StarHub Ltd

SGX:CC3

Earnings Call Transcript 2018-Q1

[Jeannie Ong, executive]

Good evening, ladies and gentlemen, and welcome to StarHub's First Quarter 2018 Results Announcement Briefing Call. My name is Jeannie, and it is my pleasure to welcome both the media and investment community to join us at this call.

Let me first introduce our panelists. We have a special guest star tonight in the form and shape of Terry Clontz, our Chairman; together with Dennis Chia, our CFO; Dr. Chong Yoke Sin, our Chief of Enterprise Business Group; and Howie Lau, our Chief Marketing Officer. We have also invited our Chief Technology Officer, Siew Loong, to join us on the call.

With that, let me invite Terry to say a few words to all of us.

[Steven Clontz, executive]

Well, good evening. So it's been many years since I've had the opportunity to address you in an earnings call, so I'm delighted to be here. But I want to make it very clear I'm not crossing the line, I'm not an executive, I'm still a non-Executive Director. But I thought under the circumstances, it would be good to start the call and just tell you a little bit about the incoming CEO, Mr. Peter Kaliaropoulos. We call him Peter K, as some of us have difficulty saying his last name. He is an Australian with 35 years of highly relevant experience in our industry. He's led teams in the fixed wireless and integrated telco space. He brings a depth of experience in both consumer and the enterprise markets. He has worked extensively in Asia Pacific and in the Middle East. As you probably know, he's presently CEO of Zain in Saudi Arabia and will join StarHub in July. By the way, he has lived in Singapore, as some of you may know, that he worked for us in 1999 and 2000 when we were preparing for our commercial launch on the 1st of April 2000 and was very instrumental in putting together our launch portfolio. So we're looking forward to Peter's arrival in July. And for those of you who have not met him yet, I think you'll enjoy meeting Peter because as I said, he's got a wealth of experience.

So I just wanted to give you a quick introduction of Peter. And I'll turn it back over to the management team to carry us -- or walk you through the results announcement.

[Jeannie Ong, executive]

Dennis, please.

[Choon Hwee Chia, executive]

Thanks, Terry. I'll move right on to Slide #4 for Q1 2018 and going forward, we will be reporting our results based on the post-IFRS 15 basis or the SFRS(I) 115 basis. And on that basis, our service revenue was reported Q1 slightly lower at 1.4%. Our service EBITDA was lower by 3.7%. Going forward, we will be reporting service EBITDA margins, so we'll be reporting service EBITDA over service revenue, and that ends up at 32.1% for quarter 1. And our post-IFRS NPAT net profit after tax was lower by 13.1%.

Operational highlights. We continue to see strong growth and double-digit growth in our enterprise fixed revenue, and that registered a growth of 18.2%. We saw subscriber base growing in our prepaid segment, and we continue to see low churn rates for our mobile, TV and broadband segments.

Moving on to Slide #5. Our total revenue was $561 million versus $589 million a year ago, that translated into a 5% decline. Service revenue was $451 million versus $457 million, that's a slight 1% decline. Our total EBITDA was $152 million versus $160 million, and that's a 5% decline. Our service EBITDA was $145 million versus $150 million, and that's a 4% decline. Our service EBITDA margin is 32.1% versus 32.8% a year ago. Net profit came in at $63 million versus $72 million a year ago, and that's 13% lower. Our CapEx payments was $68 million for the quarter, including the payment of -- for purchase of a building, that translated to 12.1% of revenue. And our free cash flow per diluted share is $0.006 versus $0.067 last year, and our net debt to EBITDA of trailing 12-month EBITDA for the quarter ended at 1.09x.

Moving on to Slide #6. We got mobile revenues coming in at $205.1 million, and that translated to a $15.6 million decline. This is largely due to usage and voice -- voice usage and data usage revenue decline. Our TV revenues was $80.7 million or $8.9 million lower. Broadband revenues were stable at $47.5 million for the quarter. Our enterprise revenues grew by $18 million to $117.5 million, and our sales of equipment for the quarter was $110.2 million for the quarter.

On Slide #8, the revenue mix now sits on a post IFRS basis. You will see that mobile revenues are now at 36.6% of our total revenues. Our Pay TV is at 14.4%, 8.5% for broadband, and our enterprise segment still continues to be our second largest segment in terms of revenues at 21% and our sales of equipment registered 19.6% of our total revenues.

I'll move on to the financial slide on Slide #10 (sic) [ 9 ]on EBITDA. EBITDA was $152 million for the quarter. Sorry, I got the wrong page here, but anyway. On $152 million on EBITDA versus $160 million a year ago.

