StarHub Ltd
SGX:CC3
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StarHub Ltd
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All right. Good evening, ladies and gentlemen. Welcome to StarHub's Second Quarter and First Half Results Announcement. My name's Eric, and with me this evening, appearing for the very first time, is our new CEO, Mr. Peter K.
And before we go into the presentation proper, I would like to draw your attention to Slide #3, where you have noticed that we changed the presentation format. It is now only 2 presenters, CEO followed by the CFO. So what's going to happen this evening is that after the CFO finishes his financial slides, we will then move on to the Q&A, which then gives you plenty of time to ask us all the questions you want. [Operator Instructions]
With that, let's welcome Peter, who'll give us the quarter's highlights.
Thank you, Eric, and a very good afternoon, ladies and gentlemen. We do appreciate your interest in our company. Allow me to just mention a couple of headlines that best characterizes quarter 2 performance.
First of all, stability in gross revenues. For the first half of this year, we delivered $1.160 billion of revenue, which is almost the same as the same corresponding period in 2017.
And the second headline is a reduction in EBITDA margins -- service EBITDA margins to 31% from 34%. Our best-performing lines of business continue to be the Enterprise -- Fixed Enterprise Business as well as the Broadband -- Fixed Broadband. Mobility and Pay TV continue to be challenged, and we've seen declines in revenue due to lower customer numbers and lower ARPUs, especially for mobility.
If I now discuss briefly the Enterprise revenue growth of 20% in the first half, which definitely is a result of consolidating the acquisition we completed earlier this year, specifically Accel and D'Crypt. But even without those acquisitions, the core business grew by at least 4% year-on-year. So we're seeing healthy growth in Enterprise coming from new customers' growth in Fixed Network services, growth in data usage, including a higher demand for managed services and cybersecurity and ICT solutions.
Obviously, we're having -- the mix of revenue is changing because we're complementing connectivity services in the Fixed Enterprise area together with new service revenues, and they come at a lower margin compared to connectivity and infrastructure services. So we've seen an increase in cost of sales, and we've seen an increase in OpEx and as a result, specifically as I mentioned, because the solutions business are more people driven instead of infrastructure driven. And we're seeing the dilution in margin.
We delivered overall a combined -- services combined EBITDA, which is 10% lower than the same period in 2017 at $283 million. And as I mentioned earlier, the service EBITDA declined to 31% in terms of margins. Higher depreciation -- our CFO will go through those details in a minute, but higher depreciation and some other one-off ForEx expenses also impacted NPAT, which is at $156 million for the first half of this year and a 19% decline versus the same period in the previous year.
We continue to manage CapEx wisely. And at the end of the first half this year, we're at 10.2% of cash payments. Committed CapEx continues to be a little bit higher than this, and we'll offer you guidance in a minute, but as I mentioned, we invest in CapEx as wisely as we can.
Our network quality continues to be solid. And as you've seen probably from the press, our network has been rated as Singapore's fastest 3G and 4G according to OpenSignal. And also we're having a strong collaboration with companies like Google and Linksys to deliver very fast stratus coupled and bundled with high-speed Broadband services to deliver decent customer experiences at the home and at the office.
Also, our partnerships in the market with both CBC and SBA and other companies allow us to offer bundled services to many consumers and creating a better value for mobility and Broadband. And also, all of these initiatives have contributed to our brand for the first time being ranked as ninth brand by Brand Finance.
So prior to Dennis offering you more granularity behind our numbers for the first half of this year, also allow me to jump to guidance, and the guidance is right at the end of the pack. But our view at this point, based on the performance of the first half year, is that we're maintaining guidance from the first quarter identical. We still believe our revenues to be within 1% to 3% year-on-year. Our service EBITDA, we believe, would be between the 27% and 29%, including the adoption -- after the adoption of the IFRS 15.
CapEx, we believe we will be at 11% CapEx, cash CapEx to revenue, which excludes as we always -- has been the practice -- any specs from any building payments. And overall dividend, the board declared the $0.04 quarterly dividend. And again, it is the intention to pay the $0.04 for the quarter throughout the remainder of the year.
At this stage, I'll hand over to Dennis, our CFO, to go through some more details in terms of the financial performance. Over to you.
Thanks, Peter. Good evening, everyone. And moving on to Slide #10 where in total EBITDA, we registered full EBITDA for the quarter at $155 million. This is $173 million in the same period last year. For the first half of the year, our total EBITDA was $309 million versus $337 million. As we had guided the market, we do report margins on a service EBITDA basis.
So if we move on to Slide 11 on service EBITDA. For quarter 2, it was $141 million versus $162 million last year. And for the first half it was $283 million versus $314 million last year. And our first half EBITDA margin was at 30.9%, which is relatively lower than where we ended the first half last year at 34%.
The reasons behind it, Peter has articulated earlier, is around despite the fact that we've got -- we've registered a slightly higher service revenue as well as higher total revenue -- it's due to the mix of revenues that we have, which has a higher mix of managed services, which also includes the revenues contributed by Accel, which we completed the acquisition of last year in July and D'Crypt which we completed earlier in January of this year.
