TELCOs – Kim Eng
Share and share alike
The rising costs of exclusive TV content should no longer be the bugbear it once was once Pay TV operators are required by the Media Development Authority (MDA) to cross‐carry each other's exclusive content later this year. In our view, the biggest beneficiary of the latest change in government regulation will be M1 (BUY, TP $2.45) which will now be able to compete equally with SingTel and Starhub. We also see more advantages for SingTel (BUY, TP $3.42) than Starhub (SELL, TP $1.80).
In our view, the change in ruling is advantageous for SingTel. Critically, SingTel's exclusive rights to broadcast the EPL are not affected as it acquired the rights last year. The new cross‐carriage ruling applies only to exclusive content acquired or renewed after 12 March 2010.
In the short term, the damage to Starhub is mostly to sentiment as it has locked in key content in multi‐year exclusive contracts, hence margins should stabilise and even improve this year. However, the lack of clarity on which content is involved, when they were renewed or the length of the contracts will still overhang the stock. In the long term, the impact is negative as Starhub will see its hubbing proposition and ability to offer exclusive content devalued.
With equal access to content and infrastructure (once the Next Generation National Broadband Network or NGNBN is up and running throughout the country), M1's main disadvantage as a pure mobile operator will be removed. We would therefore expect M1 to be the biggest winner (other than the consumer).
Action & Recommendation
We see no reason to change our recommendations. All along, our preference has been for M1 (BUY, TP $2.45) among all the telcos. The MDA's policy change further reinforces our view. SingTel (BUY, TP $3.42) should also reap more benefits fairly immediately compared to what it will lose in the longer term. However, the long term impact on Starhub (SELL, $1.80) is negative.