Telco price war - analysts ring warning bells

ALL content used in this not-for-profit blog remain the property of their respective owners.
http://www.todayonline.com/singapore/customers-welcome-telco-price-war-analysts-ring-warning-bells?singlepage=true

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.

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.

“... 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.”

Consumers Association of Singapore (CASE) 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.

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.

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.