Singapore Telcos - CGS-CIMB Research 2021-09-10: TPG’s 5G-2.3GHz Won’t Be Sufficient

SINGTEL (SGX:Z74) STARHUB LTD (SGX:CC3)

Singapore Telcos - TPG’s 5G-2.3GHz Won’t Be Sufficient

TPG tries to keep up with the Big 3/MVNOs with its 5G-2.3GHz trial service.
It will still likely need to buy wholesale access to SingTel or Antina’s 5G- 3.5GHz, which will put a floor under its 5G retail prices, in our view.
Stay sector Overweight, with SingTel (SGX:Z74) (ADD, Target price: S$2.90) as our top pick.

TPG has revealed plans to run a 5G-2.3GHz non-standalone (NSA) market trial till 31 Dec 2021 on a limited basis, after receiving approval from the Infocomm Media Development Authority (IMDA). The service will be available to all TPG postpaid SIM-only subscribers (no registration required), who have a compatible 5G smartphone, at no additional cost. Coverage is only limited to 5 buildings for now, but TPG says more indoor coverage will be added soon, while outdoor coverage rollout is in progress.
TPG will also roll out 5G coverage on the 26/28GHz (millimetre wave or mmWave), which was licensed to all 4 telcos during the 5G Call for Proposal award in Apr 2020.
So far, only 6 devices (5 from Vivo, 1 from Huawei) are verified to work on TPG’s 5G-2.3GHz network. TPG said it continues to work with other handset manufacturers, including Apple and Samsung, to enable their devices to work on the 5G-2.3GHz network.

TPG is rolling out 5G on its existing 2.3GHz spectrum via software upgrades and, we believe, possibly via dynamic spectrum sharing (DSS) with its current 4G service.
We think TPG is doing this to begin offering its subscribers some 5G services and not lag too far behind the Big 3 mobile network operators (MNOs), which have had a 12-month head-start in launching their 5G NSA service and 5G standalone (SA) service in May-Aug 2021.
Some mobile virtual network operators (MVNOs) (e.g. Circles Life, Giga, Gomo, Gorilla Mobile) have also launched their 5G NSA trial service in Aug-Sep 21, with some expected to roll out commercial subscriptions in the coming weeks.

The limited device ecosystem aside (which we think will eventually be resolved), we do not think 5G-2.3GHz will be sufficient for TPG to offer ultra-fast 5G services.
In our view, typical downlink speeds (under normal traffic load) that TPG’s subscribers will likely experience would be much slower than its touted “up to 260Mbps”. This is because TPG’s 2.3GHz bandwidth is only 40MHz (5G needs 60-100MHz to deliver high throughputs). More likely, we think the downlink speed may be 30-50% faster than its existing 4G speed, which was listed at 21.5Mbps in Opensignal’s May 2021 network test report. Thus, to offer subscribers faster 5G speeds, we believe TPG would still have to enter into wholesale agreements with SingTel or Antina (StarHub-M1 joint venture) to gain access to 5G-3.5GHz.
While TPG will eventually gain access at reasonable wholesale rates, we think this will put a floor under its retail pricing for 5G plans.

We believe the earnings risk from stiffer mobile competition due to TPG’s entry is priced in, and see progressively more stable mobile competition (with the transition to 5G) and enterprise revenues growing stronger in CY21-22F.
Key sector downside risk: stiffer-than-expected competition.
SingTel (SGX:Z74) stays our top pick, with Singapore’s enterprise/roaming revenue recovery (post-COVID-19), resumption in Telkomsel’s topline growth, Bharti’s turnaround and asset monetisation as key re-rating catalysts.

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2021-09-10

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