sector 57 - dbs.com potential impact on enterprise value by 2020 digital prism rationale behind our...

DBS Group Research • February 2018DBS Asian Insights57n

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SECTOR BRIEFING

Asian Telecom Clear-cut View Via the Digital Prism

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DBS Asian Insights SECTOR BRIEFING 5702

Asian Telecom Clear-cut View Via the Digital Prism

Produced by:Asian Insights Office • DBS Group Research

go.dbs.com/research @dbsinsights [email protected]

Goh Chien Yen Editor-in-ChiefJean Chua Managing EditorGeraldine Tan EditorMartin Tacchi Art Director

Sachin MITTAL Head of Telecom, Media, and [email protected] Tsz Wang TAM CFASenior Research Director [email protected]

Chris KO CFASenior Research Analyst [email protected]

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Executive Summary

Why Should Telcos Embrace Digitisation?

Potential Impact On Enterprise Value By 2020

Digital Prism Rationale Behind Our Digital Prism Framework

Digital Transformation of Telcos in Asia

Leaders in the Telco Field

Appendix Explanation of the Framework

lobally, revenues of the telecom industry have come under pressure. Cannibalisation of high-margin voice and SMS revenues by over-the-top services (OTT) services like WhatsApp, coupled with the emergence of new entrants, is hurting telcos. On the enterprise front too, telcos are seeing a shift from higher-margin connectivity

solutions to lower-margin infocomm technology (ICT) services. Digital transformation has been widely hailed as a solution.

However, the fact of the matter is that the average return on incumbent digital initiatives is below 10%1 — barely above the cost of capital – which indicates that something is not right here. Many companies have been focusing purely on digitising the customer interface, which has become a hygiene factor now. In our view, the real competitive advantage will come from enhancing the scope of digitisation and investing boldly in securing new revenue streams by repositioning the company in the value chain.

Executive Summary

GAbout 40% of service revenues are at risk on average in Asia

Source: Companies, DBS Bank


Based on our estimates, by 2020, a telco that executes a well-defined digital strategy and fully integrates digitisation with its operations (digital leader) will see a 40% rise in its enterprise value versus a 40% drop for a digital laggard. A digital navigator, defined as a telco in the early-to-mid stages of its digital transformation process, should be able to preserve its enterprise value.

Digital leaders to trade at over 100% premium to digital laggards by 2020

+20% growth in topline • Gains market share

from laggards (+2-3% annually)

• Higher ARPU for digital channels (60% digital)

• ~15% revenue from non-traditional services

Stable EBITDA margins supported by efficiency gains

+40% rise in Enterprise value over 2017-2020

+5% growth in topline • Stable market share• Higher ARPU for digital

channels (40% digital)• ~8% revenues from

non- traditional services

Stable EBITDA margins from efficiency gains

+5% rise in Enterprise value over 2017-2020

9% contraction in topline • Market share loss (2-3%

loss annually) • Contraction of legacy

revenue (20% digital)• Negligible revenue from

non-traditional services

2% drop in EBITDA margins

39% drop in in Enterprise value over 2017-2020

Digital Leader Digital Navigator Digital Laggard

Source: DBS Bank


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The real competitive advantage will come from enhancing the scope of digitisation and investing boldly

in securing new revenue streams


With this idea, we have used our ’Digital Prism’ to help us identify telcos in Asia that are at the forefront of digital transformation. Our framework considers both strategic and operational aspects of the business to determine the progress in the transformation journeys and was developed based on academic research and insights published on the topic.

Based on our framework, we have identified Singtel to be a digital leader as the telco has set itself a well-defined digital strategy and operational excellence through digitisation.

ccording to a study of developed telecom markets2, revenue growth of the telecom industry declined from 4.5% to 4% while EBITDA margins contracted to 17% from 25% from 2010-2015. Among US telecom companies, for instance, landline and mobile voice accounts for less than a third of total access now,

down from 55% in 2010, while data revenue has risen from 25% of total revenues in 2010 to 65% today. With the entry of OTT players such as WhatsApp, higher-margin revenue streams of voice and SMS have entered a period of decline.

This has been further compounded by stiffening competition in most telecom markets around the world, with the entry of greenfield 4G players and low-cost Mobile Virtual Network Operators (MVNOs) that have no burden of legacy voice and SMS revenue and can sustain at much lower margins. Many Asian countries have either seen a new entrant or are expecting one in the coming 12 months.

A study by consultancy firm PwC3 has also indicated that the telecom industry has been witnessing declining average revenue per user (ARPUs) since 2006.

On the enterprise front, revenues from legacy connectivity solutions have started to decline in developed markets. AT&T, for example, recorded a 4% y-o-y decline in 3Q17 in revenues from the enterprise segment, largely due to falling legacy voice and data services which contracted 15% y-o-y. Verizon also reported a decline of 4% in its enterprise segment in 2Q17 after adjusting for the acquisition of XO Communications, a fibre-optic business. In Europe, Vodafone Group managed to grow its enterprise service revenues by just 1.5% y-o-y in 1Q17 vs. the 2.6% growth recorded in 1Q16.


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Why Should Telcos Embrace Digitisation?

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Diagram 1. Greenfield operators entering various markets in Asia

Country New mobile entrantAustralia TPG

India Reliance Jio

Singapore TPG, Circles.Life

Malaysia Telekom Malaysia Source: DBS Bank


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Other domains such as enterprise communications, IT hosting, and outsourcing have also come under pressure with the emergence of cloud services and the entry of a number of vertical-specific IT solution providers. For example, enterprise communication solutions, which traditionally were hosted on-premise, are now going into the cloud. According to IDC4, only 46% of enterprise communication solutions would have been hosted on-premise in 2017 and this will further shrink to 43% by 2019.

Based on our analysis, close to 40% of service revenues of telcos in Asia are bound to decline over the near term. Legacy revenues, defined as revenues generated from the provision of legacy voice and SMS services (includes pay-TV revenues in Singapore), account for around 40% of service revenues of a telco on average in Asia.

Close to 40% of service revenues of telcos in Asia are bound to decline over the near term


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e believe that the divergence of progress made by telcos on digitisation efforts will lead to a valuation differential between telcos leading and lagging in digital transformation. Based on our estimates, a telco that does not embrace digitisation (Digital laggard) is likely to trade at a discount of ~60% by 2020

vis-a-vis a telco that fully integrates digitisation in all aspects of its strategy and operations (digital leader). A digital navigator, which we define as a telco that is in the early-to-mid stages of digitising operations and executing a digital strategy will trade at a discount of ~30% to a digital leader. We also believe that the enterprise value of digital leaders will jump over 40% by 2020, while losses in subscriber and revenue share as well as higher operational expenses would lead to a non-digital telco destroying ~39% of enterprise value over the same time.

Diagram 2. Divergence between the enterprise value of digital leaders, navigators, and laggards

2017 2020

Average telco Digital Leader Digital Navigator Digital LaggardSubscribers (a) 100 100 100 100Subscriber market share 33% 33% 33%- Annual subscriber growth 2% 2% 2%- Industry subs growth (b) 6 6 6- Annual subscriber share gain 2% 0% -2%- Subscriber gain/loss (c) 6 0 -6Net subscribers (a+b+c) 100 112 106 100 Subscriber composition (d)- Subscribers on digital channels 20% 60% 40% 20%- Subscribers on non-digital channels 80% 40% 60% 80%ARPU (e)- Subscribers on digital channels 50 47.5 47.5 47.5- Subscribers on non-digital channels 50 45.0 45.0 45.0Mobile revenues (a+b+c)*(d*e) 60,000 62,697 58,512 54,403 - New non-traditional revenue as a percentage of total

0% 15% 8% 0%

New non-traditional revenue 0 11,064 4,744 0 Total revenues 60,000 73,761 63,256 54,403 EBITDA margin 35% 35% 35% 33%EBITDA 21,000 25,816 22,140 17,953 EV/EBITDA 7 8.0 7.0 5.0 Enterprise value 147,000 206,531 154,978 89,766 Enterprise value gain/loss 40% 5% -39% Source: DBS Bank

Potential Impact on Enterprise Value By 2020

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1. Digital leaders to gain 2-3% subscriber share from digital laggards on an annual basis

We believe that ~60% of a digital telco’s subscriber base will interact with it over digital channels versus only 20% for digital laggards. A digital laggard would predominantly use brick-and-mortar stores and other offline methods, such as customer care call centers, to interact with subscribers.

