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Good evening, ladies and gentlemen. Welcome to StarHub's Third Quarter 2018 Results Announcement. My name is Eric, and with me this evening, we have the CEO, Peter K; the CFO, Dennis Chia; along with the Chief of EBG, Dr Chong Yoke Sin; as well as the Chief of CBG, Johan Buse. Before we go into the presentation, just a little reminder here. [Operator Instructions] Now with that, let's welcome Peter with this quarter's highlights.
Thank you, Eric. A very good afternoon, ladies and gentlemen, and thank you for the interest in our company. Allow me to summarize some key highlights, and then I'll hand over to Dennis to walk us through various financial matters. In line with guidance we've given to the market, quarter 3 year-to-date versus the same period in 2017, we've shown modest growth in gross revenues of 1.1% growth to $1.74 billion. Service revenues modestly declined by 0.9% to $1.375 billion. Our service EBITDA margins at 30%, below the 33% this time last year. And our CapEx revenue ratio of 10.9% has been maintained. And the net profit after tax of $185 million is a decline of 16% versus the same period, but a slight improvement versus year-to-date at the end of quarter 2. In line with the higher total revenues, our operating expenses also grew by 4.4% for the 9 months, and the cost of sales also increased, but the overall operating expenses remained stable, and our CFO will go through the details later on. In terms of the best performing lines of business, this is the enterprise group and the fixed broadband, while mobility and Pay TV continue to decline due to lower number of customers and slightly lower ARPUs. If I go into the details. The Enterprise's fixed services grew by 17% to $346 million. And the growth came through managed services, various projects, Cloud and also consolidation of the Enterprise Solutions business, which were the Accel and the D'Crypt. No revenues from Ensign have been accounted for in quarter 3 because Ensign was formally completed on the 4th of October. We also had lower revenues in excess data usage revenues slightly dropping and also higher Sim Only customers resulted in lower mobile revenues for the first 9 months and an overall 6.3% decline. And in Pay TV, the revenues declined by 9.6% year-to-date, which reflects a smaller customer base, although a steady ARPU. The mobile penetration continues to be high, and despite that, we did grow the postpaid customer base to 1.39 million, and -- which is about 1.7% year-on-year. And year-to-date, increase of data per customers has gone to 5.4 gigabytes per month, which is slightly a 32% increase over the same period. Also interesting to note that postpaid revenues and customer base quarter 3 versus quarter 2 this year has grown. Pay TV, 240 million, as I mentioned earlier, a 9.6% decline. And we are currently experiencing an average of about 3,500 customers, 3,600 customers to be exact, leaving the service exploring other options. And the overall market is declining at similar rate, specifically at 8.5%. If you look at our broadband revenues, they remained stable at $140 million. And we added 7,000 customers year-on-year, bringing the total customer base to 473 broadband customers. Overall, quarter 3 has also been a very active period for the company. We made the announcement in terms of forming Ensign in these -- to specialize more in the cybersecurity business and market segment. We also announced the launch of a transformation program, which involved various cost reductions across the company over the next 3 years. We also launched the StarHub Go Streaming Box, which is the first in the world to run on the operator tier version of Android. We also were ranked first in Asia-Pac and fifth globally in the equally -- gender equality global report. And for the first time, we made in the top 10 rankings as one of the most valuable brands in Singapore. In terms -- just before I hand over to Dennis for financial insights, let me also address the outlook. At the end of the quarter 3, we're maintaining similar guidance we've given to the market in previous quarters. And this is that service revenues will end up being 1% to 3% lower year-on-year by the end of quarter 4. The group service EBITDA margin will be maintained between 27% to 29%, in terms of guidance that is. And also, the dividend will be retained at $0.04 per ordinary share. And the CapEx revenue ratio will stay around the 11%. So we're maintaining guidance. And with these comments, I'll hand over to our CFO, Dennis.
Thanks, Peter. So in the investor deck -- and good evening to everyone, and thank you for joining us on this call.
In the investor deck, we're on Slide 11, which is the EBITDA. We ended the quarter with $147 million of EBITDA versus $163 million a year ago. And for the 9 months, it was at $456 million versus $500 million a year ago. The drop in EBITDA for the quarter versus last year about $16 million, included a onetime adjustment of $5 million in traffic costs. Without that, our decline EBITDA would have been $11 million. Our service revenues, primarily in the Mobile line of business as well as our TV, had accounted for some decline in the EBITDA as well as the higher cost of sales due to the mix of services that we actually provide to our customers. Our cost of equipment in terms of its margin has remained fairly stable during the quarter as well. Moving on to Slide 12, where we look at service EBITDA of $132 million for the quarter, translating into 28.8%. Without the adjustment of $5 million in traffic costs, the service EBITDA would have been $137 million, also 3% of service EBITDA margin. This compares to $150 million a year ago or 32.2%. For the 9 months ending September 30, the service EBITDA would have been $415 million versus $464 million or 30.2% versus 33.4%. Moving on to Slide 13 on cost of sales. Our cost of sales of $260 million a quarter versus $225 million a year ago. The movements in the cost equipment line in tandem with the higher CPU revenues that we recorded in the quarter. I had mentioned the traffic costs adjustment that we made. But generally, the traffic costs increased during the quarter versus the year ago was in tandem with the higher roaming revenues that we've recorded during the quarter. And our cost of services has remained slightly -- fairly stable, slightly higher because of the mix of enterprise services and the consolidation of our acquisitions of Accel and D'Crypt, that's been now included in our numbers. Operating expenses are $247 million for the quarter versus $255 million a year ago. Depreciation is lower compared to a year ago, $71 million versus $75 million. And the decline in depreciation is due to a bunch of assets that have now been fully depreciated, and have no -- are no longer recording depreciation. Our marketing expenses remained fairly well managed, with the use of data to help us look at focused marketing. And our general and administrative expenses has also remained fairly stable, with focus on driving efficiencies throughout the organization, with declines recorded in professional fees as well as outsourcing costs, primarily, and as well as the improvements in the allowance for that focus. Net profit for the quarter was $58 million versus $66 million. $58 million translates to $0.032 on a EPS basis. For the 9 months, it was $185 million versus $221 million. $185 million generated a EPS of $0.102 for the 9 months. The slightly lower decline in net profit versus the current EBITDA is due to the lower depreciation as well as the lower share of losses from our associated company. Our CapEx payments for the quarter was at $73 million versus $52 million. And for the 9 months, is sitting at $189 million or 10.9%. Free cash flow for the quarter was $79 million or $0.046 on a per share basis versus $120 million a year ago. For the 9 months, we've generated $188 million of free cash flow or $0.109. Our net debt-to-EBITDA ratio sits at 1.22x at the end of quarter 3. With that, I hand the floor back to Eric.
