Why many of Singtel’s digital bets failed after a decade of trying
VietReader 15-10-2020, 11:25

To the man on the street, Singtel’s digital projects may seem like nothing more than random stabs at innovation. Company insiders, however, will disagree with that view.

Singtel, Singapore’s largest and oldest telecommunications company, has been ahead of its time in many ways. For example, when it recognized the imminent decline of the telecom sector over a decade ago, it began reaching beyond the confines of a traditional telecom company before many of its peers.

Photo credit: Terence Lee

It has certainly stepped out of its comfort zone. In the advent of ecommerce players Zalora and Lazada, Singtel launched its own take on mobile shopping. When news consumption started moving online, it offered e-news reading and e-magazine apps. The company also bet on cybersecurity and digital advertising, pouring in over two billion dollars acquiring such firms.

But despite its bold push, Singtel’s digital businesses have not moved the needle in terms of company-wide profitability or market value. In September, Singtel’s share price reached a 12-year low of S$217 (US$160). A decline in equipment sales, falling revenues for data roaming and pre-paid mobile, and delays in enterprise projects have weighed on operating revenue this year.

Why many of Singtel’s digital bets failed after a decade of trying

Singtel share price over the past five years (in Singapore dollars) /Photo credit: Google Finance

Despite the tanking share price, every acquisition and investment had been thoughtfully planned out, several ex-Singtel executives tell
Tech in Asia.

“It was definitely not a haphazard, buy-everyone, or take-out-the-competition kind of thing. They were more than short-term, tactical strategies,” says a former division head who spoke on the condition of anonymity.

If that was the case, then what could explain Singtel’s poor showing?

It’s easy to write off the company’s failures as unfortunate victims of emerging global forces. Streaming giant Netflix, for instance, has flooded consumers in Asia with an unparalleled selection of affordable content, relegating smaller players like Hooq – a joint venture that involved Singtel, Warner Brothers, and Sony Pictures Television – with a smaller and eventually unsustainable share of the market. Singtel’s mobile wallet Dash didn’t have the venture capital-backed firepower of Grab, so it hasn’t captured many users despite an earlier head start.

The reasons for Singtel’s misfires were myriad and complex, according to five former Singtel executives who were involved in the company’s digital businesses. For one, its corporate DNA was unsuited for digital disruption. The company also had a talent gap and painful internal finance and approval processes typical of large corporations, which simply weren’t conducive to the incubation of new ideas.

An early mover

Messaging apps like WhatsApp and internet voice services provided by platforms like Skype have eroded revenue pools in international data roaming and prepaid mobile plans. These services, which ride on telecom infrastructure, offer messaging as well as audio and video calls at much lower costs than telecom companies do. Cloud computing, gaming applications, and high-definition media streaming have also placed heavier demands on operator networks, yet offer little returns.

Singtel had the foresight to know “we would be commoditized if we stayed where we were,” says an ex-Singtel employee who requested anonymity.

That set the stage for Singtel’s early moves. It launched several innovation hubs across the world: Silicon Valley, Israel, and China. It built several products from ground up and acquired several small startups. The plan was to double down on them if they worked.

“We tried all ways to assimilate them. Some we kept at arm’s length; some we integrated with our business,” says the former staff, who had worked at the firm for over 10 years.

As a show of its commitment towards digital transformation, Singtel created a separate arm called Group Digital Life in 2012. The fact that a C-level executive was appointed to helm the unit was significant, the ex-employee adds.

Some of Singtel’s digital offerings /Table by Tech in Asia

In 2015 Singtel set up its corporate innovation unit Innov8 . Now a US$250 million vehicle, Innov8 has invested in startups like insurtech platform CXA Group, Indonesian fintech startup Kredivo, and online cashback portal ShopBack. The hope was for Singtel to gain insights on emerging technologies.

That year turned out to be pivotal for Singtel. After some “initial dabbling, we realized that we had to either go big, or it would be immaterial in impact,” the source adds. Singtel upped the ante and swiftly ended several initiatives that didn’t bear fruit. It narrowed its focus down to three main businesses: digital marketing firm Amobee, mobility intelligence company DataSpark, and defunct regional video streamer Hooq.

Top-down innovation

Having the “wrong DNA” was the single biggest factor for Singtel’s failures, observes the former Singtel executive.