Key drivers for digital leaders will be (i) fully digital customer on-boarding processes; (ii) seamless online-to-offline integration to ensure swift delivery of hardware to any shop near the customer and shorter time for fault repairing; (iii) targeted digital marketing campaigns with the help of data analytics; and (iv) improved customer care offered via digital channels. These drivers would allow digital leaders to lure subscribers away from non-digital telcos. A survey5 also found that telcos optimising the use of digital channels tend to have better Net Promoter Scores (NPS), with a resultant decline in customer churn. High NPSs are considered to be a good indicator of customer satisfaction and could further improve the appeal of digital leaders over digital laggards.

Greenfield players such as Circles.Life and Reliance Jio are already exploiting these digital channels effectively. Reliance Jio, for example, managed to gain over 11% market share in the Indian mobile market within the span of just a year with the combined effect of heavy price promotions and the use of digital tools to acquire customers. Circles.Life, the first full service MVNO in Singapore, was launched in May 2016 and gained ~1% market share within just a year of operations without operating a single physical store and any price promotions. Hence, in our estimates, we believe that digital leaders will be able to capture ~2-3% market share every 12 months from digital laggards.

2. Subscribers interacting over digital channels will yield 5-8% higher ARPUs

We have accounted for an annual decline in ARPUs of ~3% over 2017-2020. We believe that contraction of legacy revenues and pricing pressure on data yields imposed by greenfield 4G operators would result in a continuous contraction of ARPUs in developed markets, hovering at around 3-4% annually. However, we estimate that customers interacting with the telco primarily over digital channels would generate 5-8% higher ARPUs than customers over traditional channels.

Greenfield players such as Circles.Life and Reliance Jio are already exploiting digital channels effectively


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A recent survey6 revealed that over 58% of customers surveyed were willing to switch to a fully digital operator with no brick-and-mortar stores. High-value customers were most likely to make the switch because of the perceived benefits of customisable mobile plans and the ability to resolve issues using self-service mechanisms. Poaching high-value subscribers would allow digital leaders to grow their blended ARPU.

The ease of purchase to lead to subscribers conducting more transactions. The ease of purchasing with a fully-digital telco would prompt subscribers to conduct more transactions, improving the life-cycle value of a subscriber. For example, customers can continuously adjust services and quotas as per their liking through a smartphone app as opposed to the hassle of calling or visiting a store. A study by McKinsey7 revealed that a European operator that started selling its services via digital means managed to grow revenues by ~30%, primarily driven by the ease of purchasing offered to customers. Digital telcos can also lure subscribers to use more of their services through cross-selling. For example, a digital telco that has expanded into OTT video services could offer a promotional OTT video service to its subscribers, which may induce a digital subscriber to consume more data. We assume more frequent transactions, combined with higher usage by digital subscribers, would add a premium of ~3.5% to the ARPUs of a digital leader.

Better uptake of promotions through data analytics – Digital leaders would also be able to use digital channels to make personalised offers to customers with the help of data analytics, which could significantly improve a telco’s conversion rates on marketing campaigns and lift ARPUs. For example, Verizon managed to improve its campaign close

Diagram 3. Digital subscribers will yield premium ARPU

Source: DBS Bank


rates by over 250% by segmenting and precision targeting with the help of data analytics. Another operator in Europe managed to improve the uptake of data plan renewal offers to 40% from 1-2%, with the help of data analytics. We attach a 2% premium to the ARPU of subscribers using digital channels due to data analytics.

3. New revenue from non-traditional services to comprise ~15% of total revenue by 2020 for the digital leader

Digital leaders are also likely to pursue non-core digital revenue sources in areas such as cyber-security, data analytics, digital advertising, and Internet of things (IoT) communications. We believe these investments could add up to 15% to the topline by 2020. At present, telcos such as AT&T, Telefonica, and Singtel already generate materially significant revenues from non-core digital services

Singtel’s digital and cyber-security segments now account for ~10% of its topline and grew almost 55% in 2Q18, supported by acquisitions. AT&T generates ~7% of revenues through fixed strategic services, which includes fast-growing segments such as cloud services, security, managed hosting, and IP conferencing solutions. The segment recorded the sole positive y-o-y growth in revenues of 6% in AT&T’s enterprise segment in 3Q17. Excluding contribution from video services, Telefonica’s digital segment grew 29% y-o-y in 3Q17 and now accounts for ~4% of Telefonica’s topline.

Whilst digital navigators would have expanded into these segments, their late entry and the established client base of digital leaders may make it difficult for digital navigators to gain traction in these new segments. Lack of a strategic direction would lead to negligible contribution from new revenue sources to the topline of digital laggards.

4. Digital leaders to sustain EBITDA margins despite lower margin of new non-traditional services by virtue of efficiency gains

New non-traditional revenue streams are likely to see lower EBITDA margins of 15-20%. However, digital leaders will be able to offset this by cost savings brought about by new digital solutions such as e-care solutions and digital subscriber acquisitions. A study by McKinsey8 estimated that fully digitising internal processes could help telcos save ~18% of their current operating expenses, supported by lower expenses in customer service and distribution, reduced marketing spend supported by data analytics, and efficiency gains realised through automation.

On the customer service front, a study9 pins the costs of implementing digital chats as a customer care tool at just 56% of the cost of maintaining a call center. Implementing online forums and FAQ sections are even cheaper at just 12% of the cost of operating a call center. For example, a European telecom operator10 managed to realise 30% in


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cost savings on customer service operations by only partially migrating its customer care services to digital channels. Another European telco managed to realise cost savings of EUR5.75mn by adopting community-based eCare, where users answered one another’s queries on online forums. Hence, adopting digital channels to provide customer care could help save ~40% of customer service costs for telcos, in our view.

Investing in digital distribution channels such as online shops and effective online-to-offline models could also help digital leaders cut down their distribution expenses. For example, a European telecom operator that invested in a digital sales platform managed to reduce its distribution expenses by ~30%. Use of data analytics would also help digital leaders improve the conversion rates and return on investment (ROI) of their marketing spend, providing leeway for digital leaders to tone down their marketing expenses. digital leaders could also optimise network deployment with the help of data analytics. A study11 revealed that telcos are able to increase the ROI of network deployment by ~10% and reduce capital spending by 38% by clustering customers according to their daily travel patterns and optimising network deployment.

Hence, we conservatively estimate that digital leaders would be able to save ~5% of current operational expenses by 2020, leading to a 300bps improvement in EBITDA margin on telecom services. Higher EBITDA margin on telecom services would help digital leaders offset the impact of lower EBITDA margins on non-traditional services and maintain their blended EBITDA margins at ~35%. The cost savings of operational expenses would be driven by ~20% savings on sales and distribution expenses and 40% savings on customer service expenses which, combined, accounts for around 20% of a telco’s operational expenses.

Digital laggards meanwhile would see an increase in their marketing and distribution spend as they strive to compete with the digital leaders. The human-centric nature of customer care and general administration would also boost telcos’ spend on customer care and administration. We have estimated a 4% rise in operational expenses for digital laggards over 2017-2020, resulting in a 300bps contraction of EBITDA margins on their telecom services by 2020.