Moving on to cost of sales. For the quarter, it was $264 million versus $227 million last year. And for the first half it was $511 million versus $486 million.
In terms of cost of sales component, in line with the higher sales of equipment that we registered in terms of revenues, the cost of equipment has also gone up. Traffic expenses are slightly lower because of the volume of international and domestic traffic. In terms of components of the cost of services, the main increase is due to the level of managed services revenues that we've recorded in our book, and correspondingly, the costs that's attributable to it.
In terms of operating expenses, for the first -- for the quarter, it was $249 million versus $235 million last year and for the first half was $482 million versus $470 million. We've got higher depreciation in line with a relatively higher CapEx that we registered in the past.
In terms of general and administrative expenses while at the StarHub level, we have management team operating expenses at a fairly stable level. But this increase is largely due to consolidation of Accel and D'Crypt, which -- and the operating expenses at their level.
In terms of net profits after tax for the quarter, it was $63 million or $0.034 on EPS basis versus $80 million last year. And for the first half, it was $127 million or $0.069 on EPS basis versus $156 million last year. Our effective tax rate remains fairly consistent at about 17%.
Moving on to cash CapEx payments, it was $51 million or 8.5% during the quarter. And for the first half of the year, we had $119 million or 10.2%. In the first quarter, we had payment in respect of a building purchase. If we back that out, our first half effective cash CapEx payment as a ratio of total revenue was 7.5%.
Moving on to free cash flow. For the quarter, we generated free cash flow of $97 million. That translates into $0.056 on a fully diluted share basis. And for the first half, our free cash flow was $107 million or $0.062 on an FCF per-share basis. Our cash and cash equivalents at the end of the first half stood at $245 million.
With that, that's a summary of our financial numbers, and I'll hand the floor over back to Eric.
Right. Just to let you know, with us this evening, we also have the CMO, Howie Lau; along with Head of EVP, Dr. Chong; as well as our CTO. So you may direct your questions to any of the 5 gentlemen plus the lady here.
First on the call this evening we have Piyush from HSBC. Piyush, if you can hear us.
Can you hear me?
Yes, we can.
Firstly, congrats, Peter, on the new role, and all the best. I know it's early days, but would you be able to share with us what strategic shifts do you intend to embark upon, like what are the key areas that you have probably identified by now in terms of a change in strategy? And secondly, if you can help us understand this quarter, how has been the performance of StarHub [and the other] partner? What's the contribution of subscriber net add coming from there? And where is the revenue in subscriber being recorded?
Great. Thank you very much for your questions. I'd like to take first of all, the strategy question. I've been in the company for just over 4 weeks, and I believe overall the strategy is sound, and the strategy has 4 fundamental pillars. One is to pursue growth from the existing core business, which is the connectivity and the Enterprise solutions and basically deliver better results and achieve growth rates which reflect the fair share of market for our company in those segments. The second part of our strategy is to continue to differentiate predominantly on customer experience. As the market gets more and more crowded, how we serve customers, how simple our products and offers are, how quickly we can transact, how quickly we can get consumers in and out of retail stores or online. That whole customer experience becomes relevant, and that's certainly another pillar of our strategy. Finding opportunities to grow the business. You've heard about D'Crypt and Accel. We still need to pursue more opportunities which are complementary to the core business as the market is being saturated. So again, we're looking for organic opportunities to grow. And the fourth part of our strategy is to embrace the digital transformation of the company and the marketplace in terms of dealing with the customers more than we've done before. So overall, I think the strategic focus of the company is not going to shift dramatically. What needs to shift is possibly how we execute on how we manage the business operationally, how do we make sure we optimize the cost and the resources being allocated, how we deliver and simplify processes. So it's more about an emphasis in operational excellence and managing cash and margins better than maybe a fundamental shift. We will continue to be in the content business. We will continue to be in the connectivity business. We plan to make inroads in the ICT solutions, in cybersecurity solutions, in managed services. These are fundamental parts of our business, but we have to do a lot of things better than before as the opportunity to grow is probably less and less in the market with, for example, in the Mobile space penetration of 150%. So a lot of growth may not be there in terms of customers, but managing the business better than before is a priority. That's in terms of strategy. In terms of growth in the marketplace, we don't disclose specific numbers coming from various partners. Certainly, postpaid business has grown in terms of customers this quarter or this first half. But overall, ARPUs are being challenged because customers -- we're seeing customers going more for SIM-only packages. So we're very pleased to have a slight growth in postpaid. But overall, we don't disclose the numbers coming from other partners that work with us.
You were saying something?
No, no.
No, I had a follow-up. Peter, you had articulated in terms of challenges to the top line. In that backdrop as your ambition digital transformation, are there any cost items where there is a significant headroom to increase, so that we can probably maintain margins going forward? Any thoughts or color there would be really helpful.
