Singapore Telecommunications' (SGTCF) CEO Chua Sock Koong on Q1 2014 Results - Earnings Call Transcript

Singapore Telecommunications Ltd. (SGTCF) Q1 2014 Earnings Conference Call August 13, 2014 11:00 PM ET

Executives

Sin Yang Fong – Director, IR

Chua Sock Koong – Group CEO

Paul O’Sullivan – CEO, Group Consumer

Bill Chang – CEO, Group Enterprise

Jeann Low – Group CFO

Allen Lew – CEO, Group Digital Life

Mark Chong – CEO, Global Offices

Murray King – CFO, Group Consumer - Optus

Analysts

Luis Hilado – HSBC

Kuan Moon Yuen

Peter Milliken – Deutsche Bank

Sachin Mittal – DBS

Roshan Raj – Bank of America Merrill Lynch

Sachin Gupta – Nomura Securities

Janice Chong – CLSA

Arthur Pineda – Citigroup

Abhijit Attavar – Jefferies & Co

Steven Liu – Standard Chartered Bank

Prem Jearajasingam – Macquarie

Sin Yang Fong

A warm welcome to all investors and analysts. You are listening in to SingTel’s earnings conference call for the first quarter ended June 30, 2014. My name is Sin Yang Fong. And let me introduce management on the call. Ms. Chua Sock Koong, Group CEO; Mr. Allen Lew, CEO of Group Digital Life; Mr. Bill Chang, CEO of Group Enterprise; Mr. Paul O’Sullivan, CEO of Group Consumer; Ms. Jeann Low, Group CFO. They are also assisted by other members of the management team from Australia and Singapore.

Before we start taking questions, I would like to invite Sock Koong to share some highlights from this set of results.

Chua Sock Koong

Thanks, Yang Fong, and very good morning to all of you. We announced the results for the First Q ended June 30 this morning. First, let me just share some highlights.

The Group delivered a very resilient operating performance. Earnings were however impacted by currency movements, investments to support business transformation and also some significant exceptional items. Revenue and EBITDA in constant currency was stable with continued momentum in Singapore, while Australia results were affected by lower fixed revenues and equipment sales.

Group consumer EBITDA growth was offset by lower Group enterprise EBITDA, and share of pre-tax profits from the regional mobile associates also grew very strongly on the back of strong Airtel results and the robust data growth across the associates.

Have regional currencies remained stable, underlying net profits would have increased 5% and net profits on constant currency declined 12% on three key items; one-off gain of S$150 million on the dilution of stake in Airtel during the same quarter last year; staff restructuring costs in Australia of A$24 million, I think that translates about S$27 million; and the Group of share of Airtel’s exceptional losses for various disputes and provisions.

Free cash flow increased by 33% on strong cash flow from both, Singapore and Australia. And on the FX movements, I’ll just highlight that during on the year-on-year basis, the Indonesian rupiah actually depreciated by more than 18%, and of course the A$ depreciated by about 5.4%. However on a sequential quarter basis, currency movements have stabilized.

So maybe I’ll stop there, and we’ll be happy to take Q&A.

Sin Yang Fong

Thank you, Sock Koong. We will now invite questions from participants. Our operator will now assist you to put through your questions.

Question-and-Answer Session

Operator

Thank you, Yang Fong. First question from Luis Hilado, HSBC.

Luis Hilado – HSBC

Hi guys, good morning. Thanks for the call and congrats on the results. I have two questions on the Singapore mobile business. The first question was regarding ARPUs. We’ve seen that blended ARPUs continue to be flat Q-on-Q. This quarter you launched your new Wi-Fi bundled plans that could help that, but just wondering, given the first year or so of the Wi-Fi unlimited would net up also cap your upside in the short to medium term. Second question is, we’ve seen that fixed-broadband subs have continued to grow quite heavily, but wondering if you can give us the insight on what’s happening with ARPUs and where there any impact from the new entrants in subs that have got into the fiber broadband business? And last question is there has been headline from the past about the potential foreign entrants to the mobile sector, if you could get any insights from what you think, how the entrant would be accommodated. Whether there would be any concessions given to it or whether it would have to be a true startup?

Chua Sock Koong

Okay, let me take this last question on your question on the foreign player in Singapore. I think I believe clearly consistently we were prepared to meet foreign mobile player. I think each time when they do a spectrum auction, they would always first invite players to set up the mobile business in Singapore or mobile network. I think, so far there have been no success. I think they are now looking at the recent consultation phases seem to indicate the use of more IT promotion of MVNO, how encouraging the MVNO platform you will take, I don’t think that a lot of clarity at this stage. So I’m not going to speculate whether they are going to set aside spectrum that is where you get preferential treatment if you do MVNO etcetera. I think that will be purely speculative. I wouldn’t go there at this stage, but I think what I would like to emphasize that SingTel through its operations both in Singapore and Australia and also the regional markets, have significant experience dealing with new entrants into a highly competitive market. And I think we will be able to bring some of our learnings to that if foreign entrants, whether in the form of network operator or MVNO is to operate in Singapore.

With that, I am going to pass over to Moon, to talk about the ARPU trends and to talk about the fiber broadband market in Singapore.

Kuan Moon Yuen

Thank you, Sock Koong. Hi Luis, this is Moon Yuen from SingTel Singapore. First of all, I think the ARPU, if you look at the year-on-year decline ARPU, we reported at 4% decline on postpaid mobile ARPU from last year. Half of the decline, 2% actually comes from the dilution of mobile broadband at mobile shared plans. So as you aware that we have introduced the mobile sharing plans, where we offer an extra SIM card for existing customers to put into their tablet and additional devices.

