M1' s mobile plan consolidation could deepen losses in industry postpaid revenue

Singtel and StarHub could revamp their bundled plans to compete with M1&rsquo s base plan.

M1&rsquo s decision to ditch its 19 mobile plans for one base plan for both SIM-only and handset bundles could temporarily result in subscriber losses as well as a decline in the mobile sector in 2019, DBS Group Research said.

According to Sachin Mittal, DBS Group Research analyst, the new SIM-Only plans which start at $25 per month (vs. $20 earlier) are likely to uplift M1&rsquo s SIM-Only average revenue per user (ARPU) which comprise > 20% of M1&rsquo s postpaid subscriber base, although M1 may cede some SIM-Only subscribers to Singtel&rsquo s GOMO plans (20GB for $20) in the process.

&ldquo However, we do point out that Circles.Life, the Mobile Virtual Network Operator (MVNO) partner of M1, still has the cheapest SIM-Only offering with 20GB for $18. This should help M1 sustain some of the subscriber losses on the SIM-Only front,&rdquo he said.

DBS Group Research also sees a downside risk to its projected 6.5% decline in the mobile sector over 2019 in view of these new plans by M1. &ldquo The new handset-bundled plans are likely to cause further deterioration in the industry&rsquo s postpaid ARPU, especially if Singtel and StarHub revamp their bundled plans in light of M1&rsquo s new offerings, which we think is likely,&rdquo Mittal said.

&ldquo However, such revisions would make handset-bundled plans more attractive to users, which in turn could decelerate the migration towards SIM-Only offerings, partially offsetting the negative impact on postpaid ARPU,&rdquo he added.

Despite the anticipated short-term declines, telcos&rsquo move towards more attractive handset-bundled plans is positive in the long run. Mittal argued handset-bundled offerings are more difficult for TPG and MVNOs to enter, given the inherent difficulties in setting up handset distribution channels and supply chains.

He added, &ldquo Handset-bundled plans ensure much greater customer loyalty than SIM-Only offerings, given the 24-month contract lock-in. Handset-bundled offerings also generate higher ARPU vs. SIM-Only offerings although the impact on the bottom line remains quite similar with the lack of handset subsidies on SIM-Only offerings.&rdquo

Amongst the telcos, M1&rsquo s new plans with better flexibility would be of greater appeal to the millennials that all three operators are aggressively targeting, Mittal claimed. &ldquo We believe M1&rsquo s new offerings have taken a page out of the &lsquo GOMO&rsquo (20GB for $20) and &lsquo giga&rsquo (25GB for $25) SIM-Only plans launched by Singtel and StarHub over the past few months, except M1 has extended its offerings to the handset-bundled space and offers much greater customisability,&rdquo he said.

&ldquo The most significant impact of M1&rsquo s renewed plans, in our view, is in the handset-bundled segment. M1 has reduced the entry point of handset-bundled plans from $40 to $30 per month with a marginal curtailment of the data quota,&rdquo he added.

This marks what could be the key shift in M1&rsquo s pricing strategy, the analyst said. &ldquo Competition within the mobile sector over the past year was largely limited to SIM-Only offerings with all three incumbents aggressively revising their plans with bigger data bundles at lower price points.&rdquo

M1 has taken a swing at the handset-bundled offerings, a segment in which it has a lower traction in, when compared with its larger peers. &ldquo We believe this could indicate a shift in M1&rsquo s strategy after being taken private by Keppel Corporation and Singapore Press Holdings, with M1 potentially trying to target the corporate bundled-plan segment that is dominated by Singtel and StarHub,&rdquo Mittal said.

Moreover, with the revamped handset-bundled offerings, M1 could be trying to poach high-value handset-bundled users from Singtel and StarHub as M1&rsquo s new plans are cheaper and offers very competitive data quotas. It could also be trying to decelerate the shift towards SIM-Only offerings.

&ldquo M1&rsquo s handset-bundled plans are now only $5 more expensive, at $25 vs. $20 per month before, offers an attractive data quota of 12GB (vs. average smartphone data usage of 4.7GB in Singapore) and requires a lower cash outlay from subscribers (e.g. $190 lesser for an iPhone XS on an entry level handset-bundled plan). This could result in a deceleration of subscriber migration towards SIM-Only offerings, in our view,&rdquo Mittal said.