Readers at Investment Moats will be familiar that I have highlighted a few articles in the past that what you think is a business model with a strong economic moat enhanced by the smartphone revolution might kill telcos like Singtel, M1 and Starhub more than enhanced them.

Consider reading these few past articles:

1. Primer to telecom investing: Singtel, M1, Starhub
2. Starhub, M1 and Singtel’s existing telecom business model approaches end of life
3. How the smartphone revolution will affect M1, Starhub and Singtel
4. Smartphone revolution causing back hual problems
5. Telecom operators in US moves to tiered pricing
6. The rise of VOIP iPhone App Viber

What we learn from these article thus far is

1. Telecom is a utility like business that is resilient in recession times, offering something people cannot lived without.
2. Telecom Stocks pay a good dividend yield
3. The smartphone revolution makes mobile phones indispensible, enhancing telcos at the same time
4. It however commoditizes telcos. Users differentiate based on who can provide me with sophisticated phones rather than good service
5. 3G and LTE creates huge amount of data demand that places pressure on telco’s network, resulting in higher capex.
6. Telcos cannot priced in this higher capex due to users getting used to all-you-can-eat buffet phone plans.

So how is the situation now?

We know that in the last half year:

1. EBITDA margins at Singtel, M1 and Starhub is contracting due to competition. ARPU is rising due to the more expensive 3G data plans, yet the telco’s are not making substantial gains.
2. Gains are garnered by selling more bundled smartphones and lowering of subsidies used to entice users to jump to their platform.
3. Telcos are struggling to sell value added services. Singapore consumers are not really interested in them.
4. Capex is not rising as fast as anticipated based on the back haul problems.
5. M1 becomes the first telco to do away with unlimited data for their data only mobile broadband plans, following the US telco.

Make no mistake, currently telcos are great investments, as shown by the dividend yields of the 3 telcos listed on my Singapore Dividend Tracker. But how would they look in the future?

I came across this article written by IIja Laurs who is the CEO of GetJars on Gigaom, talking about mobile operators losing voice services to mobile platforms. I find this a good read and thought provoking and entirely realistic.

Here are a summary of points made

1. We are only tied in to our mobile phone company because of SIM card. Other than that we do not consume any of their value added service or bloat ware.
2. We probably will not rely on the phone number any more. If we want to contact someone, we will go to a social networking site such as Facebook or LinkedIn or Google Contacts and data message the person or VOIP the person.
3. When we purchase a phone, the first point of registration will be to a global provider like Google or Apple. Why do we choose them? on the virtue of the value added services provided.
4. Google and Apple will be what Singtel, M1 and Starhub envision to be: Mobile Operators who provides value added services.
5. In this case, the mobile operators such as Singtel, M1, Starhub or Telekom Malaysia will just be a cell tower or infrastructure operator. They have no pricing power and they compete with each other through price, scope of network, quality of service.
6. As an end user, all you care about is to use Google’s services, you manage your fleet of telcos through Google. When you go to another place, you can easily subscribe to the strongest signal there.
7. Why would the 3 mobile operators do something like that? Sometimes this change is inevitable. It may take IDA to offer another spectrum and a new entrant coming in hoping to tie up with Google or Apple. It may take the weakest telco of the lot (M1) to cave in and tie up with Apple.
8. This is essentially the prisoners’ dilemma from economic textbooks: If both prisoners don’t talk, both win. But if separated and one is promised a way out and he talks first, then game theory suggests the winning strategy for each prisoner is to talk. In other words, one of them will crack.
9. As a supporting evidence, Apple took over the app distribution business of the mobile phone operators, something they entirely dismiss when Apple started this. Now they are losing this to Apple.
10. The mobile operators were reluctant to accept Google’s Android plans initially, but it just take one smaller player (T-Mobile) to cave in and it will spark of what the game theory depicts.
11. Google just purchased Motorola Mobility, they as the provider of value added services have better pricing power. They can acquire or dictate the direction of telcos much better.
12. Singtel, M1 and Starhub may eventually be reduced to infrastructure assets like CMPacific, CitySpring or SP Ausnet.

Do read this article. It has some nice discussion as well. Tell me what you think.

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Imagine buying your SIM-free mobile phone from a local electronics store and logging into your Google or Apple account as soon as you turn the phone on for the first time. Then imagine having the phone ready to use for voice calls with a phone number provided to you by Google Talk or Skype, and ready to access email, YouTube or Facebook.

