TELCOs – BT

StarHub seen gaining with portability

STARHUB has emerged as the top pick among Singapore telcos, as the telecom sector prepares for the new regime whereby customers will be able to switch mobile-phone operators while keeping their established phone number, says Cazenove & Co.

The research house is also bullish on MobileOne (M1), but recommended an ‘underperform’ on SingTel.

At a briefing yesterday, analyst Lai Voon San said he expects the new system, called mobile number portability (MNP), to dominate the telecom sector here, with many average consumers switching to StarHub given the bundled discount they can get from the latter’s strength in pay-TV.

‘We think that StarHub can grab an extra 10-15 per cent market share on top of what they already have now,’ he said. Customers will be offered incentives to have the same supplier for their mobile, pay-TV services and broadband telecommunications.

Mr Lai believes that SingTel is likely to be the biggest loser as it has the most post-paid subscribers at present. MNP is expected to be introduced here in May.

Mr Lai is similarly bearish on SingTel’s pay-TV service, saying: ‘No matter how much money they throw into it, it will be years before they make a return.’ He sees SingTel’s project as only driving up the price of content for consumers.

He said M1 stands out for its forecast dividend yield of 9.7 per cent this year – the highest in Cazenove’s telco universe. The firm’s earnings are relatively stable, Mr Lai said.

Looking ahead, he said that the next generation national broadband network (NGNBN) should gain further momentum through the year ‘as decisions are expected over who will build the network’.

While this could hurt incumbents SingTel and StarHub, the latter’s pay TV dominance will support its competitive outlook with SingTel again the most vulnerable.

‘We expect bundling to gain momentum as SingTel tries to compete against StarHub and offer more discounts,’ he added.

Cazenove sees the telecom sector in Asia-Pacific as a safe haven amidst the market volatility this year, and is expected to outperform the other sectors.

The major themes across the region include growth in wireless subscriber, regulatory changes and regional expansion of assets.

China is expected to add 110 million wireless subscribers, while Indonesia will see another 31 million new ones.

Mr Lai sees policy implementations and changes ahead for 2008, including additional licences in places like Thailand and Indonesia, MNP in Singapore and Malaysia, and 3G rollouts in China and Thailand.

In addition, Cazenove expects more company mergers and acquisitions (M&A) as telcos expand their areas of operation. Telekom Malaysia’s de-merger of its regional assets is likely to bring in a strategic partner which will further highlight M&A activity. Others like SingTel remain active buyers.

Cazenove has set fair values of $3.50 and $3.35 on StarHub and SingTel respectively.

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