Diagram 4. Digital leaders will maintain EBITDA margins at 35% by 2020

Digital Leader Digital Navigator Digital Laggard


EBITDA on Telecom services

38% 36% 33%

EBITDA on new revenue sources

15% 15% 15%

Contribution of telecom services to revenues

85% 92% 100%

Contribution of new revenue sources to revenues

15% 8% 0%

Overall EBITDA margin 35% 35% 32%

Changes in Operating Expenses of Telecom Services

Marketing, Sales, and Distribution(15% of Opex)

-20% -10% +10%

Customer care(5% of Opex)

-40% -20% +10%

General Administration Expenses (40% of Opex)

+5%

Source: DBS Bank

Diagram 5. No physical touch points

Sign up using email address. Customize plan using add-ons. Choose phone number or port

existing number

Receive SIM over post Manage subscriptions and contact customer care using

smartphone app


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New entrants to telecom markets such as Reliance Jio and Circle Life are already exploiting digital channels to realise cost efficiencies. Reliance Jio, for example, was a pioneer in using digital tools to on-board subscribers in India with minimal paperwork and time, helping it gain market share while reducing costs. The company introduced the use of India’s Aadhar number to validate identities and activate SIM cards within 5-15 minutes with no other paperwork. This relatively frictionless process has helped Reliance Jio drastically reduce the cost of on-boarding customers while improving the efficiency of the process.

Circles.Life operates as a digital-only player in Singapore, where new customers are able to sign up for the service using an online login based on their email address. The SIM is delivered to their address at a specified time. Similarly, Circles.Life relies heavily on referrals for new customers, providing promo codes to reduce signup costs for new customers and extra data for the referring customers. The company has been able to generate buzz with the painless and smooth process as well as drive adoption with relatively minimal marketing costs.

5. Digital leaders will trade at over 50% premium valuation versus digital laggards by 2020

The combined effect of subscriber loss, lower digital revenues, and contracting EBITDA margins would likely lead to investors placing heavy discounts on digital laggards vis-à-vis digital leaders. Strong growth prospects and better operational performance offered by digital leaders could prompt investors to attach 10-15% premium to the current valuations of average telcos. Lagging performance and a contracting bottomline would lead investors to attach discounts of as much as 30% to the valuations of digital laggards. Hence, we believe that digital leaders and digital navigators would trade at a premium of over 100% and 40-50%, respectively, over digital laggards.

Source: DBS Bank

Digital leaders’ growth prospects

and better operational

performance could prompt investors to

attach 10-15% premium to

current valuations

Digital Prism

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e have identified Strategy and Operations as two key areas to evaluate the success of companies’ digital transformation. In developing the framework, we rely on research and surveys on the differences between non-digital players, digital laggards, and digital leaders published in reputed academic journals.

Rationale Behind Our Digital Prism Framework

In a study on 2000 incumbents across all major industries and countries, published in the July 2017 edition of Harvard Business Review12, Jacques Bughin and Nicholas Van Zeebroeck estimated that the average return on incumbents’ digital initiatives was below 10% — barely above the cost of capital.

The study found that successful digital transformations were significantly less focused on cost efficiency and more focused on new products or new customers. The degree to which a transforming company was willing to change its activity portfolio, i.e. overall business, through divestments as well as acquisitions, had a direct impact on ROI and growth. Also, it emerged that companies that are more willing to adapt their position in the value chain, i.e. move upwards or downwards along the value chain, found digital transformation more rewarding. The higher the share of cannibalisation and the higher the investment devoted in comparison to competitors or peers, the bolder the corporate strategy; such companies were more successful when they targeted new demand, new supply or new business models.

Another article by Robert Bock, Marco Iansiti, and Karim R. Lakhani13 discussed tangible differences in operating methods between digital leaders and laggards. The study identified the use of data analytics in different areas of a company’s operations to improve its performance as a key differentiator. For example, they found that digital leaders are 2.5X more likely than digital laggards to harness real-time data and analytics to deliver tailored customer experiences. Hence, we have used questions that evaluate the use of data analytics in the operations section. In addition to this, we have also included some operational measures that are important in driving digital transformation for enterprises. This includes areas such as offering customisation tools to customers and providing better price transparency via digital platforms.

Based on insights gathered through these research publications and other resources, we have identified two key aspects of digital transformation – strategic and operational. In the Strategy section of our framework, we evaluate the scope of digital transformation


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strategies to identify companies that have made digital transformation a priority throughout the organisation. Secondly, we try to evaluate the boldness of these strategies, which gives an idea of the timeframe these changes will take place and gives them an advantage ahead of peers.

In operations, we look at four key areas. First, is the number of customers using digital channels. Secondly, we look at the company’s ability to fulfill the needs of its digital customers almost instantly. Thirdly, we look at the use of data analytics in upselling or cross-selling more services. Lastly, we look at how the company is using its digital channels to provide customisable plans to its customers which was not possible earlier.

Diagram 6. Digital Prism framework - Key indicators and scoring metrics

Scope and Boldness Description Weightage %Attempts to change the current position in the value chain

Attempts to expand the company’s reach over the value chain or digitise to change the nature of the value chain to gain new revenue and/or cut costs

20%

Investment directed towards digital transformation (%)

Investments made by a company to acquire or establish a business unit that generates non-traditional revenues as a percentage of capex

20%

Introduction of cannibalising products or services

Willingness to promote businesses that directly compete with traditional business lines

10%

Operations

Customer engagement, internal processes, and product development

Availability of tools for customers to instantly fulfil their needs

Use of online platforms and mobile applications to provide channels for customers to instantly purchase goods/services at their convenience

15%

Percentage of the subscriber base using digital channels (%)

Number of customers that use online tools and mobile applications to interact with the company as a percentage of its total customer base

15%

Use of data and analytics in the development or improvement of products/services

Use of data and analytics to introduce new products/services or change products/services in order to improve user experience

10%

Availability of tools for customers to customise products/services to their requirements

Availability of online and mobile tools for customers to customise the product/service offering as per their usage requirements

10%

Source: DBS Bank


Diagram 7. Framework scores for telcos

Singapore Thailand Indonesia

Framework Scores Singtel StarHub M1 AIS DTAC TRUE TLKM ISAT XL

Strategy

Attempts to change the position in the value chain (H/M/L)

20.0 10.0 5.0 5.0 0.0 10.0 20.0 10.0 5.0

Percentage of investment directed toward digital transformation strategies (H/M/L)

20.0 20.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cannibalising revenue sources (H/M/L)

2.0 0.0 0.0 0.0 0.0 0.0 2.0 0.0 0.0

Total Strategy Score 42.0 30.0 5.0 5.0 0.0 10.0 22.0 10.0 5.0

Operations Data-driven product/service development (H/M/L)

10.0 10.0 5.0 2.0 0.0 5.0 5.0 2.0 5.0

Means for instant fulfillment of customer needs (H/M/L)

10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

Availability of tools for customisation (H/M/L)

5.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Percentage of subscribers using digital channels (H/M/L)

10.0 10.0 10.0 5.0 5.0 5.0 5.0 5.0 5.0

Total Operational Score 35.0 32.0 27.0 19.0 17.0 22.0 22.0 19.0 22.0Total Score 77.0 62.0 32.0 24.0 17.0 32.0 44.0 29.0 27.0


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Framework scores for telcos cont’d

Malaysia China Hong Kong

Framework Scores DIGI MAXIS TM Axiata China Mobile

China Telecom

China Unicom

Smar Tone

Hutchison HKT Trust

Strategy

Attempts to change the position in the value chain (H/M/L)

5.0 0.0 5.0 20.0 10.0 10.0 5.0 5.0 0.0 5.0

Percentage of investment directed toward digital transformation strategies (H/M/L)

0.0 0.0 0.0 5.0 10.0 10.0 0.0 0.0 0.0 0.0

Cannibalising revenue sources (H/M/L)

0.0 0.0 0.0 0.0 0.0 2.0 0.0 2.0 0.0 0.0

Total Strategy Score 5.0 0.0 5.0 25.0 20.0 22.0 5.0 7.0 0.0 5.0

Operations Data-driven product/service development (H/M/L)

0.0 0.0 0.0 5.0 5.0 5.0 5.0 0.0 0.0 5.0

Means for instant fulfillment of customer needs (H/M/L)

10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

Availability of tools for customisation (H/M/L)

2.0 2.0 0.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Percentage of subscribers using digital channels (H/M/L)

5.0 15.0 0.0 5.0 10.0 10.0 10.0 5.0 5.0 5.0

Total Operational Score 17.0 27.0 10.0 22.0 27.0 27.0 27.0 17.0 17.0 22.0Total Score 22.0 27.0 15.0 47.0 47.0 49.0 32.0 24.0 17.0 27.0

Source: DBS Bank


e have used our Digital Prism framework to identify digital leaders and laggards among telcos in the Asian region. Based on our framework, we have identified Singtel to be the digital leader among Asian telcos as it has set itself a well-defined digital strategy and strives for operational

excellence through digitisation.

