M1 – CIMB

Upgrade of wireless broadband speed

Last night, M1 announced that its high speed packet access (HSPA) network has become the first in Singapore and Asia to go live with downlink speed of 14.4 Mbps and uplink speed of 5.76 Mbps following an upgrade to its network. However, M1’s customers would be able to enjoy the top speeds only when supporting devices come on to the market.

M1 will launch two new mobile broadband plans on 8 Nov at S$51.36/month and S$69.30/month. The former plan will provide a downlink speed of 4 Mbps and uplink speed of 1 Mbps while the latter will provide a downlink speed of 7.2 Mbps and uplink speed of 2 Mbps. Existing customers on 3.6 Mbps will be given a free upgrade to the new 7.2 Mbps broadband plan by month-end.

Warfare heated up

Hot on the heels of SingTel and StarHub. The announcement follows hot on the heels of SingTel and StarHub’s recent announcements that they would be upgrading speeds on their wireless broadband plans. StarHub had disclosed that it would be offering faster uplink speeds of 5.76 Mbps by end-December while downlink speeds would be upgraded to 21 Mbps from 14.4 Mbps. Similarly, SingTel would upgrade downlink and uplink speeds to 7.2 Mbps and 1.5 Mbps respectively from 3.6 Mbps for downlink and 384 Kbps for uplink.

Not a surprise. We are not surprised by this latest news as we had felt that M1 would need to respond to its rivals. M1’s latest move raises the competitive heat in wireless broadband where StarHub has been fairly aggressive in offering discounts on subscriptions, even throwing in free wireless modem and subscriptions if one signs up for the higher-speed fixed broadband plans.

No significant impact. We see this more as a defensive move to counter StarHub’s speed advantage in this segment. While the 4 Mbps tariff is attractive and M1 could lure new or poach subscribers, we believe that competitors are likely to react by offering similar or lower rates to match M1’s. Furthermore, it is unlikely that customers will be attracted by the higher speed of 7.2 Mbps as headline tariffs are fairly comparable with those of SingTel or StarHub. While M1 offers certain bundled plans, these cannot compete with its rivals’ more effective bundling or quad play propositions. Lastly, there is still a lack of consumer devices that support such high speeds.

Competing for speed to revive flagging data ARPUs. M1 is also competing for more premium users by offering higher speeds with higher monthly subscriptions in a bid to revive its flagging data ARPUs which dropped to S$28 (-11.1% qoq; -11.7% yoy) in 3Q. We believe this is another means to protect its margins given the higher margins commanded by data services.

Valuation and recommendation

Maintaining earnings forecasts, OUTPERFORM but raising target price. We are leaving our forecasts intact until we see greater traction with its new wireless plans. However, we have raised our DCF-based (WACC 8.3%) target price to S$2.32 for end-CY09 from S$2.24 for end-CY08 as we roll forward our valuation by a year. We keep our OUTPERFORM rating intact as M1 averts a costly bidding warfare, offers the highest yield in the sector and benefits from cost savings from the upgrade to its backhaul. The main share-price trigger here is any capital management initiatives.

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