The next slide shows the service EBITDA. Service EBITDA would exclude the CPE margins that are included in the total EBITDA, and that's $145 million versus $150 million a year ago, and that translated to 32.1% versus 32.8%. The slight decline in EBITDA or service EBITDA is largely due to the lower service revenue on a post IFRS basis.

Moving on to cost of sales. Cost of sales is $247 million for the quarter versus $260 million. If you look at the components of cost of sales, they are largely in line with the revenue, in terms of the lower equipment sales revenue. Therefore, we have lower cost of sales in respect of equipment. We've got lower traffic comps as well, and that's in line with lower domestic and international traffic volume. Cost of services were largely -- were higher largely because of the consolidation of the 2 acquisitions we made of Accel back in July last year and D'Crypt which was completed in January of this year.

In terms of other operating expenses, in total, they were $3 million lower at $233 million versus $236 million. We've got higher depreciation, largely due to the amortization in respect of the spectrum that we’ve acquired. Marketing and promotion expenses remained fairly stable, while other general and administrative expenses increased slightly -- decreased slightly due to operating lease savings and lower allowances for doubtful debts.

Net profit after tax is at $63 million versus $72 million a year ago and $63 million for the quarter, translates into $0.036 on EPS basis. On the CapEx payments, it was $68 million for the quarter versus $34 million last year. Excluding the payment for the building, the CapEx payments would have been $36 million or 6.5% on total revenue.

Moving on to the free cash flow. We generated $10 million of cash in the quarter versus $117 million a year ago. This is largely due to the additional capital expenditure we incurred during the quarter as well as working capital uses in terms of the increased level of inventory and lower levels of our payables.

With that, I hand the floor over to Mr. Howie Lau, our Chief Marketing Officer.

[Howie Lau, executive]

Hey, thanks, Dennis. Evening, everyone. I'll take you through the business updates for mobile, TV as well as Broadband. So if you jump to Page 17 on mobile. On a year-on-year compare, the total customer base was decreased by 8,000, and prepaid and postpaid ARPU was lowered by $2.

On Page 18, we close quarter 1 with 2.283 million subscribers with -- comprising of 918,000 of prepaid, which is slightly higher compared to a year ago, and 1.365 million of postpaid customers.

On Page 19, you would note that the monthly churn rate remains low at 1.0% compared to 1.1% a quarter ago, but slightly higher as compared to a year ago at 0.9%.

On Page 20, we closed the quarter at $205.1 million in terms of revenue compared to a year ago at $220.7 million. And as Dennis mentioned, this was as a result of lower subscription, IDD and voice, mitigated by higher roaming usage as well as mobile -- pick up of mobile VASes. We do see that the customers continue to use more data. The average data now is 4.9 gigabytes as compared to a year ago at 3.9.

On Page #21, the Mobile ARPU for prepaid, we closed at $13 as compared to $14 a quarter ago and $43 under the current post-IFRS model compared to $46 a quarter ago.

Let me jump to Pay TV. Pay TV on Page #23. The revenue was lower by 10%. ARPU remained stable at $51. And on a full year -- year-on-year compare, the customer base is lower by 38,000. As we said in previous quarter, the TV business continues to be faced with challenges from alternative viewing means as well as increased piracy. The total customer subscribers at the end of quarter 1 was 449,000, lower by 9,000 compared to a quarter ago. Churn rate remains stable at 0.9% compared to a quarter ago as well as a year ago.

On Page #25, on the revenue side, we close quarter 1 at $80.7 million. This was as a result of a lower subscription revenue as well as lower seasonal ad sales. As shared in the previous quarter, typically in quarter 4, we have a higher ad sales for the festive period, quarter 1 ad sales is lower. In terms of ARPU, we continue to maintain flat at $51 for the ARPU for TV customers.

Let's go to broadband. On Page #27, on the broadband, overall revenue has been stable and ARPU is flat at $33. On a year-on-year basis, the customer base has decreased by 1,000.

Page 28, we close quarter 1 at 469,000 subs, a slight increase compared to a quarter ago at 467,000. The monthly churn remains low at 0.9% compared to last quarter as well as a year ago.

On Page #29, the revenue we close at $47.5 million, which is relatively flat compared to a quarter ago as well as compared to a year ago at $47.2 million. In terms of the ARPU, it remains flat at $33 compared to a year ago.

So with that, let me hand over to Dr. Chong for the update on Enterprise Fixed.

[Yoke Sin Chong, executive]

Hello, and good evening. The Enterprise Fixed sees a steady growth in terms of the 3 components that’s listed here. Data and Internet revenue increased by 1.7%. Managed services were 124%, of which -- half of which is actually due to the recognition of the newly acquired D'Crypt and Accel companies. However, voice revenue decreased by 31.4%.