Thank you. Right. We're going to open the floor for Q&A now.
[Operator Instructions] Now with that, let's welcome Sachin from DBS.
A couple of questions. Firstly, could you tell us how many of your customers are on coaxial broadband and how many of them are the Cable TV now at end of this quarter? And also, beyond the taking -- beyond paying the leaving fee for fiber, do you expect to incur substantial cost on migrating these people? Because some of them may not have installations. Some of them will not -- may they -- you need to have a lot of marketing to drive these people to basically fiber. That's question #1. #2, could you also talk about your Cable TV? What could be the end state for a Cable TV? Do you think it has to be completely OTT kind of TV, whereby everything is over-the-top platform or you will see a hybrid of your Fiber TV, coupled with the OTT TV? And if at all any end state? And how much longer this transition? And do you think there's a matching between the cost and the revenue of the Cable TV of the TV side? Basically revenues are declining, do you think you can also lower the costs of content and everything along with this? That's good. I mean these are the 2 questions I have. And thirdly, on the cybersecurity. Should we expect a positive contribution from cybersecurity business which you acquired recently in the last quarter? And does it mean -- and do you need to expand this business? I mean in order to expand this business, do you think that the business may not remain profitable? Just because there's a lot of investment required in the cybersecurity business, could the business turn from profit in losses? Is there a fair chance about that?
Sachin, thank you, it's Peter. 3 big questions. Let me try and answer them, and if you need additional details we'll follow-up. First of all, the fiber costs by moving customers from cable to fiber, all of -- we do have a variable cost structure. Today, the arrangements with our wholesale supplier SingTel, we have a huge fixed cost. So that's very important to understand. And also, any impact on the P&L will move -- will be in 2020 because there are arrangements in place till then. So we don't expect dramatic changes to the cost structure, but we expect variable costs to come into play. And also, let's not forget, once you have fiber, the quality to the customer is much better. And also, you can on-sell additional services on fiber. Your second question, in terms of Cable TV and matching costs and so on. Let me be upfront. The business model for Cable TV is broken. By the way, we don't offer the details in terms of how many customers we have on broadband fixed -- on fiber, sorry, and how many we have on cable. But if you look at the whole Cable TV business model, it has been broken for many years. We've said it publicly. Cable TV has never given us a positive profit contribution to the bottom line, so it has to be fixed. Customers have other choices these days, especially with OTT players as well as piracies affecting our ability to keep that customer base. And also, the cost structure, the content providers, always, the business models to date have been a fixed cost for content irrespective how many viewers you have. We don't believe that it's a sustainable model. Not just in Singapore, but right across the world, we're seeing massive migration of customers to alternatives. So we are fixing the business model in terms of managing the cost of content to become dramatically more variable versus the fixed. And also, the technology underwriting TV should be on fiber, not on cable. So that's what we are doing. And certainly, if you move to a variable costs, those contracts -- content contracts are coming up for renewal every few years, from subsidizing content providers, immediately you become profitable because if you got a customer into variable cost, you pay a share of that customer revenue to the content provider and you keep a positive gross contribution, which is not the case right now. So we believe this will take approximately a couple of years for the transformation of the Cable TV business. And in the meantime, we have to manage to reduce the cost predominantly as customers are going elsewhere. Also, let's not forget. Our industry traditionally has been subsidizing content providers so we can pull through broadband connectivity. So once you get to 100% penetration of broadband, which is the situation in Singapore, you no longer need to be subsidizing the content providers, and you need to move to a variable model. The other dynamic which is taking place in Cable TV is that the content providers, for many good reasons themselves, are now going directly to customers, bypassing the traditional distributors, which the telcos used to be. So you have a number of dynamics in the Pay TV industry, and we have to be -- to stay at the forefront and rediscover the business model and bring the costs not just down, but make the cost variable rather than a lower fixed cost on minimum guarantees. Your third question about cybersecurity and positive contribution. When we did announce the Ensign formation of the company, we did say that we expect this business to contribute over $100 million or more in turnover on an annualized basis and to make a small contribution in terms of margins, so -- from day 1. When we announced the results of quarter 4 in early next year, we will identify contributions coming from Ensign, but we expect it to be positive but not materially positive.
