Telecommunications - RHB Invest 2016-09-01: A Three Way Fight

Telecommunications - RHB Invest 2016-09-01: A Three Way Fight SINGTEL Z74.SI M1 LIMITED B2F.SI STARHUB LTD CC3.SI

Telecommunications - A Three Way Fight

  • Three parties have officially submitted their interest to bid for Singapore’s fourth mobile license at an auction slated for 4Q16. 
  • Of the names, one is a foreign operator with a commendable track record Down Under while the other looks to be a “reincarnation” of a bidder that had dropped out of the race. 
  • We maintain our view that concerns over a fourth mobile entrant, whilst reasonable, have been grossly exaggerated by the market and is likely priced into the share prices of the incumbent telcos. 
  • Maintain NEUTRAL sector weight, with preferred picks being Singtel and M1.

It is a trio. 

  • The Infocomm Development Authority (IDA) has received expression of interest documents from three parties keen to participate in the new entrant spectrum auction (NESA) as at the submission deadline on 1 Sep. They are: 
    1. MyRepublic (MR); 
    2. airYotta; 
    3. TPG Telecom (TPG). 
  • The regulator will now proceed to assess the submissions in accordance with the pre-qualification criteria set out in the auction rules before determining whether to pre-qualify the applications for the auction that is slated for October.

MR still the front-runner, Consistel conspicuously missing, TPG may be a party pooper.

  • Of the three, airYotta and TPG are fresh candidates. Consistel did not submit an interest despite earlier signalling its intent. It is not known if the decision to boot out was the result of an earlier IDA fine for a license obligations breach. 
  • airYotta is led by ex-OMGTel CEO Mr Michael DeNoma while the chief technology officer was previously its networks and infrastructure vice-president. OMGTel is Consistel’s mobile unit.
  • airYotta said in a statement that it is backed by a regulated fund fully financed by an investor exclusively dedicated to wireless ventures and intends to rollout Singapore’s first 4.5G LTE-Advanced Pro network. 
  • TPG is Australia’s second largest broadband provider and biggest mobile virtual network operator (MVNO). It is helmed by a Malaysian-born entrepreneur Mr David Teoh. It is ASX listed.
  • TPG has a commendable financial track record and posted a 90% YoY increase in its net earnings in 1HFY16 (Jul) on the back of an 80% jump in revenue.

What is next? 

  • Based on auction rules, within 20 business days, the IDA will make a decision as to whether the prospective new entrants are to be prequalified to participate in the NESA. 
  • Upon notification, the prospective bidder(s) have within five business days submit a bank guarantee to the IDA equivalent to/higher than the SGD35m reserve price for the new entrant spectrum block.

Maintain NEUTRAL. 

  • The expression of interest by the three parties effectively confirms the eventual entry of a fourth mobile network operator (MNO). 
  • We maintain our view that concerns over a new mobile entrant, whilst reasonable, have been grossly exaggerated and more or less priced into the share prices of Singtel, StarHub and M1. This is because: 
    1. The bulk of Singapore mobile subscribers are tied down on long-term contracts and service bundles that offer good rebates; 
    2. Incumbent MNOs have a natural and distinct competitive advantage in their vastly superior mobile network/coverage; 
    3. The absence of a domestic roaming mandate.
  • Our forecasts on the telcos have pencilled in a 15-20% ARPU dilution pa from a new entrant from FY18. 
  • We note that the incumbent MNOs have “pre-empted” the entry of a new player via tactical data promotions in recent months, which puts further pressure on data yields.

Singapore Research Team RHB Invest | http://www.rhbinvest.com.sg/ 2016-09-01
RHB Invest SGX Stock NEUTRAL Maintain NEUTRAL 4.11 Same 4.11
NEUTRAL Maintain NEUTRAL 3.02 Same 3.02
NEUTRAL Maintain NEUTRAL 3.75 Same 3.75