Circles.Life quietly eats up the telco market

Analysts think this helped M1’s mobile revenue growth to recover after a 3-year decline.

The worst could be over for M1, thanks to the growth of its mobile service revenue and its control over the declines in legacy revenue, DBS Equity Research revealed in a report.

The telco’s mobile service revenues in Q4 2017 grew 4% YoY to $165m. Analyst Sachin Mittal noted that this was achieved despite much lower handset sales and subsidies. “We think revenue share from Circles.Life could be a big factor here. Fixed revenues rose to $36m (+33% YoY) due to higher fibre customer base and contributions from corporate segment projects and comprised 17% of the total service revenue,” he added.

Mittal observed that M1, being the network provider of Circles.Life is benefitting from ~1% revenue share gained by Circles.Life, which is operating on a low-touch business model and customisable plans. “Whilst the market is concerned about TPG’s entry in late 2018, Circles.Life is quietly chipping away market share under the radar,” he said.

Also read: Will Circles.Life be able to disrupt the status quo in the mobile sector?

Moreover, M1 is fast combating the threat of declining legacy revenues, generating ~56% of its 2017 service revenue from data. Currently, data revenue growth is outpacing voice and SMS revenue decline. “Based on our estimates data revenue is likely to reach ~70% over the next three years,” Mittal said.

The DBS report also mentioned its observation in Japanese telcos that may happen to M1. “When data revenues contribute over 60% to mobile service revenues, declines in legacy revenues lose pace and mobile service revenue growth stabilises. We believe a similar scenario may transpire in M1 with mobile service revenues stabilising once the contribution of data revenues exceeds 60% of service revenues,” the report said.

As another source of revenue, M1 launched its nationwide Narrowband Internet of Things (NBIoT) network across Singapore in Q4 2017. “We believe that the telco is poised to reap benefits from its diversification efforts by entering into fast-growing segments such as NB-IoT leading to earnings trajectory tuning positive from FY2020 onwards. We are of the opinion that IoT based business solutions will contribute to ~10% of M1’s total revenue by FY2020F, reducing the drag on revenues from the entry of TPG,” Mittal noted.

The analyst noted that M1 plans to scale up infocomm technology (ICT) capabilities and solutions over connectivity and it has already inked a few deals to do so. “The move to newer pastures is to capture opportunities in IoT, cloud computing, data analytics and Smart Nation initiative, and to expand its digital services portfolio. Management sees ICT and digital services as a potential growth catalyst and envisages that this segment will contribute ~20% of service revenue in the future,” he added.