Just a follow-up on the first -- on the Cable TV. So you are not -- you don't think that OTT is the final state of Cable TV, and that Fiber TV is something which you want to go on before jumping on to OTT model completely. I mean -- and secondly, on this variable cost. I think telcos have been pursuing that model, but for some reason that has not been popular, right? For a reason. Is that reason still valid? Or why should content providers agree now?
Well, first of all, let me take the second question first. They've gone direct to market, so they cannot insist that they will force us to pay fixed amount on minimum guarantees and then they have the option to go to the market directly. So going to the market directly comes at a cost, and we believe that cost is freeing us up to also be able to distribute content at a lower cost point. So I can assure you, it's fascinating negotiations going on with all the content providers. We've taken a view, if you recall earlier in quarter 2 that if the content providers insist on the old-fashioned model of minimum guarantee and minimum price, irrespective how many views you have, well, we decided to move on. And there was one content provider that we don't have a relationship with anymore. And this proves that we are very serious about having a variable cost model. We will work with most of the content providers. And we believe commercial sanity at the end of the day will prevail because we have an existing customer base, we have an existing infrastructure and the content providers do not want to switch off completely. So we're going to move into this hybrid world where they go to market directly, we go to market, both of us have sort of lower cost structure, and hopefully, the consumer will benefit. So we're very -- I think there's a high degree of certainty that most content providers will go direct and that will result in new cost models. The OTT model. The OTT model does exist. The OTT model is not necessarily the in-state, but it's part of the mix. We'll always have customers who are happy to receive content in the lounge room on a big screen. We always going to have customers that want in a smaller screen, they want it on a mobile. So we will always cater for different types of customers. The infrastructure cost, it is not the key issue that prevents us from having profitability in Pay TV. It is the cost of content. So we believe the endgame would be potentially either aggregating for some customers through the OTT platform and they can pick and choose their content, also providing content by the traditional set-top box, and also providing content on a small screen. You will see all these models coming into play in the years to come and maybe months to come, but a lot of them depend on rights to distribute content from the small screen to the big screen. And hopefully, if commercial sanity prevails, we could also play contents available to small screens, and keeping in mind how many millions of customers exist in small screens, so there's an upside both to us and to the content providers to find the right business model.
Next on the line is Luis from Maybank.
I have 3 questions. The first is regarding some clarifications on the cable decommissioning. Is July 2019 a hard target so you really will shut off at that time or it's like a fighting target so it could slide or even be earlier? And also on that point, I was wondering, are there any onetime costs associated with this migration? Which is similar to what Sachin asked. And are the -- how many cable HFC subs are left for you to migrate? Second question is regarding the variable content cost model. It sounds -- it's very logical, but I was wondering, is the whole industry united in going -- forcing the content providers to the table for this? And last question is more of housekeeping. The sub numbers for postpaid on mobile, does it already include MyRepublic MVNO subs? And can you also tell us what the percentage of Sim Only subs are right now in the network?
Okay. Luis, thank you. Lots of questions, I hope we can cover them. Go back to your first question about hard target July '19. It is the only target we have, and that's why we included it in our press release, and we're working towards that, and we're geared up for that, so that answers the first question. The onetime cost, there's no onetime cost. We're having ongoing marketing costs which are part of our budgets and part of our guidance to convince customers to migrate at no cost to the customer, so there's not extraordinary one-off costs for that. And at the same time, again, there's not extraordinary any sort of write-offs because of migration. HFC, how many customers we have to migrate? As I mentioned earlier, we don't break down our number of customers on HFC versus fiber. In terms of -- I think your fourth question was -- all right, whether the industry is united for changing the business model for content provision, that's really a question for the content providers. But the signals are there very loud and clear, that, as I mentioned earlier, they want to go direct to consumers. So as that choice emerges, then the traditional costs -- the acquisition model of content has to change as well. I believe, certainly from our dealings, there's a lot of common sense involved by all parties. Nobody really wants to walk away from anybody, but we all understand we need to evolve the business model and to put the customer in the center of everything. And let me say this, the industry [ sets ] right now, the customer's not happy because they believe they're paying too much for cable TV content. We distributing content are not happy because we have high costs. The content providers are seeing customers leaving them going to alternative options including piracy. So this is what I call the sort of broken model that we have today, that everybody has to address and fix it if we're going to have a healthy customer base. Customers want more choices for content and different bundles, live bundles, thick bundles, a la carte choice for content. They don't want to necessarily be locked in to very long-term contracts. So this is -- we're going through transformation of the Cable TV and Pay TV business. So everybody are stakeholders to try and find the right solution, so we do keep customers enjoying the content that they choose at more reasonable price points than what we have today. So the broken model, nobody is really happy. Hopefully, when we come out of it, more choice for the customer, different price points for the customer, a better technology underlying the delivery of content. And hopefully, we will end up in a sort of win-win model. And we have to respect, as I said earlier, the choice of viewers, where they want to enjoy content across multiple screens, not necessarily in the one screen. Your last question was about postpaid. Does that includes MyRepublic numbers? Yes, it does. And we don't break the Sim Only or the MyRepublic or the MVNO numbers from the numbers we report.
