Published January 6, 2009

Will M1 put on a new game face?

By WINSTON CHAI

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TELCO counters are often seen as defensive plays during turbulent times and no other local telco epitomises this quality in its modus operandi more than M1. However, with the impending arrival of a new chief, will M1 finally change tack and go on the offensive, or will it continue to play nice and passively defend its turf?

Last Friday, M1's chief executive Neil Montefiore announced his surprising decision to step down next month. Chief financial officer Karen Kooi will take the helm in the interim while the company hunts for a new head honcho.

Unlike Mr Montefiore's 12-year stint, M1's incoming chief is in for a much rougher ride. When it was formed in 1994, M1 was the only alternative to incumbent Singapore Telecommunications in a market long deprived of options.

Coupled with a relatively untapped base for radio paging and cellular services back then, M1 cruised to a decade of rapid subscriber growth and established a comfortable beachhead alongside SingTel and StarHub.

However, with sweeping changes being made to the competitive landscape in the last 12 months, M1 is showing early signs that it could be buckling under the pressure.

On the one hand, the operator is experiencing higher churn rates compared to its two rivals in the era of 'true mobile number portability'.

More M1 customers have defected to SingTel and StarHub now that they are able to transfer their mobile numbers from one telco to another.

An average of 7,000 cellular subscribers port their mobile numbers every month, representing around 0.1 per cent of Singapore's 6.27-million-strong cellphone user population. The churn rate in itself is not significant but the underlying fact that more subscribers are choosing to leave M1 is a cause for concern.

What is more alarming, however, is the ability of M1's competitors to draw new subscribers even with the mobile market edging towards saturation point. In the third quarter of 2008, SingTel gained 45,000 new post-paid customers while StarHub recorded a tally of 17,000. In contrast, M1 added only 4,000 new subscribers in the period.

The results in the fourth quarter should tell a similar tale. SingTel will no doubt get a lift from its exclusive tie-up with Apple for the iPhone. StarHub's longstanding strategy of 'hubbing' or offering discounts for multiple services is expected to retain its allure, especially when consumers are now careful with their spending.

Both companies are even dangling freebies from notebooks to desktop computers alongside new broadband contracts, paving the way for them to up-sell additional services such as cellular subscriptions in future.

Without a viable second business, M1 cannot afford to do the same. At a time when providing mobile services has become somewhat of a lowest common denominator, a new laptop or a sizeable monthly discount could well be the deciding factor between one operator and another.

With the impending change-of-guard, a strategic review of M1's existing business will be among the top items on the agenda. One key question that will face the new chief is how M1 will eke out growth when competitors seem to have the upper hand.

Unlike its rivals, M1 has always chosen to play nice under the stewardship of Mr Montefiore. When StarHub entered the market as an Internet service provider in 1999, it went on the offensive and offered free unlimited dial-up Internet packages, effectively sealing the fates of market leaders Pacific Internet and SingNet. It followed this up by with free incoming calls and per-second billing on the mobile front.

Diversification

SingTel also threw down the gauntlet locally by hogging the iPhone distributorship and by going after the next generation of mobile users with student plans offering free campus calls and unlimited text messages.

M1 will have to come up with something more impactful to shift the market dynamics back in its favour.

Diversification, both from a product or geographical perspective, is the other key decision that has to be made by the new M1 CEO.

With Singapore's mobile penetration already at a sky-high rate of 130 per cent, should the company diversify into broadband-related ventures when Singapore's new high-speed fibre-optic network becomes operational in 2012?

The danger here is that the Republic's small Internet user base may not be able to support the vibrant broadband landscape that local authorities have envisioned with the dawn of the new network.

Overseas expansion could be another consideration for M1 with mobile services just starting to take off in emerging regional markets such as Vietnam and Cambodia. With its limited capital, partnerships with foreign players or even consolidation with another local telco could help this cause.

While M1's future direction will undoubtedly hinge on its new skipper, one thing is for certain: the company cannot afford to stand still amid the current sea change. Against cutthroat competition, sometimes the best defence for a company is a good offence.