Why the iPhone 8 could be a curse for Singapore telcos

Telcos net profit growth may ease due to higher handset subsidies.

The upcoming launch of iPhone 8 has Apple fans excited.

Whilst Singapore telcos are expected to leverage on iPhone 8 to lock in new and existing customers ahead of the entry of TPG Telecom, they might be in for hefty handset subsidies that could badger their net profit growths.

"Incumbent telcos intend to steal the thunder from the fourth mobile operator, TPG Telecom. We expect M1 and StarHub to be eager to sign up new customers and to attract existing customers to re-contract earlier, so as to lock in customers with new 2-year contracts ahead of the entry of TPG Telecom in 2018," UOB Kay Hian analyst Jonathan Koh said.

He explained that incumbents could induce customers to sign up/recontract earlier by offering sweetened pricing for iPhone 8.

Doing so, however, would substantially increase handset subsidies in 4Q17 and 1H18.

For M1, handset subsidies would increase 38% and 29% yoy for 4Q17 and 1H18 respectively.

This cuts 2017-18 net profit forecasts by 11% and 24% respectively due to below-par performance in 1H17 and the increase in handset subsidies

On the other hand, StarHub's handset subsidies would increase 13.8% and 13.0% yoy for 4Q17 and 1H18 respectively. This brings StarHub’s 2017-18 net profit forecasts down by 3.6% and 11.4%.

“Apple’s iPhone 8 and 8 Plus are both a blessing and a curse, all rolled into one, for incumbent telcos M1 and StarHub,” said Koh.