That same phone automatically hooks to your home Wi-Fi or any of the available 3G, WiMax or LTE networks without you even knowing (or caring) which specific network its running on at the moment. No longer do you have to belong to a specific carrier — your phone automatically picks the strongest and cheapest network option at any given time. Your network access, along with voice, app/in-app purchases and everything else are provided to you by the mobile platform provider. The carriers are only there to run network infrastructure and sell bandwidth to two to three mobile platform providers.

Let’s face it, the only two things that still connect carriers to consumers are the voice number and billing for the network access. SIM card technology is rudimentary — you can easily conduct user authentication using a simple login, just like Apple does on iPods when you want to buy apps or songs from the iTunes store.

[Read full article here >>]

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

Here is a chart on China interest rates. The base interest rate is nearly 5%. To operate in China and borrow money, the cost is high. Perhaps that is why they would prefer to do rights issue according to Nick.

For those interested in tracking my most current holdings, you can review my portfolio over here. Learn to use our Free Stock Portfolio Tracking Google Spreadsheet to track stock transactions.

Ok I came back home from work to see this ridiculous article from Channelnewsasia:

The Land Transport Authority will soon be calling for a tender to invite industry players to submit technical proposals for a second generation ERP system.
One of the key technologies identified is a Global Navigation Satellite System (GNSS) which makes use of satellites to determine the position of a vehicle.
Transport Minister Raymond Lim said the LTA will be conducting various technical tests to evaluate if the latest technologies available in the market today are accurate and effective enough for use as a congestion charging tool, especially taking into consideration the dense urban environment in Singapore.

Drizzt:

Ok so what is so deficient about the current ERP system? Is it they are not bringing enough revenues for the government?

Is it because it takes too much effort to put up gantries all over singapore?

However, he added that the development and testing of new ERP technologies that are suitable for Singapore’s conditions could take some years before it is ready to be launched and implemented.

Speaking at the World Urban Transport Leaders Summit 2010 being held at Singapore’s Suntec Convention City Centre, Mr Lim pointed out since being implemented in 1998, the gantry-based system Electronic Road Pricing (ERP) system has served well.

However, as the number of vehicles on Singapore roads increases over the longer term, congestion will become more extensive and it may become impractical to continue installing ever more physical gantries to manage congestion.

Drizzt:

Ok so how many of you think that this ERP system is actually funneling and optimizing traffic well?

I think Singapore pride itself to have an educated work force so when I spoke to all my educated friends and acquaintance. They point to one problem for our traffic congestion: Too much cars!

I really sometimes wonder what is the freaking point of putting up so much gantries when every where you go gantries or not, it is still freaking jam.

I do go on site quite a fair bit and sometimes I require to go somewhere fast, so I took the route that has the most ERP and the fastest. When I take the CTE, its still freaking jam!

Why is there often such a jam, because of impatient drivers trying to navigate a traffic condition brought about by too much cars!

And since I took on average 5 taxi trips every month I managed to speak to a fair share of taxi drivers.

Their assessment: Whats the point of ERP? its freaking jam! Given the choice they would rather drive at night.

The Transport Minister told the world-gathering that Singapore is in a very unique situation being a small city state, with a growing population whose needs have to be met.

"Our transport sector plays an important role, in being able to move people quickly and efficiently, while managing road congestion. This is critical in keeping Singapore vibrant, green and an attractive place to live, work and play" he said.

This means options that include ways to encourage the development and use of green technologies in Singapore and nurturing green businesses and clean tech industris through tests of clean technologies in the transport sector.

This includes energy efficient lighting for traffic and street lights, recycled materials for road pavement construction, and construction methods that minimise the impact on the environment.

To improve the living environment, Singapore has also been testing green transport technologies such as the trial of diesel hybrid buses and diesel particulate filters in conjunction with the vehicle emission test laboratory (VETL) which was set up in October 2009.

An Electric Vehicle Taskforce co-chaired by the Energy Market Authority (EMA) and LTA was also established to assess the feasibility of the EV technology in the local transport eco-system.

Mr Lim said LTA and the EMA will next jointly develop the necessary charging infrastructure to ensure convenient access to the electricity grid, with electric vehicle charging stations from service providers currently under evaluation.
With the electric charging infrastructure set up, and anticipated delivery of the Mitsubishi iMiEV electric vehicles, the test-bedding trial will bring Singapore be a step closer to going electric, on the road.

Drizzt:

Make no mistake. the people’s money will be expanded again to replace this IT system. one of NCS, ST Electronics or Accenture will benefit from this. Its gonna stimulate the IT industry, but is it for the best?

Here is an interesting read about a group of guys who had worked on Wallstreet and wanted to do a start up. Hear the difference between the 2 and their problems faced:

A number of skills that Wall Street beats into its financial analysts might actually hold them back in future careers.

