Singapore Telecommunications Limited (Z74) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Singtel FY '20 Q4 Results Conference Call. [Operator Instructions] Ms. Sin, over to you.

Thank you, operator. A warm welcome to all investors and analysts. You are listening in to Singtel's Earnings Conference Call for the Fourth Quarter and Financial Year ended 31 March 2020. My name is Sin Yang Fong, and let me introduce management on the call. We have Ms. Chua Sock Koong, Group CEO; Ms. Kelly Bayer Rosmarin, CEO, Optus; Mr. Bill Chang, CEO, Group Enterprise; Mr. Yuen Kuan Moon, CEO, Consumer Singapore; Mr. Samba Natarajan, CEO, Group Digital Life; Mr. Arthur Lang, CEO, International; Ms. Lim Cheng Cheng, Group CFO; Ms. Jeann Low, Group Chief Corporate Officer; Mr. Murray King, CFO, Optus. Before we start taking questions, I would like to invite Sock Koong to share some highlights from this set of results. Sock Koong, over to you.

Thanks, Yang Fong, and thank you for joining us certainly under very unusual circumstances. But today, we are going to talk about the Singtel's results for the fourth quarter and the financial year ended 31 March 2020. Before I discuss the financial results, just also to update that on our financial reporting, starting from the new financial year, we will be adopting half yearly announcement of our financial results and providing quarterly -- we'll be adopting half yearly financial reporting. And then we will, on a quarterly basis, still provide business updates so that investors like yourselves can track our performance. Okay. And let me also just talk a bit on what we had done in our response to the COVID-19 situation. I think you will have seen that we have taken very proactive and decisive actions to help our customers stay connected, minimizing disruption. Our services support critical government functions, remote working, online learning, entertainment and underpin the continued running of businesses. In anticipation of a surge in traffic, we boosted our network capacity, and we maintain high network performance levels throughout. We implemented enhanced work arrangements, based from home or on-site. Approximately 85% and 70% of our staff in Singapore and Australia are working from home. We ensure our front-line staff working in offices, shops and site -- on-site received additional protection and equipment to stay healthy and safe. We continue to deliver market-leading customer experiences despite disruption to our manpower deployment and offshore call centers as a result of lockdown not just in Singapore but in other countries. Additional resources were rapidly mobilized, and customers were encouraged to use our digital interaction channels and service applications. Our enterprise customers adapted quickly to the new operating environment, leveraging our suite of business and productivity tools such as video conferencing, e-commerce and cybersecurity protection. We implemented a range of support measures for our customers and communities. We value our staff. We raised $2 million to support vulnerable groups in Singapore during this testing time. And amidst weaker hiring sentiment, we are also stepping up with training and employment opportunities. In Australia, we recruited customer services officers from industries affected by the downturn. In Singapore, we are providing traineeship opportunities to fresh graduates and re-skilling existing staff. These initiatives help us build a pipeline of talent while boosting the employability in preparation for upturn in the job market. Very quickly, I should also highlight the changes that we've seen on the demand and consumption of services against the backdrop of a likely global slowdown. Roaming traffic, as you can imagine, that had plunged due to significantly reduced travel. Local data usage has grown significantly, a bit mainly on our fast broadband network and the very generous data allowances that we already offer on our mobile plan. And as customers cut back on discretionary spending, particularly in the emerging markets, this has affected prepaid usage and top-up as well as equipment sales. With the drop in business activities, enterprises are similarly reviewing their costs and purchase decisions. So as marketing budgets get cut, Amobee had seen sharp declines in advertising spend. And expectedly, collections from customers have also slowed. These are just some early observations. The full impact of the pandemic will only become clearer as the economic consequences unfold over the next few months. More importantly, COVID-19 is radically changing -- driving changes in customer behavior and accelerating the digital future. Movement restrictions have driven customers to use our digital channels for purchases, payments, remittances and other services. Business owners are looking for reliable and secure digital solutions to strengthen their operation. As a key enabler of communications and digital technology and we are digitally selling before, we are positioned to seize this opportunity and to emerge stronger for the longer term. I would just touch briefly on some of the key highlights for the year. I think network investments continue to be a priority for the group. In FY '20, we invested $1 billion into mobile infrastructure in Singapore and Australia. I think on 5G, we are focused on extending our lead, and we've already launched commercial 5G services in Australia and the Philippines. In Singapore and Thailand, we have secured 5G spectrum. We will commence the 5G rollout this year. Also noteworthy is NBN's very strong performance throughout the year with $3.2 billion of orders on new wins and contract renewals for multiple public agencies. And then on Optus, I'll highlight that we have migrated 250,000 HFC customers onto NBN and that -- and we have tripled our NBN migration revenue, which reached a peak of $607 million in the year. But I should highlight that on an ongoing basis, the shift from HFC to NBN resale will result in lower margins for -- and it's not just lower, it's also low margins for our fixed business. I think on the front of digitalization and cost transformation, we realized over $400 million of cost savings last year. I think in the associates, we have continued to -- data growth has continued, but customers spend did slow down on COVID-19 concerns. I'd like to highlight that India performance. Airtel is starting to turn the corner, that they've got market share gains, and we've also seen higher ARPUs. I think on the financial results, I think it's been a challenging year. Even pre-COVID, business and consumer sentiments were already subdued by economic uncertainties and, in our case, Australia with natural disasters, including some bushfires in the earlier part of the year. And of course, these challenges were anticipated by structure shift in our markets. We've got new mobile and MVNO players. We've got increased competition. And then we've got carriage and pricing erosion. And in India, we saw adverse regulatory and cost outcomes in India. So for the financial year, revenues were down 2% in constant currency with declines in mobile service revenues and equipment sales across Singapore and Australia. EBIT before associates contribution fell 21%. Australia posted lower revenue and earnings with low margins from NBN resales and equipment sales, and that's partly mitigated by the stronger NBN migration revenues that I mentioned earlier. The regional associates post-tax profits were up 10% in constant currency as losses from Airtel narrowed with tariff increases in December that helped offset the higher depreciation and amortization recorded by the associates. Underlying net profit declined 13%, while net profit fell 65% as the group recorded a share of provision for regulatory demand in India mainly on license fee and spectrum charges. Also, I think I should just touch briefly that -- and I think you will have seen that. For this financial year, the Board has recommended a 30% cut in the total dividend for the year. So the final ordinary dividend will be $0.0545, bringing total dividends to $0.1225 or a payout ratio of 81% of underlying net profit. This compares to $0.175 that we paid previously. I think the reduction in dividend payout is prudent to conserve financial headroom to cope with uncertainties in the current COVID-19 operating environment and the capacity to invest in 5G. I should also highlight that given the unprecedented disruption from COVID-19, we will not be providing guidance for the next financial year. We will, of course, update the market when there are material developments or where there's greater clarity in the operating environment. With that, let me hand you back to Yang Fong. Thank you.

