New StarHub CEO Nikhil Eapen hinted that he is open to mergers and acquisitions in Singapore or neighbouring countries. PHOTO: STARHUB

NIKHIL Eapen has inherited a company in a tough spot: Mainboard-listed telco StarHub last week reported a 15.2 per cent fall in full-year net profit, with structural disruption in the telecom industry worsened by the impact of the Covid-19 pandemic.

 

Since two chief executives ago, StarHub has been expanding into the low-margin but high-growth enterprise business - and Mr Eapen will oversee that ongoing transformation.

 

Cybersecurity, enterprise 5G and, most recently, regional infocomm technology (ICT) services have helped to beef up the enterprise wing.

 

But the struggling consumer mobile segment is still StarHub' s largest single business unit, making up 36.4 per cent of service revenue in 2020.

 

As such, new CEO Eapen - who comes from enterprise tech-focused parent ST Telemedia - must reassure investors that he also has a finger on the pulse of the consumer segment.

 

Mobile service revenue declined 24.3 per cent year on year to S$579.7 million for the 12 months to Dec 31, 2020, while postpaid mobile average revenue per user (ARPU) fell from S$40 to S$30 in the same period.

 

That' s even as StarHub lost 40,000 postpaid subscribers in the quarter, as Phillip Securities research head Paul Chew pointed out in a note.

 

These customers were likely snapped up by the telco' s rivals - since M1 and Singtel picked up a similar amount of new users, combined.

 

StarHub now trails Keppel Corp-owned M1 as the third-largest telco by postpaid market share - a shocking role reversal from its heyday.

 

To be sure, part of the blame lies with the Covid-19 pandemic. Johan Buse, head of StarHub' s consumer business group, called the latest low an " ARPU without roaming" .

 

The global travel freeze has been a blow to the whole telecom industry, which can no longer rely on tourist pre-paid SIMs and roaming revenues.

 

Market leader Singtel also saw postpaid mobile ARPU plummet to comparable levels - S$29 as at end-2020, from S$39 the year before.

 

But Singtel' s drop in ARPU came on a relatively mild uptick in data usage - from 6GB a month to 7GB. StarHub, on the other hand, managed to tank its ARPU even with a much stronger rise in data consumption - from 9.9GB a month to 12.3GB.

 

That trend suggests a worrying difficulty with monetising data usage.

 

It also raises questions about the efforts now under way to revive the consumer business, as StarHub' s strategy involves a delicate balancing act.

 

Management has cited digital-only sub-brand " giga!" as a key part of its attempt to win back lost market share, since postpaid subscriptions also risk falling off a cliff after mobile virtual network operator (MVNO) MyRepublic jumped ship from StarHub to M1.

 

But doubling down on the value-consumer niche risks exacerbating a mobile price war that has plagued the crowded Singapore market for years.

 

At the same time, StarHub unveiled a new " StarHub TV+" strategy in September last year, touted " an all-in-one simplified offering" across fibre TV and streaming services.

 

StarHub said last November that the integrated content service was part of a business transformation in pay TV, " as it continues to shift its cost model from a fixed to a variable basis to enhance margins and cater to changing customer consumption" .

 

But that rosy vision could not stop a 24.2 per cent full-year decline in pay-TV service revenue. StarHub attributed this fall in part to the impact of Covid-19 on ad appetite - yet household subscribers shrank from 329,000 in end-2019 to 314,000 in end-2020, while ARPUs also dipped.

 

And, with StarHub heavily promoting its free bundling of the Disney+ streaming service, the telco has to ensure that it stems its subscription decline without falling prey to the same structural flaw of " loss leader" customer acquisition costs that haunts the pay-TV business worldwide.

 

Bottoming out?

 

On the bright side, Mr Eapen has taken over a business whose woes will likely bottom out as the unprecedented pandemic downturn recedes.

 

Citi, for one, has kept its " buy" call on the stock in the wake of the results, with analyst Arthur Pineda writing that " downside remains protected by yield while recovery gestates" .

 

Indeed, the quarter-on-quarter revenue movement across business segments was cause for optimism.

 

Said Mr Pineda: " Mobile momentum started to show signs of life (+3% QoQ), as the company started to benefit from 5G migration (5G iPhone launched in October) and revival of pre-paid subscriptions and revenue."

 

RHB, which is " neutral" on StarHub, also pointed to the quarter-on-quarter increase in ARPU - from S$29 to S$30 - to say that revenue " appears to have stabilised, notwithstanding the stiff competition and dilution from SIM-only plans" .

 

Meanwhile, Mr Eapen hinted on the earnings call that he is open to mergers and acquisitions in Singapore or neighbouring countries. An inorganic boost to the enterprise business could be a shot in the arm even as the consumer market improves.

 

After all, last year' s acquisition of Malaysia-based ICT firm Strateq has already proved a boon to the top line.

 

Without the Strateq consolidation, full-year enterprise service revenue would have risen by a gentler 6.5 per cent in the latest results - much less than the actual 12.2 per cent increase.

 

As such, management and shareholders alike now hope that there' s only one direction left to go - up.