Source: DBS Bank

Diagram 8. Digital transformation scores

Digital Transformation of Telcos in Asia

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Leader in the Telco Field

Digital leader - SingtelWe categorise Singtel as a leader as the company has clearly spelled out digital transformation as a priority. Singtel scores high in both the strategic and operational aspects as it has executed a well-defined digital strategy while digitising key customer touchpoints and internal operations.

Realising the threat to legacy consumer and enterprise revenues, Singtel made strategic investments in areas it had a natural competitive advantage in. Singtel announced plans to invest ~SS2bn in strategic investments in digital businesses in 2013 and made acquisitions in the managed cybersecurity services and adtech space. As a result, growth segments, which comprise ICT services, Cybersecurity, and Digital Life (comprising adtech, OTT video, and data analytics) contributed ~25% of Singtel’s revenues in 2Q18, up from 19% in 3Q16. We expect revenues from these segments to grow ~100% over the next five years, contributing over 35% to Singtel’s topline, well compensating for potential declines in legacy services.

Having expanded into new segments at an early stage, Singtel has managed to gain itself a strong competitive advantage against other incumbents. For example, Singapore’s Smart

Source: DBS Bank

Diagram 9. Digital Transformation matrix for telcos


Nation programme aims to connect every aspect of city life including transportation, health, waste management etc., with the help of IoT and Big Data. As a likely provider of network infrastructure facilitating the programme, Singtel would naturally be among the favourite candidates for monitoring and managing the programme’s cybersecurity assets. The lack of comparable cybersecurity capabilities among other network providers in the country places Singtel at a natural advantage over likely contenders for the Smart Nation project.

Furthermore, the telco is present in several aspects of the digital advertising value chain and specialises in niche segments such as the provision of brand intelligence and cross-device audience targeting, which do not face direct competition from the likes of Facebook and Google. Amobee, the digital advertising arm of Singtel, is also able to leverage Singtel’s regional presence to gain traction in Asia, where SMEs remain hesitant to partner with big names in digital advertising due to hefty fee structures and the lack of an understanding of the regional market. For example, last year Amobee, in partnership with Optus, launched “Optus Xtra”, an app that provides free data quotas and credit to users in return for allowing ads to be displayed on their phones. Securing this level of collaboration with regional telcos remains a challenge even for the biggest names in digital advertising. With digital and mobile advertising spend in the ASEAN region expected to grow at a CAGR of 17% from US$2.8b in 2017 to US$4.4b by 2020, we expect to see strong growth in Singtel’s digital advertising business.

Singtel is also embracing cannibalising of revenues sources. The telco has invested in an OTT video service, HOOQ, which competes with its pay-TV business. Whilst other pay-TV businesses struggle to compete with OTT video services such as Netflix, Singtel is looking to gain from the booming OTT video opportunity.

Singtel has also invested in creating an omni-channel experience to customers with seamless integration between digital and physical realms. Online shops of the telco are well-integrated with physical outlets, and provide customers with the ability to make orders online for pick-up at the store closest to the customer on the same day. E-care options such as “Shirley”, a virtual agent, uses customer data such as location and usage to provide more personalised resolutions to customer complaints and responses. Automating customer care has allowed Singtel to greatly reduce costs on traditional call centers and customer care agents, whilst improving customer satisfaction at the same time.

The Easy Mobile plans by Singtel allow users to customise their plans monthly according to their needs over the smartphone app while SIM-only plans allow users to add on varying levels of minutes, SMSs, and data, on top of the base S$20 plan. The ability to build their own plan and optimise their spending creates greater customer satisfaction. This improves customer loyalty to and competitiveness of Singtel.


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Explanation of the Framework

Strategy metrics – 50%

• Attempts to change the position in the value chain – 20%

Definition – While a supply chain is oriented around the flow of inputs and outputs from raw materials to finished goods, a value chain is oriented around the generation of value for the customer, as defined by the customer. Any change in the value chain is often more transformative and driven by innovations in product development and customer engagement. A pay-TV player expanding into content production would be an example of this. Attempts made by a company over the last five years to change its position in the value chain were taken into consideration for ranking purposes.

Example – India’s second-largest truck-maker Ashok Leyland launched in 2017 its digital marketplace, a platform that offers solutions to tap opportunities in the highly unorganised after-sales and services market of commercial vehicles. The total cost of usage over a period of 10 years for any commercial vehicle is about fifteen times the purchase price, which presents a big opportunity for Ashok Leyland. The company, through its digital marketplace offering, is eyeing Rs 1000 crore (~US$150mn) in additional revenue over the next three years.

Scoring metrics – 20

High (20) Four or more attempts made by the telco to change its position in the value chain

Moderate (10) 2-3 attempts made by the telco to change its position in the value chain

Low (5) A single attempt made by the telco to change its position in the value chain

Not Applicable (0) No publicly available records of the telco attempting to change its position in the value chain

Appendix:


• Percentage of investment directed to digital transformation strategies – 20%

Definition – Investments made by a company to acquire or establish a business unit that generates non-traditional revenue streams for the company. For a telco, these would be investments in or the acquisition of capabilities in areas such as IoT, cybersecurity, and digital advertising. A higher percentage in investment in digital initiatives indicates that a company is prioritising digital investments over conventional segments, which are prone to decline in the near term. Investing in and developing capabilities in upcoming growth segments would help telcos reduce dependency on conventional segments and maintain growth over the long run. This indicator allows us to identify the telcos that are proactively moving into new segments.

We have looked at the investments made by companies from 2014-to date for purposes of ranking. For companies that have made several investments over the period, the total acquisition/investment as a percentage of total capex from FY14-17 was computed.

Example – Verizon managed to secure an early lead in transforming its business by making a string of acquisitions to build a portfolio of businesses in new segments such as digital advertising and telematics. Verizon acquired AOL, a digital content provider and an advertiser, in 2015 and soon complemented the purchase with the acquisition of Millennial Media and Yahoo! in 2016. The company further strengthened its in-house IoT capabilities by buying Fleetmatics, Sensity Systems, and Telogis in 2016. Verizon has spent over US$11b since 2015, accounting for ~20% of the telco’s capex and investment expenditure over the period, to acquire businesses in the digital media and IoT space. At the point of acquisition, AOL, Fleetmatics, and Yahoo! added over US$650m in EBITDA to Verizon. The digital media and telematics businesses now account for ~7% of Verizon’s topline and contributions from these units helped Verizon grow its 3Q17 EBITDA by 1% y-o-y despite the 4% decline recorded by its local rival AT&T.


High (20) >10% of capex during the applicable period was invested in new digital businesses

Moderate (10) Between 5%-10% of capex during the applicable period was invested in new digital businesses

Low (5) <5% of capex during the applicable period was invested in new digital businesses

Not Applicable (0) Little to no public information made available on the new digital investments of the company


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• New cannibalising revenue sources – 10%

Definition – Is the company willing to introduce products or services that compete directly with existing legacy revenue streams and suffer an initial hit but secure potential for revenue growth over the long run? For example, a telco that offers a pay-TV service introduces an OTT TV service that directly competes with its pay-TV business. Exposure to cannibalising revenue sources that are likely to gain popularity over time would help telcos offset losses arising from traditional revenue streams.