The company, which currently employs over 23000 staff across Asia Pacific, Europe, and the US, is the antithesis of the small businesses it has acquired over the years. While startups get to hit the market with a minimum viable product and iterate along the way, a telecom firm like Singtel doesn’t have that luxury.

“In the startup business, you’re allowed to make mistakes. You can launch 10 products, some of them fail, and one of them succeeds. In the telco business, a trial-and-error approach to product launches is frowned upon,” the source says.

Such experimentation is potentially costly for a company of Singtel’s stature and size. Today, it serves over 700 million mobile customers worldwide in Singapore, where it’s based, and in Australia via its wholly owned subsidiary Optus. It also has regional associates: Bharti Airtel in India and Africa, Globe Telecom in the Philippines, AIS in Thailand, and Telkomsel in Indonesia.

The telecommunications sector is also a highly regulated one. Service outages impact large segments of the population and run the risk of incurring hefty penalties. In 2016 Singtel was fined S$500000 (US$369000) after a 24-hour broadband disruption on its networks left 490000 users in Singapore cut off from the internet.

To avoid this, strict approval processes – whether in the form of finance papers, businesses cases, thorough marketing plans, and a clearly defined go-to-market strategy – are designed to ensure that products and services are viable before launch.

While this approach technically reduces risks and weeds out unsound strategies for telecom-related projects, it increases gridlock in digital projects that require light-footedness. “By the time everything is approved, the whole business opportunity would have passed us,” the former employee says.

From day one, “the management wanted to have a clear idea of what the cannibalization would be, but sometimes in a startup project, this isn’t always clear,” says an ex-staff who was involved in building Gomo , Singtel’s no-contract, all-digital mobile plan.

Hooq liquidated in March after recording US$62.5 million in losses in its 2019 fiscal year. By then, Singtel had pumped in at least US$127.2 million in capital , according to regulatory filings. Industry analysts and a former employee, however, place that figure at US$250 million instead.

Singtel did not respond to a list of questions sent by Tech in Asia for this story.

Towards the end of its life, Hooq’s mounting losses no longer justified the funding required to sustain it. But Singtel’s invisible hand in making decisions and deals often gave Hooq little room to maneuver. “Innovation, oddly, was top-down,” says a former Hooq employee who asked not to be named.

Photo credit: Hooq

Singtel freely brokered exclusive content deals, such as one with Netflix that gave its customers access to the streaming platform through Singtel TV set-up boxes. Hooq’s choice of partners, however, was more limited.

“If you wanted to go cut a deal with [telco players] StarHub or M1 within Singapore, guess who you had to get clearance from? If you want to move into True [Corporation] in Thailand, [Singtel’s local associate] AIS was the other player. Guess who you had to go talk to?” the source adds. “It’s like we were running in mud.”

The ex-staffer cited a management decision to spend close to US$1 million on building the Hooq application on the Singtel set-up box, which is only available in Singapore. In comparison, a smaller amount was spent on expanding the service on Android TV despite its wider reach and dominance in markets like Indonesia, Thailand, and the Philippines.

“Although the returns on investment on the Singtel set-up box were definitely lower,” they went ahead and did it anyway because it was a Singtel product, says the Hooq employee, who was laid off when the company shuttered earlier this year.

A talent gap?

Singtel has a track record of putting people with “telco blood” in power. Many of those who were chosen to handle new digital teams had decades of experience in operating telecom businesses, but they weren’t digital natives or familiar with how digital businesses are run.

Peter Bithos, who led Hooq as chief executive, held successive C-suite stints at Philippine provider Globe Telecom and Virgin Mobile Australia. Former Group Digital Life CEO Allen Lew, who remains a C-level executive in Singtel today, is a veteran who has worked at various roles within the telco industry since 1980.

Tech in Asia reached out to Bithos for comment, but he didn’t respond.

Forcing organizations to completely change the way they’ve thought so far about businesses can be a hard ask, says GP Singh, who leads management consultancy Accenture’s communications, media and technology practice in ASEAN. “What made you successful over 20 years holds you back sometimes,” he notes.

