TELCOs – DBSV

iPad- lessons learnt from AT&T

iPad’s microSIM is smaller than traditional SIM; New revenue stream for operators from iPad’s 3G-data plan.

Potential could be 2-3% of revenue and 3-4% of earnings, plus for cellular players.

M1 offers cheaper iPad plans with limited usage, a lesson learnt from AT&T. SingTel and StarHub offer premium plans with higher usage.

We prefer SingTel & M1 to StarHub.

New revenue-stream for cellular players. iPad uses microSIM card, which is smaller than traditional SIM card. Arguably SIM card can be trimmed to a microSIM card but then it would become useless for smartphone ruling out interchangeability. As such, iPad owners would need to buy new 3G-data plan, which would be a new revenue stream for cellular players. We estimate 50K and 150K iPad households in 2010 and 2011, based on 5% and 15% household penetration rate in Singapore in 2010 & 2011 respectively. Assuming 80% of iPad users subscribe to 3G-data plan with average ARPU of S$25, we estimate iPad data revenue of S$18m in 2011F, about 2.5% of industry cellular revenue. With no device subsidy involved, we expect 70-80% of revenue to flow to the bottomline, contributing about 3-4% of cellular industry bottomline in 2011.

M1’s iPad plan targets light 3G-users, lesson learnt from AT&T. In terms of strategy, M1 seems to target light 3G-data users with cheaper plans, more appealing to the students. This is in contrast to SingTel and StarHub, who are targeting heavy-data users with premium plans. Plus there is no initial fee for M1 iPad plans in contrast to its competitors. This is also inline with AT&T’s experience where it stopped offering unlimited 3G-plans to its new iPad customers and offers maximum 2GB data limit (lower than M1’s 3GB) due to capacity constraints, most probably. AT&T realized that only 2% of people used more than 2GB, congesting the network for the rest 98%. In our view, iPad is like a notebook with more indoor (Wi-Fi) usage and consumers should be discouraged to use excessive 3G-data over Wi-Fi data. While M1 does offer unlimited data plan, we expect more traction for cheaper plans as consumers budget their iPad bills on top of smartphone bills. SingTel targets high-end users with 50GB of data limit while StarHub offers unlimited data under its iPad plans, which raises questions on the efficient use of 3G-network.

Pure cellular players should benefit more. We favor M1 as the chief beneficiary of iPad’s growth in Singapore. We continue to favor SingTel and M1 over StarHub. We like SingTel for strong Optus, recovering Bharti and attractive valuations. We like M1 for its ability to gain its market share, capital management potential and defensive 7% dividend yield. For StarHub, we are afraid that group equity may become negative, if it continues with 20 cents DPS till 2012

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