The main issues facing Singapore Telecom, a highly successful telecommunications firm is that it operated in a difficult business environment with increasing competition both locally and abroad and also the competition in its primary market. In addition, SingTel also faced the risk of being threatened by major technological and competitive uncertainties that challenge all telecommunications firms. Back in 1997, SingTel lost its monopoly of the mobile sector with the entry of M1 (MobileOne) a cellular phone operator and with the entry of StarHub back in April 2000, SingTel had its first competitor for in the fixed-line telecom.
Singapore itself, the penetration rates of key services (fixed lines, mobile phones, and paging lines) are known to be well above the levels compared to the developed countries. This also indicated the difficulty for SingTel to achieve high rates of growth without the introduction of new and innovative services. Singapore Telecom’s experienced intense downward pricing pressures operating in this new environment partially due to the trends of deregulation, technological advancement and privatization of the telecommunications sector. The telecommunications industry entered a phase driven by fast-changing technology stimulated by the demands of increasingly sophisticated end-users .
With the launched of new services such as Internet telephony, it posed a serious challenge to international call revenues reducing SingTel’s consumers demand for conventional IDD services. The Asian economic crisis had also intensified competition amongst the operators. However this trend created many opportunities, as well as challenges for both telecommunications regulators and operators. This is the first time Telecom faced domestic competition and SingTel faced the fear of additional competitors entering the Singapore telecommunication industry in the mobile and fixed-line markets, competing eagerly for a share of the pie. As the global trends moved towards the convergence of telecommunications, computer and television technologies, it increased the speed of change in the telecommunications companies. Singapore government policies towards the telecommunications industry also experienced major changes.
As the signs of the turbulence swept the telecommunication markets worldwide, fueled by new technologies and the breakdown of old regulatory barriers, it would be a challenge for SingTel on the importance of national boundaries, regulatory constraints, licensing approval, and to other domestic telecommunications providers too. Thus in conclusion, the challenge to Singapore Telecom was to sustain its performance record in the face of an increasingly turbulent and hostile environment.
Singapore’s broad strategy focused on leveraging on its natural advantage of having a strategic location by establishing world-class transportation and materials-handling facilities. As we know Singapore’s telecommunications infrastructure is among the most technologically advanced, comprehensive and efficient in the world, the strategy for service domains like SingTel would be to develop a sophisticated telecommunications and IT infrastructure. As for Singapore Telecom, the government-owned firm which was the sole telecommunications services provider in the country until 1997, SingTel played the major role in developing this infrastructure .
In the process, it achieved high levels of profitability compared to other telecommunications firm. In the year 1999, SingTel announced a major restricting with the primary aim of focusing on growth areas as they have identified e-commerce and Internet-based activities as areas where there are significant growth opportunities with customer segments including corporate clients, small and medium sized enterprise, and residential consumer. SingTel’s overseas investments played an integral part of SingTel’s strategy for long-term growth. Recently, SingTel Group refocused its overseas investments in Asia and initiated foreign investment in several countries, engaged in strategic alliances in order to gain market entry and acquire technological skills, and to undertake diversification into IT and value-added services in order to sustain its growth and profitability.
When faced with competition from foreign callback services, SingTel increased its focus on its customers by setting up specific customers units to manage the diverse telecommunications needs of its different customer segments including corporate clients, small and medium sized enterprise, and residential consumer. Although SingTel already had extensive domestic and International infrastructure, but it still invest heavily in infrastructure and actively implement the latest technologies to offer innovative services. Thus, SingTel’s core competency is crucial in identifying and providing services that suit potential customers’ needs.
Strong market position
Most of SingTel’s strategic, operational and financial dynamics are currently improving. This improvement is an indication that the company current business strategies are proving to be successful. The company has a strong market position in the telecommunication market. Singapore Telecom was ranked 7th out of 26 international carriers in a 1999 Data Communications survey, which rated telecoms providers on value, quality, reliability, speed of repairs, billing and general responsiveness for frame relay and leased-line services. Strong market position enhances the brand image of the company and gives it a competitive edge.
Geographical spread of operations
SingTel has a diverse spread of geographical operations. It is known to be a world-class provider of domestic, international and mobile telecommunications as well as postal services. The Singapore Telecom Group has invested more than S$2.3 billion in telecommunications-related projects around the world, especially in the Asia Pacific. This spread of geographical operations will benefit the company, as it will become less reliant on its domestic market to generate revenues for the whole company. SingTel presence in other markets will also shield it from any potential adverse localized market conditions .