Over to Page 32 for the breakdown. On a year-on-year basis, for Enterprise Fixed, that grew by 18% from $99.6 million in 2017 to $117.5 million for this Q of 2018. And the components of that are for Data and Internet -- Data and Internet continues to see a good uptake at $72.9 million, which is actually a 1.7% growth year-on-year compared to 2017. On the managed services side of the equation, there is a healthy growth of $16.4 million in the first tier of 2017 to $36.8 million this Q, and half of the growth of $18 million of the $36.8 million was actually due to the Accel and the D'Crypt acquisition. But managed services itself continues to see an active growth and is an integral part of the ICT strategy for Enterprise. Voice services, however, saw a decline by 31.4% year-on-year.

With that, let me hand over to Dennis.

[Choon Hwee Chia, executive]

Thanks, Yoke Sin. I'm on Slide 36 for the outlook. We're maintaining the outlook in terms of service revenue to be lower by about 1% to 3% compared to a year ago. For the service EBITDA margin, we're now guiding to 27% to 29% on a service EBITDA margin basis. For capital expenditure, we are guiding to the fact that we are keeping our guidance to 11%, excluding any payments for spectrum or any building purchase. And for the full year outlook, in terms of dividends, we're maintaining or guiding to the fact that we're keeping our $0.04 per quarter for dividend.

With that, we have gone through the slides, and we'll open the floor. And I'll hand this back to Jeannie.

[Jeannie Ong, executive]

[Operator Instructions] First question, Luis from Maybank Kim Eng.

[Luis Hilado, analyst]

I just had 3 questions. The first is just to confirm that after the new IFRS changes, it's only a presentation that -- it's only impacted your presentation in terms of your marketing plans and the rest of the way you do business, it's business as usual. Second question is regarding the Sunseap deal. Just wondering what other builds to the home or any other have been built that you're planning to implement going forward besides this deal and whether you're open to also providing the service to other electricity market providers? Third question is just wondering, the MyRepublic disclosure is out. I'm just wondering if there's any terms in the MVNO deal contract, which will prohibit them from bundling their fixed broadband with their wireless or are you okay with that?

[Howie Lau, executive]

Luis, thanks for your question. This is Howie. Let me just take the Sunseap as well as the MVNO question. The Sunseap background is that we had the opening up of the energy market in Singapore. And as we look at this opening of the market, it was a really nice opportunity for us to extend our hubbing proposition to include energy because of the convenience that it brings to the customer. So you're right in that our aim in mind is to build upon our hubbing proposition so that it makes it easy for customers to go through a similar source for their utility needs, for support and otherwise. As this energy market is still in its initial phases, we will continue to work with Sunseap as we go past this pilot phase into the full implementation. But we do expect that -- the current response has been very positive and encouraging, and we'll continue to push down this path. For the question regarding the MVNO or MyRepublican announcement, for us -- I think mine is very simple. Just to make sure that we continue to provide customers more choices, more options to address the previous needs across the different segments, we have spent time with MyRepublic to understand their go to market, and we feel that it's very complementary to ours. So as such, we feel that the -- it does make sense to be able to offer to our Singaporean customers both our own offerings as well as our MVNO partners offering.

[Choon Hwee Chia, executive]

Luis, this Dennis. I will take your first question on the IFRS. With the implementation of the new accounting standards, it just implies that we account for and recognize revenue on the different basis as we did previously and the reallocation of revenue is primarily between the mobile service revenue line and the sale of equipment bucket in the various segments of revenue that we report. It does not change the cash flow of the company, as we've guided the market previously.

[Jeannie Ong, executive]

Next we have Wei-Shi from BNP Paribas.

[Wei-Shi Wu, analyst]

My question is with regard to the free cash flow. So free cash flows have been relatively thin in recent quarters and barely enough to cover your quarterly dividend payment. I just wanted to get management's thoughts on and if Terry would care to give some comments on what you would say to investors to escalate any concerns around your ability to sustain the dividend payment in 2018 as well beyond this year? And related to this, would you care to provide some guidance on your free cash flow for this year and potentially for next year as well.

[Steven Clontz, executive]

Maybe you take the first question and then I'll talk about the future.

[Howie Lau, executive]

Okay. So Wei-Shi, your question on free cash flow, it was relatively lower this quarter at $10 million or $0.06 a share. We did say that there was a relatively higher capital payment in regards to the purchase of the building of approximately $31.6 million. But in addition to the additional CapEx payments that we made, there were additional working capital usages during the quarter, which primarily is a timing issue. So we don't expect this working capital usage trend to persist during the year. We do expect to generate a relatively healthy free cash flow during this year. We don't provide free cash flow guidance or any other guidance beyond the current year.