Thank you, Sock Koong. Participants are advised that this call is being recorded for playback and transcription. We will now invite questions from participants. Our operator will assist you to put through your questions.

[Operator Instructions] We have the first question. It comes from the line of Miang Chuen Koh from Goldman Sachs.

So a couple of questions. Firstly is on consumer EBITDA margins for Singapore and Australia. They're sort of going opposite directions. Wondering if the cost cuts in Singapore are sustainable and if there is also similar scope in Australia to do the same cost cuts and also improve margins, though, of course, we are certainly aware that part of the margin weakness is due to revenue mix as well. Secondly, for FY '21, can management walk us through the Singapore and Australia business definitely on what aspects of CapEx is critical to still be investing into and whether there are areas that may have the scale-back as well considering the uncertainty? And also, should we expect significant variances in FY '21 CapEx from what was spent in FY '20?

Okay. I think, obviously, the margins in Singapore and Australia consumer business, they are likely to be different, reflecting the different operating environment and competitive situation. But I will get maybe either Murray or Kelly to comment on the Australia margins and whether there's further opportunities for cost out. And I think your question on CapEx, we have reviewed our CapEx very closely. Clearly, there are some CapEx which would be deferred with -- if we do see a slowdown in demand and the need for certain network expansions, et cetera. But you would imagine that the CapEx for 5G, which obviously will take over a period -- will be over a period of time, that we will continue. I think we -- you would be aware that we have been -- we won 1 of the 2 5G licenses in Australia -- in Singapore. I think once the net -- once the license is issued, we would commence our rollout. Likewise, in Australia, the 5G rollout has already commenced, and that will continue. But I think, clearly, we would be reviewing our CapEx very closely, looking at where the demand increases. And where demand has changed, we would adjust our CapEx accordingly. So maybe I hand over to either Murray or Kelly to talk about cost opportunities in Australia.

