Maybank Kim Eng Research 2015-07-08 (Telco): Starhub - Red Carpet Rolled Out for 4th Telco, The Only Telco BUY Being StarHub

Red carpet rolled out for 4th telco 

  • Spectrum auction to be held by early 2016. Key entry barriers lowered as IDA rolls out red carpet for new entrants. 
  • Key among them is lower cost of spectrum and IDA’s help in ensuring fair treatment from incumbents. 
  • Maintain sector Neutral, with StarHub the only BUY in sector. DCF TP SGD5.00. 

What’s New 

  • Singapore’s telecom regulator IDA has proposed to hold a spectrum auction by early 2016. It will make available 225Mhz of spectrum for 4G use, of which a portion will be kept only for new mobile network operators (MNOs). 
  • It will also make the entry of a new MNO easier by lowering the following barriers: 
    • IDA will reserve a spectrum bundle of 60Mhz for new entrants. The indicative reserve price of SGD40m is 60% lower than that of the incumbents. New entrants can bid for more spectrum if they need to but at the higher prices incumbents have to pay. 
    • Implementation of QoS standards and resiliency requirements will be done in phases. 
  • Other entry conditions are typical for the sector, namely the new telco will have till Sept 2018 to deploy nationwide, or roughly about 18 months. 
  • IDA will also not mandate national roaming. 
  • In addition, IDA said it welcomes the entry of mobile virtual network operators (MVNOs) and it will help them to negotiate wholesale access with the incumbents. Incumbents must also allow free interconnection and number portability for any new MNO. 

What’s Our View 

  • The MNOs that have expressed their interest in entering the market – MyRepublic and Consistel – have gotten part of their wish lists. 
  • They did not get everything they asked for, such as national roaming which would have made deployment of a new network easier. However, the cheaper cost of spectrum will go a long way toward supporting their business plans, although the final cost will still depend on the actual number of auction bidders. 
  • In addition, a phased implementation of QoS standards will allow them more time to tweak their networks to IDA’s requirements. 
  • At this stage, these are still just proposals. The public consultation opened yesterday and will close on 12 Aug. However, part of the burning question has been answered. 
  • IDA is willing to do all it can to encourage a fourth telco, up to and including lowering the cost of spectrum, a national resource. 
  • We maintain our sector Neutral, with the only telco BUY being StarHub (DCF TP SGD5.00)

(Gregory Yap)

Source: http://www.maybank-ke.com.sg