Singtel, StarHub pay-TV subscriptions to shrink further: Fitch Solutions

PAY-TV subscriber losses in Singapore are set to increase as over-the-top (OTT) streaming services proliferate, and there will be few prospects for this trend to reverse, said Fitch Solutions Country Risk and Industry Research.

Linear entertainment services are losing their appeal in Singapore, as consumers in the city-state can easily access on-demand content almost anywhere via high-speed 4G and fixed fibre networks. Over the years, new mobile virtual network operators (MVNOs) have also entered the market with aggressive data-pricing strategies, driving down mobile data costs.

These contribute to the appeal of data-heavy, platform-agnostic OTT services, the research team wrote in a report this week.

Singapore Telecommunications (Singtel) and StarHub have thus continued to see erosion in their pay-TV subscriber bases, with more customers cutting the cord in favour of cheaper and more convenient OTT streaming services.

The two telcos had a total of 704,000 pay-TV subscribers at end-June 2020, about 27.2 per cent lower than the high of 968,000 subscriptions in March 2015, according to Fitch Solutions.

The research team believes Singapore's pay-TV sector will sustain its gradual downward trajectory, tumbling to 460,660 subscriptions by end-2029.

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Despite Singtel's and StarHub's efforts to reposition their content offerings to become "mobile first", Fitch Solutions does not foresee these new services being able to reverse the overall trend of decline.

"Consumers are demanding more flexibility with their services, as demonstrated by the immense popularity of new no-contract postpaid mobile services, which were first popularised by MVNOs," the analysts wrote.

In contrast, the Singapore operators continue to impose long-term contractual commitments for their pay-TV services, which is unattractive to consumers seeing as there are OTT services with free trials and no obligations, the analysts added.

The biggest draw of pay-TV services still lies in sports programming, namely the English Premier League, although persistent piracy in this area will remain a key risk to operators, said Fitch Solutions.

Its analysts expect the Singapore OTT video space to continue to be dominated by Netflix. "We expect Netflix to make greater headway into the city-state with the depth of its content portfolio proving to be its biggest differentiator, and its position will unlikely be threatened even if other global OTT players, such as Disney+, eventually launch here," Fitch Solutions noted.

Separately, in the 5G realm, another division within Fitch Group said that most telecommunications operators around the world are set to see more pressure on their credit profiles as they ramp up 5G spending in 2021 and 2022.

Fitch Ratings wrote in a commentary on Monday night that the Covid-19 pandemic's effects on 5G rollout are likely to be short-lived, with 5G-related investments likely to resume next year.

"We expect operating cash flow to lag 5G investments significantly, keeping free cash flow constrained over the next three years," the ratings agency added.

Nearly half of its 90 publicly-rated companies have low rating headroom, which it said underlines the importance of prudent capital management through staggered investments, dividend cuts and non-core asset sales.

Earlier this month, Singtel said it is pacing its investment for 5G deployment, and is on track to roll out 5G network coverage to half of Singapore in two years' time and nationwide by 2025.

While Singtel has yet to disclose how much it will pour into building up its 5G capacity, StarHub and Keppel-owned M1 last month said they will each put up an initial capital expenditure of S$200 million to install their joint-venture network. StarHub's 5G trial will run until February 2021.

Singtel shares were trading flat at S$2.23 as at 1.11pm on Tuesday. StarHub fell S$0.01 or 0.8 per cent to S$1.18.