Telco Sector - OCBC Investment 2016-01-12: Launch of Netflix Singapore

STARHUB LTD CC3.SI SINGTEL Singapore Telecommunications Z74.SI M1 LIMITED B2F.SI

Telco Sector: Launch of Netflix Singapore

 Services start from S$10.98/month

 Pay TV operators do not see it as a threat

 Defensive amid economic uncertainty

Netflix has officially launched its video streaming services here in Singapore with a basic plan starting from S$10.98/month, which includes streaming to one device in standard definition quality. However, some shows may not be available here as Netflix is still working with the MDA to ensure content shown here is within broadcasting regulations.

But Netflix will be able to offer R21+ content – the highest rating category – as long as it is hidden behind a PIN to restrict access to adult viewers.

Meanwhile, the local telcos with Pay TV offerings are not viewing Netflix as a direct competitor. Instead, both Singtel and StarHub are said to be working with the US streaming operator to allow viewers access to Netflix content via their set-top boxes. Singtel also sees Netflix as being complementary to its pay TV services.
Given the limited localized offerings that are available on Netflix, as well as lack of “live” sporting content, we also believe that it may be hard to completely “cut the cord” just yet. And as Netflix has already been “available” here for some time via VPN, the introduction of a direct offering here may also have limited impact.
News reports suggest that those who already subscribed to Netflix US are unlikely to switch over to Netflix Singapore due to the non-availability of some original content here (possibly due to licensing issues).

And as mentioned in our 2015 telecom strategy report, the local Pay TV operators have already began to offer their services via the OTT route. SingTel has its own OTT service called Singtel TV Go as well as their regional OTT streaming service called HOOQ – a JV with Sony Pictures Television and Warner Bros Entertainment – that is available to its customers in Indonesia, the Philippines, India and Thailand.
StarHub’s new online streaming service – StarHub Go – also carries HBO GO, which includes HBO original series as well as movies offered by HBO via cable.
Last but not least, watching videos using the local Pay TV operators’ networks do not include additional mobile data charges.

Prices of all the three telcos have fallen in wake of the US rate hike and their dividend yields have improved further, with M1 heading the list with a forecast yield of 7.2%.
Maintain OVERWEIGHT on the sector as we believe that the telcos’ defensive business could come into play amid the growing volatility in cyclical stocks.

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-01-12

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