The ARPU for such plan is only S$10 a month. And comparing this with the traditional smartphone plans of S$40, S$50, S$60, you see that there is a dilution effect. So half of the decline of ARPU rise from this dilution effect. The other 2% decline actually comes from two other factors. Firstly, comes from the reduction in interconnect charges for SMS that we charge M1 and StarHub for sending SMS to them, but of course correspondingly we also pay less from our cost side figures, they have reduction in SMS from our customers send to them as well.

And the last part on the decline in ARPU year-on-year is also due to the decline in outbound roaming traffic on voice when our customers go overseas to roam, and because they are switching to data itself. So the combination of this effect actually brought down ARPU on a year-on-year basis.

Maybe I’ll move onto the second question on the fixed broadband. You see that the industry as a whole is actually with the track in terms of the overall revenue for fixed broadband. And this not just SingTel but across the board. If you look at all the established players and new players, I think the overall revenue pool for the fixed broadband has been on the decline for the last few quarters.

This is primarily due to more new players all coming into the market, building up their own OpCo and building up a lot of new capacity and time to load the network by giving huge discounting and giving promotional prices. And for all of us who are – especially for SingTel who have got existing customer base on ADSL and fiber, we do want to make sure that we maintain certain market share in the market, and therefore we also participate in some of these promotional activities. So we continue to see some price pressure on the fixed broadband, but at the same time, we are also seeing some easing of the pricings on the smaller players, because I think that the model that is going on may not be sustainable, because there is too much of a heavy discounting.

They only give them the initial grow-up of new customers, but exceeding certain scale they would have to invest again to build a bigger network, and that will require more CapEx. So I think it is really a question of whether the market is sustainable if you continue to give huge discounts at the retail level.

Luis Hilado – HSBC

Thanks Moon. Thanks Sock Koong. Very clear.

Operator

Thank you. Next we have Peter Milliken from Deutsche Bank.

Peter Milliken – Deutsche Bank

Yes. Hi, good morning. Thanks for the call. First question is on Singapore following on from what Luis was just asking about the ARPU there. Now if I track postpaid ARPU, it has been trending down for about the last four years, from a peak of S$70 down to S$52. This quarter it actually picked up a little bit. Do you think that that can be held at that level or will the increased number of people with the multiple SIM cards continue to erode that? And then second one is on Optus. We saw EBITDA fall sequentially quarter-on-quarter from S$657 million to S$597 million. So obviously about 40% of that was from the restructuring costs, but given that acquisition costs also fell, I’m a bit surprised that the EBITDA was down that much. Is there something I am missing?

Chua Sock Koong

Yes, Moon.

Kuan Moon Yuen

Yes. Maybe, let me just give a bit more light on the ARPU and how we look at the business. Firstly, I think when the dilution comes from the multi-SIM and the mobile share dilution effect, we are less concerned, because while ARPU from this new set of customers were coming on slower than existing, we also have a lower cost of acquisition, because we do not subsidize on devices for this market share and data SIM. So it is still [indiscernible] that’s why we are tracking the revenue growth.

Of course on the other hand, if you look at sequential quarter ARPU, sort of flattening out and in fact improved S$1. This is really due to seasonality. Our roaming quarter for April to June is higher than January to March on seasonality. So you see this as more of a seasonal change, as opposed to any change in the usage mix of the customer.

Paul O’Sullivan

So it’s Paul here with Murray in Sydney. So Peter, I think we pointed to begin with, with the fact that we’re 4.5% up year-on-year in terms of absolute EBITDA. So our view would be that the key driver the Q-on-Q that you see here is the seasonality effect. Not sure what else there is that maybe made you query the EBITDA performance, but my point of view actually we’ll be pointing to the fact that from the – certainly from the consumer businesses this quarter, you’re seeing in the mobile business a significant stabilization in revenue.

Our outgoing mobile revenue was actually stable for the first time in quite some time. All of our declines in mobile comes from either mobile termination rates or equipment sales. And as I said, we pull through strengthen the EBITDA percentage, 2.5%, and also if you look at the percentage margin, it’s up year-on-year as well, 31.1% this year versus 28.9% last year.

So I would expect that anybody looking at the numbers will hopefully see that there is actually some strength in the underlying performance of the business, and you’re starting to see our mobile revenue stabilize. And that’s a very good platform for us as we now look to raise our voice underlying in the market, and as we drive our new marketing campaigns, which only began in the last two weeks of the quarter.

Peter Milliken – Deutsche Bank

Okay, very good. So the My Plan isn’t causing any noticeable pressure as people transition onto...

Paul O’Sullivan

You’re talking about the launch of the last year, Peter, or the one we just launched in June of this year?

Peter Milliken – Deutsche Bank

The one you did last year in July.

Paul O’Sullivan

No, so in fact if you have a look at it actually what we’re seeing is pretty good data utilization. If you look at the MD&A, you can see that 41% of the base now on tier data plans, 33% are coming through monthly with some form of, I should say core, but some form of breakage. So that stops break in the case office. If S$10 per gig if you need it, and if you don’t, you just revert it that. Telling us really that people could acquire data browsing, and that there is not be rationing effect which we would see prior to the launch of My Plan.

So I would like My Plan was launched – it was launched in the last two weeks in the quarter and we’re seeing very encouraging signs and uptake on that.

Peter Milliken – Deutsche Bank

Brilliant. Thanks a lot.

Operator

Thank you. Next we have Sachin Mittal, DBS.

