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Wednesday, May 21, 2008, 9:32 PM

Hot News // Thursday, April 17, 2008
Who wins in numbers game?
HEDIRMAN SUPIAN hedirman@mediacorp.com.sg
"A SEA change" is what Mr Leong Keng Thai believes full mobile number portability will bring to the local telco industry. And the Infocomm Development Authority's (IDA) deputy chief executive is not alone in expecting a shift of power towards consumers now that a key barrier to switching between operators has finally fallen.
.As it stands, Singapore is well on its way to having a fully-liberalised telecoms market. Subscribers already have their pick of more than 25 mobile pricing plans from the three major telcos, and mobile subscription prices have dropped every year since 1997 — from $47 a month for a basic plan, to as low as $20 today.
.Could plans become even more attractive now?
.With its 5.8 million mobile phone subscribers, the Republic has a penetration rate of 127 per cent. Hong Kong has a mobile penetration rate of 152 per cent.
.Mr Leong said the IDA did an extensive study on "all" markets, and Hong Kong showed the highest annual churn rate — the percentage of subscribers that port their number from one telco to another — of 15 per cent.
.Hong Kong has five mobile network operators and in the past year, these averaged over 110,000 portings of mobile numbers each month. In total, over 1.38 million numbers were ported last year.
.If such figures are any indication of what might happen here, then it is fair to expect the three telcos — SingTel, StarHub and M1 — to offer more competitive prices and plans, in an effort to retain or sway subscribers in an already saturated marketplace. SingTel has 41 per cent of the market, while StarHub and M1 trail with 31 and 27 per cent, respectively.
.But consumers expecting a price war in the long run might be disappointed. Mr Quek Peck Leng, SingTel's executive vice-president (consumer), said: "Offering the best value through all our various offerings and providing the best possible service experience have always been our top priorities. Ultimately, it does not make sense for us to engage in a destructive price war and destroy value."
.Mr Foong King Yew, a research director from Gartner, said: "It has happened in Australia, Hong Kong, Korea and Japan — there will be an increase in the churn rate for the first 12 to 18 months. This will stabilise eventually."
.Mr Adit Harinasuta, StarHub's head of services and solutions, said: "We do not foresee full mobile number portability having a significant bearing on customer churn. We believe that cultivating loyalty will be a key focus for all operators."
.Mr Foong expects telcos to "go into product or service bundling and offer handset subsidies" to offset the attraction of consumers being able to switch operators without the hassle of changing numbers.
.SingTel already bundles broadband, mobile phone and pay-TV services with its mio service and StarHub does a similar bundle with its Hubbing concept.
.M1 has matched its competitors by offering per-second billing and savings for subscribers with multiple accounts. "Carriers will strive to hold onto their existing customers with more focus on service packaging. But I don't expect them to be draconian in their tactics," Mr Foong said, referring to the concern that telcos might impose more drastic penalties for contract termination.
.As barriers are lifted for consumers, the IDA hopes new players will come in. Wireless broadband providers or Voice-over-Internet-Protocol providers could provide mobile voice calls routed through the Internet, it said.
.But the odds are against new entrants.
."The market is very mature, and stacked against new entrants because the existing players already have service and product bundling, and post-paid contracts are already in place," said Mr Foong. "New entrants have to come up with something compelling or disruptive."
.This is not impossible.
.Japan - where prices for voice calls have been traditionally high - has seen an industry shake-up thanks to daring price moves and better product offerings.
.No 3 mobile operator SoftBank has intruded on the turf of market incumbent NTT DoCoMo, by bringing prices for voice calls down. Its advertising campaign even featured a zero-yen tagline for its mobile service. KDDI, another smaller player, has lured subscribers with better mobile handsets and being first-to-market with multimedia download services.
.It would be wise, perhaps, for the big telcos to keep their ears close to the ground in their battle for market share, as consumers are likely to demand more competitive prices and innovative services.
.Ms Laura Khng, a public education executive, said: "I can't wait to switch. Ultimately, I want lower prices, but if they want me to stay with them, they may need to offer better loyalty rewards and cooler products.
."Consumers are better informed these days. It's easy for us to compare and spread the word around when there's a good deal. The operators should take heed of that."