Definitely creating more value for the shareholders involves both the top line and the bottom line. And we have to tackle both with the same vigor. The top line, as I mentioned, there are a few specific areas that we will pursue further growth. But at the same time, when you're looking at the margins, I believe there is room for improvement. So definitely we will pursue a cost optimization program. I believe it's far too early to be specific on the details. But yes, the intention is to review costs that do not contribute to growing revenues and serving customers. And, obviously, as we digitize more and automate more, we expect to have some more efficiencies. So we started working on these, and I would respectfully request a little bit more time to come back to the market and share with you an overall transformation program that should be basically -- you'll see all the details coming out of that. But I think after 23 working days in the company, it's probably a little bit too early for me to share all the details with you as it's work in progress, we will finalize them with the CFO and the rest of the executives.
Next on the line is Arthur from Citigroup.
Three questions, please. Firstly, on the Pay TV business, you had the World Cup in the second quarter yet the revenues were still down year-on-year. I was wondering was the World Cup broadcast actually EBITDA neutral? Or was it loss-making? Just wondering how it sort of impacted your margins going forward. Second question I had just with regard to Mobile. Your ARPUs seem to be trending very differently versus your competitor. They saw their ARPUs expand versus some declines on your side. I'm wondering what's driving down the differential? Is this roaming driven or MVNO driven? Last question I had is with regard to the margins. I know you don't break out the margins across the businesses. Just wondering though, if you look at your Enterprise Business versus your consumer business, how different are the margins across this? Just trying to figure out, as you grow the business in Enterprise, how does it change your margin profile over the long run?
Thank you, Arthur. I'll offer you some comments, and then I will also ask my colleagues from the consumer and the business team to comment. First of all, let me take your last question first, margins. As you -- as we're getting more and more into the solutions business, typically the gross margins are nowhere near the infrastructure services. When you're selling connectivity, fixed and wireless, you have fairly decent gross margins to play with. Once you move into the space of services, which are very OpEx driven, margins are double-digit, but they're not into the sort of 30% and 40%. So certainly, the margins are lower for the Enterprise solutions side, but the margins are still healthy for the connectivity to corporate customers. And as we're growing the business, we tend to be growing right now faster in the services, the Enterprise services area, and that potentially will dilute some of the margins. Consumer margins are still healthy. They relate more and more to connectivity, both fixed and wireless connectivity. But again, these are revenue challenged on the consumer side as we're seeing people potentially looking at other options and SIM-only cards. So the margins are good for consumer, but there's a revenue challenge. Pay TV and World Cup, we believe better than our expectations. Did we lose as much or did we gain a lot more? I'll let Howie comment, but I'm going to say overall, the big events are always -- we never make enough from big events. But it was slightly better than expectations in terms of customer take up. We had more customers than we expected taking up the World Cup. And if you -- the ARPUs for Pay TV did jump by a couple of dollars, and that's all in the last quarter. And that's all due to the World Cup. Yes, we're having lower number of customers in Pay TV, but the ARPUs are fairly stable. The ARPU decline, again for mobility, I will ask Howie to make a few comments. Howie?
Yes, thanks, Peter. Arthur, thanks for your questions. I think for the Pay TV side as Peter mentioned, it was a hit of our expectations and plan. So beyond the subscribers, what we saw was we saw of couple of creative implementations where we did some work with SmartHub and with [community] centers. So overall, it did contribute to the quarter-on-quarter jump from $51 ARPU to $53. As you know, the content cost is confidential. So I'm barely able to comment regarding the profitability of World Cup, but it is definitely a hit of the original plan that we had. On the mobility side, we do see the continued decline from the IDD, Voice, access data and a higher mix of the SIM-only plan. However, the -- while on the year-to-year basis on a half -- first half to first half, it was a decline, we did see a slight increase on a quarter-to-quarter basis for the postpaid from 43 to 45. However, the overall ARPU trends for Mobile is still early and we'll keep a close eye on because we do expect that the IDD Voice and access data will continue to be challenging. We do expect that the SIM-only plan will continue to take a little bit more pickup.
Yes, and Arthur, if I can add a bit of color to this, if you look at ARPU trends, they are declining both for the post and prepaid. And, at the same time, if you look at the average data usage per customer, it's increasing. Now this is not a Singapore only or Asia Pac. It's regional and global. Customers tend to use more and more data, and we have not been creative enough to charge for it and basically the monetization of data is a challenge for all telcos wherever they operate. And also I think some of the new entrants are coming into the market with very simplistic plans. So we're going to look at all our pricing plans, but it's almost a global trend that the ARPUs are declining and data monetization doesn't keep up with the investment made in terms of the Mobile network for data more than anything else.
Luis from Maybank.
I have 2 questions. The first was regarding the Q-on-Q jump in Mobile revenues. Is that more driven by the MVNO deal? Or is this increased take-up of your data boosting plans? Second question is regarding the -- hope you can give us some color on postpaid churn? Anything from StarHub's churn more towards the MVNOs or to the other incumbents? And the last question is regarding if you can give us some color in terms of subscriber data. Your competitor recently reported that they've seen subs increasingly burst through their data caps. Are you seeing the same trend as well?
