The brand: it's the real thing

Telecommunications International, May, 2003 by Ouida Taaffe

The word Singapore conjures up images of slowly rotating ceiling fans and tropical downpours, gin slings and sampans, not multi-media services branding -- but that hasn't stopped M1, as the CEO, Neil Montefiore, explains.

M1, the second-largest mobile operator in Singapore, entered the mobile market in 1997 with a clear idea of what it was going to do: set up a strong brand based on market realities. "[We have to serve customers] according to their needs, not according to demographics, or psychographics," Montefiore says. However, despite its focus on marketing, M1 is not, Montefiore insists, obsessed with market share. "The general strategy is to keep it between thirty and thirty-five per cent, and it's been around that sort of level for the last four years," he says, adding that it has been lust above 32 per cent over the last two months.

M1 is also not going to spread its brand thinly, say, over own-name handsets. "In an unsophisticated market [it might work],... or going forward, when we have got very tailored services when the handset has got to be altered in each market to suit the services being offered by an operator...but [not] right now," Montefiore says.

How operators should make more impact -- and more money -- is, of course, the perennial question. M1 has seen "voice minutes stabilise and the data revenues as a percentage of ARPU rise from about three per cent three years ago to about 15 per cent today", according to Montefiore, and he is reasonably bullish about the future. "We think that trend is going to continue. If you are looking out over five years, you see some growth in ARPU." MMS messaging, which M1 launched as a paid service in January this year has been "quite compelling among early adopters" with demand running "at about five messages a week", Montefiore says. He points out that "it took five years for text messaging to get to that sort of level of usage". Around three per cent of Ml 's customer base of 1.1 million has an MMS phone. Roughly 70 per cent of M1 customers choose Nokia, which launched its MMS handset at the end of last year. Now nearly half of handsets on sale in Singapore are MMS-enabled.

Singapore is, in some respects, an unusual mobile market. The small land mass makes coverage cheaper and ensures, as Montefiore points out, that "[people] are never far from their homes or offices". Demand is, therefore, mainly consumer-driven. Montefiore estimates that lust five per cent of M1 users have their mobile bills paid by the their employers. However, this is partly a reflection of the demographics of the M1 customer base and, so, means there is room for higher-end growth. Given that Singapore has had number portability since deregulation, persuading older, business users to move sounds feasible. However, number portability on messaging services is still pending. Montefiore expects a regulatory decision on this in the next "four to five months".

When it comes to competition, Montefiore thinks that three operators are probably all the Singaporean market would hold "at the moment". He is also sceptical of the MVNO model (Virgin attempted to run an MVNO in Singapore on the back of Singtel's network before admitting defeat last year). "If you extend the supply chain in any business it is not very attractive. Something gets crushed. Either the customer is paying too much, or the margins are too low to be sustainable," argues Montefiore.

He is also not convinced that big footprints bring added value to mobile companies. "In the international traveller market, there may be some branding synergies, but in other local markets, the local brand would be as strong as a global brand," he says. He also doubts that supposed economies of scale feed -- at least in a positive way -- into company financials.

That should not suggest that M1 takes an insular approach. M1 is "in discussion with a number of regional operators about alliances, particularly about content-based services... [to see] if we want some sort of common brand". An alliance with CSL of Hong Kong, Maxis, of Malaysia, Smart, of the Philippines and the Australian operator Telstra, called the Asian Mobile Initiative, was recently announced. The extent of the co-operation should not be overplayed, though. "In general, we don't see any major advantages in [a common brand]," Montefiore says.

M1 already has voice roaming agreements with around 140 countries. They have around 30 agreements on GPRS roaming -- "lower than hoped" -- and only five countries that have linked up their multi-media switching centres to allow MMS roaming. Montefioe believes that MMS will get some momentum once people see it drive revenues. Only a fraction of Ml's revenues currently come from roaming, around S$20 m ([euro]10.4 m) out of total revenues of S$699 m ([euro]364.4 m) in 2002. M1 handles around one third of inbound roaming traffic in Singapore. However, outbound is largely hostage to customer travel plans.

If you do accept that big is better in the world of mobile, M1 is likely to be on your list of companies that could be acquired. Montefiore said that the founding shareholders, who now hold 40.46 per cent of the stock and include Keppel Telecoms (14.16 per cent), SPH Multimedia (14.16 per cent) and Great Eastern Telecommunications (aka C&W and PCCW -- 12.14 percent), signed a lock-up agreement at the time of M1's IPO last November that ties them in for a year, with a further two years of "pad-along" rights, which means that they have to act in unison during this time. Mantefiore said that there has been no interest shown in buying M1 since the time of the IPO, which was run to decrease the founders' stakes, rather than to raise fresh capital for M1's operations. The IPO raised around S$790 m ([euro]411.8 m).