Highly developed international network
With reference to Exhibit 2 in the case study, Singapore had high teledensity, high-quality fixed-line services, higher demand for specialized features, lower vulnerability to credit risks and falling tariffs compared to Hong Kong which is in a highly competitive market with many firms competing in every segment of the industry. Having engaged in strategic alliances in order to gain market entry and acquire technological skills, SingTel group uniquely positioned to offer services throughout the e-commerce value chain with new services such as maintenance of cable chips and ownership of Singapore Telecom’s own satellite. Furthermore the company also offers information technology consultancy, systems integration and engineering services. Comprehensive services increase its opportunity to reach out to a wider clientele, thus creating greater revenue generating opportunities.
Weak operating performance
According to the case, Singapore Telecom’s turnover and net profit for the Group in 1998/99 were S$4.88 billion and S$1.96 billion respectively. At the turn of the century, there was the threat of a new full service provider entering the Singapore market, where SingTel faced a number of serious challenges and threats to its position as the leader in the telecommunications industry in Singapore. Based on Singapore Telecom’s Financial Performance in Appendix C, we can clearly see that Gross profit margin reduce slightly by 4.2% between 1998 and 1999. This is because the growth rate of operating expense (6.3%) is more than the growth rate of revenue (1.2%). The two factors leading to this problem might be that the marketing strategies were not effective and SingTel’s ability to control expenses was not strong enough.
However, from the case we can see that the main reason could be the economic crisis and an increase in competition in the market. Specifically, the dividend per share in 1999 upped from 5.0 to 5.5 cents per share and the earnings per share grew from 12.37 cents per share (in 1998) to 12.82 cents per share (in 1999), risen by 3.6%. These increases reflected a significant increasing in net profit to S$1.96billion from S$1.89 billion, an increase of 3.7 per cent from the previous year. Looking at Singapore Telecom financial performance, it is very easy to recognize that most of the ratios of the 1999 financial year had decreased compared with the previous financial year. This implies that SingTel Group managed to get through the worst of the Asian crisis relatively unscathed in the 1999 financial year although there was the threat of a competitor. SingTel Group delivered a very strong set of results for the financial year ended in 1999 and met all its targets against backdrop of highly competitive market.
Being a monopoly of Singapore telecommunication market, SingTel was previously able to earn large profits even if they were slow and inflexible to consumer demands. However such a regulatory advantage was removed in 1997. In fact, they have lost a substantial market share with the entry of their new competitor.
Furthermore, as Singapore telecommunication market is reaching saturation, SingTel would find it less profitable to invest heavily in state-of- the art technology in its home country since the demand may be too small. This ever-changing telecommunication industry is shaped by many factors in which if any players of the market is slow to react to consumer wants and needs, it will find itself soon out of business.
Prognosis of the environment
The vision of SingTel is not only providing first class service to Singaporeans. SingTel aims to solidify its status as the leading service provider in Singapore by providing low-cost services and innovating to cater to consumers’ ever-changing needs. For instance, SingTel has set up specific customer units to manage the diverse telecommunications needs of the different customer segments and to enhance its network infrastructure. This strategy will allow SingTel to capture a larger market share, and maximize future earnings. From the case, we can see that telecom companies that were cash rich and had limited growth opportunities domestically such as Hong Kong Telecom and Singapore Telecom were said to be scouting for good investment opportunities.
In Singapore we recognized that market forces might force operators to focus more on short-term profit margins rather than on long-term gains or national needs. Furthermore, there might not be sufficient incentive for new market entrants to invest or develop their telecommunication infrastructure. Singapore’s telecommunications policies will continue to be geared towards developing a “world-class” telecommunication network capable of providing high quality telecommunication services at competitive prices. While it is recognize that a fully competitive and open market model in telecommunications may be ideal and desirable in the long run, there is a risk that the long term benefits of liberalization to Singapore may not be fully realizable if competition is introduced too rapidly.
Having a good telecommunications infrastructure is one of the critical factors that will drive Singapore’s economic development into the next century and beyond. The decision to introduce competition in telecommunications is influenced by two main factors. Firstly, the real network and infrastructure costs have been falling due to rapid technological advancement .
As such, the natural monopoly argument is no longer absolutely true for the telecommunications industry. Secondly, although the “homogenous” telecommunications services provided by the monopoly operator have been adequate in meeting the needs of most end-users in the past, it will not be sufficient in fulfilling the increasingly diversified and sophisticated demand for telecommunications, especially in the rapidly changing global business environment.
Thus liberalization, deregulation and competition offer a viable approach to ensuring the provision of better quality of services at highly competitive prices to the end consumers. They also stimulate more innovative services aimed at satisfying the needs of different market segments with custom-made solutions. In Singapore, liberalization policy is aimed at increasing consumer choice and stimulating greater efficiencies in the use of scarce resources.