Yes, one follow-up, Peter, as I should have been more direct. If -- essentially I was going to ask, is SingTel on board with the stance that it should be a variable cost model, so therefore you've got a united front to all the content providers?
We don't talk on behalf of other companies. We're not sure what their business model is. But we're certain about StarHub's business model, that it's -- it should evolve to a more variable business model. We're pushing for that. To be honest with you, we're not -- we don't know what's the -- what SingTel is doing or wants to do. But the anecdotal evidence is from what's being reported generally that nobody is making any decent return or any positive return from Pay TV. So certainly, we're not speaking on behalf of anybody else in the market. We know how broken the business model is for us in terms of Pay TV, and we want to fix it for the benefit of our customers and the benefit of our P&L as well.
Next on the line is Wei-Shi from BNP.
My first question is kind of related to the previous questions about the costs related to the migration. Maybe I could be more specific. Would you need to swap out the set-top boxes for your HFC customers for free, for instance, and incur the costs of doing that? And then related to that, would there be any accelerated depreciation of the cable set-top boxes that are existing in the end user premises? And can I also confirm that your HFC network is fully depreciated?
Okay. Our...
Sorry -- yes, I'll ask my other questions after this.
Okay. As we have made a public announcement, we will not going to inconvenience the customer with any cost related switching from one technology to another. That's part of our marketing cost and cost of sales which we build in to our budgets. And in terms of accelerating depreciation, we have been depreciating the HFC over the period of time, so there's not going to be any one-off depreciation costs. I think they were the 2 key points.
Yes. I'd just like to add to that, Wei-Shi, this is Dennis. So if you look at our depreciation expense profile, that's actually been on the increase. And that's because we have accelerated the depreciation efficiency in line with our plans to migrate all our customers out of HFC into fiber. And so at the point when we do see offerings, any of our services on cable, the asset would have been fully depreciated by then.
Great. That's very clear. If I may, I have 2 other questions. Can you please provide some color on what was driving the increase in roaming revenues during the quarter? Was this due to a deliberate move by the company in terms of offerings of pricing? And then, my final question is, the free cash flow situation looks a little bit stretched to me, the different commitment for the year, and your gearing has gone up as well. So just curious as to what the options the company is looking at in order to get to a more sustainable/comfortable position as far as meeting the dividend commitment is concerned.
Wei-Shi, thank you very much. The -- what's driving revenue is ongoing activity in the marketplace to grow, to retain as many customers, and basically win new ones. And as I mentioned earlier in postpaid, that we've been very successful last quarter, quarter-on-quarter, for example. If you look at prepaid, yes, the prepaid customers have come down quarter-on-quarter. But if you look at the last 3 quarters of prepaid revenues, the revenues have stayed fairly stable in terms of our -- for round about $35 million per quarter. The broadband activity, again, we're winning a fair number of customers in terms of residential broadband, so that's making a small contribution to revenues. And also, the overall contribution to the revenues is the inclusion of the companies we acquired, and we are consolidating their results, Accel and D'Crypt. So the overall activity is adding towards contributing to the overall growth of revenue, although you have different product lines. And of course, I didn't mention growth in the enterprise specter -- enterprise group and market segment for basic connectivity, value-added services, ICT solutions. So the combination of all these activities are driving the overall revenue growth. In terms of free cash flow and...
My question is specifically related to roaming revenue. So it was [indiscernible] roaming revenues are increased. So I was just wondering whether that was due to a change in your pricing, a deliberate strategic move to drive more revenues from roaming, et cetera.
I pass it on.
Yes, in terms of roaming revenues, if you look at the data travel plans that we've actually offered to the market and the value that it brings to our customers, that's actually been driving the roaming revenue traction that we've been recording in our mobile line of business, which has kind of offset some of the usage declining [indiscernible] structural that we've been seeing across industry. So it is really the result of the attractiveness of data travel plans that are out there. Okay. Wei-shi, you had a question on the free cash flow. Typically, obviously, we've generated $0.046 for the quarter and $0.109 for the 9 months. The board consistently reviews and -- along with management in terms of our free cash flow generation profile. We do not guide dividend beyond the current year. And we do intend to keep our dividend commitment as guidance in the market for the year of $0.04 per quarter. We will guide the market to what we believe, and the board has decided and approved for the full year of 2019 when we announce our full year results next year.
And the net debt to EBITDA has grown to 1.2x. But again, it's a very respectable ratio. And at this point in time, the board is comfortable with this gearing.
Next on the line, let's welcome Gopa from Nomura .
Just 3 questions. Firstly, can you give some color on the content costs? When is the key content coming up for renewal? I'm just trying to understand when will you see these cost benefits on your P&L, if you're able to renegotiate the cost model. Secondly, you've said in the MD&A that the Pay TV revenue ARPU is impacted by rebates. So can you give some color on how this would have been without the rebates? That's on the Pay TV business. A second question is on the transformation plans. I'm not sure how much you can share. But you have given a target of around $200 million in cost savings. Is it a combination of CapEx and OpEx? Would you be able to give a split of how much of this is CapEx versus OpEx?