Example – Adobe, the developer of creative software tools such as Photoshop, now generates 95% of its revenue through Creative Cloud and other cloud subscription services. Prior to this, Adobe had sold its software as box licenses. In the initial phases, Adobe saw some decline in revenue and earnings as customers switch to cloud services due to the lower upfront price versus upfront license revenue. But the recurring nature of the subscriptions have allowed Adobe to generate more revenue over the customer life-cycle compared to box licenses. Using the subscription-based model, Adobe has been able to provide up-to-date software to its customers while benefitting from recurring revenue.


High (10) Release of three or more services that directly compete with three existing business lines

Moderate (5) Release of two services that directly compete with two existing business lines

Low (2) Release of a service that directly competes with an existing business line

Not Applicable (0) No indication of releasing services that directly competes with existing business lines

Operations Metrics – 50%

• Availability of means for customers to instantly fulfil their needs – 15%

Definition – Has the company provided sufficient means for customers to purchase the products/services of the company almost instantaneously? For a telco, this would be the ability to purchase mobile plans, hardware, and extra quota as well as interact with customer care services as and when the need arises. Digital channels have become an integral part of customers’ lives and a company that does not fully leverage the potential


of digital channels will miss out on this revenue opportunity. This indicator allows us to identify how well telcos are utilising digital channels to acquire and generate new sales from customers. We have looked at the features and functionalities of smartphone apps and online shops maintained by telecom operators to ascertain if sufficient means are available for subscribers to instantly fulfil their needs.

Example – Giffgaff, the MVNO launched by British mobile operator O2, allows customers to control their plans through the telco’s smartphone app. Users can check real-time usage statistics, buy or adjust plans as per their liking, and buy extra quotas instantly through the app. Users are also allowed to link their credit cards to the app, making the process of completing a new purchase faster and easier. The MVNO also offers attractive plans to customers, providing unlimited voice, text, and data plans for ~GBP 20 vs. 16GB-20GBs offered on average by other telcos. This has helped the telco to become one of the most popular providers in the UK. The telco was ranked the best for customer service and value for money in a survey by a consumer association and topped the table with an 81% customer satisfaction score. Incumbent operators such as Vodafone and Virgin Mobile were ranked 10 and 13, respectively, with customer satisfaction scores of 62% and 50%.


High (15) Availability of an app or an online platform that allows customers to interact with a virtual agent; order and pick up hardware on the same day from the nearest store; purchase voice/text, data quotas, and top-ups; view real-time usage statistics; manage other VAS; and pay bills

Moderate (10) Availability of an app or online platform that allows customers to purchase voice/text, data quotas, and top-ups; view real-time usage statistics; manage other VAS; and pay bills

Low (5) Availability of a platform (an app or web-based) that allows customers to view usage statistics, purchase top-ups, pay bills, and manage other VAS

Not Applicable (0) No platform available or platforms have limited features that do not cover any of the above

• Percentage of customers using digital channels to interact with the company – 15%

Definition – Digital channels have become an integral part of the lives of customers and offers a convenient, hassle-free. and fully automated mechanism for customers to interact with a company. Analysing the percentage of a company’s customer base that uses digital channels


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for interactions allows us to understand how effective the company has been in providing online channels and mobile applications that are easy to use and suits the requirements of customers.

For the purposes of our framework, we looked at the number of downloads of the main mobile applications released by a telco on Google Play Store and Tencent’s QQ app store (applicable only for Chinese telcos) as a proxy for the number of subscribers using digital channels to interact with a telco. Main mobile applications were defined as apps that provide general account management functionalities to the user (E.g.: usage meters, bill settlements etc.). As Google play store does not specify the exact number of downloads of an app, we have considered the lower end of the range of downloads disclosed in Google play store as a proxy for the number of downloads of a mobile app. We understand that the actual number of downloads is likely to be greater than the lower range. However, due to the limited availability of means to determine the exact number of app downloads, we have conservatively used the lower range as a proxy for the number of downloads.

Example – Close to 75% of the retail customer base of Bank of America now uses digital channels to interact with the bank. The bank also has over 23.6mn mobile banking users, representing around 52% of the bank’s retail customer base. On average, close to 340,000 cheques are deposited at the bank daily via mobile platforms, equivalent to the number of cheques placed at 880 brick-and-mortar financial centers. Payments conducted through digital channels have also continued to increase, growing at a CAGR of 9% since 3Q14 and now represent over 50% of total payments conducted by retail customers with the bank. Increasing usage of digital channels has provided the bank some much-needed respite in terms of overhead. Bank of America has closed nearly 230 physical financial centers which cater to retail customers since 3Q15, yielding a 570bps improvement in the efficiency ratio (defined as the percentage of non-interest expenses over total revenues) of the consumer banking segment.

Scoring Metrics – 15

High (15) Over 40% of the current subscriber base has downloaded the main smartphone app/apps launched by the company

Moderate (10) Between 20%-40% of the current subscriber base has downloaded the main smartphone app/apps launched by the company

Low (5) Less than 20% of the current subscriber base has downloaded the main smartphone app launched by the company

Not Applicable (0) The company does not have a smartphone app in place or data on downloads of the app was not available


• Use of data in the development of products and services – 10%

Definition – Does the company use data and analytics to develop or improve a product and bring in higher revenues and profitability for the company? For example, a telco uses data analytics to optimise network deployment, predict and prevent customer churn, as well as execute targeted marketing campaigns. Data analytics could be used in a number of ways to drive down costs, improve standards of quality, and yield better return on capital. Investments to utilise the potential of data or examples of the company using analytics could herald operational efficiency gains and overall better future performance.

Example – Nordstrom, a well-known US luxury fashion retailer, tracks Pinterest, a popular social network, to identify trending products and uses that social data to promote popular products in its brick-and-mortar stores with signage that induces shoppers to buy them. Nordstrom has also merged its online and offline shopping experience by installing interactive touchscreens in fitting rooms as well as providing Instagram images and reviews of specific products in store on screens. Nordstrom stores also use sensors and Wi-Fi signal to track the identity of those who visit the store, parts of the store they visit, time spent, and other customer behaviors inside their stores. The collected data is used for in-store product placement, planning, and identifying trending fashion items. The company spends over 30% of its capital budget on technological innovations.

The company managed to grow its sales by 3% in 9M17 versus a 6% decline recorded by one of its main competitors Macy’s. Nordstrom’s stock recorded a return of ~-4% in 2017 versus -29% and -7% decline recorded by peers Macy’s and Dillard’s.


High (10) Use of data analytics to launch personalised marketing campaigns to cross-sell or up-sell telco services, reduce customer churn, provide pre-emptive care, and optimise network deployment

Moderate (5) Use of data analytics to reduce customer churn, provide pre-emptive care, and optimise network deployment

Low (2) Use of data analytics to optimise network deployment

Not Applicable (0) Little to no indication of the company using data analytics to improve products/services or internal processes


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• Availability of customisation tools for customers – 10%

Definition – Does the company allow the customer to partially or fully customise the product/service on offer? For a telco, this would be providing leeway for customers to choose their own quotas of voice, text, and data on a mobile package. Customisation improves the overall experience of the user as the customer only purchases what he/she really needs. This is also likely to improve customer loyalty towards the telco as the user views the customised plan as providing optimal value for money. We looked at the current plans and service offerings of telcos to determine the level of customisation offered to customers.

Example – Coca-Cola, one of the largest beverage manufacturers in the world, provides a variety of customisation tools through Coca-Cola Freestyle fountains. The fountains, which dispense over 150 flavours of beverages manufactured by Coca-Cola on demand, allows customers to customise their drinks by mixing different flavours. Customers can download the Coca-Cola Freestyle app, create their personal mix using an array of different flavours and brands, as well as link their devices to the Freestyle fountains through a QR code to create their custom-made drink. Customers are also allowed to save and share their drink recipes via social media.

