TELCOs – DBS

Second IPTV success story in Asia?

MDA will require SingTel and StarHub to share the content, excluding EPL for 2010-12 season.

In the near term, except football world cup rights, not many channels are up for renewal.

In the long term,(i) incumbent StarHub would lose its content-advantage offset to some extent by lower content cost,(ii) challenger SingTel would benefit in both content line up and cost,(iii) better case for M1 to enter IPTV business, riding on National Broadband Network (NBN) and shared content.

Content-sharing regulations finally. Media Development Authority (MDA) finally announced mandatory content-sharing for agreements signed after 12 March 2010. MDA would go through industry consultation for content-sharing mechanism and pricing. The timing could pertain to upcoming football world cup rights so that SingTel-StarHub do not engage in overbidding again. Many popular channels may not be up for renewal in the next 2-3 years, so we do not see any major impact in the near term. SingTel would continue to be the exclusive carrier for English Premier League for 2010-12 season as content sharing applies to agreements done after 12 March 2010.

Impact over the long-term. Positive for SingTel. Besides EPL, SingTel does not have much attractive content, as StarHub holds majority of the popular channels exclusively. As and when SingTel secures these channels, it should diminish StarHub's content advantage. In fact, SingTel has a good chance to convert its EPL only subscribers to full subscribers by offering them StarHub's pay TV channels. SingTel's existing mobile and broadband subscribers should be easy targets. Upcoming launch of NBN in 2010 would also help SingTel to improve bandwidth hungry video-on-demand (VOD) and interactive programs. Besides, M1 could also enter IPTV market in order to offer a complete triple-play product. We reckon that Singapore could be the second IPTV success story in Asia after Hong Kong.

Cautious on StarHub. We see StarHub as a victim in (i) the pay TV business due to its loss of its virtual content-monopoly – beginning with EPL loss (ii) the broadband business due to NBN and its network leasing agreement with SingTel till 2015. With fixed network leasing cost, an expected decline in broadband ARPU due to NBN would directly impact bottomline. We prefer M1 to StarHub as (i) M1 offers 16% yield (regular 7%) for FY10F compared to StarHub's 9% yield (ii) M1, being a pure cellular player would benefit more from higher tourist arrival in Singapore. We also like SingTel for its attractive 12x FY11F PER compared to its historical average around 13x.

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