speed band such as 1Gbps may also attract new customers, he said.

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