[Steven Clontz, executive]

Yes, this is Terry. So let me just comment that with respect to capital management policies, we've been fairly consistent over the years in stating at the beginning of the year our intent to commit to a dividend throughout the year, and we review that each year. So it would be inappropriate and out of practice for us to comment on what we intend to in future years. But I can tell you that we will -- as we always have, we will view at the end of this year, beginning of next year, our views on capital management, dividend policy going forward. So that would be our view and the way that we would think about that in the future.

[Jeannie Ong, executive]

Next we have Rama from Daiwa.

[Ramakrishna Maruvada, analyst]

I have a couple of questions. Firstly, with regards to your postpaid revenues, I would like to understand what -- how exactly the amortization of the contract assets work, is it they had debit on the revenue side? The reason is your voice minutes actually appear very stable, data is rising. So I'm just trying to understand why the postpaid revenues were down 7% year-on-year? Second one is with regard to your operating leases that seems to be very volatile quarter-to-quarter. So if you could provide some color on how we should be thinking about this going forward?

[Choon Hwee Chia, executive]

Rama, this is Dennis. So in terms of the -- the mobile revenues are in terms of the contract assets. So we recognize contract assets in accordance with the new accounting standard in respect of the remaining life of the contract, which is still in phase respect of the customer contracts that we've got for the mobile -- primarily for the mobile revenue. And so in respect of any contract that, for example, is within a 24-month period, we do look at the trends of customers who would recontract typically earlier than the expiry of the 24 months and then, we would then amortize that contract asset of our balance sheet. And this is backed off against our service revenue -- the service revenue line on the mobile line. We do recognize that there has been lower IDD usage and voice usage as well as excess data usage, as Howie has mentioned during his sharing of the mobile business segment. So that accounts for primarily the lower service revenue for the quarter year-on-year. In terms of operating leases, there were certain adjustments that we made in quarter 4 of last year. I believe that's what you're referring to. Backing of those adjustments that we made in quarter 4 of last year, operating leases are on a declining trend, and you can use the current operating lease numbers in the quarter as representative of what the leased run rates are.

[Jeannie Ong, executive]

Next we move to Arthur from Citigroup.

[Arthur Pineda, analyst]

Three questions from me, please. Firstly, on the EBITDA margin. I noted that your guidance is around 27% to 29% on service revenues versus 32% that you're seeing in 1Q. What pressure points are you seeing for the margins to decline to that level? Second question I had is with regard to the mobile business. I'm just wondering if you can give any color on the mobile subs numbers, why that's been on the decline? And lastly, I'm just wondering is it possible to provide details on the revenue model and revenue potential on the Sunseap deals?

[Choon Hwee Chia, executive]

Arthur, I'll take your first question on the margins. Consistent with how we’ve reported our actual performance on a quarterly basis, you do see the quarter one to quarter 3 EBITDA margins relatively higher than the fourth quarter in which we typically incur higher subsidies in respect of the seasonal launches of the smartphones in terms of timing. So we do report typically a lower quarter 4 margin compared to the rest of the year, and therefore, we see that balancing of the relatively higher margins that we report in the first few quarters. And therefore, we look at the full year view of what the margins are going to look like to guide the market.

[Howie Lau, executive]

So Arthur, regarding the mobile subs, as you know, the mobile landscape in Singapore is now segmented as well as very competitive. So if you look at the actual numbers for prepaid last quarter, we lost 20K; the previous quarter, we gained I think 40K; last quarter for postpaid; we lost 3K, but the previous quarter, we gained 7K. So what we are managing is to make sure that the promotions and the offers on the quarterly basis that goes off is best able to meet the customers need because recognizing that in the market today, it is rather fragmented and offers are very competitive. So our main focus is to make sure the offers continue to be relevant for our customers. So the mobile subs is an area that we will continue to keep an eye on, but more importantly the relevance of the offer. In terms of the model -- the business model for Sunseap, unfortunately, we're not able to disclose the actual financial modeling. But our aim in mind is to leverage this opportunity of the market opening up to bring a new service to our customers. It is still in the pilot phase, but we are hopeful that given the initial response that this would become a potentially interesting proposition for our customer.

[Arthur Pineda, analyst]

So just to clarify on the Sunseap model, this is mainly as a churned management tool or is it something where you think you can actually generate meaningful revenues out of?

[Howie Lau, executive]

I think you can reference other countries, other telcos who have done similar bundling, and they have seen churn improvements.