We spoke yesterday with Vinicius Vacanti, who worked for 4 years on Wall Street before he left to fulfill longtime ambitions of being an entrepreneur and found he’d have to spend close to three “naive” years learning before bringing his companies close to profitability.

During 2-year careers at both Blackstone and the private equity fund Quadrangle, Vinicius picked up habits that were encouraged by finance culture and flaunted by his superiors, but were skills that would wing up screwing him over for a few years while he un-learned them.

“A lot of the skills that I had acquired over the four years in finance weren’t applicable to the start-up world and in some cases were actually limitations for us,” Vacanti told us.

First of all the finance world is very secretive. You’re not allowed to talk about what you’re working on with your friends, or anyone. You don’t want to because it’s competitive. In the start up world, it’s the exact opposite. You should go out and meet everyone else in your community, talk to them about what you’re working on and get feedback from them on your ideas.

“I remember when we first left, we were talking to a guy and we made him sign an NDA which is just, unbelievably ridiculous,” Vacanti says.

“It was a habit we’d picked up in the finance world, that you had to be secretive. Everyone we asked to sign NDAs were just taken away, like ‘What are you doing?’”

“In the start-up world you can’t go around asking people to sign NDAs,” he explains. “It makes it look like you don’t know what you’re talking about.”

Yipit, a discount deal-sharing website, is the company Vinicius and his partner, Jim, had always been working towards. But it’s taken them three years and they still aren’t profitable yet. Before yipit, they started a failed company that allowed people to share what they were reading with their friends (before Twitter).

A few of the reasons they failed can be traced back to practicing bad habits they picked up while working in finance.

“When we first [left Wall Street], we were very secretive about what we were working on and we were afraid to talk to people about our ideas because we thought of it as one big competition.”

Then he grabbed a lunch with a friend who had a great idea and completely changed his mind.

“It was one of the few lunches we ever did at that point, and I realized that during that conversation he completely changed how we were thinking about what we were working on at the time,” he said.

If a lunch like that can be so valuable, he figured, you need to get out there and meet everyone you can because a lot of people have these great ideas and they’re willing to offer them.

Another nasty habit the pair picked up in the finance world is being perfect. When you’re making presentations and when you’re producing analysis, he says, you’re supposed to aim for 100% accuracy. In the start-up world it’s the opposite.

“If you’re trying to be perfect, you’re going to spend five months putting together something that people don’t even want,” he says. “You have guesses about what you think people want but you’re usually wrong. You have to learn that as quickly as possible, so you should leave the last 20%, he says.

After Vinicius and Jim spent time and money (they out-sourced the site’s programming) and saw their twitter-ish site fail, Vacanti decided he had to learn how to program and build a website on his own, and fast.

So he and Jim founded 140it.com (a book-marklet made for twitter that helps you shrink your posts to 140 characters automatically if you go over) in one weekend and unhub.com in another weekend just to test the waters and learn from. Both were successful (and still are) but not really modeled for making money

Their main site, yipit, is now built to make money and they’re looking to profit soon. In March launched its most recent version which recommends discount deals to subscribers (~16,000 right now and growing) on a daily basis based on their preferences (shopping, classes, restaurants).

So, the story might yet have a happy ending, but if they’d never been on Wall Street, they might have created the next Twitter. Maybe.

WITH ACUTE EXPOSURE, 5 PPM CAUSES DRYNESS OF NOSE & THROAT AND A MEASUREABLE INCR IN RESISTANCE TO BRONCHIAL AIR FLOW; 6 TO 8 PPM CAUSES A DECR IN TIDAL RESP VOLUME. SNEEZING, COUGH & EYE IRRITATION OCCUR AT 10 PPM; 20 PPM CAUSED BRONCHOSPASM; 50 PPM CAUSES EXTREME DISCOMFORT BUT NO INJURY IN LESS THAN A 30-MIN EXPOSURE … 1000 PPM CAUSES DEATH IN FROM 10 MIN TO SEVERAL HR BY RESP DEPRESSION.

The larger eruptions of Katla, have ejected up to 1.5 x 10^9 cu m of material with a Volcanic Explosivity Index (VEI) of up to 5. For comparison Mt Pinatubo in 1991 ejected 1.1 x 10^10 cu m with a VEI of 6.

The Times has an interesting graphic that shows some of the concerns and I am going to use a bit of it to show that the problem may be a little bigger than even the article suggests.

To begin with recognize that Iceland is at the intersection of different plates that together form the shell of the planet. Whereas in some parts of the world these plates are pushing together and riding over each other, in this part of the world they are tending more to separate, so that the magma, on which the plates ride, can make its way up along the joint planes and erupt at the surface.