My take on this issue:

DEMAND AND SUPPLY
In singapore, the 3 main telcos offer up to 25 or more different pricing plans for customers. With more plans available now, supply increases(supply curve shifts right), demand stays roughly the same and thus the equilibrum price falls ($47 per mth to even $20 per mth now)

PED
In the past, it was prohibitively costly and very troublesome for customers to switch from one hp service to another as they needed to change their numbers all over again, but now with this new ruling of hp porting made legalised, it has greatly reduced the hassle and cost involved for switching services. They can stick with their present numbers. Customers would always choose the best plan with the most possible savings. When they feel that their present hp contract is not to their liking, they can now easily switch to another more attractive plan by another telco. This greatly reduces barriers for customers. They now have a more price elastic demand, since substitutes are extremely available. A small increase in pricing will result in a more than proportionate decrease in demand, resulting in lower revenue. Therefore, the best option for telcos will be to lower prices so that there will be a more than proportionate increase in demand for their plans. This will result in a rise in total revenue.

CED
Since the plans offered by the various firms are similar in a way (eg. same per minute rates, same no. of free smses etc), with the new hp porting policy introduced, this makes their products ALMOST perfect substitutes of one another. They have a positive CED. When the price of 1 firm's plan falls, the demand for the rival firms' plans decrease too. Therefore, certain strategies are employed by the firms. Firstly, when rival firms cut prices, they follow suit and slash prices too. Secondly, they differentiate their products so as to reduce the degree of substitutability between their products and those of the rival firms'. For eg, "SingTel already bundles broadband, mobile phone and pay-TV services with its mio service" while "M1 has matched its competitors by offering per-second billing and savings for subscribers with multiple accounts". These will ultimately increase the revenue for the firms.

MONOPOLY
Eos
The only present local telco giants are namely, Singtel, Starhub and M1, Who have 41%, 37% and 21% of the mkt share respectively. The whole singapore mkt is supplied by these 3 firms solely. They have a certain degree of monopoly power. They have invested heavily due to the high fixed costs required to build up the telecommunications infrastructure in singapore. Presently, these few firms can reap substantial EOS with LARGE output. The MINIMUM EFFICIENT SCALE is reached at a very large output. The firms have incentive to expand production to enjoy even lower average production cost per unit. Should there be many more firms supplying the mkt together, the total output would be shared amongst all the firms, resulting in lower output per firm. They would then not enjoy substantial EOS as that enjoyed by the 3 firms now.

Barriers to entry
-"The market is very mature, and stacked against new entrants because the existing players already have service and product bundling, and post-paid contracts are already in place," said Mr Foong. "New entrants have to come up with something compelling or disruptive." The existing frims already have many innovative products that will appeal more to customers than uncreative, common gds. They have contracts that will bind existing customers to their companies for a period of time. Their R&D increases customer satisfaction and allows them to build up a loyal customer base, who would stick more with their products. It is not easy for new entrants to "steal" those loyal customers away from the large firms.
-Morever, the large firms can fund the huge fixed costs (mentioned earlier) much more easily than those smaller firms with little capital.This will also deter new companies from entering the mkt as they would incur huge fixed costs immediately upon starting business. Sometimes, these are not just fixed costs. They are "sunk costs", which cannot be recovered should the firm close down, or cannot be easily transferred to other uses. There is a high risk of entering and high risk of failure, which will deter potential entrants.
-Also, the substantial EOS reaped by the large firms in the oligopoly can be translated to lower pricing, which new entrants cannot match up to, thus preventing them from entering the industry.

However, it is still possible for new entrants to brk into the mkt share of existing firms, if they come up with creative, feasible or even daring business strategies. For example, the passage mentioned about No 3 mobile operator SoftBank has invaded into incumbent NTT DOCOMO's mkt share by bringing prices for voice calls down. KDDI, another smaller player, has lured subscribers with better mobile handsets and being first-to-market with multimedia download services. These new firms differentiated their products from those of the existing firms' and thus produced a niche mkt for themselves.

ah, now i can slp in peace wif no more worries abt econs blog.

Yu zheng