Starhub has been facing declining profitability in the last few years. It even had to cut its 20-cent annual dividend last year, a dividend which it had held steady for 7 years. Why did Starhub face declining profitability and who moved Starhub's cheese? To discuss these questions, we need to first understand what were Starhub's competitive advantages in the past and how have they changed.

Traditionally, compared to its 2 rivals, Starhub has the advantage of using its cable network infrastructure to deliver both cable TV and cable broadband services, thus enabling it to spread out the cost of operating the infrastructure over a larger number of customers.

In addition, compared to M1, which until recent years only offered mobile services, Starhub (and also Singtel) has the hubbing strategy which offers customers discounts if they sign up for 3 services, namely, mobile line, home broadband and Pay TV. The discounts range from 5% to 30% for different services. Thus, if a customer needs mobile lines, home broadband and Pay TV, he would find it attractive to sign up all services with Starhub (or Singtel) and enjoy the hubbing discounts. This hubbing strategy has allowed Starhub and Singtel to gain market share relative to M1 in the post-paid mobile services market. See Fig. 1 below for the changes in market share of the 3 telcos and the percentage of households who are members of Starhub's Hub Club.

Hence, for a long time, Starhub had been enjoying a moat which seemed impregnable. 

The first crack in Starhub's hitherto impregnable moat is cable broadband. In 2010, the Next Generation Nationwide Broadband Network (NGNBN) started operations. Instead of only Starhub and Singtel being able to offer home broadband via their cable and ADSL networks respectively, the market was suddenly opened up to many other companies, including M1, MyRepublic, ViewQwest, etc. With more competitors, prices of home broadband dropped. In addition, as more customers switch from cable broadband to fibre broadband, there are less customers to spread the cost of operating the cable network infrastructure. See Fig. 2 below for the declining number of cable broadband customers. 

Although Starhub's cable broadband market share declined, its hubbing strategy is still intact. Customers who need mobile lines, Pay TV and home broadband, regardless whether it is cable or fibre broadband, would still find it attractive to sign up with Starhub to enjoy the discounts. Nevertheless, it should be noted that M1 is now able to offer a hubbing strategy for customers to sign up mobile lines and fibre broadband. Customers who do not need Pay TV would enjoy hubbing discounts with M1 but not Starhub and Singtel.

With faster and more reliable broadband speed comes the ability to watch videos online. Furthermore, online viewers are not restricted to watching video on the TV; they could watch it anywhere and on the move. This has resulted in cord-cutting by Pay TV subscribers, and this trend is not limited to Singapore alone. 

In Jan 2016, Netflix entered the Singapore market, offering not only a cheaper way of watching movies but also bringing in popular exclusive original content. See Is Pay TV Still A Reliable Cash Cow? for more information. Since then, the decline in the number of Pay TV subscribers at both Starhub and Singtel has accelerated, despite the retention power of their hubbing strategies. See Fig. 3 below for the number of Pay TV subscribers. 

With the decline in Pay TV subscribers, there is further reduction in the number of customers to spread the cost of operating the cable network infrastructure. The traditional competitive advantage that Starhub has in the cable TV network infrastructure is irreversibly gone.

Furthermore, the proportion of households on Starhub's Hub Club has also declined. See Fig. 1 above. Thus, with the onslaught of streaming video on demand, even Starhub's hubbing strategy is no longer as impregnable. If anything, the hubbing advantage has tilted towards M1 which requires only 2 services instead of 3 services for Starhub and Singtel.

Mobile Services is the largest segment of all 3 telcos. In the last few years, it has faced many headwinds. The traditional money generator for telcos, Short Message Service (SMS), has now been superseded by messaging apps like WhatsApp, WeChat, etc. Likewise, voice is also seeing a decline as it is being replaced by WhatsApp calls, Skype, etc. Only data is seeing increasing demand. But even in this area, competition has increased. In 2016, M1 launched data upsize plans that allow subscribers to increase their data bundles with a slight increase in monthly fees. This has the effect of reducing the excess data charges that subscribers pay when they exceed their data bundles. See Impact of Data Upsize Plans on Telcos for more information.

Also in 2016 and again in recent months, new virtual telcos known as Mobile Virtual Network Operators (MVNOs) have sprung up. These MVNOs buy network capacity from traditional telcos and resell to retail customers. They cater to niche customer segments and usually dangle attractive offers, such as Circles.Life's $20-for-20GB of data, ZeroMobile's Unlimited Everything and Zero1's unlimited data for $29.99. See Will MVNOs Cannibalise Telcos' Business?

In addition, there have been other disruptions to the telco industry, such as the SIM-only plans, which attract customers who do not need to change their phones every 2 years. These plans reduce the revenue but are value accretive at the EBITDA level. See Will SIM-Only Plans Cannibalise Regular Telco Plans? for more information. Finally, there is also the fourth telco which is scheduled to start operations in Jan next year. See Where Art Thou, TPG?

In conclusion, Starhub is facing headwinds in many business segments. The party that is moving Starhub's cheese is not a single actor. Many actors have been moving Starhub's cheese. 

P.S. I am vested in M1, Netlink Trust and Singtel.

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