Okay, Luis, thank you. Let me just have some high-level comments before Howie also offers a comment. First of all, share-ins across business are fairly stable. In the Mobile business, it's about 1%, 0.9% to 1%, and it's been fairly stable for a long time. What we are seeing without being specific is we're seeing the MVNOs are growing the market additional lines. We have not seen any churn uncharacteristic from us to the MVNOs or even to the other operators. So it's stable churn, and we feel at this point in time, there's growth in the overall lines from the new entrants, which is a healthy sign for the whole industry. In terms of jump in Mobile revenue lines, predominantly there were some roaming, there's growth in roaming revenues. But the traditional and value-added services, but the IDD is always challenged, and that has declined. Howie, I'm not sure if you want to comment on that. Your third question, Luis, if you could repeat that, we appreciate it.
M1 recently reported that we've actually seen after a few -- several quarters of decline that subscribers are breaching their data limit, their data caps starting this June quarter. I was wondering if you're seeing the same for yourselves, are subscribers breaching their 2 GB or 12 gigabyte limits?
My comment on that is, I wouldn't use the word breaching data caps. Basically customers are offered various packages. And certainly, at all times, we see customers across many companies exceeding the data caps and either topping up to the next package or basically if that usage is not ongoing, staying with the same package and paying the one-off data charges. So that's a constant in our business with the current pricing plans we have. Howie, I'm not sure if you want to add any color on all these 3 points.
Just a little bit more details. In terms of the overall data usage group, we see the continued increase. The latest number we've seen for quarter 2 is 5.5 GB compared to quarter 1, which was 4.9 GB and a year ago was about 4 GB. So from a customer perspective, the data usage continues to grow and to us, and I'm sure you're aware we have a whole slew of different baskets for customers to add additional data whether data jump, data share or otherwise, and that was partly contributing to the increase in the FASTER revenue as well. Continuing -- we don't release the data in terms of customers who exceed the packs, but I think more importantly, for us is to make sure that we continue to have the right size data offering for our customers and opportunities for them to add on when they need it.
Next from the line is Rama from Daiwa.
I have a couple of questions, please. Firstly, with regards to your guidance, could you talk through your thinking behind retaining the service EBITDA margin guidance when they're tracking to around 30% so far in the first half? And specifically, do you see any cost pressures in any particular lines of business for the rest of the year? The second one has to do with the ICT side. Are you seeing or expecting any delays on the award of contracts on the fixed line side enterprises given the cyber incident that we had recently? And finally, with regards to your Discovery Channel in the Pay TV, could you qualify whether the 11,000 customer churn in the Pay TV, is it a result of the Discovery Channel business? Or is this something that we have to expect going forward in terms of the fallout from that?
Rama, thank you for your 3 questions. I will give the opportunity to Dr. Chong Yoke Sin to talk about the ICT part of your question. And the other 2 in terms of guidance and Discovery Channels, I'll come back to those 2. Yoke Sin, would you like to comment?
Thanks, Peter. Well, Rama, in terms of the cybersecurity incident, I think StarHub has got quite a capable cybersecurity practice. And we see high demand for these services going forward. As to the Smart Nation stoppage of some solutions or some projects, I think these have been [ actually lifted, ] and we remain very committed to deliver fast solutions to government as well as enterprises, making sure that they're all adequately cybersecure by using our solutions. So I think overall, I think we're well placed to actually address the market for cybersecurity solutions.
In terms of your other 2 questions, let me take first of all, in terms of service EBITDA and the guidance we've offered. Certainly, we are looking on the cost side, as I mentioned earlier, to create value. You've got to look at both sides really in cost. We're certainly looking at the costs in the second half of this year to make sure that we're investing the right OpEx in some lines of businesses, and we do expect potentially very few savings. So yes, we're looking at that closely. And hopefully, we can contribute to the margins by not just growing the revenue side, but also looking at the cost over the next 5 to 6 months. And as I mentioned earlier, one of our pillars, strategic pillars, is to sweat the assets, to leverage the existing business for better returns. So that's definitely part of one of the initiatives that we will be implementing. Discovery Channel, apparently, we had very few specific cancellations from customers who said to us they were really upset, and we do apologize, of course, to inconvenience a few customers that are not carrying the Discovery content. Having said this, it was a contract anniversary, I've been told predominantly, that a lot of contracts fell due for renewal in quarter 2, and that contributed more to the churn than anything specific to Discovery. There's a wait-and-see attitude from our customers but, at the same time, we have given a lot more content, a lot more choices, a lot more variety to customers to pick and choose. So -- but we're not prepared, I guess, to meet the expectations of some of the content providers with, dare I say, old-fashioned linear cost models as the world is changing in the content delivery area. So we have inconvenienced a few customers, we understand that, but the majority of customers have more content, different content, we like to think, better content to be able to pick and choose. So we do not expect a massive churn coming specifically from Discovery.
Okay, so just to clarify on the ICT again. So you're not seeing any pushing out of the timetables for the project pipelines that you have at the moment, right? So that's what I take as the...
Look, Rama, to be honest with you, I'll let Yoke Sin, but typically in the managed services business, that's always what you're competing against. There's always many projects that companies like us bid for but there's always some delay between when the projects you believe you will get the contract signed. So it is a general phenomenon in managed services, but specifically to the existing contracts we have, Yoke Sin, are we expecting any major delays on contracts?
Well, I think currently we don't see any as of yet, but we do see that there is increased demand for our cybersecurity projects.
Thank you very much.
Next on the line is Annabeth from SPH.