Sachin Mittal – DBS

Thank you for the opportunity. I have two questions. The first one is on the enterprise business, which actually saw a 7% EBITDA decline and dragging the Group EBITDA by 3%. Now looking at your guidance, you are guiding for slight growth in Group EBITDA. So I am wondering that, what does it mean for the enterprise business, given that it’s facing a structured decline due to pricing pressure. So should we expect it to have a lower – I mean the decline should be lower, should it stabilize and what are the key drivers here? With the kind of 7% decline, it’s a bit concerning for us, and is it the NetLink income or some new projects. What can actually slow the decline here, so that you can meet your guidance for low-single-digit Group EBITDA growth? That’s my question number one. Question number two is that you recently launched bundled plan, which actually are offered in countries like South Korea and Hong Kong. However, they are offered free of cost. So what I am wondering is, is there a difference in the way that you are offering these bundled services versus other operators that there is a separate or slightly higher charge for that? If you could explain that, it would be very useful. Thank you.

Chua Sock Koong

Okay, I will let Bill take the enterprise question, and then maybe Moon can explain why Wi-Fi service is different service and what we see in Korea.

Bill Chang

Thanks, Sock Koong. On the enterprise side, what we are seeing is a, sort of intense competition in the core carriage business, and primarily in the domestic prime MVN, and to protect our market shares, we basically are gliding some of our prices down to maintain that. So our market shares both, domestically and internationally, we have maintained our leadership positions.

And the other key driver to the EBITDA, it’s actually a large transition project for a public sector and it’s a huge project that we have, and we are doing the transitioning now. And the project, because of the scale of it and the margins, there is a – and due to the competition, the margins are lower compared to what was the traditional IT business our margins, but this would give uplift in the revenues as we have seen in the strong IT services pickup. There were some one-off items from last year due to one of our cable stocks failed [ph] and also in some of the traffic items, but those were largely in the first factor. The two bigger factors were what I described MVN and the IT services.

We do not give guidance on overall. We give guidance on ICT services business. At the moment with our trajectory, the guidance of revenues are still on track for the revenue projections.

Jeann Low

I think Sachin – this is Jeann. One, we only give guidance for the core business, the core EBITDA and we have not given fully for enterprise or consumer.

I think on your question about some of the margins etcetera MVN, and do we see any – o think if you look at our proceeds, our share of income from NetLink, which of course includes OpenNet, I think we’ve seen some growth there. The share of net profit from NetLink for the quarter is S$8 million. So obviously if you alleviate that, the penetration go up and if [Technical Difficulty].

Sachin Mittal – DBS

Sorry. Just to follow-up on that, I am not looking for guidance, but I am looking for the drivers in this business, because this is a very sharp decline. So with this kind of decline, it is difficult to meet the guidance, that’s why I am asking for the drivers rather than the guidance for enterprise?

Jeann Low

We have affirmed our guidance for the Group. So there is no change to our guidance.

Sachin Mittal – DBS

Okay.

Kuan Moon Yuen

Okay. Sachin, this is Moon here. In regards to the Wi-Fi service offers in Korea, I would say different countries offer Wi-Fi, bundled-Wi-Fi for different reasons. In some countries, they offer Wi-Fi purely as a offload to their 4G LTE network, because in some of the countries maybe they are offering unlimited 4G data and putting in Wi-Fi at possible maybe a scheme that they do actually remove the heavy loading on their 4G network.

Whereas for SingTel, we offer our Wi-Fi for totally different reason. First of all, we are trying to offer the Wi-Fi to ensure that we give our customers more data, that’s first thing, as opposed to just purely using 4G data. Secondly, we offer it in a way that is managed network, where the quality of the Wi-Fi is different from the free public Wi-Fi that you see in Singapore. And again in Singapore, you can also find quite a few options for free Wi-Fi, public Wi-Fi that’s being offered in the market.

So the Wi-Fi that we offer is really of a different grade as a managed Wi-Fi service, and therefore we look at it more similar to the type of 4G data that we are offering. So which is for the totally different reason, and it is more for the managing experience of our customers.

Sachin Mittal – DBS

Okay, I got it. Thank you.

Operator

Thank you. Next we have Roshan Raj, Merrill Lynch.

Roshan Raj – Bank of America Merrill Lynch

Hi, thanks for the opportunity. Two questions from me. First on Optus’ satellite revenue has been trending down for a few quarters now. Just trying to understand what’s really leading to this, and how should one look at the outlook for this segment? The second question is on your associate, Telkomsel. Just a big picture level, how do you think or how do you guide them in terms of really investing in the network? To what extent should they be ahead of the market, and when should they actually start moderating the investment. How do you take that call? Some color there, that will be very useful? Thank you.

Chua Sock Koong

Yes. Paul, you want to do the satellite question. And then I will let Moon to talk about Telkomsel.

Paul O’Sullivan

Okay. So the main influence you are seeing in the satellite numbers is that we had a contract with the NBN to help provide satellite broadband services to customers mainly in regional areas. Most of the revenue that has been reduced was for us providing CPE to customers, and it was effectively a pass-through. So you don’t see a big impact on our profitability, but you do see an impact on the revenue line.

From the guidance, we don’t guide satellites moving forward, but I think most people would know that we have a very strong position in the market. We effectively dominate the space of media and broadcast, and we see that as a very strong business. I’ll pass back to the Singapore for the question on Telkomsel.

Kuan Moon Yuen

Hi, this is Moon here. For Indonesia, Telkomsel, if you look at the history of how the investment network, primarily you built the network in different parts of Indonesia and we expect the customers to come on that with the traditional model where we were rolling up 2G, but in the last one, two years, you look at Telkomsel investment is primarily focusing on investing in 3G network to capture the data market and the growth in data.

So if you look at last year or the past one year of CapEx investment, 75% of their CapEx are primarily driven on 3G. And the way Telkomsel does it is really to look at which area or which region have got high data adoption rate. So they look at historical usage of the 2G and 3G network and they see that in this area have got higher demand of data network, they will then double down the investment in that area. And at the same time obviously, they will perhaps ensure that there are enough devices that are 3G-enabled in this region to support the growth of data.

