How big this contract is currently still unknown. So I've no way to tell the impact of this arrangement to M1's financials. However, there are things we can know.
New revenue stream
By selling the spectrum to Liberty Wireless, M1 has diversified its revenue and even an recurring one as well. This is quite important to the company as mobile revenue takes up more than 80% of its service revenue and 60% of its operating revenue.
Its good to always diversify your revenue to protect your company from any adverse impact.
Cannibalisation
By allowing a new entrant into the market, this creates greater competition for M1. In fact, there will be a strain on the market share of M1's mobile customer.
Liberty Wireless has also said that its strategy will be focused on data centric plans. This suggests a potential roll out of higher data bundles with lower pricing. LW will be able to do this and maintain a decent margin because of its low capex requirement; it leases spectrum from M1 and has less costs on its P&L. There could be a repeat of what happened in the Fibre Broadband space where competition would likely drive ARPU down and this could adversely impact M1 given its high concentration on Mobile revenue.
How to fight back?
I've no privy to M1's management discussions, but I could try to piece the puzzle together. Recall that M1 recently announced its new product - mobile payment service?
One of the key note for this potentially successful product is that it will only work if its customers are using M1 data plan. This creates stickiness with M1.
Its like Apple. Apple always ensures that its products are closed and interconnected. Just like how iTunes are only available to Apple product users and not open source - thereby creating demand on both iTunes music sales and Apple iDevices sales.
Should M1's mobile payment service really becomes hit, they could really have a strong moat to lock its its customers and reduce their churn rate.
very good read
ReplyDeleteI think the deal with Liberty Wireless is quite positive