Can you hear me?
Yes. Hello. You're on.
I wanted to check in on the full year guidance of the 1% to 3% service revenue decline. Was wondering whether you can give a breakdown especially in the Mobile segment with the new MNO coming in. Do you have a clearer picture of what's going to happen in the next 6 months?
Annabeth, thank you. Traditionally, both our Pay TV and our Mobile revenues have been on the declining. We've don't expect to see any sudden V-shaped recovery of Mobile revenues from 1 quarter to the next. We expect that there will be a similar continuation in the Mobile revenue trend. The impact from the MVNOs in the short term, we don't expect a high impact. There are a lot of reasonable offers to customers to get them to use the product. There are a lot of introductory offers. They are not being monetized dramatically by, we believe, by the new entrants. But of course, it has an impact on the share of wallet. And that probably explains also a little bit the lower ARPUs. So the -- we don't expect an accelerated impact because of the MVNOs, but there will be some. On the whole topic of MVNOs, we welcome the opportunity to have new entrants. We believe our wholesale team is waiting to accommodate as many MVNOs as possible. The long-term implications are very different. The MVNO model, if you look around the world, has not been the most sustainable business model. And certainly, here in Singapore as far StarHub is concerned, we welcome the opportunity to interconnect with MVNOs and also offer customers more choice and different propositions. So from that point of view in the short term between now and year-end, we don't expect a high impact on the revenue coming specifically from MVNOs.
Sorry if I misspoke, I was referring to the MNO coming in, but thanks for mentioning MVNOs as well because I was wondering whether you're going to see a lift from your new partner. Those 2 questions, please.
Great. The MNO, again, as far as we're concerned whether there are 3 MNOs or 4 MNOs or multiple MVNOs, our priorities in terms of marketing customer care priorities and pricing packages do not change. We always observe what someone may come and do in the market. And if they're irrational, we will again look at whether we meet that approach head-on or we'll do something else. We don't expect the fourth MVNO to be fully operational by year-end. So we expect the impact more in 2019 onwards subject to what packages they will offer and how they will offer their services. So we don't see a fundamental impact in this financial year from the fourth player.
Okay. And contributions from your new MVNO partner, do you think that's going to lift the ARPU?
Typically, the MVNOs -- most MVNOs around the world, the first 2 or 3 quarters, they're fairly aggressive in marketing their services and offering a lot of options to customers. We don't expect that we will see any significant movement in the dial in terms of revenues from the MVNOs that may be on our network. We expect that we'll see more customers being connected through the MVNOs, and that's been proven the case in the last couple of quarters that the revenue impact initially will be very minimal. The revenue impact will probably be higher in quarters 3, 4 for an MVNO rather than the first couple of quarters.
And now let's hear from Srini from Deutsche Bank.
A couple of questions. First, I just -- I think someone else has also asked, but you are tracking at least for the first half better than your guidance for margins. And also almost better, the higher end of your guidance for revenues. So it looks like, as I think Peter has alluded, you expect some kind of a more pressure on the second half. Any particular reasons for that? Specifically, that will be helpful. Secondly, the question on your Pay TV ARPU. If you can just help. You've seen a $2 increase in your ARPU. If I do the math, and I know your World Cup package was about $100. Correct me if I'm wrong, but the number of customers who have seem to have taken the package seem to the quite low. I mean, something like less than 25,000. So please let me know if I've got my math correct. That does sound a fairly low number. That's my second question. Peter, congratulations on your new role. I guess it's like coming back for you, but specifically just wanted to check with you in terms of the key challenge, which you face, especially growing the Enterprise side, I guess, faster than what we have seen in the past. Is that something which we can expect going forward, I'm not talking this quarter but over a longer span?
Srini, thank you for your 3 questions. First of all, tracking better, we appreciate that observation. With more and more entrants in the market, more MVNOs, potentially an MNO, typically we expect higher competition in the second half. We also expect share of wallet impacting the Mobile business predominantly with new offers because again, we're seeing customers getting second lines and so on. So I would rather underpromise and overdeliver. But at this point in time, we do believe the second half, we may see a little bit more pressure on the revenue and maybe a little bit more price erosion. So at this stage, this is the best estimate rather than sort of expecting to continue. Now again, it'll be a different mix. The Mobile and Pay TV business will be challenged. But the Enterprise will grow. But overall, we don't take any comfort from the first and second quarter. We might expect a little bit more competition in the second half. The Pay TV ARPU, I think you probably need to redo your calculations certainly. This is not the numbers of customers. I wish we can say it was in hundreds of thousands, but more it was in the tens of thousands and a very, very healthy number. But again, we don't disclose that, but the numbers you mentioned are extremely low. Your third question about key challenges. Fundamental growth is a challenge for almost every telco anywhere in the planet. So I have to work with the team to identify every bit of growth we can get in the business. Certainly, we are underrepresented in terms of market share in the Enterprise space, and we're doing our best to get a fair share of the market in that segment, and we will continue the emphasis. But we have to be rational enough for not just value in terms of pricing but offer differentiation. And Yoke Sin and her team are doing a great job to be able to bundle solutions, ICT solutions, to be able to use data analytics, to be able to offer differentiation on top of connectivity services, not just offering a cheaper price. That's not a sustainable position. So that's certainly -- growth is one opportunity. Sure, if you look at the existing business although the churn is low, as more and more competition is entering the marketplace, the best customers are the ones we have today. We know a lot of our customers are highly valued customers, we have a lot of information on them. So we know that a number of customers will be tempted by new propositions to try. We need to make sure we manage the churn wisely, especially with our high-value customers. And again, we have fairly significant data analytics capability and our CVM capability to reach out to those customers, and the game is about if you're going to have churn, you need to have less churn on your high-value customers and potentially defend the best way you can, the lower ARPU customers. So that's probably a couple of the challenges. And, of course, always being efficient and lean and fast-moving, agile, but that's part of the DNA of StarHub that we've always been innovative and customer driven. And, of course, if we have any processes we need to fix and be faster and leaner, we will address that as well.