[Jeannie Ong, executive]

Next we move to Gopak from Nomura.

[Gopakumar Pullaikodi, analyst]

Just wanted to follow up on the previous question. Just wondering, did you cut your EBITDA margin guidance or was it more or less restated to adjust for SFRS? So I'm just wondering on a like-to-like basis, was there any cut in the EBITDA margin guidance for 2018? This is question #1. Question #2 is again on the mobile revenue weakness of 7% drop. Is my understanding correct that it is primarily due to IDD? So this is all -- may I know what percentage of your mobile revenue is from IDD business? I'm just trying to understand how the trajectory is going to be? Lastly, on the MyRepublic arrangement, I heard a mention that is going to be complementary. Can you talk a bit more on why do you think or why do you look at it that way? Is there any particular subscriber segment that you think MyRepublic will help you target, but you are not presenting now?

[Choon Hwee Chia, executive]

Gopak, your first question on the service EBITDA margin. So when we went out to the market in February to announce a few results, and we guided the market on the pre-IFRS basis, we guided the market to 24% to 26% on EBITDA margin. The adjusted EBITDA margin -- service EBITDA margin of between 27% and 29% is in line with that. It does not represent a cut in our guidance.

[Howie Lau, executive]

So let me just touch on the mobile -- to quickly capture the mobile revenue, which is a result of lower IDD, voice as well as excess data. The excess data part as our customers now have bigger data bundle, including our weekend unlimited plan. The opportunity for customers to exceed the data become lesser as well, so that's part of the contribution of the lower data -- the mobile revenue. Unfortunately, we don't break down the details of the composition of how much is IDD and the rest as well. MyRepublic, as mentioned earlier, I think for us the Singapore market is small, 5.5 million people. I think what's important is that our aim in mind together with our MVNO strategy is to grow total mobile in this evolving landscape. So as mentioned earlier, what we did was to make sure that we spent time with MyRepublic to make sure that their go-to-market is complementary to us because I think they had stated the market they're going after. And our aim in mind is to make sure that between ourselves and MVNO partners, we are able to offer our customers additional choices, the offerings that may be in the market. So there will be some levels left, but we are confident that what they are doing and what we're doing are very complementary.

[Gopakumar Pullaikodi, analyst]

Okay. Just a follow-up question on MyRepublic, I'm not sure if you can share it, but is it going to be on a revenue share arrangement? Or is it on an arrangement where they buy all traffic from you guys or how is it going to be?

[Howie Lau, executive]

In terms of the MVNO?

[Gopakumar Pullaikodi, analyst]

Yes.

[Howie Lau, executive]

Basically, we offer them wholesale rate.

[Gopakumar Pullaikodi, analyst]

Okay. If I can squeeze in one more follow-up on the mobile service revenue stream. You mentioned that there is an impact from the data promotions. So is it fair to assume that current weakness in mobile would continue in the near-term?

[Howie Lau, executive]

Sorry, I missed that. It was a bit muffled.

[Gopakumar Pullaikodi, analyst]

On mobile revenue side, you mentioned that there is an impact from the unlimited data promotions in the market. So is it fair to assume that some of the current weakness will continue given the fact that IDD also would be on a structural decline?

[Howie Lau, executive]

It's clear. Good crystal ball question because on one hand, we see the average data usage per customer going up, but on the other hand, we see the average data bundles as being offered in the market going up as well. So whether the level of excess data usage will continue to exceed or optimize, I think we will continue to see how this evolves, but it's a bit hard to crystal ball gaze to see how that would pan out.

[Jeannie Ong, executive]

Next we have from Sri from Deutsche Bank.

[Srinivas Rao, analyst]

My first question to Terry. If you can help us -- you have had a search and a new CEO is going to be coming on board. What would be the, say, at least the high-level targets which the board is -- would have kind of asked the new CEO to achieve? So i.e. any feedback on the guidelines, what you would have kind of negotiated with the new CEO, that would be helpful. Second, my question is again on the margin guidance. Now your margin guidance is SFRS and SFRS EBITDA margin. Now that number should not be volatile like it was in the previous accounting standards. So based on what margin has come up in this quarter versus your guidance, which is a falling number, it does suggest that you're expecting at least profitability to be lower in the next 3 quarters. Am I getting this wrong? Under the SFRS, that number should not -- that should be stable and should not be impacted by the equipment numbers? So that's my second question. My third question is on the enterprise side, the 2 acquisitions. At least, prima facie, they don't seem to have -- and because of the margins, I have had a difficulty trying to compare. But it looks like the margin impact has not been material, so they seem to have come on board without making a material impact on margins. Is my understanding correct because I haven't managed to kind of put down the numbers to take a look on a sequential basis. But if you can help a little bit on that, that will be helpful. Yoke Sin, If you can make some comments on that, that will be helpful?