Yes. Thanks for the question. So we obviously are paying a lot of attention to those EBITDA margins in Australia. And I might separate them into the fixed business where we have the structural change in our market with the move to NBN. That has structural implications for the margins that we can achieve with our fixed portfolio as we transition from a proprietary network to the regulated pricing of the NBN network. There is definitely scope for further cost out there, albeit it will take us time because it involves us transitioning all our customers off the proprietary networks and then seeking to harvest costs out of that. On the mobile side, the margin pressure there has been coming from years of discounting and heavy subsidies. And the market repair has been in place beginning this financial year, so I think there is scope for improvement on that side. And we would certainly look to see that maintained if there's orderly market conduct. And at the same time, there has been significant costs taken out of the business over the past 2 years. And we will continue to look for opportunities, albeit there's also increased costs because of the build-out of our network. We have grown our coverage to now cover 98% of the Australian population. And so our network has increased. So we will continue to look for cost-out opportunities, but I don't think they're of the same order of magnitude and has been achieved in the previous 2 years.

Got it. Maybe additional on CapEx. Would that be 5G CapEx guidance provided at some point this year, I guess, in Singapore?

We are not providing any guidance for this year. I think let us see how the situation pans out. Maybe at the half year, where there's a bit more clarity, we will certainly see if we can give you some color at that time.

Next, we have the line of Piyush Choudhary from HSBC.

Two questions, please. Firstly, how should we think about now medium to long-term outlook for dividend? I know it may not be a fair question for fiscal '21, but keen to know your thoughts on medium-term outlook. Secondly, on Australia, how has been the response to Optus Choice plan and its impact on revenue? And if you can talk about the outlook for Australia mobile business. And any clarity on the time line for spectrum auction on 850, 900 in Australia?

Issue of dividends, the company has always been looking to pay a dividend that is sustainable and growth is in line with underlying earnings. Obviously, there may be periods of time where the CapEx intensity is higher, in which case, there may be a need to adjust the dividend. So I think as you're aware, we are entering the phase where we are building 5G network. And of course, there's also other costs like spectrum fee, et cetera, associated with 5G rollout. I think those would have an impact on the group's cash flow and dividend level in the short term. I will say that the level of dividend this year would be no reflection of what the dividend will be going forward. And I think that's something that the group wants to look at very closely once we get a bit more clarity on business operating conditions. But I think by March, I think we would want to have the dividend policy that delivers dividend that is sustainable over longer term and basically grows with underlying earnings. I hand over to Kelly on Australia.

Thank you. So the response to the Optus Choice plan has been really good. They're resonating well with customers, and they do provide that level of flexibility that we think consumers are after, and especially that is resonating at this moment in time. Actually, WhistleOut published yesterday that they thought Optus was the most popular provider in Australia, and part of that is that the Choice plans are resonating well. On the spectrum auction, the 850, 900 spectrum auction is scheduled for Q4 of 2021. So that's October to December 2021. Thanks.

Sure. Yes. Just on dividends, if I may. Should we think about, like in the past, you would revert back to the old dividend payout policy of 60% to 75%, which is more sustainable?

Well, let us review that and share that with the market, I think, once we get a bit more clarity on the business operating environment and also to review of what the 5G rollout timetable looks like.

The next question comes from the line of Entcho Raykovski from Crédit Suisse.

Mine are related to Optus. And firstly, just interested in the extent to which lower roaming revenues specifically impacted the 4Q results for Optus and how much of the quarter-on-quarter decline in postpaid ARPU was impacted by that lower roaming. And just secondly, it is related to the roaming question. I don't know if you can give us this, but how much is roaming revenue in a normal year? And any color on the sort of margins that you generate would also be useful. And then just finally, the net adds in mobile, you've noted that had been impacted by cleanout of inactive subs. Can you provide us with the quantum of that impact? Obviously, it's a much lower net adds this quarter relative to the previous quarter. And then any split you can give us between the postpaid and prepaid impact would also be useful.

Yes. Kelly, over to you.

Yes, thank you. So in terms of lower roaming revenues, specifically in Q4, we only experienced the lockdown conditions and lack of travel for the last month there, so there's the beginnings of some of the impact of COVID-19 but not a full quarter's worth. I would add that roaming revenues were reducing in general, as a trend, before COVID hit as well. Just as the prevalence of WiFi, yes, it goes up in international travel destinations. So it was an already declining revenue stream. And for your question on the margins, the margins associated with roaming are reasonably high. So as we go forward with increased travel restrictions, as Sock Koong mentioned, we will be impacted by lower roaming revenues. In terms of net adds, what I can say is that we still have added 141,000 postpaid net adds for this year, so we are still growing our customer base. We feel that we're winning in the market. Our brand is strong, resonating with customers, and we're doing that with far less discounting than we've done in the past. So we think that the business is healthy, and particularly the postpaid business is very healthy and performing well.