Understood. Just one question. I mean, the pricing behavior is very different when we see -- in the Mobile space, a new entrant in the Mobile space. Typically as you said very, very aggressive on pricing in the initial part. We don't see that in Enterprise space, between both you and your peer, pricing seems to be a lot more rational than what I would expect given your low market shares. Wouldn't it be rational to be relatively more aggressive on pricing? I mean, I understand that the Enterprise landscape is slightly different, but why is there more rationality in the Enterprise space on pricing than what we see in Mobile space?
I wouldn't say it's rationality. I would say it's probably maturity. There's a significant investment in Fixed Enterprise in terms of running fiber, in terms of [ material ] wiring. So there is a significant CapEx involved. And I believe if you're going to play in that space, the return on your investment has to be something that you have to keep in the back of your mind. With -- predominantly mobility, the network is up and running. There is enough base stations, enough capacity, enough coverage. So you have a fairly significant sunk cost, and you can take some liberty. But again, it's about delivering value. So with the mobility and the consumer market because your cost is sunk, you're a bit more aggressive on the pricing. On the Enterprise, you need to outlay new investments to provide new services to customers, and you have to strike that balance because shareholders or generally in every telco, shareholders cannot wait 7 and 10 years to get breakeven on Fixed Networks. They are looking for a quicker return. So we're being mature. We're being -- and we're trying to deliver value, including good price and a more reliable network package with managed services and solutions. So we're trying to differentiate as much as we can on a number of areas, not just going in and offering a very deep discount and basically never recovering the incremental CapEx that we may be injecting.
Understood. Just one housekeeping. Your doubtful debt, it seems I think kind of spiked this quarter. It's actually at the second highest level I can see for the last couple of quarters. Any particular reason for it?
Great question for our CFO.
Okay. We do provide the allowance doubtful debt, in line with the aging of our accounts receivable. We don't vary the percentage in respect of the general provisions that we make. So in general, there are timing differences in terms of the aging. And given the profile of the revenues that we're recording, in a sense that we are getting more revenues from Enterprise customers, typically the aging in respect of such accounts receivable do go out a little bit more from a timing perspective. We, however, do not believe that there are any issues around collectability. So it's just in line with the accounting policies that we have.
Next is Ranjan from JPMorgan.
Peter K, congratulations. Maybe I'll address the first question to you. In your previous roles, you worked at Batelco, which was the market leader. Then you also worked at Zain KSA, which was the smallest player in the market, and I think STC had over 90% of the market share or free cash flow in the country. Just if you can share some of the experiences and thoughts that you bring to the #2 players in Singapore, which is at the risk of disruption and how you think you will prepare for new entrants coming into the market. The second and third question is for the broader management team. The first one being on the dividend. You talked about the inorganic opportunities that you might pursue while your dividends I think already exceed the free cash flows that StarHub is generating. So how should we think about the dividend policy going forward? The last question is on handset leasing. That's something that SingTel has introduced on a more broader basis in Singapore. For us, it seems like that -- there could be a risk to the overall industry revenues from these handset leasing plans but could also lead to lower churn in the market. So if you can share your thoughts, is that something that you would consider as well? I know you had -- for a couple of phones, you have this, but it was not on a wide-scale basis. I'll stop here.
