By Foong King Yew
Embed from Getty ImagesJust three days ago, Singtel said it was undergoing its latest re-organisation as a part of its ongoing strategic reset.
The move is designed to drive growth, improve synergies between business units, and boost productivity at the country level.
Singtel’s efforts resemble what other communication service providers (CSPs) have done as well, in moving towards a so-called ServiceCo and InfraCo operating model.
In other words, one big business unit running services and another one running the networks and infrastructure that enable these services.
A single consumer and enterprise operating company
In this model, Singtel will consolidate its consumer and enterprise businesses in Singapore into a singular operating company.
This is designed to empower its core business and drive growth by making business units work better together. The question is where the synergies and growth will come from.
With the exception of some overlaps in network infrastructure-related operations, there are few commonalities in the consumer and enterprise businesses.
This is why CSPs typically maintain separate consumer and enterprise telecom operations and management systems.
The three main customer segments — consumers, small and medium-sized businesses (SMBs), and large enterprises — have vastly different requirements and expectations. Direct sales, channel partner, marketing, and customer support activities differ markedly as well.
Generally, there are few significant cross-selling opportunities to drive growth, though there may be some overlaps between the SMB and large enterprise segments that Singtel can tap on.
That said, scaled-down versions of products or solutions originally conceived for large enterprises typically fail to excite SMBs. Like all businesses, SMBs prefer solutions that are specifically tailored to their operational needs.
Separation of infrastructure assets
As part of the reorganisation, Singtel will also establish a standalone infrastructure unit called Digital InfraCo.
It will comprise Singtel’s regional data centre business, subsea cable and satellite carrier businesses, and Paragon, an all-in-one platform for 5G multi-access edge computing (MEC) and cloud orchestration.
This is similar to Telefónica’s strategic move in late 2019 to set up Telefónica Infra. In the same vein, Singtel appears to be moving away from a tightly-integrated organisational structure.
In 2021, Singtel spun off its infocomm technology arm, NCS, as an autonomous business unit. This was a reversal of the initiative to closely integrate NCS with Singtel’s enterprise unit some years back in the hope of extracting synergies.
In July 2022, Singtel further decentralised its businesses by transferring the management of Optus Enterprise to Australia (which gives the latter more autonomy and accountability).
Such moves suggest that there are difficulties in achieving economies of scale and economies of scope. Synergies can be easy and obvious in theory but difficult in practice.
Singtel itself has pointed out that since spinning off NCS, the latter has grown in size and scope with a 12,000-strong workforce and a regional footprint that extends to Australia.
This would suggest that there were considerable overheads and inefficiencies shackling NCS in the past. As such, Singtel should continue to focus on transforming and streamlining its internal processes.
A looser organisational structure can incur additional costs and inefficiencies too, making productivity enhancements — a stated Singtel goal — harder to attain. There is also a concomitant question: Can the sum of parts be greater than the whole?
In the current business milieu, it is very challenging to differentiate one’s network infrastructure and deliver superior economic value despite rapid growth in the digital economy.
Although the underlying network infrastructure is indispensable, the bulk of value creation has shifted to the applications and software layers. Platform businesses are also on the ascendant.
In the data centre segment, cloud hyperscalers possess the benefits of scale and agility which make it hard for CSPs to compete head on.
To be sure, there are some positives in forming Digital InfraCo. Besides an improved focus via a dedicated management team, Singtel also gains the strategic option to divest the unit in the future or attract financial investors to co-invest in growth opportunities.
There may be openings to establish creative partnerships and business models as each market evolves.
Growth requires focus
Like many CSPs elsewhere, Singtel is challenged to generate new revenue growth. It remains to be seen if the latest reorganisation is sufficient to address this challenge.
Singtel’s past forays into adjacent markets — for example, digital marketing, data analytics, the Internet of Things, and regional streaming video — did not achieve any significant impact on revenues and profits.
Last year, Singtel sold off Amobee and there was even market talk that it may divest its cybersecurity business, Trustwave.
There are now no more low-hanging fruits unlike the early years of this millennia. As such, Digital InfraCo will have to concentrate on operational efficiencies while ServiceCo — the consumer and enterprise operating company — must deliver on superior customer experience and innovative product development.
ServiceCo needs to build a culture centred around innovation and sustain it through judiciously applied incentives and performance indicators.
Fundamentally, Singtel has to focus relentlessly. Here, the Digital InfraCo split makes logical sense but Singtel has to demonstrate that its other ventures such as digital banking (GXS Bank) can, in time, become successes and not distractions.
To build its digital banking portfolio, Singtel has taken up a minority stake in Indonesia’s Bank Fama but this small equity position does not confer much control or influence.
Plus, Singtel has no track record in digital banking and derived revenues may not be sizeable enough to make a significant impact.
Questions can also be posed for Singtel’s joint venture with Australian property company, Lendlease Group, to redevelop the former’s headquarters and participate in property asset management.
What’s next for Singtel
Despite the latest reorganisation, Singtel still has some ways to go in transforming itself. It urgently needs a bold, innovative, and compelling vision.
It should develop a comprehensive and concrete plan to progressively integrate artificial intelligence/machine-learning, automation, and advanced analytics into its organisation and internal processes.
This calls for new blood and fresh perspectives, on top of changes to the organisational culture.
Don’t forget that growth is limited in Singapore. Some new digital business opportunities such as MEC are constrained either by the country’s geographic size or intense market competition.
This means Singtel has little choice but to look beyond local shores. It must learn to become a true “insider” in new foreign markets and operate there like a local.
Strategic partnerships can bridge the capabilities and resources gap in the near term but ultimately Singtel has to develop its own competencies.
Foong King Yew is a Singapore-based independent telecom analyst/advisor and an Honorary Fellow at the University of Melbourne (Industry Advisory Group, Faculty of Electrical and Electronic Engineering). He was formerly a chief of research and research vice president at Gartner.
