SINGTEL (SGX:Z74)
NETLINK NBN TRUST (SGX:CJLU)
Singapore Telco Sector - 5G Licences Awarded
- Not a surprising outcome.
- 5G capex roll-out is the immediate topic to be addressed.
- Preferred SG sector picks: SingTel (SGX:Z74) and NetLink Trust (SGX:CJLU).
Singtel and Starhub-M1 crowned winners
- On 29 Apr, the Infocomm Media Development Authority (IMDA) announced that SingTel (SGX:Z74) and the JV Consortium formed by StarHub (SGX:CC3) and M1 (StarHub-M1 JV) have been selected as the 2 winners of its 5G Call for Proposal (CFP). SingTel and StarHub-M1 JV will thus be allocated radio frequency spectrum to deploy their nationwide 5G networks. Other mobile operators can gain access to these network services via a wholesale agreement.
- See
- These awards were made based on participants’ ability to roll out within timeline, financial capability, along with cyber security and network resilience considerations. Licences will be issued after both entities have completed their regulatory processes (election of spectrum lots, confirmation of technical and legal matters), upon which they will also be given Provisional Awards. Additionally, the IMDA will allocate mmWave spectrum to mobile network operators to deploy localised high-capacity 5G hotspots.
- In terms of timeline, IMDA has commenced its exercise to move existing satellite users to alternative bands and targets to free up the 3.5GHz band for 5G use from 2021 onwards. Both SingTel and StarHub-M1 JV will need to provide 50% outdoors 5G coverage by 2022, and nationwide 5G outdoors coverage by end-2025.
Recap of the 5G CFP (Call for Proposal)
- As a recap, all 4 MNOs (SingTel, StarHub, M1, TPG Singapore) were invited to participate in IMDA’s CFP back in 2019. As part of the process, IMDA would be making available two spectrum packages, each comprising one 100 MHz lot in the 3.5 GHz band and one 800 MHz lot in the mmWave band.
- The remaining two mmWave lots will be assigned to other requesting MNOs. In order to foster greater services-based competition (and thereby increase choice and innovation), IMDA has mandated that the two nationwide operators will need to provide wholesale services to other MNOs and MVNOs for locations in which the 3.5GHz band is used for 5G deployment.
- IMDA has also stated that the base price of one 100 MHz lot of 3.5 GHz is $55m, while due to the adequate supply of mmWave band, IMDA will not be imposing any premium beyond the annual fees.
5G positive for mobile ARPU, but bear complexities in mind
- The result of SingTel and the StarHub-M1 JV being awarded the licenses is in-line with our (and the street’s) expectations. We believe that this is a net positive for the winners of the 5G bids, but we would offer a few perspectives that investors should bear in mind.
- Firstly, for TPG Singapore to remain relevant to the market, it would need to secure wholesale 5G services from either of the two winners, which in our view, could make undercutting much more challenging, and thus allow for some measure of industry repair. Currently, there are already commercial 4G arrangements in the market, and should operators not come to an agreement, there is an appeal process back to the regulator. StarHub mentioned that their preference is to adopt the same approach, with the same regime of commercially negotiated wholesale rates, rather than fixing a minimum or maximum.
- Secondly, we believe that industry mobile ARPUs could finally turn the corner after coming under pressure for a while now. Taking reference from the Chinese mobile operators, China Mobile for instance noted that it has seen a 6.5% increase in ARPU on average for customers who have migrated to 5G. We acknowledge that specific consumer apps that require 5G still prove to be elusive, but 5G in general should support higher usage and somewhat faster speeds. The consumer mobile ecosystem is also helping to facilitate the move to 5G, given that the Chinese smartphone OEMs have already started to produce 5G smartphones, while Apple is expected to launch their 5G iPhone versions in the fall of 2020. Still, we believe the recent rally in the share prices of the Chinese operators is, in part, due to the increasing comfort that investors had around their more moderate 5G capex roll-out, allaying fears of risk to dividends. We believe investors would likewise require more clarity from SingTel and StarHub about their 5G capex plans, especially as we head into the earnings season.
- Thirdly, network densification will likely be required as part of the nationwide 5G rollout. We believe that with 5G, 3-4 base stations will be required for every existing base station. This would be a net positive to NetLink Trust, as this would add to its NBAP connections, of which it would be able to monetize through monthly recurring charges.
Recommendation
- Within the space, we maintain our preferred picks of SingTel [BUY; Fair Value: S$3.61] and NetLink Trust [BUY; Fair Value: S$1.10].
- We see some reprieve coming from SingTel’s regional associates, while potentially stiffer competition from the merger of Vodafone and TPG in Australia as well as the eventual fade-off of NBN migration revenues are likely to have been somewhat assimilated by the market. Optus is also reportedly exploring the sale of its tower assets for ~A$2b, which if comes to fruition, will likely help SingTel maintain its 17.5 S-cents DPS into FY21, as well as help fund its 5G capex needs in Singapore.
- See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.
- For NetLink Trust, we like their resilient business model, largely regulated returns (especially in this environment), recurring cash flows and low gearing ratio (~15.3% on a D/A basis as at 31 Dec’19).
- See NetLink Trust Share Price; NetLink Trust Target Price; NetLink Trust Analyst Reports; NetLink Trust Dividend History; NetLink Trust Announcements; NetLink Trust Latest News.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-04-30
SGX Stock
Analyst Report
3.610
SAME
3.610
1.100
SAME
1.100
