Published November 5, 2008
iPhone subsidies bite a chunk off SingTel Q2 income
Telco confident that move to tie in customers will pay off over time
By WINSTON CHAI

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(SINGAPORE) Singapore Telecommunications (SingTel) has warned that its second-quarter profits will be dragged down by the heavy cost of subsidising Apple's iPhone 3G and lower contributions from its overseas units.
In a regulatory statement posted yesterday, the operator said hefty iPhone subsidies could take a $71 million bite out of its Q2 income in Singapore and Australia.
Ebitda (earnings before interest, taxes, depreciation and amortisation) for its local operations will be reduced by around $27 million, while earnings for its Australian unit Optus could be lowered by almost A$44 million (S$44.74 million)
'Higher subsidy costs are associated with iPhone 3G. Consequently, the successful iPhone 3G initiative will have a dilutive impact on earnings and margins in the near term,' SingTel said.
The operator was given first dibs on selling the much-hyped touchscreen handset in Singapore on Aug 22. A similar timed exclusive deal was sealed for its associate Globe Telecom in the Philippines, while Indian subsidiary Bharti and Optus sold the iPhone 3G under non-exclusive arrangements.
Unlike its predecessor, Apple's second-generation handset is sold with heavy operator subsidies to lower their retail pricing in the hope of driving mass adoption.
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In Singapore, consumers can even get their hands on the handset for free if they sign up for a SingTel plan which costs $205 a month.
This means telcos will have to live with lower profit margins in the short term in the hope of recovering them in the long run with multi-year subscription contracts and increased data usage through services such as Web surfing and music downloads.
'The group is confident that this strategy of expanding and acquiring high-value data-centric 3G subscribers is value-accretive,' SingTel stressed.
The company revealed that it has collectively sold more than 170,000 iPhones in Singapore, Australia, India and the Philippines as at the end of September.
While it declined to provide an individual breakdown, BT understands that more than 35,000 units have been sold locally since its debut.
Besides enduring the short-term pain caused by iPhone subsidies, the company is also reeling from the negative impact of currency volatility in Q2 with the Sing dollar appreciating against other regional currencies.
Profit contribution from Optus will be muted due to the plummeting Australian dollar. Earnings from SingTel's associates in six emerging markets (India, Bangladesh, Indonesia, Pakistan, the Philippines and Thailand), which account for 42 per cent of its earnings, will also take a major hit.
The Indian rupee and Thai baht nose-dived some 17 per cent against Sing dollar in the September quarter from a year earlier, while the Indonesian rupiah, Filipino peso and Bangladesh taka fell 7.9 per cent, 7.6 per cent and 8.4 per cent respectively.
On the bright side, SingTel said it will book a one-time foreign exchange gain of $67 million in Q2 following a capital reduction in its Australian unit.
To cope with growing adversity, SingTel has already introduced cutting measures such as a headcount freeze and major advertising cutbacks in Singapore, while its Optus has culled 115 jobs from its networks division. The company is set to unveil more details of its cost-cutting effort at its Q2 results briefing on Nov 12.
Following its warning, OCBC is putting its 'buy' rating and $3.85 fair value for SingTel under review.
The operator's share closed 8.4 per cent lower at $2.30 yesterday.