Okay. And maybe if I can ask a follow-up on that. Specifically that cleanout of inactive subs that you've mentioned, did that impact the postpaid numbers in the fourth quarter? Or was it really skewed towards prepaid?

I think it actually impacted both, and some of it was related to some system upgrades that we had done. So it impacted both.

The next question comes from the line of Rama Maruvada from Daiwa.

I have 3 questions, please. Firstly, again, a follow-up on the margin trends. In particular on Singapore side, EBITDA margins were up around 7 percentage points. Just wondering if you could talk through on how should we look at roaming costs. I mean what is the margin in the Singapore business from roaming? Because ARPUs are down 20% for postpaid, but it looks like the margins are up in a big way. And related with that is your rate subsidy. How much have you booked in the current quarter? How much more would be remaining for the future quarters? Or have you booked the entire quantum in this quarter itself? That would be one. The second one is with regards to the outlook for NCS as well as Trustwave, looks like the momentum here is quite strong. Just wondering whether you are seeing -- your commentary with regards to business difference and all that, that there is an expectation that you would see going forward or -- because it doesn't look like it's reflected in the current quarter numbers.

Okay. I'm going to ask our CFO to explain the changes. Maybe it's good to just have a bit of refresher on what I have seen the impact of that on EBITDA margin, and let me help to answer some of the margin question that you have on the Singapore business. And what's the other? I think on NCS, I think a number of projects, because of the lockdown and because they are not -- seen as not critical, those have definitely been deferred. They are not canceled, they are just deferred. So I think depending on what the -- how the sales approach of the people going back to work and the flexibility, we'll see some of these revenues catching up. And I think also many of our services that we provide are considered essential services, so we would probably be returning to some of this ability to return to this project execution will probably be by next month, yes.

Okay. Thanks, Sock Koong. I think you'll remember that for Singapore accounting centers, we actually went on to the SFRS(I) 16 leasing expenses actually from the beginning of the year. So with that, we actually adjust the operating lease expense of our operating expenses line prospectively. That means that there isn't any adjustment of the prior year number. And you will expect that for a company like Singtel, the impact can be pretty big on the EBITDA line. I know that we didn't disclose individual business, but if you want -- just want to get a sense of this, you can go into our appendix 1 in our MD&A to just get a rough sense of what the operating lease expense impact had been on the different line items. So I would ask all the analysts that, at least for this year -- next year, it would normalize because you will be comparing to the same base. But at least for this year, look at the EBIT margin. It's probably a fairer and a truer reflection of the margins of the business, okay? And also, the other comment I want to make on the Singapore consumer front that whilst there is this reduction in the operating revenue for the full year of minus 5%, on a year-on-year basis, EBIT actually dropped by 0.8%. So whilst we can argue that a bit of it was due to wage credit, but a large part is due to the strong cost management of the Singapore consumer business.

Lim Cheng, if you can also comment on impact on cash flows as well as increased liabilities as a result of SFRS(I) 16.

Okay. Okay. I think we also maybe got some questions over the morning about the free cash flow still being very strong. So that's the other part of the anomaly that you expect for this FY '20, which you see a very strong operating cash flow. And as a result, that we also did go out during the quarter -- at the beginning of the first quarter to talk about the impact of the RS 16 impact. So if you look at the appendix 1, again, we do see suddenly the volumes increased by about $2 billion. But at the same time, the right-of-use assets side improved by about $2 billion. And of course, free cash flow is helped by the RS 16 impact. And if you just back that out, the impact is to the tune of almost $400 million.

Basically, it moves from operating cash flow to financing cash flow.

Right. Yes. I hope it's clear.

I understand. Can I just follow up there? Basically, with regards to rate subsidy as well as the roaming cost, I mean, there are some cyclical as well as some structural costs which are moving -- which are impacting the margin at the moment. So just wanted to get a sense of rate subsidy, is this something that will be applicable for the next 2 quarters that will be supporting the margin. And at the same time, some sense of where roaming costs on the Singapore business are, if you could give us some sense there in terms of how that could potentially drive margins as the economy recovers.

I think, Rama, you will expect -- I mean if you follow the government announcement, which I'm sure you do, the wage credits will be booked progressively in accordance with the different milestone we have. I think one of your question was the booking. Of course, we are booked up to the financial year-end for March already. Okay? So did you have a question on roaming margins? I think you would expect roaming margin is -- of course, the margin for roaming is good. So that has clearly -- with the reduction in roaming, that would have an impact on your margins.

