Telcos were once the first port of call for mobile services. The arrival of smartphones, however, is turning this once cosy space into a competitive free-for-all, contested by tech giants such as Google and Facebook as well as fast-growing mobile messaging services such as WeChat and WhatsApp, with a multitude of hungry startups in-between. 

The upheaval could see telcos retreat to their original line of work, building and maintaining communications networks, while collecting money from people who want to use them.

However, that’s not a future that appeals to SingTel, one of Asia’s largest telecoms companies with a subscriber base nudging the half-billion mark via associates and directly owned companies in Australia, India and Southeast Asia. 

“These over-the-top digital players are bypassing us and getting a relationship with our customers,” notes long-serving SingTel executive Allen Lew, now heading Digital Life, a new division created by the telco as a way to fight back.

“We want to reclaim that connection, and stay relevant,” Lew adds. “In the past, when people didn’t have smartphones, they were using our services 88% of the time, to call, to SMS. We want to reclaim that 88% – that engagement in the minds of our customers.”

SingTel set up Digital Life in 2012 at arm’s length from the rest of the group so the unit can concentrate on medium and longer-term goals, with a S$2 billion (US$1.6 billion) war chest to help it achieve its ends.

The unit, which also includes SingTel’s IPTV platform Mio TV, has been busy, launching seed programs and innovation labs while buying a raft of digital companies at home and abroad. 

As smartphone penetration rises, Lew is directing the group’s efforts towards areas vulnerable to medium-term disruption – from media consumption to online retail to social interaction.

At the same time, he is keen to steer clear of direct competition with global titans such as Google and Facebook. SingTel’s edge will come from understanding consumers in South and Southeast Asia, rather than the whole world, while focusing on three segments: mobile advertising, mobile video and location-specific information.

The group’s ad business, via the purchase of a mobile ad technology platform Amobee in 2012, can scale worldwide, though global ventures will remain the exception rather than the rule.

Lew argues that access to almost 500 million subs, including payment mechanisms as well as a record of online and offline habits, provides the critical mass to make things happen.

Digital Life has been notably active in markets where SingTel has direct control, via wholly owned Optus in Australia as well as at home in Singapore. These markets however only account for ~13.5 million subs between them, a tiny segment of the overall base Lew wants to leverage.

Elsewhere, SingTel has minority shareholdings, via associates in India (Bharti Airtel), Indonesia (Telkomsel), the Philippines (Globe) and Thailand (AIS). Bharti Airtel alone, with 199 million subs in India and 77 million in Africa at end-2013, accounts for more than half the base.

These companies operate in larger, less affluent markets, and face a very different set of opportunities and challenges  to Singapore and Australia. For Digital Life to achieve its goal, Lew needs to keep these partners on board. Consequently, he spends a lot of time on the road, in what he describes as a long socialization process.

“Associates chart the course together with us,” Lew says. “Where we add the most value is helping them make sure their basic product doesn’t get commoditized. What we do is value-add – with video, in some cases with news, music.

"In developing markets it’s about who’s got the lowest price, so we try to create something else, a value-added product.”

Mobile video should take off quickly in growth markets, Lew says, as an easy-to-understand concept that can meet latent demand for people in countries where entertainment options, especially outside major cities, are thin on the ground.

SingTel has already introduced a pay-per-view video offering, tailored for feature phones, in India and Indonesia (the Philippines and Thailand are next), targeting rural subscribers who are unfamiliar with the mechanics of data plans.

Developed by Vuclip, a US startup that SingTel’s venture capital fund Innov8 has invested in, the service is designed to help SingTel’s partners nudge subscribers up from 2G networks to 3G, selling short clips with data costs covered.

This is set to be followed by a subscription-based video service specifically designed for growth markets, incorporating personalized recommendation and social extras, that SingTel’s associates can bundle into their subscriber plans.

Of SingTel’s current subscriber base, about 12% or 60 million have a smartphone today, a figure set to rise to about 200 million by 2017.

Most mobile phone owners in SingTel’s largest markets will still use feature phones and simpler handsets for the foreseeable future, despite falling hardware prices and economic growth, but that 200-million mark is when the smartphone base starts to become meaningful, Lew suggests.

While Digital Life will develop feature phone-based opportunities from time to time, the priority is preparing for a future where smartphones are the main consumption hub for media.

These powerful and portable computers are not only a disruptive technology, but where Digital Life can contribute the most to local partners, he explains.

If all goes to plan, this will lead to a virtuous circle of even stronger consumer relationships, generating data that SingTel can use to keep its services ahead of the pack.

The telco already has a fairly comprehensive view of its customer base. The holy grail however, is not data but consumer trust, Lew stresses. SingTel is stepping forward carefully, in a possible minefield that could determine the winners and losers in the future.

Hiring the right people – designers as well as data analysts – while instilling the right culture is critical.

Digital Life has an annual investment budget roughly one third the size of SingTel’s group capEx, but operates to a distinctly different set of dynamics when compared to a telco’s traditional high-margin, capital-intensive business.

Entry costs are lower, while margins are tighter, rewarding experimentation as well as the discipline to abandon or reinvent unpromising projects.

The group’s resources enable multiple trials at the same time, but Lew wants to cultivate a spirit of learning on the go, the lifeblood of tech rivals, to capitalize on this advantage.

Ultimately, success will boil down to who can best mine customer data, extract the best insights, and use those in the best possible way, he says. “Technology is not a differentiator,” Lew points out. “The differentiator is people who understand the market.”