Weak Optus is the glaring chink in Singtel's armour

It might lose more subscribers in Australia.

Investors are wary over the growth outlook of Singtel’s Australian subsidiary, following a pick-up in mergers and acquisitions (M&A) activity in Australia’s alternative network space.

According to a report by Jefferies, a number of small telcos in Australia are going to consolidate to take advantage of the country’s new national broadband network (NBN) framework.

Optus, however, has so far chosen to stay out of the M&A party, which will cause the company to fall behind in terms of market ranking in the broadband space.

“We are likely to see heightened competitive intensity in the Australia broadband space following NBN roll-out, falling broadband prices and lower margins,” said the report by Jefferies.

Apart from increased competition in the broadband space, Optus is also under threat from heightened competition in the mobile arena, with most operators tweaking their mobile plans in order to appeal to more subscribers.

"We understand Telstra has made comments that it would be looking to defend its market share and has also signalled a 25% increase in its mobile capex over the next three years. Meanwhile, Vodafone has signed a deal with TPG for backbone access and also for providing wholesale mobile services, which should improve its scale and utilisation. Overall, there seems to be a valid concern amongst investors that competitive intensity in Australian mobile is likely to rise," said the report.

Despite these risks to Optus, Jefferies remains bullish on Singtel's overall growth prospects.

"We do acknowledge fundamental concerns, but this should not be enough to derail the macro-story, in our view. Unless and until competition spills over to higher subscriber acquisition costs in Australia, we believe fundamental concerns are unlikely to dampen the uplift Singtel shares will get from the changed macro outlook," Jefferies noted.