TELCOs – BNP


iPhone 4 to be sold by all three operators this Friday.


Subsidy levels are likely to be the same as on the 3GS.


Negative impact on telco’s earnings may be more spread out this time.


Maintain Neutral on Singapore telcos. Top pick: StarHub.

Everyone wants a bite

iPhone 4 arrives on Singapore shores this Friday!

SingTel, StarHub and M1 have all announced that they will start selling the iPhone 4 this Friday (30 July). Apple (AAPL US, Not rated) also plans to sell the iPhone 4 on a non-contract basis directly through its stores for SGD888-1,048 (16-32Gb). Based on registered interests, all three telcos are expecting demand to be fairly strong on launch day.

iPhone 4 price will be cheaper than 3GS

The data plans announced for the iPhone 4 are identical to those for 3GS, in terms of monthly subscription fees and call/sms/data allocations. However, all operators are pricing the iPhone 4 at SGD38 cheaper than the 3GS. In comparison, in the US, AT&T (T US, Not rated) launched the iPhone 4 at the same price that it initially sold the 3GS (ie USD299 for 32Gb).

Subsidies likely the same but impact will be more spread out

The subsidies on the iPhone 4 are likely to be the same as on the 3GS, with any reduction in handset cost being passed on to subscribers. We maintain that the impact will be negative for telcos for existing subscribers that upgrade to an iPhone (with a data plan). Over a two-year contract, data plan revenues are unlikely to cover the additional subsidies on the iPhone 4. Nevertheless, the negative impact on telcos margins this time around could be more spread out over the next 12 months as a significant number of users (possibly, 150,000-200,000) are likely to have entered into two-year contracts for the 3GS in the last

eight months. There could also be limited volumes of iPhone 4 available-for-sale initially.

Maintain Neutral on the sector; Top pick: StarHub

We maintain NEUTRAL on the Singapore Telco sector. In our view, competitive pressure will remain high in the coming months with: 1) the National Broadband Network due to be launched in 3Q10, and 2) the jostle for Pay-TV market share with the migration of the BPL to SingTel’s MioTV. While there is strong demand for data, much of the benefits are currently accruing to handset vendors due to their strong bargaining power. Our top BUY is StarHub, which we believe offers an attractive and sustainable prospective yield of 8.7%. Sentiment on the stock is also likely to improve given the cross-carriage mandate and potentially less-than feared Pay-TV churn rates in the next two months. We maintain HOLD on SingTel.

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