The next question comes from the line of Ranjan Sharma from JPMorgan.

Just 2 questions from our side. Firstly, I mean you touched upon the CapEx, but how should we think about the 5G CapEx that's required to build, let's say, 50%, 60% population coverage in countries like Singapore and in Australia? Just to get a sense on what the build requirements are. Secondly, in terms of your balance sheet, to strengthen your balance sheet, like do you have any meaningful opportunities to monetize your assets?

Okay. I think you've known the Singtel Group, we have always been very prudent in our overall financial management. We would always review if there are opportunities to monetize our assets, if we think that it is value accretive to us to our shareholders. So we have just announced that we are doing an exercise with the towers in Australia, which we believe it's something that is very accretive for the company. So that review is ongoing now. And that applies to the other assets that we own, also applies to the businesses that we operate to see if -- whether having different investors, having a strategic sale is value accretive. So that exercise is something that we do on a consistent and regular basis. 5G CapEx, that's a tough one. And I think in the case of -- we are actually doing a major tender exercise now for our 5G equipment procurement. And I think it's -- we probably would have a better clarity when the tender is done. And I think on the coverage requirements, I think here in Singapore, there is a regulatory time line, so maybe I'll get more to talk about what the 5G coverage program is in Singapore. I think Australia, it will be driven largely by business -- by where we see demands are. So maybe I'll pass over to Moon to talk about the 5G coverage requirements in Singapore.

Thank you, Sock Koong. With regards to the 5G coverage requirement, I think in order to secure the 5G license here, we have to make a commitment to provide 50% of the population coverage in 2 years and 95% in 5 years. So if you look at this sort of a progressive sort of coverage requirement in a place like Singapore, where it is not a very big country, you'll see that it is actually a very progressive way of growing our network. And if you look back in the past on 4G coverage deployment, we're probably along the same sort of time line to keep nationwide coverage as well. It's not going to be overnight, within 1-, 2-year period. But to -- and to ensure that our customers do not feel any gaps in the coverage, you'll see that the 5G rollout will be complemented with our continuous 4G coverage, which will continue to expand and invest the capacity to make sure that the move from 4G to 5G is seamless. And therefore, we are also looking at the CapEx in totality between 5G and 4G as a whole. So it will be a very progressive sort of rollout, and then it will not be a major shock into the market or a burden to us.

The next question comes from the line of Eric Choi from UBS.

Kelly, sorry, I just had a few more questions for you. Firstly, I'm just interested in your view on whether consumers will be prepared to pay more for mobile once 5G launches and whether coronavirus influences this view at all. And then secondly, around the postpaid ARPUs, I guess this is somewhat backward looking. And just given you mentioned market repair, is there a tendency or some other metrics that you have which demonstrates the improvement in the front book pricing? And then thirdly, Vodafone has been a little bit more active in pricing lately. My question is, does your modeling still show you can achieve profitable market share growth even if you see some subscribers so long as you grow ARPAs or ARPUs?

Kelly, over to you.

Thanks for those questions, Eric. So on the question about whether consumers will pay more for 5G, you did say 5G mobile, and I did want to remind everybody that our solution on 5G is not just a mobile solution. We offer mobile, but we also offer a fixed wireless access product for the home, which is an alternative to the NBN, an alternative where we guarantee speeds of 50 megabits per second, and our average customers are achieving upwards of 130 megabits per second. So that is a very good product. It has a very high NPS. And we think that, that is one of the ways in which to monetize the 5G network. On the question of specifically mobile and whether consumers will be able to pay more, that's something we're going to have to keep testing. I obviously can't make forward-looking statements about our pricing, but we will keep taking the pulse of consumers. I have no doubt that coronavirus and the long-term economic implications of what looks to be a recession will impact household capacity and willingness to pay, and we will take that into account as we set pricing moving forward. Our current plans already include 5G options for our customers. So at the moment, we have, for certain plans, an extra amount that's for 5G. And for some plans, you get double data if you activate 5G. On postpaid ARPUs, we have not, in the past, published or disclosed any metrics about the front book pricing. It is something we obviously monitor ourselves very carefully. But in combination with your last question, we do believe that we can find profitable growth in this market. We have no intention of ceding market share to Vodafone. We believe that our coverage proposition is a lot stronger than Vodafone's, and our pricing is at a good discount to Telstra. So we see ourselves as continuing to win share from both of those players in the market, and we think we can do so in a profitable way.

The next question comes from the line of Sachin Mittal from DBS.