So it is a disciplined approach to look at where this demand for data and invest in the network to meet the demand there.

Roshan Raj – Bank of America Merrill Lynch

Thanks. If I may just follow-up on that, given their market position in terms of coverage and capacity, are they already in strong position to really start looking at moderating investments, or do you think there is still ample room to invest to support potential growth in the market. What’s the trend one can expect?

Kuan Moon Yuen

I think if you look in general, Telkomsel has provided CapEx guidance for their Group. So I should not repeat that. The Telkomsel, I think if you look at Indonesia as a whole, the data penetration is still very low. I think its flat to 50% or close to 50%. So it is still growing and there is still a lot of potential growth. I think it is a question of pace and timing, because you don’t want to invest too fast ahead where the devices are not ready and the affordability of the consumers are not ready.

So it is really about pacing the investment, but generally speaking, if you look at the market, it is definitely not penetrated yet. There is still more than 50% of the market not data penetrated yet.

Roshan Raj – Bank of America Merrill Lynch

Okay, thanks Moon. Just going back to Paul’s response. So should we expect the satellite revenue to, sort of, stabilize at that current levels or how should one look at it, or you would not be able to share that guidance?

Paul O’Sullivan

We don’t guide specifically. So I’d love to answer the question, but I don’t want to land myself in trouble with a selected guidance. So unfortunately we can’t comment that at the product level, but I just reinforce my comments that we have a very strong business.

Roshan Raj – Bank of America Merrill Lynch

All right. Thank you, Paul.

Paul O’Sullivan

Thank you.

Operator

Thank you. Next we have Sachin Gupta, Nomura Securities.

Sachin Gupta – Nomura Securities

Thank you. I have three questions. Firstly for Paul. In the Australia, there is obviously revenue cost defined [ph] but revenues are still a trouble. Are you recently confident that with the new pricing plan we should be able to see this turnaround? That’s one. Secondly, for Moon. If you look at the pay-TV business in Singapore, the sub addition or the sub numbers were flat for mio. We had 19,000 cross carriage. Is that a concern or does that actually make you rethink the content strategy, given this impact? And I guess lastly as well on this new Wi-Fi plans, I’m sure every market is different, but obviously the customer perception is that Wi-Fi is free and Wi-Fi is unlimited. What sort of reaction do you expect when you start charging for these services and you start capping Wi-Fi?

Paul O’Sullivan

Okay. Sachin, this is Paul here on question one. I might guide you through the section of the MD&A to look at the Australia Group consumer. And it gives the exact code [ph] to you, because I think it’s worthwhile trying to highlight the specific numbers to get us there. So that might be Page 26, okay. So if you have a look at that, you look at second top of the page, you will see our mobile revenues and if you look at mobile service revenue, you can see it’s down 0.8%, recharge going down 0.1%.

As there is two key points there. First one is total mobile service revenue while a few quarters ago was declining minus 4%. Last quarter it was minus 2%. This quarter it’s minus 0.8%. So we think the number has started to stabilize, but if you look at adds going, it was two quarters ago, minus 3%, last quarter minus 7%, this quarter minus 0.1%, almost flat. So the first thing I’d point you to is you’re starting to see us stabilize the revenues.

We did say quite clearly over the last two years that we were voluntarily getting rid of what we call the unsustainable revenues like the A$100 per gig that the industry was charging, for anybody going over on the data [ph] were some of the hidden fees. So we had been quite open about saying that we would don’t really walk away from those, and now what you’re seeing is we’re starting to stabilize the business and to pull it through, which I think is a positive thing. So that’s the first thing I would very much point to in terms of where mobile adds today.

And the second thing I’d point out is that if you do look at the decline in mobile service revenues, 0.8%, all of the decline, which is around about A$24 million to A$25 million there, all the decline is in either equipment sales or mobile termination rates. Neither of those go through to EBITDA. Our mobile terminations are actually balanced on traffic these days. And equipment as you know is simply us providing equipment to customers. So with no markup of any significance on it.

So again I’d point out the fact that actually what you’re seeing is the underlying mobile numbers are now starting to be quite resilient.

Moving forward, many outside Australia will not have seen our advertising but office is being probably the most visible at being in two to three years above the line in the last quarter, equally importantly we’ve been very active on social media, we’d be quite innovative and very much behaving in an un-carrier way, that’s the way that we go to market and standing out in the crowd.

That only happens – that only began in the last two weeks of the quarter, but the early signs of that campaign are quite encouraging. So yes, as we’re moving forward, we believe we will be able to bring the mobile business back to growth, but clearly I don’t want to guide the market in any specific sense. I will just let our results speak themselves over the next 12 months.

Kuan Moon Yuen

Thanks Sachin, this is Moon here. I think the first question on pay-TV. First of all, last quarter was a quarter that is focused a lot on leveraging on World Cup. So a lot of our sales and marketing effort was really trying to get our customers, especially BPL customers to re-contract and to sign up for World Cup to give us the leverage of using World Cup, so that we were less focused last quarter on signing up new customers.

And the 19,000 cross carriage was primarily for World Cup only. That’s why we call it out separately. And also traditionally, if you look at Q1 quarter, it’s always been a low season for acquisition, because it is the end of BPL season as well.

So combining the two factors, you see that holding a flat Q-on-Q subscriber base on pay-TV is actually a good outcome for us. And more importantly, we actually focus on selling more content to our existing base, and that’s why you can see a good improvement in ARPU even without the World Cup revenue contribution. So it jumped up to S$53 million on revenue on pay-TV.

