Why are telcos finding it hard to generate a profit from internet-hungry consumers? In its latest 1HFY2021 results ended September, Singapore Telecommunications (Singtel) recorded a 19% drop in its revenue from the Singapore consumer segment to $871 million from $1.1 billion a year ago, bringing Ebitda to just $326 million, 14% lower than a year ago. Singtel attributed the drop to the Covid-19 pandemic, which resulted in declines in roaming, prepaid customers (foreign workers & tourists) and equipment sales. This lowered average revenue per user (ARPU) for Singapore mobile by 25% y-o-y to $29 while prepaid ARPU fell 22% y-o-y to $13.

StarHub’s 3QFY2020 results ended September saw a drop in revenue for the consumer segment due to same reasons — lower roaming and prepaid revenue due to the travel bans. In an update, StarHub says overall revenue fell 14.5% y-o-y to $489.7 million, mainly due to lower contributions from mobile, pay TV and equipment sales, partially offset by higher revenues from broadband and enterprise business. This brought 3QFY2020 earnings to $44.5 million, 23.3% lower than a year ago while 9MFY2020 earnings fell 19.6% y-o-y to $121.9 million, 19.6%. Meanwhile, mobile service revenue in 3QFY2020 fell 29.4% due to lower postpaid and prepaid revenues.

Paul Chew, head of research at Phillip Securities, agrees that Singtel and StarHub’s valuations are starting to look attractive. However, he is keeping a neutral view on both stocks. “Earnings will be sluggish near-term from roaming drag and overall economic weakness,” he says, referring to the hit from foregone roaming revenue that is typically around 20% of the telcos’ mobile revenue. Besides valuations, Chew sees potential bright spots, such as the cybersecurity offerings the telcos have built up, which he believes is “undervalued”.

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