[Steven Clontz, executive]

Yes. Maybe I'll take the first question and give other chaps a chance to think about your second and third question. So as I mentioned earlier, Peter is quite experienced. He has had a number of assignments in the past from start-ups like StarHub to turnaround situations, and he has done quite well, he has got a very impressive track record. So because of that and because he has that experience and knowledge, he certainly began to look at the market in Singapore, the issues that StarHub is wrestling with today in regards to the market itself, the entry of the fourth operator. He is well aware of industry trends with respect to over-the-top video, over-the-top apps and that sort of thing that have whittled away at the revenue. So he's not coming in as a newbie in the industry. We've had a number of discussions about the things that we will focus on. And the timing is perfect because it's the season for us in the July and August timeframe to renew, refresh our strategy. So he will come in on the front end of that. As we think about any tweaking to the strategy going forward, then he'll have an opportunity to take ownership of that and execute that along with the team for the future. So I must say we've got fairly high expectations of Peter and his ability to change some things at StarHub and address some of the, again, issues that are more industry related, but a few there are more Singapore-specific what like the entry of fourth operator. I might also add that, for those of you that have looked into this background, he's spent a good deal of time marketing to enterprises around the region and domestically, including New Zealand and Australia, and of course, the Middle East. So he is the perfect individual to come in and help Yoke Sin as we think about how better to attract in the enterprise market. So with that, let me turn it over to Dennis.

[Choon Hwee Chia, executive]

Thanks, Terry. To the question on the EBITDA margin, when we went out to the market to announce or guide the market to about 24% to 26% pre-IFRS implementation margin, that represented a lower margin guidance compared to what we reported for the full year in 2017 of 27.9%. So the lower guidance was attributed to primarily the lower service revenues in respect of our business as usual or traditional lines of business, which is the mobile and the TV revenues. But otherwise, the new basis of guiding our margins does not represent any change from what we've guided previously. So while the volatility in the EBITDA margin going forward would not be as significant as what you have seen in previous times, you will still see the same traction on quarterly basis.

[Yoke Sin Chong, executive]

This is Yoke Sin here. I'll answer the question about margins that are accrued from Accel and D'Crypt. If you look at the chart 33, data and internet actually has a larger margin than managed services. And for the Accel and D'Crypt, which is actually classified under managed services, and they account for about half of that amount of revenue of $36.8 million. These margins are in line with the managed services typical margins. So if you ask about whether it has actually made a difference, right, it has actually sustained the profitability of the sector. Of course, as we mention, data and Internet still remains, I mean, the more profitable sector, and that actually accounts for a larger proportion of the entire Enterprise Fixed revenue. Hope I've answered the question.

[Jeannie Ong, executive]

We next move to Varun from Credit Suisse.

[Varun Ahuja, analyst]

I just got 3 questions. First, on mobile side. If you look at your competitor M1 and you, the performance difference is quite glaring and it's been increasing over the last quarter-by-quarter over the last 9 months or so. So your -- their revenue increased by 3% -- around 2% to 3%, your revenue declined by 7%. So in the same marketplace, just wanted to understand in your view, what is causing this differences in performance? I understand that they circled out life in MVNO. Is it fair enough to say that the difference is largely because of them and do you think coming of MyRepublic will help you bridge that underperformance? That's number one. Number two, I just want to rephrase what Srini was trying to say. Based on our earlier discussion when we met around IFRS guidance, our understanding was that the quarterly seasonality should kind of ease off, rather fourth quarter can be strong because you have a high handset sales and then probably the margins may be higher. So the service EBITDA level or a service revenue performance level, that variation should not be there in 4Q, but if you look at the numbers that you said -- you have mentioned, 2017 4Q seems to be down and then again 1Q goes up. The seasonality seems to be persisting and it's pretty high. So just wanted to understand why is this happening, is there any specific cause which are causing it because in a service revenue basis, the usage in fourth quarter maybe higher? So I don't get the reasoning why the service revenue also kind of -- until unless it's because of competitive pressure or anything else, which is causing the decline in fourth quarter, but again, seasonality seems pretty apparent in the performance. That's number two. Number three, there are various one-time charges in this quarter. So is it fair enough to say that your EBITDA one-time charges would have been lower by around $6 million if you incorporate all those one-time reversals that you have done in operating cost?