On your second question on Wi-Fi. First of all, let me clarify that the Wi-Fi service that we provide is actually a seamless Wi-Fi service for all our mobile customers we find on the combo plan. What it means is that the customers do not need to have any lock-in credentials or lock-in password. So as long as the phone is switched onto Wi-Fi enabled, once it goes into the hotspot, the phone automatically switches for work this Wi-Fi service that we have completed.

And secondly, this Wi-Fi service is actually a managed Wi-Fi, where we are actually dimensioning the network to Asia that will give a much better speed and better throughput experience for our customers from the traditional using the free pocket Wi-Fi.

We projected that the speeds will be typically between 4 to 10 meg which is about five times faster than the free public Wi-Fi. So combining the seamlessness and the higher quality of Wi-Fi, we are putting the smartphone closer to the experience of mobile data experience. And therefore, we are creating a new category of our Wi-Fi data allowance in our new combo plans package.

Operator

Just to inform, Sachin’s line has dropped from the call. I’ll skip over next on queue, Janice Chong from CLSA.

Janice Chong – CLSA

Hi, I’ve got a couple of questions. First for Singapore. You mentioned about the Wi-Fi data allowance. I just wanted to understand whether in the long-term, will these Wi-Fi access actually cannibalize into potential data revenues? Basically you are actually allowing consumers to access unlimited Wi-Fi whereby they could actually upgrade to a higher later on if their data consumption increases. Okay. That’s question one for Singapore. And secondly, your prepaid subscribers have not been affected by the SIM card restriction. Unlike your two other competitors who have actually shown a decline in prepaid subs, you have not. Could you elaborate on that? And third question on Singapore. I just wanted to clarify whether wholesale pricing for mobile, is that regulated in Singapore? Okay. On Optus, I just wanted to get a better sense of competition in the Australian mobile landscape. Vodafone has recently come up to say that they will be reforming its existing net megahertz. Just wondering whether do you see EBITDA growth sustainable into financial year – by this year and also financial year ‘16 or do you expect the next two years probably, it would be an investment year for you? That’s all for now. Thank you.

Kuan Moon Yuen

Okay, Moon here. Let me take the Wi-Fi question again. I think first of all, there are many free public Wi-Fi service available in Singapore. So I think the key question is, if we do not build a quality Wi-Fi to the similar, there will be always be substitution in cell [ph]. I think by introducing our own Wi-Fi, we have the ability to take some of the traffic back onto our managed network to provide a consistent service. And the initial one year of free unlimited Wi-Fi that is bundled with our premium Wi-Fi service is really more as a roll-out phase, as we build up all the hotspots in Singapore to reach a 1,000 points of hotspots. We felt that it was not good to start entering so early where we have fewer hotspots. So by that time heat really more nationwide coverage of 1,000 hotspots, that’s the time that we will exactly recharge to meter the Wi-Fi to kick the data for everyone.

We see these Wi-Fi as completing our 4G network to provide the seamless experience. We also expect consumer to continue to use their mobile phone and data growth will continue to increase. So while it may take away some traffic initially, but in a longer run, the growth will be able to sustain on both networks – the loading on both networks.

The second question on prepaid. I believe it’s related to the prepaid registration of banned SIM cards to three SIM cards. We are equally impacted in terms of the regulation. So our customers who have got more than three SIM cards definitely cannot register for a fourth one. I think I can’t comment on our competitors of what’s the impact. Of course our focus is really to then look at the quality of our customers to encourage them to do more top-ups, which we are seeing, instead of buying new SIM cards.

Our focus had always been getting our customers not to throw away SIMs, but to reuse their existing SIMs by managing our promotional offers to make sure that we do not give much better offer for new customers and existing customers. So we encourage our customers to top-up more. Perhaps that’s the reason why we are less impacted in the sense compared to the other two.

On your third question on wholesale mobile. Wholesale mobile which are actually not regulated is competitive. We can actually offer – set our own pricing for wholesale prices.

Paul O’Sullivan

Okay. So Moon I might pick up the question on Australia, which was a very broad ranging question, but I’ll try and pick up what I think were three big things in it. First of all on network to just give you some context about network. This is actually quite an exciting time for Optus in terms of network build. So we have acquired 700 megahertz frequencies in the recent auction, which become available to us on the January 1, which is only about four months away.

We also have 2600 spectrum, and we also have a massive amount of 2300 spectrum in the metro areas, which we acquired two years ago. We are pre-building our sites with a major rollout underway with a view to getting that frequency deployed. It will be used for 4G. And our goal of – publicly intended goal is to have 90% coverage of subscribers in 4G by April on a national basis.

So that’s a very strong story. And generally we’ve heard our competitors’ network plans. I’ll remind you as well of course, that they have a smaller footprint that we have in terms of national coverage.

Moving forward in terms of the market and its competitive dynamics, it’s been interesting to watch the market over the last few months. We’re seeing the carriers in general have shifted the focus of competition less on handset and now more on data allowances, and certainly we’ve seen Vodafone go very much aggressive on data allowances. But if I move forward and talk about Optus and where we’re going. I can remark that if I look at start, whenever Optus demonstrates two differentiation on value, service and provides a stronger competitive network, it does very well, and if you look at what we’re currently executing are described on network fills and our network roll-out, our net promoter score. We’ll lead the three major carriers by a significant amount on net promoter scores, and that’s independently gathered data.

And if you look at our value, we have launched the first ever data sharing plans that allow you to share your data allowance on the mobile across all the devices, but no extra monthly charge. And in prepaid in the last week, we are the only carrier in the market with daily plans. You only pay for the day you use. We’ve gone right back to our challenger roots and this is territory which Optus always does well. [indiscernible] the market will be very competition ongoing, it always has been, but I also would remind that I think Optus is well placed to take that competition, and we’ll certainly continue to focus very heavily on customer experience and value differentiation clearly on a strong network.