Okay. Gopa, thank you for your questions. First of all, different contracts with different content providers, come up a few times in the year, typically contracts are for 2 or 3 years duration. And we have some contracts that are expiring before the end of this year, and we have some contracts expiring middle and end of next year. We're not being specific. And I think it's only professional courtesy, we don't make public announcements when we negotiate different contracts, but it's an ongoing process. We have many content providers for different type of content from Hollywood studios, Korean movies and drama, Chinese, Indian and so on. So these are all ongoing negotiations. The only thing I can say is that there has been a reasonable approach by all parties involved to date that I'm aware of. And I think over the last 12 months, where there is both a reduction of overall costs, but potential upside if we grow the customer base. So there is a sort of -- we're sharing the upside as well as both parties have to live with a lower cost to make sure we all retain the customers. So that's the situation in contract renewals, and we're not going to be specific which content provider is next. But as I said, we're in negotiations at all points in time. And the business model we prefer, we're finding pragmatic ways to try and negotiate for the benefit of all parties involved. Rebates for content. As we made announcements in the marketplace, we're giving customers $4 for a channel that we no longer have available. If they're out of contract, I think we do this for about 3 months, 3 -- sorry, 4 months. And if they're in contract, I believe it's 5 months. So again, we're not disclosing specifically how many customers are out of contracting, in contract. But I have to say that, that has depressed the ARPU in quarter 3. In quarter 3 sales, without disclosing the exact number, was the highest quarter we had with customers coming out of contract. In quarter 4, we have less customers coming out of contract, and that contributed to the churn for Pay TV in quarter 3, the high churn of 15,000 net, whilst the previous quarters were averaging at about 11,000. Transformation. The program we announced is $210 million over 3 years, predominantly OpEx. And it's coming across life savings in salaries from labor related, also rationalization of procurement, listing costs, network maintenance, repairs and maintenance and lower content costs. So it is the typical bucket of all the operating expenses that a company has, which could be controlled by us. It doesn't involve, of course, utility costs and other type of similar costs. So transformation is right across the company. Our approach has been to renegotiate all the supply contracts as they're coming up for renewal to rethink different type of business models, again, changing from fixed to variable. And really, consistently, the exercise, of course, is led by CFO in the transformation office. Question every cost we have in the business, do we require? Does it add value? Is there a better way of running the business without that cost? So we're tackling everything across the company and trying to reduce the operating cost by minimum of $70 million per annum for the next 3 years.
I would just like to add that the savings and content costs in 2018 have already been recorded. If you look at our cost of sales profile, we have 3 broad components across equipment and we've got as well the cost of services. In that bucket, we have 3 main costs, and we've always guided the market that constitutes 3 main components. One of which is the payment for the NGN in terms of the fiber, one of which relates to enterprise services in terms of the breadth of enterprise services, in terms of the breadth of services that we now provide to our enterprise customers, and the third being the content cost. If you look at that bucket, it's actually remained fairly stable, that's the -- because despite the fact that we've actually increased our enterprise services breadth and revenues related to that and the migration to fiber for -- fiber in terms of NGN. But we've actually managed to reduce the content costs as well, which has offset some of these increases. So that's already been realized and recorded, and we continue to see momentum in that.
Next, let's welcome Piyush from HSBC.
Two questions. Firstly, on the costs -- on the transformation plan. On the $210 million savings, could you clarify if these are gross savings? And how much are the net savings the company is expecting? And on the same, is it possible to help us understand how much of the savings are front-loaded or is it evenly spread across 3 years? In the disclosure, you have also mentioned one-off restructuring costs of $25 million. When will that be provisioned? And one more question on the -- Peter, you mentioned that there will be a fixed lease cost savings when the switch -- when the cable services will be shut down. Could you help to quantify how much would be the annual savings? And is it already part of the transformation, a plan in terms of savings of $210 million?
Piyush, thank you for your questions. When we did brief the market about the cost transformation project, we did say that the total amount is not a net saving because we're reinvesting, because transformation does involve lower costs, but does involve investing new businesses to grow and funding growth opportunities. So we have not disclosed the net-net benefit of the transformation program, but we're disclosing the overall gross impact of the transformation program. For example, in a cybersecurity business, there's hardly any CapEx. It's a people business it's not a technology infrastructure type of business. So as we're going to grow our cybersecurity business, and of course, that was the intent behind investing in it, we expect that some of the savings will go towards growing cybersecurity and other lines of business. In terms of front-loading costs, the only real front-loading benefit is the employee reduction. Again, we did announce in the marketplace that we're downsizing by at least 300 roles. This exercise has now been completed last week, and though that benefit will appear in the books starting first of quarter next year. So that's the only front-loading bit, if I can use that expression, but all the other costs savings are spread. The $25 million provision or the cost of the downsizing exercise that already has been provided in previous years. And I believe in quarter 4, predominantly last year. So there's 0 impacts on the P&L of this year in terms of the downsizing exercise. The -- so the third question was in terms of lease costs, lease cost savings. Yes, again, the NLA costs will eventually come off our books in 2020? Dennis?
That's correct.
So between now and then, there's no benefit of any NLA costs. At that point in time, there will be a benefit. And again, we don't disclose the actual breakdown of various costs, but it's no impact in 2019 and some impacts in 2020.
Can I just clarify the lease cost saving that you will accrue from 2020? Is that also part of the strategic transformation plan saving of $210 million, or if that is over and above that?