Thank you, Ranjan. First question, thanks for bringing back memories there at Batelco and STC, but it doesn't matter if you're up incumbents -- against incumbent or it doesn't matter if you're the fighter brand, the third operator. To be successful, you have to think different and better. If you just have a me-too strategy to follow the incumbent or follow the second player, you will always be marginalized. So it is a matter of thinking differently and trying to add smart comparatives, although in today's markets, the window of opportunity closes very, very dramatically because there's no such thing as sustainable competitive advantage. So my last -- in the last company I was involved in, it was a third player, but we had about 8.5 million customers, and we had severe financial issues since inception 10 years ago. Again, we contributed heavily to grow the sales and grow the customer base and the revenues. We put a lot of resources at the front end of the business and, at the same time, we took a lot of cost from the back end of the business and within 12 months, we grew EBITDA dramatically and made their first-ever profit. And, of course, there was a change in depreciation schedule. So again, investing at the front end, understanding the different customer segments and how you serve them because a lot of telcos sometimes stay with a traditional served model. We have a lot of digital citizens in all the markets right now. They are quite happy not going to a retail store. They are quite happy buying online and being fulfilled online. So we need to be -- continue to segment the marketplace and be relevant to customers whether they're Enterprise or consumer. Again, even Enterprise customers buying connectivity [indiscernible] is given. What else can we do to deliver a better proposition to an Enterprise customer? So it is about segmentation. It is about putting resources at the front-end to either acquire more customers or keep the best customers you have. And, of course, managing the infrastructure, all the investments, all the OpEx smarter, tighter than ever before to make sure we deliver margins. So there isn't really a lot of new leading-edge ways of managing a telco. It is about getting the fundamentals right and not forgetting that we don't have one type of customer, Mr. or Ms. Consumer or Mr. or Ms. Enterprise, within these broad categories. We have multiple customers. So the lesson, of course, is coming to sort of market with 150% saturation. No different to the Saudi market, no different to the leading player being a formidable, and we respect that, of course, and we get motivated but rather than being afraid by the leading players, very similar characteristics, and it's about doing a lot of things right and not necessarily doing something completely different. The leasing in place, my personal view is that we should be offering that to any product, whether it's a handset, whether it's a ray asset. Again if you're a customer-driven organization, customers want the flexibility to either buy or lease or pay in various terms. So I don't see why we should be restricting the opportunity for the customer to buy a product in any way possible. And certainly, our intention is not to just limit leasing to 1 or 2 handsets but to potentially explore that right across the market. It is good. It is good for churn. I mean, it's good for bundling other services, but it's better again for the consumer to choose to pay in totality payments or leasing. So we're not against that, and we look forward to doing more of that. Dividends. You know our dividend policy for this year. It will not change for this year. Dividends going forward will be reconsidered at the end of this year and basically how we see the next 2 to 3 years. We will be challenged in terms of having some extra payments for spectrum and so on, but we don't want to speculate in terms of what the dividend may be going forward. The dividend, for certainty, we know what it will be for the next couple of quarters. Dennis, I'm not sure if you want to add anything more.
No, I just want to add fairly delivering shareholder value remains at the top of our agenda, right? In terms of delivering profitability and cash flows and managing the business for efficiencies moving forward. Naturally, we will be, and we've alluded to looking at longer-term growth opportunities as well and the cash requirements for that service as well. So all of this will be folded into our consideration and management's recommendations to the board at the start of next year as we guide the market to our dividend. So as we look at business conditions changing and our long-term capital requirements as well as the outcomes of all our efficiency initiatives, we will consider what we would be able to be -- to deliver in terms of shareholder value.
Wei-Shi from BNP.
Two questions, and they're more strategic ones. Peter, would you care to share what your goals are or targets are as far as revenue mix for the business is concerned maybe 3 years out? And secondly, how do you view StarHub's position or approach toward the content business changing in the next few years?
Thank you, Wei-Shi. Thank you for your questions. The toughest one is the first one. Wow, my crystal ball is a little bit hazy beyond the first or second year. But certainly, revenues will be challenged. And as I mentioned earlier, creating shareholder value is both working on the revenue and working on the cost to make sure the margins. So I really -- it's far too early to be specific on the revenues. But the traditional business in every telco in markets with high penetration rates, the additional revenues don't necessarily come from the traditional services. They come from complementary products. And again, you're seeing in the Enterprise space that's exactly what we're doing in the consumer market, a number of value-added services on top of connectivity, and that is the clever packaging and giving customers more choices on top of just connectivity. The revenue going forward, it's something that we're working through to make sure we present to the board a longer-term plan. But the connectivity will always be challenged in the consumer side, but as I mentioned, there is a little bit of opportunity more on the Enterprise side because we're underrepresented in terms of market share. I can't give you exact numbers. But we hope we maintain healthy revenues by the core business and complementing that maybe through some inorganic opportunities as we've done in the last 2 quarters. In terms of the content side of the business, look, the business model for many, many years has been one that all the content providers go to all the telcos and basically we become the delivery, and we manage the customer. That has been going on for far too many years and also the content model was more of a fixed price irrespective of the number of viewers at the other end. Well, the market has been disrupted. It's been disrupted by companies who can provide very fresh content like the Netflix of this world at a reasonable price to a customer. But the business model has also been disrupted because through Broadband connectivity, some of the content providers can go direct to the customer. So as I mentioned earlier, I do not believe in the short term StarHub will not play in the content business, but we have to play with a much lower cost. We have to play with a variable cost model, and we also have to play by providing -- becoming more aggregators of content. Having said all of that, we're happy to work with all of the existing content providers. But the qualifier is more on a variable cost model, not on a fixed cost model. We don't believe that we help them, and it doesn't help the viewers. It doesn't help us. Also, the content model is being disrupted around the world because the days where customers have to be locked in for a very long period on a very high ARPU packages, that type of model seems to be breaking apart. Consumers tend to want to select the type of content in terms of packages. They want to be able to decide themselves how long they want to be committed to a certain package, and we need to understand that. We need to manage around that. We need to manage the economics of both the content supply but also the economics of potentially not locking in customers to very long-term contracts. So it is a part of the business which is occupying a lot of our time because potentially, it is -- it has an adverse impact. We haven't kept that as a secret within the portfolio of the other lines of business, and we need to crack this. But I hope I've given you a sort of high-level view in terms of the content business.
