Revamp of Pay TV Segment

Significant revamp for Pay TV industry. The Singapore government has significantly revamped the Pay TV industry by requiring Pay TV providers to cross-carry each other's content that is acquired or renewed on an exclusive basis. In short, Pay TV customers will be able to watch all Pay TV content with their preferred operator and need not pay any extra fee for doing so. Instead, the content supplier needs to pay competitors a fee for carrying its content; in return, the competitor must not modify the content in any way, including ads and branding. However, this only applies to any contract signed or renewed from 12 Mar 2010: this means that previously signed content like the much-watched English Premier League (EPL) will continue to be carried exclusively by SingTel's mio TV. 

Good for Pay TV customers. Overall, we view the latest move as positive for Pay TV customers; it may also translate into lower subscription fees due to less aggressive bidding by the service providers, although we are unlikely to see a drastic reduction as having more content to offer still means higher revenue. Furthermore, the ruling may be a boon to new entrants to the Pay TV market as they can offer their content via existing operators' infrastructure without having to fork out their own hefty capital investments. As advocated before, we believe that MobileOne (M1) will be one such key beneficiary; it will also be able to strengthen its triple-play offering. 

Impact slightly mixed for incumbents. But the impact is slightly more mixed for the incumbents, especially SingTel where it had been able to use its strong balance sheet to pay more for exclusive content; with the EPL rights expiring by mid-2012, SingTel may have until then to aggressively expand its fledging mio TV subscriber base from the current 155k users (as of end 2009). For StarHub, the latest move is slightly more positive, as its cable TV system is likely to remain the preferred mode of transmission, given that it has already penetrated some 539k homes (as of end 2009). Less aggressive content bidding is also expected to reduce its content cost, currently at around 70% of revenue. 

Maintain OVERWEIGHT. It is still too early to discern the financial impact as we think that there may still be a lot of logistics that need to be worked out – the devil is in the details. We still like the telcos for their defensive earnings and attractive yields. Maintain our OVERWEIGHT rating.

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