Janice Chong – CLSA

Okay, thank you. I just got one more question. It’s more on the PBTL. I’m just wondering what is SingTel’s plans on this associate, and whether you have plans perhaps in the future or in the near-term to actually divest?

Mark Chong

Hi, this is Mark. On PBTL, we are managing it for cash. Yes, so essentially that’s it.

Janice Chong – CLSA

Sorry. Hello?

Mark Chong

Yes.

Janice Chong – CLSA

Yes, sorry. When you say that managing it for cash, you are saying that basically it’s free cash flow positive?

Mark Chong

It’s currently I think on a sustainable basis based on the funds that is obtained through various loans [ph] I would say.

Chua Sock Koong

I think in Bangladesh, we do have a presence in a mobile GSM preference in [indiscernible]. So with PBTL, we are really in the close – I mean, we are not committed to any further investments. So we basically letting the partners run it, but making sure that the company is just managed for cash, there is no additional cash investments [indiscernible] business.

Janice Chong – CLSA

Okay. And if there is opportunity to diverse, suppose that you will be happy to look into that?

Chua Sock Koong

I think we are open to divestment opportunities.

Mark Chong

We are ready to listen to offers.

Chua Sock Koong

Janice does that answer your question? Do you have further questions?

Janice Chong – CLSA

No, that’s all. Thank you.

Chua Sock Koong

Thank you.

Operator

Thank you. Next we have Arthur Pineda from Citigroup.

Arthur Pineda – Citigroup

Hi, thanks for the opportunity. Three questions. Firstly, can I get some color in terms of the Digital Life operating losses as the teams have narrowed notably quarter-on-quarter? There seems to be a significant reduction in the cost base, and revenues are slightly down as well Q-on-Q. Is it really a seasonal factor or it is linked to the reduction in spending? Second question I had is with regards to Singapore mobile. You’ve obviously been very active in launch of other new plans especially on the Wi-Fi bundling. These are slightly higher on the base price, but more generous of course on the minutes of data allocation, but based on the usage patterns that you’ve seen internally versus the plan allocations, do you see this as potentially ARPU accretive or neutral based on the more generous bundles? Last question I have is regard to strategic investments. We’ve obviously seen the Chinese operators being more active across this space. I’m wondering what SingTel’s commitment is for the existing assets. You’ve mentioned PBTL that you may be open to that. Is the door open for the other assets as well? Thank you.

Chua Sock Koong

Obviously we’ve talked about SingTel where it is not cost [ph] and we are open to that obviously offers but to be on the right terms. Okay. Maybe I’ll let Allen to talk about Digital Life and then turn back to Moon to talk about mobile Singapore.

Allen Lew

About the Digital Life, your question on the revenue Q-on-Q is primarily because of seasonal effects. I think typically our Q1 of our fiscal year for mobile advertising is little bit lower than the previous quarter. So I think that reflects customers spending. I think this Q also we had a little bit of the first spending from European advertisers in particular deferring their add dollars spend to the second half of the year, and we just thing that it start to comes back a little bit more. I think more importantly when you look at our mobile advertising business, if you look at the growth in revenue per quarter from S$21 million to S$35 million, we expect about 80% growth.

If you benchmark to some of the other independent advertising platforms out there in the mobile space, Rocket Fuel for example is growing at about 70% to 75%, Millennial Media which is very much U.S. focused also is SingTel Company without SingTel’s technologies differentiators that we have. So I think we’re in 45% to 50%. So there has been importance relative performance of MOB [ph] in that market is very important.

In terms of the EBITDA, I think there are some one-off impacts of the EBITDA, primarily due to the acquisition costs associated with the two acquisitions that we’ve made that we basically put into our operating expenses only. I think the rest reflects a business that we’re building up to scale.

Kuan Moon Yuen

Moon here. Let me just maybe explain a bit on the thinking behind the new combo plan expectation we just launched yesterday. First of all, I think the S$3 increase in some of the plans, not all the plans, actually primarily because we are giving more value to customer. We are giving more value on calls. We’re giving more value on SMS. We’re also introducing a Wi-Fi data bundled plan. So that’s one of the reason why it’s a higher base price for that.

And the question of voice, giving more voice and then taking away the excess usage of voice. It is really a question of trend. If you look at the last one, two years, we are seeing a similar trend of how SMS have trended down like data as we talk. So we are seeing a similar pattern on usage where customers are using lesser voice and also moving towards more data. So actually by repackaging, we are arresting this downloading time of voice and actually upwards increase in data.

So obviously we do see that this new packaging allow us to better fit the changing usage behavior and we wanted – obviously we wanted to be very operative in the overall packaging of our price lines.

Arthur Pineda – Citigroup

Sorry, I guess if I treated in a different way, when we look at it from a revenue perspective, should we expect this kind of strategy to actually improve your revenues going forward, or is it more neutral because people who use to pay more for voice, because of them busting their plans and voice more for data, because of the [indiscernible] data, you don’t collect more from that. So that S$3 increment. Is that to be viewed as an increase in ARPU down the road?

Kuan Moon Yuen

Well I guess, consumers will have option as we introduce many different plans including the earlier on, two months ago, we introduced Easy Mobile. We are really creating plan that fits different segment of the markets. The combo plans definitely has advantage of having a higher assured monthly fees and perhaps lower exact usage, but we believe that the continuous growth on data consumption will allow us to have a breakthrough in data usage in terms of on a per slot basis, and if you look at the last two quarters, we have actually consistently grown the data – the numbers of customers who have exceeded their data package.