Three questions, 2 on Australia and 1 on Singapore. You migrated 45,000 NBN subscribers to NBN with only AUD 90 million in the migration fee, which implies AUD 2,000 per customer. This is much lower than the average we have seen in the last quarter, which is around AUD 3,600. The question is why is NBN migration fee not in line with the number of customers migrated. Why there is a lot of variations in the fee and the number of customer migrated? Associated question is, with 22% of people still left to migrate -- to be migrated, will it take a year or less than a year to migrate all of them now? That's a question on NBN. Second question is on equipment in Australia. Equipment revenue and cost mismatch has led to almost a $500 million loss in FY '20, almost double from previous year. Question is, is your excess inventory almost finished? And should we expect lower losses on equipment business in the next year, in the coming years? And the third question is on the wage credit scheme. Just some write-back, I realize, of incentives, staff incentives. And question is what is the math here. Is it like you have recognized 3 months of wage credit or 5 months of wage credit in this current quarter? And some color on that will be very useful. And last question at all, it's more on the share price. Right now, it's trading below the NAV of the regional associate investments, which is implying negative value for the core business in Singapore and Australia. What are you going to do to support -- how do you plan to support long-term shareholders in issue, where the Singapore and the Australia business is kind of seen as a value destruction as impact of the share price? Any color will be very useful.

Sachin, I think a comment on the Australian telecoms market, it is the second largest telecoms market outside of Japan. We -- it is very sophisticated users, high GDP, so we think that the Australian telecoms market continues to be very attractive. Obviously, there's been a lot of competitors. There've been shifts in the industry. You've got the additional capital rollout because of 5G, and that has impacted capital returns for the entire industry. We hope to see the market consolidation, that there'll be market repair. I think over the last year, you've seen Telstra, ourselves, there are moves to move -- to take away handset subsidies. So market there is market repair underway. And you would -- I think telco business, traditionally, it's very high CapEx intensity. And then I think in the short term or at least the midterm with the 5G rollout commitments, you would expect capital returns to be adversely impacted in the short term. But I think where the attractiveness in the market will be, it's the ability to bring about changes in pricing arrangements, the kind of value -- different kind of value that we'd be able to bring to customers and, certainly, when 5G network is up and running, the kind of further services that we'll be able to bring to customers. I think on your question on the wage theme, I think we have taken up the job support credit up to the month of March. And then again next year, we will follow in accordance to the month that the wage support is provided, yes.

Right. Actually, we have some more questions on Australia.

On your question on migration revenues, so maybe I will -- I imagine with number of customers, et cetera, and their equipment revenue, I'll get Kelly to take care of that.

Yes. I might let Murray answer on the specifics, but just to make it clear, the 250,000 NBN customers, not all of them are migration. Some of them are new customers that we're winning in the market. So it's not a one-for-one, and I don't believe that, that calculation that you've done is the right one. But I'll let Murray give the details. And also on the equipment, just maybe this is my banking background, but there's no $500 million loss. There's $500 million less revenue than what we achieved on sale of equipment last year, which you'll remember was a huge year in terms of equipment sales, a huge growth year for Optus. And so there's no loss associated. But I'll hand over to Murray to give the specifics.

Thanks, Kelly. So just to reinforce what Kelly said, the 45,000 increase in NBN customers is a consequence both of migration and us acquiring new customers with NBN. So it's not correct to just take the NBN migration fee and divide it by the movement or the increase in the NBN customer base. Obviously, we're under strict confidentiality with regards to our arrangements with NBN, but it is essentially, as we've spoken about previously, a fixed fee per customer we migrate. So although we can't disclose the number and the math that you articulated are not actually correct, I can confirm it is a fixed fee arrangement. On your question of timing of the migration of the remaining 135,000 HFC customers, it's really a consequence of 2 factors. Firstly, NBN rollout into the HFC areas where our customers currently reside. Now NBN is obviously nearing the completion of its rollout, so we have a lot more confidence around -- certainly around the timing of that. But then, as you would appreciate, there's 18 months thereafter once NBN declares an area ready for service for a customer to migrate, so there's a period of time yet for migration. So we wouldn't expect the full 135,000 HFC customers to migrate in the next 12 months. And then on the equipment, just to reinforce again what Kelly said, there's no loss in relation to equipment. Clearly, there's been substantial reduction in equipment revenues as we've unbundled the handset from the service element of the customer contract, and so customers have alternative mechanisms to acquire handsets. But in relation to your point about margin, there is no loss in relation to those customers. Hopefully, that helps.