The data collected from the customised drinks has provided Coca-Cola with much-needed insights into the flavours that are in demand. The fact that customers often mix Sprite with a cherry-flavour drink prompted the company to introduce an all-new cherry-flavored Sprite in early 2017. Introducing a product highly in demand by customers helped Coca-Cola record a mid-single digit growth in sales of the Sprite brand in 3Q17, which in turn helped the company beat analyst expectations of revenues and profits for the quarter. Sprite-branded beverages also recorded the highest growth in sales among Coca-Cola’s beverage line-up during the quarter.


High (10) Availability of fixed price plans that provide full freedom to a customer to choose the quota he/she wants on voice, text, and data services

Moderate (5) Limited availability of fixed price plans that allow customers to choose the quota he/she wants on voice, text, and data services

Low (2) Ability to add on voice, text, and data quotas to plans on offer

Not Applicable (0) No customisation options available to customers. Customers are required to purchase the plans presented by the telco


Scoring Methodology

Metrics Ranking Methodology

StrategyAttempts to change the position in the value chain

High (20) Four or more attempts made by the telco to change its position in the value chain

Moderate (10) 2-3 attempts made by the telco to change its position in the value chainLow (5) A single attempt made by the telco to change its position in the value chainNot Applicable (0) No publicly available record of the telco attempting to change its position in

the value chain% investments directed to digital transformation strategies

High (20) >10% of capex during the applicable period was invested in new digital businesses

Moderate (10) Between 5%-10% of Capex during the applicable period was invested in new digital businesses

Low (5) <5% of capex during the applicable period was invested in new digital businesses

Not Applicable (0) Little to no public information made available on the new digital investments of the company

Expansions in to new cannibalising revenue sources

High (10) Release of three or more services that directly compete with three existing business lines

Moderate (5) Release of two services that directly compete with two existing business lines

Low (2) Release of a service that directly competes with an existing business line

Not Applicable (0) No indication of releasing services that directly competes with existing business lines


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Scoring Methodology

Metrics Ranking Methodology

OperationsAvailability of means for customers to instantly fulfil their needs

High (15) App or online platforms that allow customers to interact with a virtual agent, order and pick up hardware on the same day from the nearest store, purchase voice/text and data quotas, view real time usage statistics, manage other VAS, purchase top-ups and make bill payments

Moderate (10) App or online platforms that allows customers to purchase voice/text and data quotas, view real time usage statistics, manage other VAS, purchase top-ups and make bill payments

Low (5) Availability of a platform (an app or web based) that allows customers view usage statistics, purchase top-ups, make bill payments and manage other VAS.

Not Applicable (0) No platform is made available or platforms have limited featuresPercentage of Subscribers using digital channels

High (15) Over 40% of the current subscriber base has downloaded the main smartphone app/apps launched by the company

Moderate (10) Between 20%-40% of the current subscriber base has downloaded the main smartphone app/apps launched by the company

Low (5) Less than 20% of the current subscriber base has downloaded the main smartphone app launched by the company

Not Applicable (0) The company does not have a smartphone app in place or data on downloads of the app was not available

Availability of customisation tools for customers

High (10) Availability of fixed price plans that provides full freedom for a customer to choose the quota they want on voice, text and data services

Moderate (5) Limited availability of fixed price plans that allows customers to choose the quota they want on voice, text and data services

Low (2) Ability to add-on voice, text and data quotas to plans on offer

Not Applicable (0) No customization options available to customers. Customers are required to purchase the plans presented by the telco

Use of data to improve service offerings and internal processes

High (10) Use of data analytics to launch personalized marketing campaigns to cross sell or up-sell telco services, reduce customer churn and provide pre-emptive care and optimize network deployments

Moderate (5) Use of data analytics to and reduce customer churn, provide pre-emptive care and optimize network deployments

Low (2) Use of data analytics to optimize network deployments

Not Applicable (0) Little to no indication of the company using data analytics

Source: DBS Bank


Singapore

Parameter Singtel StarHub M1

Attempts to change the position in the value chain

HighBased on our analysis, Singtel has made over four attempts to change its position in the telecom value chain. Singtel has expanded in to cybersecurity, digital advertising, and data analytics. Singtel’s pay-TV business has expanded into content production via HOOQ.

ModerateStarHub has made three attempts to change its position in the value chain.StarHub expanded into content production via mm2 and acquired Accel systems to strengthen its cybersecurity portfolio. StarHub also provides data analytics services to corporates via Smarthub analytics.

LowBased on our analysis, M1 has made a single attempt to change its position in the value chain by offering managed cybersecurity services to enterprises.

Percentage of investments directed toward digital transformation strategies

HighBased on our analysis, Singtel has invested over S$2bn (translating to >15% of its average annual capex from FY14-17) on acquiring companies in the digital advertising and cybersecurity space.

ModerateStarHub has spent >10% of its FY16 capex to acquire Accel Systems, in a bid to strengthen its cybersecurity portfolio.

Not ApplicableData on M1’s investments in digital transformation strategies is not publicly available.

Expansion into new cannibalising revenue sources

LowSingtel has launched a service that directly competes with its existing businesses. Singtel has launched HOOQ, an OTT video service that directly competes with Singtel’s pay-TV business.

LowStarHub has launched its OTT video app “StarHub Go”, available at a price to non-StarHub customers and is free for StarHub’s pay-TV customers. .

Not ApplicableNo indication of M1 launching a service that directly competes with one of its an existing business lines.

Availability of means for customers to instantly fulfil their needs

HighOmni-channel integration. With the recently launched Collect @ Store, customers who purchase selected devices on singtelshop.com can enjoy same-day pick up at any Singtel shop.

E-care options such as “Shirley”, a virtual agent uses customer data to provide answers, although it is not powered by Artificial Intelligence.

Also offers other features as local peers.

ModerateHappy Prepaid app allows users to purchase additional quotas when required. My StarHub app provides a range of services, including usage meters, ability to make bill payments, and allowing customers to make appointments at service centres.

ModerateE-care options such as “Mindy”, a virtual agent uses customer data to provide personalised resolutions to complaints.

M1 prepaid app allows users to purchase voice and data quotas when required. MyM1 provides a range of services which includes usage meters, ability to make bill payments, and allowing customers to find the nearest M1 store.


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Singapore

Parameter Singtel StarHub M1


ModerateEasyMobile plans of Singtel allows customers to choose voice, SMS, and data quotas for a fixed price. Besides, data x 2/3/Infinity add-on plans also allow customers to customize a data plan that suits their individual requirements.

LowStarHub does not offer customisable plans. Add-on plans allow customers to customise a data plan that suits their individual requirements.

LowM1 does not offer customisable plans. Add-on plans allow customers to customise a data plan that suits their individual requirements.


High• Deliver relevant

solutions to acquire customers

• Develop offers to retain customers - (i) Home, (ii) Postpaid, (iii) Micro-segmentation, (iv) Prepaid

• Optimise business processes, policies, and network deployments

Its data analytics arm, Dataspark, sells analytics as a service as well as supports internal data analytics needs.

highStarHub uses analytics to optimise network deployments and use data to upsell, cross-sell, and reduce churn.

StarHub also provides data analytics services to corporates via SmartHub analytics.

ModerateM1 uses analytics to optimise network deployments and uses analytics to when launching new plans or making changes to existing ones.

Percentage of subscribers using digital channels

HighSingtel claims that 74% of its Smartphone subscribers use “My Singtel” app. Multiple digital channels 1) Prepaid hap2) eShop 3) Dash 500k registered users

ModeratePercentage of subscribers that have downloaded the MyStarHub and Happy Prepaid apps range between 20%-40% of StarHub’s mobile subscriber base, based on our estimates. The company does not disclose the figure.

ModeratePercentage of subscribers that have downloaded the MyM1 and M1 Prepaid apps range between 20%-40% of M1’s subscriber base in our estimates. The company does not disclose the figure.


China

Parameter China Telecom China Mobile China Unicom


ModerateBased on our analysis, China Telecom has made two attempts to change its position in the telecom value chain.

