Wednesday, May 9, 2018

Why TPG Telecom Is Not A Threat To The Incumbent Telcos In Singapore?

The telecommunication industry is set to change in the near future with the fourth telco, TPG telecom starting business in 2019. However, I don't think this will be a threat to the incumbents in Singapore and I will tell you why in this post. Previously, I spent 6 years in the telecommunication industry working as a telecommunication engineer. Deploying mobile networks was bread and butter for me and I know this industry inside out including the challenges of setting up base stations all around Singapore just to provide the coverage that is needed.

TPG Telecom announced on 19 March 2018 that it will be launching its first mobile product aimed at seniors aged 65 and above, offering several free perks for them. TPG said it will offer this group of customers a SIM card, 3GB of monthly mobile data and unlimited local calls for free for the first 24 months. This is actually a good move to get customers on-board. However, I would think those who subscribe to the new telco will face a risk of poor network coverage. Why is this so?

Why TPG Telecom Is Not A Threat To The Incumbent Telcos  In Singapore?

Mobile Coverage

TPG telecom has to provide outdoor street level coverage for 4G within 18 months from the start of the new spectrum rights. This should be done by December 2018. However, do note that this is only for outdoor coverage and not for indoor coverage so the mobile coverage is expected to be weak in buildings and underground premises all around Singapore.

Under the spectrum rights, they are only suppose to meet 85% of In-building coverage by 1 Jan 2020 and 99% MRT underground stations coverage by 1 Jan 2022. Imagine subscribing and paying for your mobile phone bills and realise you can't use your phone in your office building, shopping malls and while you take the train? This is a scenario which is highly likely.

Outdoor street level coverage

Before I go into In-building and MRT underground stations coverage, let me talk a little bit about outdoor street level coverage. In order to deploy a mobile network which covers outdoor areas, mobile base stations have to be built and connected to an antenna which transmits and receives signals. These base stations are mostly deployed at roof tops of HDBs, private residential buildings as well as commercial buildings all around Singapore. It is said that TPG has to secure spaces for 3000 base stations in order to meet the network coverage required. This deployment will not be cheap or easy at all.

From my own experience of deploying mobile base station, many roof tops in Singapore have already limited spaces to deploy these mobile base stations. There is constantly a need to seek approval from relevant authorities and private building owners for this. There are also requirements to meet safety standards so the antennas cannot be deployed just anyhow. The challenge is there and I'm not sure how TPG is able to deploy their network in such a short time with existing spaces on roof tops of buildings already taken up by the incumbents.

Furthermore, base stations and antennas are not cheap. I will not reveal the actual cost of these materials but from what TPG said that they are predicting to spend between $200 million to $300 million for the rollout of its mobile network here, I really think they will most likely over spend on this budget.

For your information, according to M1, their fixed asset cost for network and related application systems already cost $517M as at end Dec 2017. This is almost double the budget of TPG telecom. For Singtel, they indicated that they spent $150M just to upgrade their network from 3G to 4G a few years ago. In my opinion, TPG telecom's budget of $200M to $300M seems too low to deploy a new mobile network in Singapore from scratch.

In-Building coverage

For in-building coverage, it is even more complicated thus the reason why the authorities gave more time to meet this network coverage. In order for mobile coverage to work in buildings, TPG telecom will have to build a base station inside the building itself and lay cables and indoor antennas all over the building just to provide the mobile coverage. You can look up the ceiling of buildings in Singapore and you'll notice some small cone antennas which has the sticker Singtel, Starhub or M1. These are the antennas of the incumbents and the reason why we can use our mobile phones inside the building.

The deployment of mobile coverage inside buildings is a tedious job. Because of the need to lay cables practically on all areas of the building, the job process is long and costly as well. This can only be done at night when the office building or shopping centres are closed. It takes a few months just to complete one building in Singapore. For bigger buildings, it can take up to a year. Can you imagine how many buildings are there in Singapore?

