Singtel has announced a restructuring at the same time as its takeover of Amobee, a US-based mobile marketing company, for USD 321 million. Amobee will form part of its new unit 'Group Digital L!fe', which will also include e-commerce and next-generation TV. From 01 April, the operator will also create a 'Group Consumer', which will include its activities on the home market Singapore, Australian operator Optus and its mobile holdings in Asia. Singtel has in total 434 million subscribers in 25 countries. It will also form a 'Group ICT', to manage its ICT and enterprise services.
Singtel's creation of a Digital Life division follows similar moves by a number of other operators, such as Telefonica (formed Telefonica Digital in September 2011), Telenor (Digital Services, September 2011) and AT&T (Digital Life Services, November 2011). The strategic aim is to form a competitor to over-the-top providers such as Google and Apple. Singtel has the international presence needed to bring economies of scale, as seen also at Telefonica and Telenor, which own mobile operators in numerous countries. The question is whether operators, which often suffer from a less-than-positive image, have a chance against popular international internet companies. Takeovers can be an answer, as Singtel is doing and Telefonica has done in the past (eg, VoIP provider Jajah).
At the same time there is a trend towards services and away from infrastructure. This is especially pronounced in Singtel's home market, where it offers services on the Next Gen National Broadband Network (NGNBN), an open fibre-optic network, and is only a 30 percent shareholder in the NetCo that manages the passive infrastructure. 'Connected TV' and ICT services for the business market are also prominent in this trend.
SingTel is a clear example of an operator focusing on services and limiting its infrastructure to mobile in growth markets. There is still the question though of what is the best strategy for a telco:
- vertical integration;
- focus on infrastructure, and through partnerships generate additional revenues and/or customers (eg, Spotify's partnership with operators such as KPN);
- focus on traditional services provision, including ICT services for the enterprise market;
- compete full on against the major players in the internet world.
Given the enormous development power of Google, Apple, Facebook and others, with tens of thousands of developers at their disposal, the last choice seems to make the least sense. The coming months and years will show whether SingTel, Telefonica, Telenor and AT&T can carve out a place alongside the internet giants. The choice between the second and third options is also far from certain. A newcomer like City Telecom, known for its Hong Kong Broadband Network, has distinguished itself well as a 'dumb pipe'. The HKBN pushes the price of access lower, helping to subsequently build market share and scale advanatages. Traditional telcos, with their legacy systems, revenues and organisations, are fearful of this. Singtel however is showing the way, as it contributed a significant part of its network assets in the above-mentioned NGNBN. Telstra is currently doing something similar, by selling assets to the Australian National Broadband Network (NBN). This creates structural separation, a situation also underway at Telecom New Zealand.
For the moment, structural separation is a sort of utopia, which creates both a national, universal broadband network and prevents network duplication. However, it's not impossible. KPN will face the choice in the coming years: fully acquire the Reggefiber fibre network, as the option agreements allows, or leave the infrastructure to another entity, such as CIF and its pension fund partners. Or in other words, do we spend our cash flow on passive infrastructure, or do we use the resources to develop services and drive sales and marketing?
Cable also has a role to play here. As an example, look at the Cogas area (Twente), which CIF and Cogas are together covering with fibre, while at the same time Reggefiber is already active there. Ziggo currently offers services on the Cogas network, and the question is will Ziggo withdraw when the contract with Cogas ends. This can''t be ruled out, as we estimate the revenues are worth only around EUR 16 million to Ziggo, or very little of its EUR 1.5 billion in annual sales. Or will Ziggo provide services on the fibre network? In that case, the decision to provide services on other fibre networks has been made, and Ziggo can say goodbye to its HFC network.
In short, the strategy of big telecom operators is far from crystal clear, apart from a few exceptions in the far east.