China Telecom offers cybersecurity solutions including managed SIEM and firewall, security consulting, and threat management solutions to corporates. The telco also offers data analytics as a service to corporate customers.

ModerateBased on our analysis, China Mobile has made two attempts to change its position in the telecom value chain.

China Mobile has ventured into content production and delivery via Migu. The telco also offers data analytics as a service to corporate customers.

LowBased on our analysis, China Unicom has made a single attempt to change its position in the telecom value chain.

China Unicom offers data analytics as a service to corporate customers via a joint venture with Telefonica.


ModerateChina Telecom invested ~7.5% of its FY16 capex on digital transformation strategies.

Capex on Information &Application Services, which includes investments in data analytics and cloud services, IoT, 5G, and mobile finance solutions was used as a proxy for capex on digital transformation strategies.

ModerateChina Mobile invested ~9.5% of its FY16 capex on digital transformation strategies.

Capex on business networks and support systems, which includes investments in data analytics and content delivery networks, was used as a proxy for capex on digital transformation strategies.

Not ApplicableBased on our analysis, China Unicom has made a single attempt to change its position in the telecom value chain.

China Unicom offers data analytics as a service to corporate customers via a joint venture with Telefonica.


LowChina Telecom has introduced one service that directly competes with an existing business line of the telco.

China Telecom introduced Yixin, an OTT messaging app that directly competes with the telco’s mobile SMS business.

Not ApplicableNo indication of China Mobile launching a service that directly competes with one of its existing business lines.

Not ApplicableNo indication of China Unicom launching a service that directly competes with one of its existing business lines.


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China

Parameter China Telecom China Mobile China Unicom


ModerateChina Telecom’s app allows users to purchase or terminate packages and purchase additional voice/data quotas.

ModerateChina Mobile’s app allows users to purchase or terminate packages and purchase additional voice/data quotas.

ModerateChina Unicom’s app allows users to purchase or terminate packages and additional voice/data quotas via the app. Users can also access customer care services via the app.


LowChina Telecom does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowChina Mobile does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowChina Unicom does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.


ModerateChina Telecom uses data analytics to optimise network deployments and make targeted handset and package offerings to customers.

ModerateChina Mobile uses data analytics to optimise network deployments and make personalised marketing offers to customers.

ModerateChina Unicom uses data analytics to optimise network deployments, ascertain the credit-worthiness of subscribers. and proactively predict customer defaults.


ModerateThe percentage of subscribers that have downloaded the China Telecom app ranges between 20%-40% of China Telecom’s subscriber base.

ModerateThe percentage of subscribers that have downloaded the official China Mobile app and China Mobile apps offered by regional subsidiaries in Guangdong, Henan, Sichuan, Jiangsu, Shangdong, Zhejiang, Ningxia, and Tianjin range between 20%-40% of China Mobile’s subscriber base.

ModerateThe percentage of subscribers that have downloaded the China Unicom app ranges between 20%-40% of China Unicom’s subscriber base.


Thailand

Parameter AIS DTAC TRUE Corp


LowBased on our analysis, AIS has made one attempt to change its position in the value chain.

AIS has expanded into content via ‘AIS Play box”, an OTT video on-demand service.

Not ApplicableNo publicly available information of attempts by DTAC to expand its reach over the telecom value chain.

ModerateBased on our analysis, True has made two attempts to change its position in the telecom value chain.

True partnered with CJ E&M to develop content to supplement TrueVision, the telco’s TV business. True also partnered with Axion Ventures to develop smartphone games for True’s mobile customers.


Not ApplicableData on AIS’s investments in digital transformation strategies is not publicly available.

Not ApplicableData on DTAC’s investments in digital transformation strategies is not publicly available.

Not ApplicableData on True’s investments in digital transformation strategies is not publicly available.


Not ApplicableNo indication of AIS launching a service that directly competes with an existing business line

Not ApplicableNo indication of DTAC launching a service that directly competes with an existing business line.

Not ApplicableNo indication of True launching a service that directly competes with an existing business line.


ModerateMyAIS app allows customers to purchase additional voice and data quotas at their convenience. The app also makes personalised offers to customers and allows them to interact with Aunjai, the virtual care agent of AIS.

ModerateMyDTAC app allows subscribers to purchase additional voice/data quotas when required.

ModerateTrue iService app allows customers to purchase voice and data quotas when required.

Mari, the virtual care agent of the telco, is available online and assists users in selecting mobile packages


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Thailand

Parameter AIS DTAC TRUE Corp


LowAIS does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowDTAC does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowTrue does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.


ModerateAIS uses analytics to optimise network deployments. Data from AIS’s mobile application is used to make personalised offers to customers.

LowWe think DTAC uses analytics to optimise network deployments. Data on DTAC using data analytics to improve its service offerings or internal processes is not publicly available.

ModerateTrue uses analytics to optimise network deployments and to make personalised marketing offers to customers.


LowThe percentage of subscribers that have downloaded the MyAIS app is less than 20% of AIS’s subscriber base.

LowThe percentage of subscribers that have downloaded the MyDTAC app is less than 20% of DTAC’s subscriber base.

LowThe percentage of subscribers that have downloaded the True iService app is less than 20% of True’s mobile subscriber base.


Malaysia

Parameter Axiata Group Digi.com Maxis Telekom Malaysia


HighAxiata Group has made over three attempts to change its position in the telecom value chain.

Axiata Digital has invested in 29 companies across digital advertising, OTT enablement platforms, digital marketplaces as well as digital entertainment and education.

ModerateDigi offers a usage-based insurance platform for motor insurers via iFleet, the telco’s fleet management business.

It also launched an e-wallet app (vcash) recently that is available to anyone with a Malaysian phone number.

ModerateMaxis has expanded to provide mobile card payment solution (mPOS) and vehicle-tracking services (mDrive).

It also has a partnership with Vodafone to offer the latter’s IOT services to businesses in Malaysia.

ModerateHas made 2-3 attempts to change its position in the value chain.

Its 100%-owned subsidiary, VADS, is a fully Integrated Connectivity/ICT/BPO which, besides managed network services, offers cybersecurity and smart services solutions for real estate and cities.

TM ventured into the provision of real-time security and surveillance services for home and business premises via acquisition of Gapurna Global Solutions in 2013.


LowAxiata Group has invested ~4.4% of capex from 2014-16 in digital businesses.

The group has invested US$160mn in Axiata Digital from 2014-16. Total capex over the period in approximate USD terms equates to ~US$3.7bn.

Not ApplicableData on DTAC’s investments in digital transformation strategies is not publicly available.

Not ApplicableData on Maxis’ investments in digital transformation strategies is not publicly available.

Not ApplicableData on TM’s investments in digital transformation strategies is not publicly available.


Not ApplicableNo indication of Celcom launching a service that directly competes with an existing business line of Celcom.

Not ApplicableNo indication of Digi launching a service that directly competes with an existing business line of Digi.

Not ApplicableNo indication of Maxis launching a service that directly competes with an existing business line of Maxis.

LowPartnered with iFlix to offer free OTT video services for its fixed broadband subscribers, directly in competition with its IPTV services (HyppTV).


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Malaysia

Parameter Axiata Group Digi.com Maxis Telekom Malaysia


ModerateCelcom’s XPax app allows subscribers to purchase additional data and voice quotas through the app.

ModerateMyDigi app allows customers to purchase add-on quotas at their convenience. Users can also chat with customer service agents during working hours via the app.

ModerateMyMaxis app allows customers to purchase add-on data and voice quotas at their convenience. HotLink Red app allows customers to access customer service agents directly via the app.

Moderatewebe self-care app allows users to purchase Wifi passes and access customer care services via the app


LowCelcom does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowDigi does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowMaxis does not offer customisable plans. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowDoes not offer Unifi and webe plans that are customisable. Add-on features are available for customers looking to expand voice or IPTV content services.


ModerateCelcom uses data analytics to optimise network deployments and to make personalised marketing offers to customers.