It's included in the overall bucket of the $210 million because there's a payment we make to SingTel for that. There's also our own costs in supporting an HFC network. So all of those costs potentially would be retired in 2020. And you heard earlier, the CFO mentioned that we've taken exhilarated provision. So again, that is all part of the $210 million savings over the next 3 years. And that's why it's not as simple as $70 million a year. It is different. And when we give guidance of -- at the beginning of every year, we will take into account all these movements in terms of costs and potential revenues, and we will provide you guidance for the entire year.
Next, let's welcome, Goldman Sachs, [ Stuart ].
So 2 simple questions. Could you explain more about the restructuring costs -- the $25 million restructuring costs you incurred? And is there anything beyond that in the 4Q? And for the second question, are there any updates on the fourth entrance go-to-market strategy that you're aware of?
Okay. Thank you, [ Stuart ], for the questions. $25 million was accrued into -- provided, sorry, last year, so 0 impact in 2018 accounts. And in terms of quarter 4, no, there's no further provision or no extra cost relating to the rightsizing of the personnel. So very clear on that question. In terms of the fourth operator's entry into the marketplace, the anticipation was in quarter 4. It -- the -- we understand they are continuing to roll out their capability in terms of infrastructure. We are being ready to welcome them, if I can use that expression, at any point in time. And again, as I mentioned last time, the way we're operating the business is we're really for -- we compete with a number of other companies right now, both MNOs, and virtual operators, infrastructure-based, service-based operators. So to us, of course, there will be more choices for the customer, but I think the competitive intensity is higher as it is. So we are prepared to face any additional competitive pressure in the marketplace. And when exactly they will enter the market, it is entirely up to them. We can't second guess them. We're just preparing ourselves and making sure all our operations are in place, customer office are in place. So it's -- for us it's business as usual rather than doing anything dramatic to welcome or otherwise a new entrant.
Next is Srini from Deutsche Bank.
Two questions. First, on the overall trends in the Pay TV market. SingTel doesn't seem to be losing subscribers in that segment. Is it fair to say that what we are seeing in terms of -- for you is primarily on account of either reluctance of people when they are -- when you are encouraging people to move from HFC to fiber? So that would be my first question. And given that you've probably had a fair information and data analytics on your Pay TV subscriber viewership trends and so on and so forth. Overall, do you expect to come out better when -- with just -- with whole content cost versus the ARPU which you have been generating? So that's the first question on Pay TV. Second, on the enterprise side, if you can throw some light on how easy, how your recent, sort to say, corporate transactions are progressing, and the business trends in the enterprise, that will be helpful.
Okay. Thank you, Srini. Let me take the first question then I'll ask Dr. Chong to contribute as well. On the TV side, let's look at the facts. The markets over the last 12 months has shrunk by just over 8.5% in terms of subs. We also have shrunk at 9.5%. So the overall -- we're shrinking at the same rate as the overall market is shrinking. Certainly, our competitors got a few more customers, and the World Cup and the football rights provide probably a little bit more stickiness, we suspect, although we're not certain. But both of us are shrinking and the total market is shrinking. That is a fact. In terms of data analytics and what is happening to customers in the ARPUs. What we're seeing is customers increasingly want the impairment to choose different content providers, different duration of contracts and different price points. And while the market is shrinking, I don't believe over the last 12 months, for example, 8.5% -- something close to 70-odd-thousand customers have left watching content. So one item, watching content, and the next item, watching an empty screen. That is not the case. They are experiencing different types of content, and that's what we are seeing, so we need to be catering to them. The relationship between ARPU and cost is very important because we are charging potentially what we are charging at the retail level because we have a higher cost structure. If our cost structure for content was much lower, that would give us the opportunity to also offer lower pricing points, because we are seeing the majority of customers opting out to the sort of the movie package a month for $10 or whatever, USD 11. That's attractive to someone who may be paying $50, and now can get another option. So we believe the ARPUs will drop. But if the cost drops quicker, and it's a variable cost, you're getting straight away into a net positive contribution business when, for the last 23 years, you're running into a negative contribution business. So yes, the ARPUs may shrink. Yes, the market may shrink. But if the cost of content varies quite a bit, it becomes a profitable contribution. And again, just another reminder, just to repeat myself. We were subsidizing content because we wanted to pull through broadband connectivity. When broadband connectivity in an advanced economy like Singapore is at 100%, you have to question whether any operator really wants to subsidize a content provider. Really, as long as customers have a broadband connection, fixed or wireless, how do we make it easy for customers to choose the packet -- the package and the content and the price point they want. And I think that's how the business model will evolve. In terms of EBT, divestments, and then, what drives EBT. The divestments, we've been clear on that. We aggregated the cybersecurity assets we had. We had a center of excellence inside StarHub. We had invested in the company called Accel, which does a lot of systems integration for cybersecurity type of solutions. And that together with another investment the [indiscernible] Quann have formed a big company, a regional company with the capability to do deep dive, to do complex cybersecurity, not productization, simple product, simple subscription model per month for a firewall. The business we put together has a capability to do some very complex cybersecurity work, and we look forward to gearing that up. And also, let's put that in perspective. From research we've done, currently, are in about $715 million per annum is the cybersecurity market in Singapore alone, growing at about 15% per annum. So hopefully, having a company with complex capability, some of the best brands in Singapore, and that's only the local operation. Temasek has announced some other international acquisitions. So by bringing all that capability under one roof, we hope to get a big slice of that business going forward. But as I said, again, nothing is going to be incorporated. It has been incorporated in terms of revenues in the first 3 quarters. That started from quarter 4 going onwards. In terms of other business growth, I will hand over to Dr Chong to comment.