“The kind of talent that is required to launch new business models is traditionally not available in telcos. This talent needs to be sourced from elsewhere and comes with a lineage of working with very different practices, measurements and metrics, criteria of success, and agility,” adds Singh, who was a former director of Singtel’s Android gaming portal WePlay. The platform was shut down in 2015.

“None of these things come natural to telco management. Many are not good at offering flexible work environments. They’re great at measuring and managing EBITDA (earnings before interest, taxes, depreciation, and amortization) and return on invested capital, [but] not valuations of digital businesses,” Singh says, referring to telcos he has consulted with in ASEAN.

“I’ve seen many situations where [telecom companies] have hired fairly senior talent who are well-remunerated. However, the kind of metrics and expectations that are imposed on them by the telco management are often [old metrics], and I have seen many of these people get frustrated and leave,” he points out.

Singtel also struggled to retain the talent it inherited through its startup acquisitions. “Some people certainly realized and enjoyed the fixed structure and stability, while there were people who were driven by chaotic structures – they didn’t like it so much,” says an entrepreneur who had been down the same path.

That said, some of the internal telecom executives were “even more entrepreneurial” than the startup employees who joined the company. There had been no lack of talent in the company, the former division head adds. “They did make a very strong effort to put more digital-centric people – people who were very aware of this digital space they were entering, who had a lot of experience in digital products and services.”

The ex-Hooq employee shares that the company had “a startup gene,” noting that “there were people in the tech team who were go-getters, very ambitious, and entrepreneur-like.”

Many entrepreneurs have founded their own startups after stints at Singtel. Aaron Tan, CEO of car marketplace Carro , spent five years at Singtel’s Innov8. Before establishing Igloohome , a home automation startup specializing in smart door locks in 2015 Anthony Chow was part of Singtel Digital Life’s data science team for two years.

Growing pains

Singtel’s immediate network of hundreds of millions of mobile users gives it a significant advantage over startups, which have to acquire customers and build their brands from scratch. In theory, a product launched by the telecom operator should be easy to replicate in its markets.

But in reality, high-level support from Singtel’s various divisions on decisions such as pushing out advertisements for new products or pre-installing new mobile apps on phones were often hard to obtain. Even when these were achieved, execution was tough, says an ex-Singtel executive who was privy to such decisions.

None of Singtel’s regional associates worked exclusively with Hooq. For instance, when Viu expanded into Indonesia in 2016 Telkomsel
inked a partnership with the Hooq rival to allow Indonesians to enjoy the Hong Kong-based streamer’s content through its broadband networks. Airtel and AIS also launched competing offerings of their own.

Photo credit: 123RF

“There was a lot of inter-division separation. Group Digital Life could not get approvals or buy-ins from its consumer businesses in Singapore and Australia, even though [Optus] was 100% owned [by Singtel]. The groups that owned the customer bases could say no, which was often the case, and as a result, that customer reach did not materialize,” an ex-Singtel executive explains.

When inter-division approvals did happen, they could take a long time. It was a taller order among Singtel’s regional associates, which it did not wholly own. “Why would a large operator like Bharti or Telkomsel listen to Singtel [in their home markets]?” the source asks.

As many Singtel employees came to realize, a strong brand name can be a double-edged sword. While having a good reputation is a huge asset, it invites more scrutiny from investors.

“Because it’s such an established brand, you can’t take crazy risks that you can if you’re a startup,” says the ex-division head.

Being publicly listed as a blue chip stock also subjects the company to metrics like profitability and pressures to generate cash in order to pay out dividends to shareholders. “In Singtel, you have people looking at their earnings all the time,” says Sachin Mittal, an analyst at DBS Bank.

Unlike publicly listed internet firm Sea, which attracted investors with the right risk appetite, or venture-backed companies like Grab, Singtel could not afford to take heavy losses to promote its e-wallet Dash and supercharge growth.

“I call it a dividend trap. These companies have such high dividend commitments. They need to generate cash, and they could not afford to put in a lot of money [to win] market share,” Mittal says.

Still, the verdict isn’t out on Singtel’s two brightest spots: Amobee and cybersecurity unit Trustwave. They’re unprofitable multibillion dollar businesses, but with unrealized value. Gomo’s startup-like journey from conceptualization to launch is also a success story of its own, and we’ll explore that in Part Three of this series.

Currency converted from US dollar to Singapore dollar: US$1 = S$136.