LowDiGi uses data analytics to track subscriber patterns and make changes or introduce new offerings whenever necessary.

LowThe company uses data analytics to optimise network deployments. The rest of the information is not available publicly.

LowThe company uses data analytics to optimise network deployment. The rest of the information is not available publicly.


LowThe percentage of subscribers that have downloaded the MyCelcom and XPax apps is less than 20% of Celcom’s subscriber base.

LowThe percentage of subscribers that have downloaded MyDigi app is less than 20% of Digi’s subscriber base.

highThe percentage of subscribers that have downloaded MyMaxis and HotLink Red apps is over 40% of Maxis’s subscriber base.

Not ApplicableThe number of subscribers of webe, the telco’s mobile service, is not publicly available.


Indonesia

Parameter Telekomunikasi Indonesia XL Axiata Indosat


HighBased on our analysis, Telkom has made over three attempts to change its position in the telecom value chain.

Telkom operates Blanja, a digital marketplace launched through a partnership with eBay. Telkom provides data analytics solutions via Telkom Sigma, operates a digital advertising platform, UAd, and offers managed cybersecurity services via Telkom Telstra, established as a joint venture with Australia’s Telstra.

ModerateBased on our analysis, XL has made at least two attempts to change its position in the telecom value chain.

XL expanded into digital advertising via AdReach, a programmatic ad-buying platform established in partnership with Mobiwella. XL had also launched an e-commerce platform “Elevenia” in 2013 in a joint venture with SK Planet but sold its entire stake in 2017.

ModerateBased on our analysis, Indosat has made three attempts to change its position in the telecom value chain.

Indosat offers managed security services to corporates and has expanded into digital advertising via the establishment of Indonesia Mobile Exchange (iMx), a mobile-ad exchange. Indosat also offers data analytics solutions to corporates via Eureka.


Not ApplicableData on Telkom’s investments in digital transformation strategies is not publicly available.

Not ApplicableData on XL’s investments in digital transformation strategies is not publicly available.

Not ApplicableData on Indosat’s investments in digital transformation strategies is not publicly available.


LowTelkom has launched one service that directly competes with an existing business line.

Telkom launched OONA TV, an OTT TV platform that competes with the telco’s pay-TV offering, Usee TV.

HighXL did not hesitate to cannibalise its voice and SMS revenue by investing boldly in 3G and 4G services, leading to legacy revenue contribution of only 29% in 9M17 versus 40-50% for its local peers.

Not ApplicableNo indication of Indosat launching a service that directly competes with an existing business line.


ModerateMyTelkomsel app allows users to purchase additional voice/data quotas at their convenience via the app. Telkomsel has also introduced a virtual care agent that is accessible via Line and Facebook messenger services.

ModerateMyXL app allows customers to purchase voice and data quotas at their convenience.

Maya, the virtual agent of XL, is accessible via Twitter.

ModerateMyim3 app allows customers to purchase voice and data quotas at their convenience. The app also allows users to purchase application-specific data quotas (Data quotas to use Facebook, Instagram etc.).


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Indonesia

Parameter Telekomunikasi Indonesia XL Axiata Indosat


LowTelkomsel does not offer plans that are customisable. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowXL does not offer plans that are customisable. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowIndosat does not offer plans that are customisable. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.


ModerateTelkom uses data analytics to optimise network deployment as well as predict and prevent customer churn.

ModerateXL uses analytics to optimise network deployment and to make targeted marketing offers to customers.

Not ApplicableData on Indosat using data analytics to improve its service offerings or internal processes is not publicly available.


LowThe percentage of subscribers that have downloaded the MyTelkomsel app is less than 20% of Telkomsel’s subscriber base.

LowThe percentage of subscribers that have downloaded MyXL and XL Postpaid apps is less than 20% of XL’s subscriber base.

LowThe percentage of subscribers that have downloaded the Myim3 app is less than 20% of Indosat’s subscriber base.


Hong Kong

Parameter HKT Trust SmarTone Hutchison Telecom


HighBased on our analysis, HKT Trust has made a single attempt to change its position in the telecom value chain.

HKT Trust offers data and video analytics solutions to corporates.

ModerateBased on our analysis, SmarTone has made a single attempt to change its position in the telecom value chain.

SmarTone offers managed security solutions including managed firewall solutions and security consulting services to corporates.

ModerateNo publicly available information of attempts by Hutchison Telecom to expand its reach over the telecom value chain.


Not ApplicableData on HKT Trust’s investments in digital transformation strategies is not publicly available.

Not ApplicableData on SmarTone’s investments in digital transformation strategies is not publicly available.

Not ApplicableData on Hutchison Telecom’s investments in digital transformation strategies is not publicly available.


Not ApplicableNo indication of HKT Trust launching a service that directly competes with an existing business line of HKT Trust.

LowSmarTone has ST WiFi Calling that allows user to call Hong Kong from overseas when connected to WiFi. This cannibalises its tradition IDD business.

Not ApplicableNo indication of Hutchison Telecom launching a service that directly competes with an existing business line of Hutchison Telecom.


ModerateHKT Trust operates three apps to represent the three brands namely, 1010, CSL, and Sun. The apps allow customers to purchase data and voice quotas at their convenience and directly access customer care services.

ModerateSmarTone care app allows users to renew plans and purchase add-on quotas via the app. Users can also pre-order handsets via the app. The online shop offers same-day pick-up or next-day delivery of handsets. SmarTone lacks a virtual care agent.

ModerateMy3 app allows users to manage plans and purchase add-on quotas via the app. Users can also access the telco’s online store via the app and buy handsets. 3iChat service allows users to access customer care services anytime via the app.


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Hong Kong

Parameter HKT Trust SmarTone Hutchison Telecom


LowHKT Trust does not offer plans that are customisable. Add-on features are available for customers looking to expand voice and data quotas of their existing plans

LowSmarTone does not offer plans that are customisable. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.

LowHutchison Telecom does not offer plans that are customisable. Add-on features are available for customers looking to expand voice and data quotas of their existing plans.


ModerateHKT Trust uses data analytics to optimise network deployment and make personalised marketing offers based on data-based customer segmentation.

ModerateData on SmarTone using data analytics to improve its service offerings or internal processes is not publicly available.

Not ApplicableData on Hutchison Telecom using data analytics to improve its service offerings or internal processes is not publicly available.


LowThe percentage of subscribers that have downloaded the CSL, 1010, and Sun apps is below 20% of HKT’s mobile subscriber base.

LowThe percentage of subscribers that have downloaded the SmarTone care app is below 20% of SmarTone’s subscriber base.

LowThe percentage of subscribers that have downloaded the My3 app is below 20% of Hutchison Telecom’s subscriber base


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References1. https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/how-

telecom-companies-can-win-in-the-digital-revolution

2. https://www.strategyand.pwc.com/trend/2017-telecommunications-industry-trends

3. http://carrier.huawei.com/en/trends-and-insights/enterprise-connections-and-communications/cloud-enterprise-communications-whitepaper?ic_source=fmsh17

4. https://www.capgemini.com/resources/unlocking-customer-satisfaction-why-digital-holds-the-key-for-telcos/

5. https://www.capgemini.com/consulting/resources/digital-for-telcos/

6. https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/how-telecom-companies-can-win-in-the-digital-revolution

7. https://www.mckinsey.com/industries/telecommunications/our-insights/a-future-for-mobile-operators-the-keys-to-successful-reinvention

8. https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/why-companies-should-care-about-ecare

9. Ibid.

10. https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/how-telecom-companies-can-win-in-the-digital-revolution

11. https://hbr.org/2017/07/6-digital-strategies-and-why-some-work-better-than-others

12. https://hbr.org/2017/01/what-the-companies-on-the-right-side-of-the-digital-business-divide-have-in-common

13. https://www.emarketer.com/Report/Ad-Spending-Southeast-Asia-New-Forecasts-Emerging-Digital-Region/2001958


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Disclaimers and Important Notices

The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee.

The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof.

The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.

The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.


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