Definitely, yes. Sorry, so this is a follow-up. When I see an equipment sales decline and then look at the equipment cost, that's where I see the mismatch. And that's why I'm calling it a kind of loss, and you are defining it as a loss of revenue. So my question is, again, given that SIM-only plans are more popular now, have you finished your handset inventory? Or no, something which will -- because we don't see a proportionate decline in the equipment costs. That's one of the reasons I'm calling it in this manner, yes.

Hello?

Sorry, I...

Are we on mute? It's suddenly gone...

Kelly, we can hear you.

Okay. So I just wanted to address that question. So firstly, we manage inventory on an ongoing basis to match customer demand. There's never going to be a case where we finish our inventory. Our customers are always looking for new phones. And we manage our inventory in a very prudent way. In fact, we've been managing our working capital related to inventory down. And our working capital management is one of the strong points of the results and has helped underpin together with the migration payments, very strong cash flow for Optus. In terms of the question that you've got about margins and whether the margins on equipment has come down, they have compressed, and that's largely a mix issue. We have seen that some of the more popular phones are those that are lower margins. So some of the flagship phones that people like, like the lovely new iPhone, might actually attract lower margins than some other phones. So there has been a shift towards lower-margin phones.

The next question comes from the line of Prem Jearajasingam from Macquarie.

Two questions from me, please. First of all, I was wondering if you could give us some color with regards to the competitive environment in Singapore following the 5G awards. Is there a likelihood that we see this competitive environment improve over the medium term? Or do you think that the bottom is still a few quarters away? Secondly, I'm glad that we've finally taken the hit on HOOQ. Are there other assets within the digital portfolio where we've come to the point where we may consider shutting them down to improve profitability and cash flows for the group? Your thoughts around that would be most appreciated.

Maybe, Moon, you want to talk about the situation in Singapore. And then maybe Samba can discuss our digital portfolio.

Sure. Yes. Thank you for the question, Prem. I think with regards to the 5G license that is given and how does it impact our competitive environment, I think the good news is, by virtue, that there's only 2 5G nationwide license. We do expect some better rational pricing between the 2 sort of network provider of 5G, so which means to say other MNOs or MVNOs will have to wholesale from the 2 5G provider if they want to get access into 5G network. So I think in the longer term, when we look at 5G becoming the dominant service in the market, it actually bodes well for more stable pricing or sustainable pricing in the marketplace. In the short to medium term, I think the competition is still very much still on 4G. And I think this is where -- I think you've seen that the fourth operator has finally launched commercial service, which is actually a good sign because they were giving free service for more than a year. And any pricing above 3 is actually a good sign for the market because now you have the relative comparison of a poorer network versus a superior network and the price differential. And consumers and businesses can make that decision on whether they want a more quality network or not. I think in the short term, we do hope to see more price stability and especially in the current COVID pandemic situation, where demand is actually a bit more muted. So you really want to make sure that whatever customers that you have, they are able to continue service with you. And therefore, even if you go on an aggressive pricing dilution, you may not be able to win as many customers because the demand is actually quite low. So I think it gives us opportunity again to stabilize some of the pricing in the marketplace. And I think businesses are also challenged because of the current situation. Everybody will be looking at how they're going to manage their own finances and their own costs. So with giving value to our customers is actually very important. And as well as the reliability of the network is also very important during this time, so there may be some stabilization because people want to have a stable network, stable service during this time where connectivity becomes so important. So I'm always cautiously optimistic that rational pricing will prevail. And in the long term, we can all sort of repair the market and put the mobile business back into growth especially when we look at investment into 5G.

On the -- this is Samba here. On the digital businesses, let me just give you a quick 3-part answer. Firstly, HOOQ was-- look, HOOQ was an organically set-up business which eventually run into significant headwinds in the market, with the market evolving the way it did. It's a business that consumes a lot of cash. And so we made the tough decision to close it down given the evolving situation in the market, with a lot of different global players coming in and a lot of local players in the emerging markets also setting up their own platforms. And so it became pretty tough for this business to scale, and we decided to take the tough call, knowing that this is a business that consumes a lot of cash and we didn't see how this business could scale and get there. There is -- in regards to other businesses that are organically set up, I think the businesses that we are in from an organic perspective are much lower from an investment perspective. Data stock is probably a small analytics business, but it's being managed very responsibly from a profitability and cash flow perspective. There are a number of other small businesses across the group that we are constantly evaluating and are also being managed properly for cash flow and investments in a way that are existing from -- I think hope that we knew going in would require a lot more cash. Then finally, then there are other businesses that have come through a lot of acquisitions and big ticket acquisitions on their own right, which we don't -- which are all businesses that we evaluate for how we want to realize value, either for IPO or some kind of a strategic transaction. And I think in those businesses, we are not yet there, but I think they're also nowhere close to a decision which is anywhere close to HOOQ. These are businesses where our responsibility right now is to try and grow them and manage them through the COVID period and then come up for air maybe later and see if there are any types of transactions possible.