Last quarter it was 16%, this quarter it’s 18%. So we believe the data excess usage will continue to grow driven by better handsets, faster network and more applications of video. So that will continue and that will definitely overtake the usage on voice exact usage. So raising the subscription fee will actually protect certain level of revenue for us in the switching behavior of consumers.

Arthur Pineda – Citigroup

Got it. Thank you.

Operator

Thank you. Next we have Abhijit Attavar from Jefferies.

Abhijit Attavar – Jefferies & Co

Yes, thank you. I just wanted to re-focus on the Optus EBITDA, and in particular, the sequential almost 10% decline we have seen in the first quarter as compared to fourth quarter last year. So if I look back, second quarter last year, you had a big rationalization in selling and administrative cost, also in your staff cost because of the restructuring expenses you took in and cut out third-party distribution cost. Has that kind of held through for about three quarters, but again this quarter I see a jump in your selling and administrative cost, and also interestingly your staff cost. So I am just trying to understand are there any one-offs in this, or is this new trend going forward given that you are building back some of your brand visibility in Australia. So if I could just get some flavor on that?

Murray King

It’s Murray King here from Optus. In respect to the EBITDA sequential movement, I’ll probably refer you to Page 29 of the MD&A, where we talk about consumer side sequential performance. We clearly cite there the revenues – foreign cost and revenues, but the selling costs were higher quarter-on-quarter. This is somewhat a reflection of seasonality, because in Australia because the March quarter we have the January holiday period and February this whole month we normally see a lot lower level of activity in the marketplace, so we’ve historically seen our EBITDA higher in the fourth versus quarter one.

Your point about the staff costs. It’s correct, as it needs to [indiscernible] number of stores. We have [indiscernible] around about 160 dish shops. We are incurring our staff costs, but that’s more than offset by lower commission costs in respect to the previous rental of volume split. But essentially as Paul indicated earlier, it’s going develop over seasonality higher selling costs quarter-on-quarter.

Paul O’Sullivan

And I think I would reinforce – Paul here, I think we’d reinforce that the cost discipline remains very strong in Optus, and the 4.5% expansion in EBITDA year-on-year and the way management sees this challenge at the moment is to build off that platform to make sure we get some momentum back in the top line.

Abhijit Attavar – Jefferies & Co

Thank you. I just wanted to have another question on the Singapore enterprise EBITDA side, where you have seen an 8% decline year-over-year on the EBITDA side. Clearly with more NBN open access, there would be a lot more pricing pressure from your competitors. This is a really high margin business for you. So if you look at different market shares, don’t you see a lot more pricing pressure in EBITDA declines? And this is a business which contributes almost a third to your consolidated EBITDA. So how do you protect earnings of this business?

Chua Sock Koong

Bill?

Bill Chang

Yes. Thanks Sock Koong. So if you look at that the NBN, the key factor on that, and where we are seeing is in terms of production moving away from carriage and bundling mobile services onto as carriage. And in the SME segment, we do quite [indiscernible] that we see a very strong hold in that in our fiber broadband roll-out. In fact, we are leading the market in the space with a lot of successful roll-out to sort of strong hold as given some of the government grants and all that they have launched over the last few months announced for the Singapore to help SMEs, we’re certainly taking a market share in the fiber roll-out options in a Wi-Fi adoption for SME. So definitely those are sort of opportunities that we are pursuing to tap into that.

In the large enterprise, we are also rolling up similar strategies in terms of more services, primarily in the area around unified communications and collaboration and also cyber security being a very major focus. And finally in the area of cloud, pushing greater, for example, the G-Cloud, we’re getting a lot of attraction there, and also the Enterprise Cloud for commercial accounts.

So if you look at that, the transition of this is going to require much us faster internet. The managed services portfolio you are seeing that is taking up speed and the space given stronger contribution to Q1. So we expect to continue to do that and continue to drive the growth into the sector, and also try and latch onto the infrastructure that could be managed services we need to ride on.

Abhijit Attavar – Jefferies & Co

Yes. And this seems an interesting strategy, and I guess it will take time for the services on top of the network to pick-up, but in the interim, isn’t there a big differential between your current pricing and what would be the wholesale open access players again, and will your competitors not want to arbitrage this down. So in the near-term do you foresee more pressure on the EBITDA from this business? I’m talking of the network.

Bill Chang

Next couple of quarters, we will see some pressure, but again like I said, it’s about the portfolio management in trying to shoot that, and not forgetting that you would see the pick on the MVN, it’s also going to represent value creation for us from the openness standpoint. So that’s what Jeann talked about earlier. It’s going to go to part of the Group earnings as well.

So for us as an operating arm, we’re definitely moving this. So we probably see a couple of quarters of this, and then after that, we expect to try and uplift that.

The other piece that we see there is some kind of pick-up, it’s also in the international front where the U.S. market seems to have good activity, and that should also be something that uplift from us, from primarily U.S. at the moment.

Abhijit Attavar – Jefferies & Co

Thank you. And can I just understand what exactly was the transition on this large government ICT project that you had and how exactly it was affecting your EBITDAs?

Bill Chang

Okay. The transition actually refers to the Singapore Government’s what’s call the Standard Operating Environment, SOE project, for whole of government infrastructure. So we use to be a subcontractor of that.

Chua Sock Koong

I think basically we moved from contract renewal – we moved into the contract renewal phase and ultimately there is a 5 point [ph] reduction and that accounts into EBITDA.

Bill Chang

And beyond the contracts, also from a subcontractor to a prime contractor now for this contract in second phase.

Abhijit Attavar – Jefferies & Co

Understood. Thank you very much.

Operator

Thank you. Next we have Steven Liu from Standard Chartered.