[Howie Lau, executive]

Varun, this is Howie. Let me just take the first question regarding the difference between StarHub and M1. I think on broad level, you're right that the M1 number does include the rollup of the Circles.Life, whereas the StarHub number is just clearly what we do today. So as we introduce our MVNO partners, then hopefully, there will be a better basis of comparisons as the quarters pan out. But having said that, we are also confident that the -- we do have key differentiators in our mobile offerings in the market. For example, recently, we announced that in the second half of this year, we will be rolling out 1-gigabit speeds for our network, and that will be available for StarHub customers as well as our MVNO customers. And I think that will be a difference. The data VASes, as well as the unlimited weekend plan, has also been very well received by the customer. But I think primarily, the question you're asking is that the delta between our numbers as well as M1 is that M1 does include the Circles.Life number.

[Choon Hwee Chia, executive]

Varun, your question on the seasonality of the EBITDA, so as I indicated earlier, the absolute service EBITDA will not fluctuate significantly as it was in the past. However, in terms of the quarter 4 revenues that we report, typically the denominator is higher than the rest of the quarters. So in terms of this, the mathematical computation of the service margin -- service EBITDA margin percentage, it would generally be lower compared to the rest of the quarters. So on a balance perspective, therefore, we believe that all in all you’ve got the guidance -- we stand by guidance that’s based on the visibility of the businesses as we see today. Also, in terms of the lines of business that we have, in terms of traditional connectivity business versus the increase in the managed services that we are now selling to enterprises, there is a difference in the mix of services and the margins in respect of [indiscernible] services. So that also accounts for the relatively different margins that we report on a quarter-to-quarter basis bearing mind that typically in quarter 4, we recognize a higher enterprise revenue in respect of managed services. Your third question on adjustment. We've got about $10 million in adjustments in the quarter. We have represented that in our MD&A, the part of which we have also some respect of certain share programs that are no longer required.

[Varun Ahuja, analyst]

So your EBITDA would have been lower by $10 million if we include those one-off adjustments?

[Choon Hwee Chia, executive]

That's correct, yes.

[Varun Ahuja, analyst]

Okay. And secondly, I was talking about margin. I understand the revenue may be higher, but on an absolute basis, if you look at your -- in fourth quarter, your service EBITDA in Slide 10, it goes down to $124 million and then it moves up to $145 million; 3Q, it was 150. So on absolute basis also, pure on service EBITDA, there is this significant variation in fourth quarter. Given you're saying that your managed services and enterprise business is higher in 4Q, I would have expected 4Q EBITDA to be much more higher than 3Q.

[Choon Hwee Chia, executive]

Well, in terms of the quarterly service EBITDA that we are reporting, it's adjusted quarter-to-quarter based again on the traction in terms of each of the lines of business and how that's adjusted against service revenue going forward. So for example, in quarter 4, we've got a higher level of equipment sales than we typically report, then there will be a higher adjustment against the service revenue in quarter 1, which we've experienced this year. So that is how the accounting works in respect of the new accounting standard. So that fluctuates from quarter-to-quarter, and it's adjusted against the absolute service EBITDA that we report.

[Jeannie Ong, executive]

Next we have Annabeth from Business Times.

[Annabeth Leow]

I just wanted to follow quickly on the question earlier about Peter coming in. I wanted to check whether, with all of the global experience, it was mentioned in different markets, there are plans during the mid-year refreshment of strategy to look at building up your geographical footprint as well?

[Jeannie Ong, executive]

Annabeth, could you repeat...

[Steven Clontz, executive]

Could you repeat that please, Annabeth?

[Annabeth Leow]

Sure. Just bringing Peter on board and looking at refreshing your strategy in the middle of the year point towards the internationalization, international plans?

[Steven Clontz, executive]

Thank you. I understand. We've never had our hands off on international plans. It just made a lot more sense here today to focus our energies on the Singapore market. Clearly, a few of the acquisitions had the potential to move beyond Singapore. And if we see the right opportunities beyond Singapore market, we'll certainly pursue those. But there are no specific plans today to do that, but in the future, that's always possible.

[Annabeth Leow]

So when you say the acquisitions, you're referring to the Enterprise Fixed, the cybersecurity cryptography?

[Howie Lau, executive]

Correct.

[Jeannie Ong, executive]

Last one, Piyush from HSBC.

[Piyush Choudhary, analyst]

I wanted to check on 2 things. Firstly, the new incoming CEO. I missed your earlier comment, but what are key objectives or deliverables which have been agreed with the new CEO? Does the board set target on market share or is it more on free cash flows? How does board think about management deliverables? And secondly, is there any change in the management incentive structure with the new CEO?