Just one follow-up. We seem to have needed to bolt on more and more pieces to Amobee to keep it relevant.

Yes.

Do we see the need for us to do any more large-scale add-ons to keep it relevant? What are your thoughts around that?

I think at the moment, our focus, frankly, is on consolidating -- we have a fairly strong technology stack, and our focus right now is on consolidating the stack. We think that we feel pretty good where we are. We do need to invest in R&D. So our focus is on internal R&D at the moment to make sure that we round out the stack. We, at the moment, don't anticipate any bolt-on. But that being said, I will say that any point of time we're evaluating buyers is good decisions. And our focus currently is on investing internally.

The next question comes from the line of Varun Ahuja from Crédit Suisse.

I've got 3 questions. So if you look at the 4Q results, it's generally seasonally weak on -- I know there's an accounting thing. But even from EBIT perspective, on 3Q to -- versus 4Q, especially on the Singapore side, it's just flattish. If you look at previously quarter, it has been a substantial decline. So I wanted to understand, is it more cost cutting? Or is there any one-off projects in the enterprise side or which have come in and helped? I understand 4Q last year, there were some negotiation on the contract side which impacted the performance on that quarter, but this quarter looks reasonably strong. Is it most cost savings or some projects? Any more color on the enterprise side and the performance of Singapore business will be helpful. Secondly, on the dividends for fiscal '20, I just wanted to understand the thought process of Board because I think previously, the management has stated that they will intend to pay $0.175. So I just wanted to understand is that the COVID which led to this decision to cut from $0.175 to $0.125? What all things -- what are the consideration taken by the Board on that front? And lastly, I just want to understand, when you look at the company from a medium-term perspective, I know there are challenges in the near term. What are the businesses that makes you excited about? And how should the shareholders look at the company now given earlier there was at least some dividends they were looking forward? How should we think about as a company for the next 2 to 3 years?

Lim Cheng?

Yes. I think on the dividend question, I think, obviously, Sock Koong has also said that in the view of a difficult environment and a really -- it's really unprecedented market condition going forward. It is actually prudent, so we look at the dividend. Even though we did say that $0.175. But we always take that $0.175, barring unforeseen circumstances. And unfortunately, I think this is just one of the Blackstone event, that this is an unforeseen circumstance if we look at how corporate has the impact, not just Singapore but globally. But I will also remind investors that if you look at our current view versus all the FDI peers, actually, we are doing quite well. So I think the investors got to take into consideration of the need to actually make sure that we have a sustainable and keeping in mind that we have also talked about sustainable long-term growth and also the need to make sure that we have financial headroom for the 5G going forward.

On the enterprise question, shall I take that?

Yes.

Yes. Okay. On the enterprise business for Q4, largely, there are 4 areas. One, strong NCS sort of performance in terms of the top and bottom line margin improvement just on the back of the strong order book of $3.2 billion. So there are a number of projects we're delivering through that. Second, it's also the delivery of our major data center contracts which we acquired in the previous -- over the last year. And with some of these contracts, a number of the big ones were delivered, so we're starting to see the flow-in starting from October -- late October last year. And then they continue to run on year-on-year improvements. And then the third area is the wage credits. It's because of the large number of workforce, we used them and also to use them for investing in training and developing our people, but the wage credits did help. And fourth area is really our cost savings as well as we try and drive the cost savings in terms of our cost to deliver. And in terms of the equipment and working through some of the internal digitalization programs as well. So the 4 main areas that really helped, provided some strength in the enterprise EBITDA improvements. Thank you.

All right. We have -- it's now 12:00. We have come to the end of the conference call. Thank you very much for all your questions. Should you still have remaining questions, please contact the IR team. A transcript of today's call will be posted onto our website, and then you can look at that from the website. We thank you for your interest again. So we will talk to you again in 0.5 year's time. But hopefully, also in between, when we announce the next quarter's business highlights, we want to talk to you again. Thank you so much. Bye-bye.

Ladies and gentlemen, that does conclude today's call. Thank you for participation. You may now disconnect.