Map of Iceland showing major volcanoes (The Times of London)

Now what the picture is concerned about is that generally when Eyjaflallajokull erupts so does Kalta, which is right next door. But Katla is a larger system and the eruption is generally much more severe.

Unfortunately what has also to be considered is that there are a whole line of craters, not shown on this map, between Katla and Vatnajokull, which are also a worry. Laki, an even greater threat than Katla, lies along this line.

Iceland’s Laki volcano erupted in 1783, freeing gases that turned into smog. The smog floated across the Jet Stream, changing weather patterns. Many died from gas poisoning in the British Isles. Crop production fell in western Europe. Famine spread. . . . . . .

The winter of 1784 was also one of the longest and coldest on record in North America. New England reported a record stretch of below-zero temperatures and New Jersey reported record snow accumulation. The Mississippi River also reportedly froze in New Orleans.

It is at the orange flag in this picture.

(Google Earth)

There is a line of eruption calderas from Katla up to Laki, which is up around Skaftareldar.
The 3.5 earthquake I wrote about on Bit Tooth Energy lies beyond Laki on the line from Eyjaflallajokull, and was centered further north in the Vatnajokull. Some have blamed the weather created by the eight-month eruption of Laki as a possible contributory cause to the French Revolution.

An eruption of that length, ejecting as much material as it may into the atmosphere, would have consequences that go beyond just the ability to survive the noxious gaseous clouds.

The impact of the dust is shown in this picture from the British Met Office, which shows that plume reaching down past Scotland:

Dust cloud passing Scotland (Met Office)

And the consequent distribution at different levels of the atmosphere.

High and low level ash distribution (Met Office via the Guardian)

The agriculture of Europe would be damaged by a prolonged eruption with this distribution, and with it the possible production of biodiesel. Consider that the growth of rapeseed (canola) around the world has been steadily rising over the past few years.

With European countries sitting just behind the leaders.

Somewhere over 4 million metric tons of the crop currently goes to producing biodiesel, mainly in Europe. (Heading up towards 100,000 bd). Losing a year of that crop (and large scale volcanic activity can have an impact for over four years on the climate and the ground chemistry), particularly given the current possible approach of the peaking of conventional oil production, could have an unanticipated impact on overall liquid fuel availability and price.

Unfortunately rapeseed is only one of the crops that will be affected, and the significant drop in crop yields does not appear to be getting much attention yet.

Beyond that, there should be a little concern for the wind turbines that are now dotted over the horizon. The concern is with the speed at which the tips travel through the air. The air, that looks clean, will contain small particles of very sharp glass and other volcanic ejecta, that are the primary cause for the grounding of aircraft across Europe. While the aircraft can see very sudden loss in engine power, because of the high speeds with which they encounter the clouds, and the volumes of debris sucked into engines that then fail. (There are also video explanations.)

Wind wing tip speeds have been projected to be in the range from 264 ft/sec to 326 ft/sec. At impact speeds over 120 ft/sec the particles from the eruption will start to erode the blades of the turbine. If the eruption continues for weeks, and the turbines rotate in that atmosphere (which looks clear to normal vision) then they will lose surface quality, and perhaps the particles will enter into the generators (as they do on aircraft) doing significant damage.

Thus, beyond the initial inconvenience of the loss of a way to fly (bearing in mind I am supposed to fly to Europe myself soon), there are the longer concerns over both the crops this summer and for the next four, and for the longer term health of the turbines. All in all it is a reminder that there is never a time that Nature, with a little nudge, cannot remind us of the risks of complacency.

Im sure the Singapore Governemnt will be dissappointed

The Globe and Mail reports this morning that Athenians hoped the 2004 summer games would have been the start of a new era for the economically troubled state, but instead it has brought only more misery for those living on the outskirts of the Greek capital.

Greece’s debt position has nothing in common with Beijing, but the real estate boom surrounding their Olympics has been eerily similar. Whether or not that boom is a bubble is still up for debate, but it surely shows many signs of a speculative real estate rise.

A more fitting comparison to Greece may be the United Kingdom. Already flush with debt, the country is to host the 2012 Summer Olympics and his completely rebuilding a huge swath of the city to do so. Simultaneously, London is experiencing yet another property boom, bringing more gigantic debt funded projects to its skyline.

Whether the UK can handle the cost of the Olympics, now estimated at 9.3 billion pounds ($14.3 billion), remains to be seen.

How would an investor play this? i remember a statistic i saw a long time ago stating that investing based on Olympic events before the actual games is good since the construction and development and preparation brings about economic growth but after that it normally gets shitty.

[From the Business Insider >>]