Singapore Telecom Sector - DBS Research 2016-02-19: Auction delay and assurance of 900MHz to M1

Singapore Telecom Sector - DBS Research 2016-02-19: Auction delay and assurance of 900MHz to M1 M1 LIMITED B2F.SI  STARHUB LTD CC3.SI 

Singapore Telecom Sector - Auction delay and assurance of 900MHz to M1 

  • Spectrum auctions delayed to 3Q16 from 1Q16 earlier; reserve auction price lowered to S$35m from S$40m to factor changes to the composition of the spectrum. 
  • IDA’s move to set aside 2x5Mhz in the 900MHz band for each of the incumbent operators is a relief for M1. 
  • We prefer M1 to StarHub as negatives are priced in. 



Regulator has issued its decision on the framework for the allocation of spectrum. 

  • Spectrum auctions will be delayed to 3Q16 from 1Q16 earlier, although no reason was disclosed. 
  • In our opinion, the merger between the telecom regulator (IDA) and the media regulator (MDA) could be the reason for the delay. 
  • The new regulator - Infocommunications Media Development Authority (IMDA) - will be headed by MDA’s current CEO, Mr Gabriel Lim. 
  • IDA will undergo a re-organisation from 1 April 2016 onwards. 
  • The delay will also provide interested bidders such as MyRepublic more time to raise funds which has publicly announced only S$23m in funding versus the required ~S$250m. 
  • The lower auction price for the reserve spectrum is due to a change in the composition of the spectrum – more 2.3GHz spectrum in place of 700 MHz (see table), which in our view is quite apt for heterogeneous network rollout. 

IDA’s move to set aside 2x5 MHz in the 900MHz band for each incumbent operator is a relief for M1. 

  • With 2x10 MHz of 900 MHz spectrum (out of total 2x25 MHz) being reserved for fourth telco, there was a risk of M1 losing its existing 900 MHz spectrum to its bigger rival in the auction. 
  • StarHub already enjoys the first right of refusal. 
  • However, IDA has clarified that each incumbent operator will get 2x5 MHz of 900 MHz spectrum so that network quality is not hampered. 

Potential fourth telco (if any) will be a niche player. 

  • The new player intends to target consumers with high datacapacity usage (12 GB/month) at low price. However, its network coverage may not match the incumbents’ coverage for a couple of years. 
  • We project M1 and StarHub to lose 10% and 4% of their group revenue to this player by 2022. 
  • In the bear case scenario of an overly aggressive fourth telco, our TP will be S$2.20 & S$3.00 for M1 & StarHub respectively. 
  • In the event of non-entry of a fourth telco, our TP for M1 and StarHub will be S$3.30 and S$4.05 respectively.






Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2016-02-19
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.60 Same 2.60
FULLY VALUED Maintain FULLY VALUED 3.30 Same 3.30


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