SINGAPORE, Sept. 20 (UPI) -- How much competition can a small market of 4 million people take? Not much, when it comes to the media and transport sectors. It's taken four years of intensive competition and losses for two Singaporean media companies to realize it and now the focus is on the transport sector to follow suit.
Last Friday, Singapore media giant Singapore Press Holdings and its state-owned rival MediaCorp announced they were merging their television and free newspaper operations in a major industry shake-up and rationalization move aimed at stemming losses.
The two created a new television company, MediaCorp TV Holdings in which SPH has a 20 percent stake. SPH also bought a 40 percent stake in MediaCorp Press, publisher of the "Today" newspaper and will merge its free tabloid "Streats" with "Today."
The government had liberalized the media sector in May 2000 by allowing broadcaster MediaCorp to enter the newspaper business, while SPH was allowed to launch two free-to-air television channels. The resulting competition translated into fierce competition for advertising dollars with both companies loosing millions of dollars in their respective new ventures.
Because the two companies did not provide similar products, the competition did not translate into lower prices for consumers, but only lower advertising rates as the two companies tried to forge a market share in their new markets.
Now all eyes are on the transport sector, where two operators are facing a similar situation.
Land transportation group ComfortDelgro Corp was allowed to operate Singapore railway network's new North East Line in a bid to provide competition to the state-controlled SMRT Corp, which operates the other lines.
But because the North East line operates on a specific route different from the others, it does not actually create a competitive environment for consumers where prices would drop.
As a result of its railway foray, ComfortDelgro's profits have taken a sharp hit, as the line has been loosing money ever since it opened. Indeed, last year the then Transport Minister Yeo Cheow Tong was quoted saying the government would not block moves by the two operators to merge their businesses in order to avoid duplications. "We realize now that operating a rail system involves a lot of overheads," Yeo noted.
Given that similar statements had been made about the media sector, with senior government officials pointing last year the island's population lacked the critical mass to support more than one media player, speculations is riffed amongst investors that a merger is in the offing in the transport sector.
Prime Minister Lee Hsien Loong was quick to point the government had had no hand in the merger deal, which was based on "hard headed commercial assessment."
Still, J.P. Morgan raised its 12-month price target on ComfortDelgro's shares Monday, citing the possibility of consolidation in that industry.
"We do not see such plans eventuating in the near term, unless ComfortDelgro is being offered an "irresistible' deal," the investment bank said. "This is especially so granted that the rationalization concept originally conceived to pitch the merits of the NEL is beginning to show some light," it added, pointing that ridership has been increasing, while the losses from North-East line have been decreasing in line with management's initial expectations and efforts placed to reduce costs in this arena are bearing fruit.
Most investors said the logical scenario if a merger takes place would be for SMRT to take over ComfortDelgro's North East Line operation, leaving it the bus operations. SMRT also runs buses through its unit TIBS, and those could be consolidating under ComfortDelgro in move similar to the one just seen in the media sector.
In sectors where players offer similar products, the competition drive initiated by the government has worked better. In the telecommunication industry, the opening of competition to two new players Mobile One (M1) and StarHub has resulted in significant price cut for mobile phone users.
Yet, last October, MobileOne, the second biggest mobile operator, said it would be open to talks with third player StarHub for a possible merger.