Next on the line is Varun from Credit Suisse.
I think most of my questions have been answered. Just a couple of them. First, you have been saying, Peter, about inorganic growth opportunities. So it's largely within Singapore that you're talking about or something outside of Singapore you want to grow and diversify the revenue stream? That's number one. Number two, just want to go back to dividends. I know you can't answer most of the questions on dividends because the quality will detail in later half of the year, but do you think absolute dividend is where -- is the management comfortable with? Or you want to align it again the policy in terms of linked to earnings or cash flow, something like that? So any color on that will be helpful. And lastly, on...
Thank you, Varun. Look, from my experience dealing with a number of boards, irrespective of recommendations on dividends from management, the board has the final say, and that's certainly been the case in most companies I've worked. So certainly management year-on-year will provide different options, different recommendations. And at the end of the day, management often does not win in their recommendations to the board about dividends. Their shareholders always decide through the Board of Directors what is best. But again, we are looking at the different options, and we'll be having a very constructive discussion with the board at the right point in time looking forward. So there's nothing really more as you observe, Varun, we can comment on dividends right now. But yes, there are different options being explored by us, and we look forward to the debate. The first question about inorganic growth outside Singapore. Certainly, that is not on our radar right now. I always believe that you have to be on top of your game in your home market, deliver everything best-in-class in whatever segments you play. And when you -- when that is taken care of, then you might have some aspirations. And also if you look at the game in terms of other markets, they are faced with similar problems or challenges that we have in our market here: high penetration, multiple competitors. So when you go offshore, you need to go offshore with a very different business model and something more unique. Otherwise it's a me-too game. But the short answer is no. In the horizon that I'm looking at, I don't foresee any investments offshore. But I do foresee consolidating and improving our position in the Singaporean market.
Just a follow-up. So within Singapore in the Enterprise space that you're looking to grow your market share, it'll be a customer acquisition? Or will it be technology related? Is there any product gap that you're looking to fill because I think cybersecurity is one of the gap that you probably have acquired one company? Or is there any more technology in cybersecurity that you're looking to acquire?
Certainly, that's where the opportunity lies. There's some very innovative companies in Singapore in the space of value-added services, IP solutions, managed services. And as has been the case with the 2 acquisitions the team executed in the last couple of quarters, that's certainly an area of interest. But they have to be accretive. Certainly, in terms of positive cash flow, positive margins, so yes, we keep an interest in that space. Whether it's technology, whether it's cybersecurity, I believe it's related. It has to
[Technical Difficulty]
I'm sorry. Apologies for the slight technical difficult that we had there. Annabeth from SPH are you still on the line?
Just wanted to check on the media statement. Peter says that there's work underway on a pilot. I was wondering whether there are any updates that you can give on where that might be, or who your partner is and, what you're testing, what the time frame is as well.
Thank you, Annabeth. I'll ask [ Su Young ] to comment on it because we've done some [ speed ] trials before, but can you please elaborate?
Yes, I'm [ Su Young ] here. So on the 5G trial, actually way before this year, we have already done some 5G trial over the E-band, also over the millimeter wave. Previously we had done based on more on throughput, high-speed, high bandwidth. So lately what we have worked on is to trial it on the C-band. This is something that we have started working at the beginning of the year, and we expect to trial it probably later part of the year. And actually, for this 5G trial, C-band at 3.5 gigahertz, I think we are more looking at specific Enterprise solution, not so much on a consumer smartphone Enterprise solution can actually reinforce on the logistics solution as well as some Enterprise needs. Some of this we're working both with our vendor as well as with some interested so-called enterprises. At this point in time, we are not convenient to disclose which are the enterprises we are working on, but most of these -- some of these are more Enterprise or industrial use cases.
Sure, and on the time frame, because one of the other telcos has already announced the neighborhood and the time frame for when they're rolling their pilot network out.
I think for us we will be testing on specific Enterprise use cases, use cases that would either help to improve productivity or improve service experience for these enterprises itself, yes.
Annabeth, if I can help, there's tremendous marketing hype about 5G across every market. Our approach is that right now, a number of use cases in the Singaporean market, there's nothing that the 4.5G single RAN carrier aggregation network can't do that 5G can do. Again, there's, of course, 5G low latency. But those type of applications to be applicable in Singapore and to go on a mass scale, it will take a little bit of time. On the general consumer market, the ecosystems for handsets is nowhere near until about 2020. So our approach is, we will participate in trials. We will contribute to all the marketing hype, but the investment case for 5G has to be extremely selective because we're not about -- as we currently, we're going through a single RAN on our entire network. We're not about to overlay massive investments of CapEx on 5G for some very, very limited returns. So we will be selective. We will participate. We're doing the trials. But my personal view in the last few weeks, there's a lot of marketing hype versus substance.
Thank you very much, ladies and gentlemen, for joining us this evening. We look forward to speaking with you again in the next quarter's results. Good night.
Thank you.