Steven Liu – Standard Chartered Bank

Thank you. I have two questions. First, maybe on the VoLTE. Since you launched the service, what do you see the feedback [ph] from the customers, I mean there was kind of reception from the customers. Secondly, regarding your enterprise in Singapore. With now M1 has launched the enterprises service, and also StarHub expanding the network coverage and there is also some all-in [ph] coverage. Do we see the pressure really coming up domestic and enterprise markets? Thank you.

Kuan Moon Yuen

Steve, I’m going to answer the VoLTE questions first. I think first of all, VoLTE is actually a very new technology that we introduced into the LTE network. There are very few handset devices today that actually supports VoLTE. So the network is ready, and we are progressively cutting on VoLTE for customers who come in with the handset that are enabled for VoLTE.

So it will take a while longer before all devices introduced in the market are VoLTE-enabled, not just in Singapore but it also require the rest of the world to catch up the devices that are VoLTE-enabled. So it’s actually very early days. I think the numbers are actually very small today, but obviously for those who actually have, it will be a good enjoy the better quality and clarity of the VoLTE voice.

Chua Sock Koong

The enterprise competition in Singapore.

Bill Chang

The enterprise competition in Singapore specifically recede us in two main sectors. One, in the telecom providers, not so much as the players who are the domestic players, but also international players, because we serve a large part of MNCs.

The other part is because IT services place, so we do also compete with IT services companies like IBM and HP and to the likes of Accenture and also to the Indian outsourcers. So for both the global service providers and global IT services providers as well.

Steven Liu – Standard Chartered Bank

Okay, thank you.

Operator

Thank you. Next we have Prem from Macquarie.

Prem Jearajasingam – Macquarie

Hi, thank you for the opportunity. Two questions from me. Firstly, to what extent have we already converted all our ADSL subscribers to fiber? And is this the key drag on the ARPU side for your broadband business. And secondly with regards to all our investments in LTE. Could you share with us what you see in terms of the ARPU uplift in LTE versus 3G, and potentially how that changes your views with regards to handset subsidies going forward? Do we see a need to increase subsidies going forward to get more people onto LTE handsets, or are we comfortable with things as they stand in this room for further declines in the handset subsidy lines? Thank you.

Chua Sock Koong

Okay, Moon. Sorry, just to clarify when you are talking about LTE, are you referring to Singapore or Australia?

Prem Jearajasingam – Macquarie

Singapore first, and to a lesser extent Australia as well.

Chua Sock Koong

Okay. Maybe Moon you can go first.

Kuan Moon Yuen

Yes. We actually disclosed in our MD&A the fiber place is actually now 347,000 customers and the ADSL is 201,000 basically a much a much smaller number. So we have actually – last quarter I mentioned that we crossed over more than 50% actually on fiber. I think we have progressed that even further now. So almost 60% of our base are actually on fiber now.

With respect to LTE, I think our long-term strategy is definitely to migrate all our postpaid 3G customers into LTE. Firstly, because LTE is a much more efficient network to carry data and with data growth and usage, you would expect our customers who are on the 4G network, who have better opportunity to use small data, because it’s faster and is of higher quality than the 3G network in terms of data throughput and experience.

So over time if you look at the 18% of our customers who exceed their data usage as we reported in the tiered plan, majority of that obviously are on the 4G LTE network. Therefore – and the space that more customers on 4G wins more data usage and it’s going to be good for the business.

In terms of handset subsidy, I think there are two ways to looking at it how we migrate. Obviously if you look at our shops, own China selling phones and services together, more than 90% of the phones that we carry today are actually 4G phones. So by natural attrition and customer change out, you will see that all our customers are actually going to be on a 4G plan.

And obviously the customers can still buy their own 3G phones in the market, but then they will not be able to enjoy the better experience on a 4G network. So it is natural that more and more customers will move into 4G without us having to over subsidize to encourage the switch.

And if you look at the recent yesterday’s new price plan, one of the reasons why we remove away the LTE VAS charge is actually to encourage more 3G customers to move into LTE plan, because if you flat on additional add-on LTE charge, you are actually slowing down creating more inertials [ph] for customers to switch over for LTE.

So by removing that and bundling it into the entire combo plan, we are actually facilitating the migration faster and encouraging migration faster.

Prem Jearajasingam – Macquarie

Perfect. Thank you very much. Sorry, on Australia?

Paul O’Sullivan

Yes, I was just going to really just say, no much extra to ride other than a few local points, which is just as we’ve discussed in previously there is definitely a larger uptake of data browsing on a 4G device. For us that’s a combination of the work we’ve done on making space to browse. I described it earlier with new My Plans, also data sharing, but also device and the speed of the network does drive that.

We’ve seen that in Australia, the handset subsidies have been declining over time and customers have been willing to pay more. And despite that we’re still seeing very good take-up of 4G. We’ve got just 2.5 million 4G customers on our network now. We’re also seeing growing trend in Australia, customers buying their own device, and then doing a BYO plan because they like the flexibility that it gives.

So I would say that instead of using [indiscernible] 4G devices, however I don’t think it definitely follows and that needs to drive an increase in subsidy, and if anything we maybe some relief longer term over entry into the market over the low cost handset providers. But for now, I simply be noting no major departure from trends, it’s how we see it today.

Prem Jearajasingam – Macquarie

Great. Thank you very much.

Chua Sock Koong

Thank you everybody. We’ve had a lot of interesting questions, but due to time constrains we are going to stop the call here. But call us if you have questions. We have your name so we will contact you. So thank you very much again for calling in. Should you have further questions, please don’t hesitate to contact the IR team in Sydney or in Singapore. On behalf of everyone in SingTel, thank you and goodbye.

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