Well, I think the question was in the ICT space, what are the solutions and where is the traction that we have been having. So these are largely in managed networks, integration services for infrastructure, cloud and data center services as well as analytics and cybersecurity. So I guess within StarHub, we have actually embedded the solutions that we provide with fair amount of analytics and cybersecurity solutions embedded in our overall solution, and that has actually constituted the bulk of our growth in our managed network and the ICT service.
Thank you, Srini. Anything else from your side?
Just -- if may ask, if I look at the slide, I know it's -- that the enterprise revenues are episodic. But they are kind of -- they remain at the level of $129 million, $125 million for the last 4 quarters. So just trying to understand what could be the revenue table for this. And I know there'll be a issue of the JV, but what can be the pro forma revenue tables 2 years out for this business?
Okay. We have not issued this, and we'll give you guidance in the first quarter of next year about the impact on revenue, EBITDA, cash flow. So -- but if you look at the Enterprise Business today, it is a mixed portfolio of products through the acquisitions, but it's also the traditional business of data and Internet. And that provides steady revenues and small growth. The managed solutions in cloud services facilities management that is growing. And we're seeing the enterprise portfolio, the voice revenue declining, predominantly due to international lower rates or international revenues and lower rates for domestic. So there's a core business and there's an acquisition business. The -- if you can indulge us, first quarter next year, we will give you a guidance about what the combined P&L is going to be for the company, which will incorporate the companies we just merged between us and Temasek.
We have time for 2 more callers. Next, we're going to take up another question from Sachin and then followed by Prem from Macquarie. Sachin from DBS?
We have -- we hear about TPG CapEx of $66 million so far, which is probably much less than even a 1-year CapEx, any telco incur in Singapore. So wondering, if TPG launch were to have a negligible impact on the market, question is, could you -- could the competition cool down? Are the MVNO contracts multiyear contracts or annual in nature? I mean if you want to -- if let's say the fourth player is not even effective, how much control the telcos have on the competitive landscape? Or do you think the arrow has been shot? You can't call it back. That's question #1. And secondly, market is very worried about the 5G CapEx. And you do did talk about network sharing. So one thing, how are these linked in terms of how should we look at 5G and network sharing? And if you could throw some light on the potential scenarios going forward because Singapore government may will ask for good 5G network, while the business case may not be there because that's something important for the Smart Nation. So any commentary on that?
Sachin, thank you. Look, if I understood your first question properly, look, we don't have any control of MVNOs or competitive impact in the marketplace. And also, it's unfair. We have confidential contractual arrangements between us and various other partners, so it's not proper to comment if it's 1-year contract or a 3-year contract or a 10-year contract. But we do have relationships that are beyond month-to-month. So it is a longer term arrangement. I want to be very clear, we welcome MVNOs, we welcome other competitors. We do have a network capacity to provide services on a wholesale basis to MVNOs. And we do believe they bring competitive intensity. And more importantly, if you do have the right focus in terms of serving customers best, it is great to give customers more choice with different brands, different types of packaging. So in many respects, we do welcome the MVNOs. There are a few already announced in the marketplace. Others, we understand potentially may be entering. The risk assessment and the return on their investment is something that they take into account. From our point of view, we do have the capacity to accommodate MVNOs. And of course, we have a commercial model that it has to be accretive to us, and hopefully, it makes sense to them. But I can't comment specifically about contractual terms between us and themselves. In terms of your question about 5G CapEx and sharing and so on, let me sort of give you the big picture and then I'll be very specific. There are multiple infrastructure players in Singapore at a time that mobile penetration is 150% and fixed penetration of fiber is 100%. So the question is, what value do alternative infrastructure-based networks will provide to the shareholders of those companies or to the customers themselves? The customers don't really mind how the signal and the content and the bits and bytes are delivered, whether the network is complex or the network is simple. Obviously, some very corporate customers are not detailing this. They pay a lot of attention to diversity, latency and resilience. So absolutely, for the corporate customer sector, you need to have alternative networking capability. But if you have many overlaid networks, as you do now, that does not really provide any material incremental benefit even to a corporate customer. We don't think so. So we do believe that as industries mature, they need to be sharing assets for everybody to get the right return on capital invested, and also, provide customers differentiation on the service layer. How you bundle your different brands, your different pricing points. So we see competition mature markets are moving more into a pure infrastructure-based networks and multiple service layers on top of this with alternative brands and packaging for end customers. We do believe that, that makes more sense long term. Provides the right return for the investors, provides the right choice for customers to choose different brands and packages. 5G. Look, we do understand the potential impacts on a national level, but the facts of the matter are such that the investment in 5G is massive, both in terms of infrastructure. We've said this before that the rule of thumb is about 3 to 4 base stations more for every one you have. And then also, you need extra investments in spectrum. The reality is, if you take a technology point of view, the advanced LTE networks, the 4.5, the 4.9, right now, the single RAN aggregation that we are delivering, there is almost no application today, use case in Singapore that cannot be fulfilled with the advanced LTE network with carrier aggregation. The material order of magnitude investment in 5G cannot justify the returns for many use case, if at all. So from a commercial point of view, we want to be relative to our customers. We want to compete. We want to deliver advanced speeds. And we were the first ones to deliver 1 gigabit on a single RAN network. So we want to be very, very competitive. And we want to make sure we don't ask our shareholders to invest massive amounts of CapEx in a 5G network that hardly would generate any new incremental revenues. So we're taking a very pragmatic view. At some point in time, we will have a 5G network. We believe there's no business case for a national deployment for us or for 5G. But we do see the opportunities eventually, maybe not even in the next 12 months, for clusters of 5G network area in some use cases and maybe at the enterprise level. So again, we have a very advanced network today based on LTE -- the latest LTE technology delivering some very, very high speeds with the right latency. So for us, we keep a watching brief. We don't want to make an investment ahead of time. Sometimes, we're quite happy to be second in terms of making some new technology investments because, typically, customers require a certain period to understand the benefits of the new technology, the ecosystem for handsets, if you're talking about the mass market, is not there. So we're taking a cautiously pragmatic commercial approach to 5G. And we do believe we serve the customers and the nation well with the existing investments we've made in the 4.5, 4.9 LTE technology.
