Singapore has very low prices for mobile data usage. Today, a gigabyte of usage costs about Singapore 90 cents. Just five years ago, a gigabyte of usage cost about S$13. Nor is the trend confined to Singapore. Mobile data prices have fallen all over Southeast Asia.
Granted, comparing prices is tricky, as one has to select a particular type of plan offered by all competitors, and such comparisons are not always based on the plans most people actually buy.
Low prices might be thought to be a good thing. It also is a bad thing, as competition and price cutting among the 11 providers in Singapore mean some firms are destined to become unsustainable.
J.P. Morgan equity analyst James Sullivan believes mobile business models are unsustainable across parts of South and Southeast Asia. “Even after accounting for Wi-Fi and new technologies and alternate business models, there will be still significant global wireless data demand that is not economically possible to serve,” says James Sullivan, J.P. Morgan head of Asia equity research. .
Declining value capture is paired with a significant, and ongoing, increase in capital intensity. In at least some cases, that will mean possible nationalizing of networks. In other cases, competitors might be forced to consider sharing network facilities, to stave off such intervention.
That would overturn nearly a half century of moves to privatize assets and introduce competition.
“Emerging market telcos have no choice but to fundamentally change the structure of industry assets through the unification of networks via nationalization, centralization under a regulated return utility, or more aggressive commercial network sharing,” argues James Sullivan, J.P. Morgan Chase Head of Asia Equity Research.
Simply, between now and 2024, telco capital investment and operating expense will climb, while revenue growth lags. But there also is regulatory risk. India, the Philippines, Thailand, Malaysia, Indonesia and Turkey are countries where capex pressures are the big problem.
Regulatory risks exist in Indonesia, Brazil, South Africa and Malaysia, he argues.
Markets with the potential for the most extreme margin compression include the Philippines, India and South Africa; while more defensive margin markets are Nigeria and China, says Sullivan.
On one hand, low prices, enabling everyone to use mobile internet freely, is a social good. On the other hand, prices that do not allow firms to sustain themselves are not good, as consumers cannot buy products not available, from firms that do not exist.
