SINGAPORE (May 23): Maybank Kim Eng is keeping Singapore’s three telco incumbents at “hold” as it awaits how they will counteract Circles.Life newly launched free wireless plan that offers 1GB of monthly data, 30 minutes of voice and 10 SMS with no “hidden fees” or contracts.

In a Tuesday report, Maybank analyst Luis Hilado says Circles’ market segmentation that started with $28/month 6GB plans and later $20/month for an additional 20GB and $3/day of unlimited data options has morphed plans for a new segment dubbed “Less-wireless-data-savvy consumers”.

Hilado thinks the pricing structure of the new plan can help Circles avoid cannibalisation and preserve its existing subscriber revenue. Although customers on the 6GB plan are not likely to migrate to its zero plan as they would have to shell out $32 rather than $28, it may not preclude them from getting new SIMs.

Circles indicated during its press briefing that it is tracking a few years ahead of its 3-5% market-share target. “We think the branding impact from its zero-cost plan can sustain or build Circles’ market grab momentum,” says Hilado, “unless the other MVNOs (mobile virtual network operators) or MNO (mobile network operator) incumbents start to act aggressively to counteract it.”

To date, the incumbents have generally left competition in the price-sensitive segment to their MVNO partners but Maybank’s sensitivity analysis suggests that every 1% change in wireless revenue could affect their core profits and target prices by 1-3%. The house is therefore staying “neutral” on the sector as current prices reflect its forecast of gradual incumbents’ revenue erosion of 3% p.a. over FY18-20.

Notably, Circles’ traction has helped its MVNO partner, M1 ($1.63 target price) post industry-leading 1Q18 wireless-revenue growth of 3% y-o-y against declines for its competitors. However, Hilado doubts anyone is insulated from the opportunity costs of subscribers getting 1GB for free. Every 1% change in wireless revenue could lop 1-3% off the core profits and target prices of the three incumbents.

“For sector exposure, prefer Singtel ($3.57 target price) due to its diversified geographic and business segmentation exposure,” says analyst Luis Hilado in a Tuesday report, “We remain cautious on the sector.”

Shares of Singtel and Starhub closed 6 cents lower at $3.34 and $2.09 respectively on Wednesday while shares in M1 closed 4 cents lower at $1.72.