And then how do you see the networks in that case? I'm just wondering, if there's no new technology, no new big CapEx, then how does the network sharing help?
Well, let's not forget, all the existing customers today are served by 4G, predominantly 4G and 3G networks, and it's fairly easy to rationalize. And again, I want to be very clear. In any sharing models, they're all subject to regulatory approvals, and we're talking predominantly about passive sharing, not necessarily active. We all have spectrum. We all have different frequencies. So that bit is not necessarily in the sharing. But if we are going to roll fiber, for example, to a new building and there's 2 or 3 fibers already going to that building, what is that unique proposition that we will bring to the table. I think very little. So with access to new locations, sharing existing infrastructure, as we're growing our radio network and we need more base stations, if some of our existing operators have access to that, well, we can share the passive components to be able to provide radio access to our customers. So there are lot of traditional savings you can enjoy. In 5G, you can build a 5G overlay network. And 5G, as I said, will take some time. So we -- the 5G is not driving the sharing. It's the existing customer base, the existing technology. And by the way, that's where the benefits are. 5G is an incremental investment. If we're all going to move into 5G against sharing the 5G will be beneficial. That we believe the key benefits will be on the existing infrastructure, rationalizing the infrastructure as much as possible and sharing a lot of the common costs instead of duplication and triplication. So that's where we see the benefit.
The last caller for this evening is going to come from Prem from Macquarie.
Two questions from me. Firstly, with regards to the fixed Enterprise Business. One of your competitors mentioned that there was a pause in the Smart Nation project in the third quarter which did impact the overall enterprise revenues. Did you see a similar impact? And could we now see a jump in your enterprise revenues over coming quarters as a result of these projects now moving again? That's one. And secondly, have you seen any change in the whole device market? Your device sales have been holding fairly healthy for the last few quarters. So the point here is, do you think with these recent launches, whether the delayed impact that we saw last year has actually been neutralized this year, so we may not see that big jump in device sales going into the fourth quarter? Or do you think it's still status quo?
Okay. I'll refer the first question to Dr. Chong and then the second one to Johan, who's the head of our consumer business. And unfortunately, I didn't take the opportunity to introduce him because he joined us almost 3 months ago. But Dr Chong, the first question, if there are delays in Smart Nation.
Right. I think our portfolio of go-to-market strategy, they span across both governments as well as banks and hotels. And so far, I think we've been actually focusing on those. So while, yes, while the Smart Nation may has been suspended in terms of the RFPs, in some areas, I think in other areas they remain quite healthy. And we are -- just like all the other competitors, we're also after all that market. But really, we are focused on a broader base of verticals in addition to government.
Thank you, Dr. Chong. Johan?
Yes. So Prem, on the question related to handsets, thanks for noticing that. I think the handset market primarily is driven by 2 factors, #1, is the excitement of new models coming to the market, and #2, obviously, is the customer base eligible for recontracting or in the markets for a newer device. And we have been seeing this as a very stable market so far. And luckily, and fortunately for the industry, there is a stream of new devices coming into the market continuously, so we don't expect any major changes in that respect.
Yes. And just to answer that, and I think we said this before, that potentially, Sim Only customers, we don't see that as a major threat, simply because we're subsidizing all postpaid customers with devices. So again, customers can enjoy different packages going forward. And if there is no device attached with it, so if the device revenues do come down, which we don't believe they will, that's -- the upside to that would be less subsidy. So it's always a balancing act, but as Johan mentioned, there's still a lot of excitement, new models coming in from Samsung, from Apple, from Huawei, so it's still predominantly device-driven. And I think customers, although they sign a longer-term contract to benefit from the handset, they're very clear about termination costs, and they have the option to opt out or to buy handsets on installments, now that has been introduced. So the market is very healthy. Yes, quite a few customers may delay purchasing a new set and go through a Sim Only, but again, Singapore is a fully advanced economy. We don't believe people will be in the market for a 3- or 4- or 5-year-old handsets. That's not the practice, so there may be some delay updating your handset. But within a year, that will wash out. So we do expect decent sales of devices going forward.
All right. Thank you, ladies and gentlemen, for joining us this evening. It's been a pleasure with -- for the management team to share with you the third quarter highlights. And we look forward to speaking with you, again, in the next coming quarter, which will be in February of 2019. Good evening.
Good evening.
Good evening, everyone. Thank you.
Good evening.