SingTel restructure a bold move

OVUM VIEW

Summary

Singapore Telecom (SingTel) has lived up to its reputation for innovative approaches by announcing a restructure of the Group across pan-Asian lines. While many companies deem their restructures to be “major”, SingTel’s reorganization is definitely worthy of the term.

SingTel boasts over 400 million mobile customers across nine countries, and its restructure is the first time that a pan-Asian mobile entity has structurally divided into consumer, enterprise, and “digital services” units. SingTel has labeled these units Consumer, ICT, and Digital L!fe respectively. Each of these regional units will have their own CEOs, which have been drawn from SingTel’s stable of experienced managers, including old hands Allen Lew and Paul O’Sullivan.

The move creates a vehicle for SingTel to streamline and consolidate its investment in innovation. However, it will not be easy to implement given the vast differences within Asia-Pacific and the fact that SingTel is not a majority shareholder in most of its affiliates.

SingTel responds to over-the-top competition

Ovum believes that SingTel’s regional restructure is a bold but necessary move. If there was one lesson to be learned from Mobile World Congress 2012, it was that operators need to re-invent themselves in the post-voice era. This restructure is SingTel’s platform for renewal. While domestic operators have found success by dividing their businesses into consumer and enterprise segments, this is the first attempt by a regional mobile group to divide itself along these lines.

We particularly like the new Digital L!fe unit, which is SingTel’s direct attempt to disrupt adjacent verticals and over-the-top (OTT) players. There is a lot of innovation within the SingTel Group that can be harnessed. Some of the most innovative pricing models in Asia-Pacific have come from emerging markets such as Indonesia and the Philippines – two markets where SingTel has a presence. Conveying this innovation throughout the Group, setting common strategies for disruptive technologies, and devising clever bundles and add-ons that challenge the OTT players head-on are a must for the new SingTel.

M-advertising a long road to walk

In addition to its reorganization, SingTel announced the $321m acquisition of mobile advertising company Amobee. Mobile advertising will be a slow gain rather than a quick win for SingTel.

In 2009, there were a significant number of telco-led mobile advertising initiatives. However, by 2011 there were very few. During that period, the advertising networks that deliver content to mobile apps on smartphones entrenched themselves, which has made it difficult for telcos to get a foothold in the mobile advertising market. This makes SingTel’s decision to acquire Amobee rather than build its own business a correct one.

Beware of regionalization pitfalls

The implementation of SingTel’s reorganization strategy poses several challenges and risks for the operator.

Firstly, it cannot ignore country management completely. The markets within SingTel’s regional footprint differ significantly in their demand-side characteristics, particularly in the consumer segment. This is true even for relatively similar markets, and is demonstrated by the uneven success of its Digital Life products, which have done well in Singapore, but have made much less progress in Australia. Balancing the company’s regional strategy with country-focused, day-to-day operational management is essential and will require a matrix-style approach that will add complexity.

Secondly, SingTel’s ability to impose on its subsidiaries is limited because it is a minority shareholder in most cases. The exceptions are in its home market of Singapore and in Australia, where it owns Optus outright. It is possible that a two-tiered regional strategy will emerge, where SingTel pursues tight regional integration in Singapore and Australia, and a looser arrangement for its other subsidiaries.

There is no avoiding these complexities if SingTel is to accomplish what it is setting out to do. In effect, SingTel is trading away the short-term simplicity of country-by-country management in favor of the long-term benefits of cross-market learning and consolidation. It will not be an easy transition.

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