[Steven Clontz, executive]

Okay. There will be no material change in the structure, to answer the second question first. With respect to the focus, we have from day 1 been focused on generating or optimizing free cash flow. So I don't believe that, particularly in today's market, it makes a lot of sense to focus strictly on market share at the expense of free cash flow. Again, our process of reviewing and selecting the next leader for StarHub was based a lot on their past performance and aligned with the way they see things and the way the board sees things. So I don't expect you're going to see a change in the things that we focus on in terms of what we hold dear, but in terms of dealing with the challenges that StarHub has, primarily on the consumer side, where it's a fairly crowded market and getting more crowded, I think that there will be a lot of focus on defending that turf and then looking for the opportunities to grow the business, as we've mentioned earlier, for example, in the enterprise space. I think that Peter will bring a lot of talent to the table to assist in that regard.

[Piyush Choudhary, analyst]

But can I check like -- I've seen his kind of experience, but is there any market where Peter was there, that there have been new operators entering the market? Has he been instrumental in such kind of markets in his position?

[Steven Clontz, executive]

Well, if you look at his sort of background, he has got, as I mentioned earlier, 35 years in the industry and has been placed with a number of different challenges. The number of companies that he has worked with and for included, in his early days, British Telecom, particularly in the Asia-Pacific region, where again he was driving across the region what they refer to as strategic sales, and this is primarily enterprise market and MNC's, multinational corporations. He went on to work at Telstra, he was Managing Director there in the mobile business. At Optus, he was Managing Director of the enterprise business. At Clear, in New Zealand, he was CEO. At Batelco, he was group CEO. At Ooredoo, in Kuwait, he was Chief Operating Officer; and of course, more recently CEO of Zain in Saudi Arabia, where he had recently turned the company profitable. So again, I -- we look carefully at the challenges he's faced over the years in the industry and the way he has addressed it and his performance and success and thought that he will be the right leader for StarHub in the future.

[Jeannie Ong, executive]

Next we have Ranjan from JPMorgan.

[Ranjan Sharma, analyst]

Just a couple of questions from my side on the MVNOs. Firstly, on MVNOs, the plays that we have seen so far in the market have not really been competitive on pricing. And my guess is that this is because of the wholesale agreements that they have with the host operators. Could MyRepublic be similar that they can't when the pricing is going to be more expensive than the host operator or that does not really lead to ARPU declines in the market? The second question is that even though a company like Circles.Life plans are not really competitive, they have still been able to gain market share and gain customers, even ahead of their plans. So is there something that you've seen from their strategy which could be a learning experience for the incumbents?

[Howie Lau, executive]

Hey, Ranjan. This is Howie again. Thanks for the question. I think what you're pointing to again is consistent that the market is fragmented, where we not only have the traditional MNO's, we have a number of MVNOs, and typical MVNO's arrangements would be the same, and we will not be able to speak for MyRepublic or any other MVNOs in terms of how they would be pricing and modeling their models. I think what the aim in mind for us is to make sure that the MVNOs will work with, their plans, their thinking is complementary to what we are trying to do because the market over the cost of the next period will obviously play out. And the different players, whether it is MNOs or MVNOs, will adjust our plans in order to meet the market requirement, especially the entry of the fourth operator coming here. So it's hard for us to comment on what MyRepublic will be coming out into the market on, but I think this space will continue to stay fragmented, especially with the entry of the fourth operator.

[Ranjan Sharma, analyst]

Okay. On the second part of the question that even though some operator -- even though MVNO pricing is not really been competitive, they have been able to get market share and gain customers, even ahead of their plan. Is it something that you see that they're doing right, which could be a learning experience for the incumbents?

[Howie Lau, executive]

I think [indiscernible] just offer a generic feedback on observation because the end of the day, similar to StarHub’s principle, everything starts with understanding the customer well and also that we are able to meet the needs better than others. So while we can comment on some of the MVNOs strategy, it's important for us to be always learning from the market as well as from a customer what makes sense and then adjust our plans accordingly.

[Ranjan Sharma, analyst]

Okay. And the reason I was bringing this up was, I mean, a company like Circles.Life has probably gained more customers than all the operators combined in the previous quarter, while StarHub has lost customers, so they must be doing something different?

[Howie Lau, executive]

Yes. So again, Ranjan, it's not appropriate for me to comment on Circles.Life plan, but I think it's important that we -- for us, what we can control is the plans that we go to market with. So apologies, I can't really speak specifically to Circles.Life plan.

[Jeannie Ong, executive]

Ladies and gentlemen, with that, we have come to the end of our first quarter results briefing call. A transcript of this call will be posted on to our website tomorrow. On behalf of Terry and the management team here, I'd like to thank you for joining us this evening. And we look forward to speaking with you soon.