Singtel has a video to explain how mobile network coverage is deployed in Singapore. You can watch it here below:




MRT underground stations coverage

The next level and the most difficult is deploying mobile networks in MRT underground stations and the tunnel itself. In my work experience, it is practically hard to get the mobile network to be deployed in the MRT underground tunnels. The reason is simply because there is limited time for the company to work in the MRT underground tunnel network.

Most of us should be aware that there is major MRT infrastructure upgrades all across Singapore. There is limited maintenance engineering hours because the MRT runs all the way to midnight and starts early in the morning. As such, there is early closure and late opening of the MRT operations since the end of last year just to cater more time for MRT infrastructure upgrades.

The priority will always be given for MRT upgrading works and track access is always controlled by the operator themselves. I am of the opinion that TPG telecom will have a hard time deploying their mobile network in the MRT tunnels as they compete with the MRT upgrading work projects and the limited hours available. The incumbents took many years to upgrade their mobile network from 3G to 4G in the MRT tunnels and some parts are still not ready yet even until now.

It is unlikely that TPG telecom can have much mobile coverage in the MRT tunnels itself.


Another failure in the making?

It will be tough competition for 4 telcos to exist in Singapore altogether. Especially for the 4th telco, it is exceptionally hard to operate in Singapore itself. In the past, there was also another fourth telco in Singapore but it failed and exited the Singapore in 2001 just 1 year after it started. This company was Virgin mobile.

Besides that, a lot of mobile virtual network operators (MVNOs) have already started their business in Singapore. Some of these operators are Circles life, Zero Mobile, Zero1 and most recently My Republic also announced they will partner with Starhub to start their mobile services. How is TPG going to compete in an already saturated market?

Because of the impending entering of the fourth telco, shares of Singtel, Starhub and M1 were depressed for quite some time now. When Singtel shares went lower to $3.40, I accumulated more along the way and it is currently the largest stock holdings I have in my portfolio. I believe Singtel will be the less affected by the fourth telco even though there are other things to consider when investing in Singtel such as its weaker overseas business.

Ultimately, let's see how the telecom industry develops in Singapore. The future will speak for itself when the time comes.

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7 comments:

  1. Hey there! This is my first visit to your blog! We
    are a team of volunteers and starting a new initiative in a community in the
    same niche. Your blog provided us useful information to work on.
    You have done a outstanding job!

    ReplyDelete
  2. Hi,

    Thanks for the post. It is very insightful.

    Will it be technologically feasible for TPG to have their own personal network for outdoor street coverage, and work together with the other 3 Telcos to provide indoor coverage?

    I also find it hard to envision TPG being successful in Singapore, as they have challenges in capital expenditure as well as infrastructure setup in Singapore, and a highly leveraged balanced sheet which limits borrowing costs for expansion / marketing.

    The caveat is the risk of a elongated price war between the 4 Telcos. Lets hope it doesn't go into that.

    ReplyDelete
    Replies
    1. Hi INTJ,

      Yes they can work with the existing 3 telcos for inbuilding coverage through the combine antenna system. However, when the existing 3 telcos do this combine system, they come together to work out the proposals etc and share the cost as well. It might be difficult to work out an arrangement with TPG on this.

      I would think that there will most probably be a price war but it will be temporary. If the network is not up to standard, people will switch back in the end.

      Delete
  3. What TPG needs is a cash-rich investor. They can then keep doling out incentives to pull away subscribers from the incumbents. That's what is happening in India.

    ReplyDelete
    Replies
    1. Hi Rell,

      Yes they can burn cash to disrupt the industry. Grab is one good example which sucessfully disrupted the traditional taxi business in Singapore.

      For telcos, i think its hard to disrupt because of the high barrier to entry. The startup cost is already in hundreds of millions in Singapore and if they continue to burn cash, it will be even worse. After that, how much can they earn after burning all the cash? In India i guess its different because the cost to build a telecom network should be lower

      Delete
  4. virgin mobile wasn't a telco. they were a mvno.

    ReplyDelete