Question

Extract 1 The fourth step forward for telecoms Singapore introduced competition in its telecoms industry several years ago by breaking the monopoly of Singtel. M1’s entry in 1997 and StarHub’s in 2000 were meant to provide consumers with more choices and lead to higher levels of service at more competitive prices. Last week, the government announced the award of a fourth licence to Australian operator TPG Telecom. The outcome of these liberalisation moves should be good. The three existing telecoms companies have to up their game or lose their customers, who can switch easily from one telco to the next. Since the domestic market is now shared among multiple players, they also are forced to venture outside Singapore for new business. Singtel, in particular, has done this successfully, with its overseas businesses generating more than half its revenue and profit. This international exposure is good for Singapore companies because it strengthens their capabilities and finances. The entry of a fourth player should sharpen the competition further. That it is from outside Singapore should help to bring fresh ideas into this country and raise telecommunications standards in one of the most globalised nations on earth. While service levels are better now than they were before, there is room for improvement. Earlier this month, Singtel was hit by a widespread broadband outage, slightly over a month after a similarly disruptive StarHub breakdown. These incidents, which inconvenienced customers, show how important it is to maintain high standards of reliability. Telecoms services, which include broadband and mobile services, are part of a country’s critical infrastructure and are vital to its smooth and efficient running. This is more so for a place like Singapore, which is a financial centre and an aviation and shipping hub. There is no room for complacency. But the real issue is not domestic competition among local players. The digital revolution has meant that they have to compete now, not only among themselves, but against entities such as WhatsApp, Apple, WeChat and numerous other digital platforms that allow users to communicate, interact and share content with one another. These global giants have upended the industry. They are a boon to consumers but a nightmare to those whose businesses they have disrupted. If local telcos are not strong enough to adapt and meet the needs of their customers, who have many more choices now, they will suffer the consequences. Source: Adapted from The Straits Times, 20 December 2016.

Extract 2 Singapore’s big telcos face rude awakening, as the little guys get the last laugh Back in 2016, the three major Singapore telcos – Singtel, StarHub and M1 – held various meetings with investors and shareholders, reassuring them that a fourth telco would not be a threat to their businesses. The incumbents had felt that if a new competitor appears, it will be an uphill climb to deliver the same quality of services as them. The telcos believed they did not need to do anything. Whatever price the fourth telco offers, they will undercut it to kill off the competition. Sunway University Business School ECN1014 / October 2020 Mid-Term Test Page 2 of 2 But the telecommunications landscape today is far from the oasis of stability that the three telcos had portrayed to investors back then. There are now 11 telcos in Singapore, including the mobile virtual network operators (MVNOs) that have since flooded the scene. Right now, Singapore consumers are enjoying a variety of telco offerings at low prices like never before. Total mobile service revenue shrank 5.3 per cent in 2018. Industry leader Singtel’s group earnings fell by 7 per cent in the 2018 financial year compared with the previous year, while StarHub’s service earnings fell by 11.1 per cent and M1’s shrank by 3.7 per cent. For one thing, Singaporeans are now less willing to pay for data as before. People are no longer willing to pay high fees for premium plans that boasted more data. Today, nearly every telco offers affordable unlimited data plans. Consumers expect to get more data and pay less, which translates to more data consumption and less data revenue for the telcos. The popularity of off-contract plans also shows a change in handset replacement patterns among a segment of consumers, who are increasingly unwilling to be locked in. SIM-only plans have gradually reduced the dominance of the two-year post-paid contract model in Singapore, whereby expensive phones are subsidised by the telcos. Part of this is due to Chinese phone manufacturers such as Huawei and Oppo, whose phones boast lower prices than that of Apple and Samsung while offering similar performance. The influx of cheaper phones reduces the attractiveness of subsidised plans, and hence lowers the ability of telcos to lock customers into two-year plans. Source: Adapted from Channel News Asia, 8 July 2019.

(a) Using demand-supply analysis, analyse the view that a growing number of competitors in the telecommunications industry offers ‘a boon to consumers but a nightmare to those whose businesses they have disrupted’ (Extract 1). [10 marks]

(b) With reference to Extract 1, identify and explain four possible ways in which Singtel can exclude competitors. [10 marks]

(c) Explain the cost advantages which large telcos enjoy and consider the reasons for which ‘the little guys may get the last laugh’ (Extract 2). [10 marks]

(d) Using the theory of perfect competition, explain and illustrate how the entry of the mobile virtual network operators allows Singapore consumers to enjoy ‘a variety of telco offerings at low prices like never before’ (Extract 2). [10 marks]

Answer 1

a) With the number of competitors growing in the telecommunications market, the number of choices for the consumers has increased. Also in order to survive in the competition and with increase in the supply, the companies have to lower their prices which again benefits the consumers. But increase in competition is like a nightmare for the suppliers because they have to now provide better quality products and that too at lower prices with the supply increasing in the market.

b) Ways with which singtel can exclude competitors are:

• Provide better and attractive offers to the consumers to beat the competitors
• After sales and services should be improved which will also help to increase more sale
• Provide more personalised services to the consumers after properly knowing and researching about the market and need of the customers
• Increase your reputation and goodwill in the market so that the clients remain loyal.

c) The large telcos provide high quality products to the consumers and have a number of investors and shareholders which invest in their companies. They have an advantage of having low cost of production and huge investment which allows them to just reduce their cost in order to compete whenever new competitors enter the market. On the other hand, the little ones do not have this huge number of investors and their product quality is also not that high.

d) With a huge number of firms providing almost the same product in the telecommunications market, the supply of services to the consumers has increased. So to survive in this cut throat competition, each firm has to reduce its price and improve the quality of its service to perform better than its competitors and attract more consumers, else the consumers might shift to other firm. This leads to consumers enjoy better services and that too at really low prices.