Telecom Sector - DBS Research 2017-04-05: Aggressive Bidding at 4G Spectrum Auction

Telecom Sector Spectrum Auction M1 LIMITED B2F.SI STARHUB LTD CC3.SI

Telecom Sector - Aggressive Bidding at 4G Spectrum Auction

IMDA raised ~S$1.14bn in total; final prices higher than reserve prices.
M1 did not obtain new 2.5 GHz spectrum while TPG secured 10 MHz of 2.5 GHz spectrum.
More certainty for TPG’s operations ahead after securing sufficient spectrum.

Maintain HOLD calls for both M1 and Starhub, with TPs of S$1.97 and S$2.85 respectively, TP under review pending results.

The first stage of the 2017 general spectrum auction (GSA) for Singapore telcos concluded yesterday, with the regulator IMDA raising around S$1.14bn in total. A total of 175 MHz of spectrum in the 700 MHz, 900 MHz and 2.5 GHz spectrum bands, including spectrum to be re-farmed from the cessation of provision of 2G services in April 2017, was made available for allocation in the GSA.
The next stage of the GSA will determine the specific spectrum bands to be allocated to the winning bidders.

We note that 700 MHz and 2.5 GHz spectrum was awarded at S$94m/lot and S$11.9m/lot respectively, over and above the reserve price of S$20m/lot and S$3m/lot. In addition, Singtel paid S$132m for 1 lot of 900 MHz spectrum, substantially over the reserve price of S$20m.
Singtel was the only telco that secured an additional lot of 900 MHz spectrum, over and above the three lots for the existing spectrum right holders (Singtel, M1 and Starhub) who have a FROR (first-right-of-refusal).
M1 did not obtain new 2.5 GHz spectrum while TPG secured 10 MHz of 2.5 GHz spectrum. While it was a surprise to us that M1 did not secure any 2.5GHz spectrum in this auction, having cited “aggressive bidding” as the main reason, we believe that its existing 2.5GHz spectrum is sufficient for its capacity requirements.

There is more certainty for TPG’s operations now that it has secured an additional 10 MHz of 2.5 GHz spectrum. In total, TPG has paid S$128.8m for spectrum including S$105m spent on 900MHz and 2.3GHz spectrums acquired earlier at the special new entrant spectrum auction for the 4th telco held in December 2016. The company had earlier indicated that it expects to incur capex of S$200m to S$300m to build its mobile network by September 2018.
We believe TPG’s intensity in ramping up its operations in Singapore will accelerate in the second half of this year. We previously highlighted that TPG is likely to move into the broadband business space either organically or inorganically due to its track record of acquisitions in the broadband business in Australia.

Given that around 75% of the total spectrum auction proceeds were for the 700MHz band, which will only commence in 2018, capex plans for the telcos in 2017 are unlikely to be affected by this auction.
We will need to check the payment schedule for the 700MHz band in our next interaction with the management of the telcos.
We maintain our HOLD calls for both M1 and Starhub but our TPs are under review pending the release of results for the quarter to March 2017.

Suvro SARKAR DBS Vickers | Singapore Research Team DBS Vickers | Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2017-04-05

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.970 Same 1.970

HOLD Maintain HOLD 2.850 Same 2.850