Full support obtained from the government
The telecommunications industry had rapidly become one of the most competitive and turbulent industries. Singapore had about the most advanced information technology infrastructure in the world. The government had invested in its rapid development by providing financial support, protection from market forces and managerial talent while urging the adoption of competitive rates and standards. The Singapore government has listed out a number of programmes to further develop and expand the Infcomm sector in Singapore[I21] .
Opportunity for SingTel to monetize passive infrastructure
Singapore Telecom has initiated foreign investment like merger and acquisitions. The lower penetration rates in Singapore suggested high potential for growth. The necessary infrastructure needed to carry out a successful business are all already in place and companies will to enter the market can cut cost in this aspect with the refocused of its overseas investment in Asia. Trend of privatization was carried out to raise private capital for infrastructural development in order to ease the fiscal burden on the state thus improving the quality of service and to reduce prices for consumers .
In this case, the privatization of Singapore Telecom aims to increase its flexibility, to prepare it for the challenges of global competition and technological advancements and to stimulate the development of the Singapore stock market. Thus, SingTel have enhanced its product offering thereby increasing revenue generation opportunities .
SingTel is facing intense competition in the fixed line telecoms sector with the entry of StarHub in Year 2000. Due to competitive and pricing pressures, there is increased sophistication of consumers who increasing demanded higher standards of quality and service. Intense competition could result in loss of market share and lower average revenue per user.
SingTel’s operations in Singapore and other countries are subject to extensive government regulation which limits its flexibility to respond to market conditions, competition, new technologies or changes in the cost structure. Such decisions can significantly affect SingTel revenues and costs as well as its competitive position. Adverse regulatory decisions could negatively affect the market position of the company. Maintaining existing customers or growing the customer base in a mature market is difficult. This could affect the company’s average revenue for customer and ultimately its profit margins .
Singapore has enjoyed political stability since independence in 1965. Singapore Telecom having successfully met the challenge of changing from a government department to become the largest listed firm in Singapore has faced little disruption of policy implementation, which has enhanced the effectiveness of the delivery mechanism of public services. Thus, SingTel can strengthen its relationship with the public overcoming the barriers in the process of building, maintaining and developing relationship with the consumers.
However, Singapore still faces some political weaknesses. For example, the consumers might have the belief that the Singaporean Government always wants to introduce new methods and new approaches to earn more from the public which in turn caused consumers’ feelings of insecurity and concern. These issues may make adverse impact in SingTel’ operation.
The world experienced a regional economic crisis in financial year 1998-1999. Almost all nations in the world have been involved in this economic downturn. SingTel faced increasing competition both locally and abroad and this affected the share prices of SingTel. The emergence of new and cheaper technology such as Internet telephony that provided by competitors make SingTel compete with competitors in Singapore. However, SingTel process a wealthy financial strength with highest market share in telecommunication industry. Due to its good experience as well as strong management team, SingTel would be able to cope with this economic uncertainty and keep its profitability from large reduction. Thus, the risk of financial crisis is not too high and will not be a great threat to SingTel.
The consumer attitudes changed due to the trends of deregulation, technology advancement and privatization, more sophisticated and demanding consumers were causing turmoil in the once highly profitable industry. Consumers now demand higher standards of quality and service with the entry of new telecoms providers. Singapore Telecoms has engaged in strategic alliances in order to gain market entry and acquire technological skills and undertaken diversification into IT and value-added services in order to sustain its growth and profitability levels .
Customer-expectations risk is the very real threat of failing to provide advertised or expected customer service. Some internal works performed by its subsidiaries like maintenance of network cable and billings are customized in order to suit the needs of the differentiated services offered to consumers. As seen in the case, there are ample opportunities for SingTel to move from a single domestic market producer to doing business in multiple countries.
This will be an opportunity to secure corporate clients who will require an integrated telecommunication service across several geographical regions in the world. In addition, telecommunications provider could bundle a package of services that includes corporate lines as well as consumer lines as their marketing tactic.
From Appendix A, looking at the telecommunications growth in other foreign countries, we see that many countries have increased their number of lines from year 1990 to 2000. For countries that have low growth rates, it could well indicate a high demand for basic telecommunication services in the coming years. Therefore if SingTel fail to capture the market for corporate lines, it faces the possibility of losing consumer business. Thu[I32] s if SingTel were to bring along its technological competencies and efficient production capabilities into such market, they could possibly capture the foreign market shares. As for the relatively affluent countries which already have the basic telecommunications services, SingTel could still introduce new telecommunications-related value added-services.