Telco stocks slip on fears of keener competition

High mobile penetration makes it unlikely for new player to bid for final 3G spectrum

TELCO stocks fell yesterday on concerns that more competitors may join the market, after the government announced that it is seeking bids for its final third-generation (3G) mobile spectrum.

But market watchers felt that the selling was unwarranted, as the high mobile penetration in Singapore makes it unlikely for a new player to bid for the spectrum.

Singapore Telecommunications (SingTel) dipped as much as 2.3 per cent yesterday before closing 0.3 per cent lower at $3.10. StarHub ended 2.8 per cent down at $2.42, while M1, the smallest of the three operators, slipped 1.8 per cent to $2.22. The benchmark Straits Times Index was marginally up at 3,036.09 points yesterday.

Despite opposition from incumbent telco operators, the Infocomm Development Authority (IDA) of Singapore said that it will go ahead with plans to auction off three lots of radio frequencies within the 1,900 to 2,100 megahertz (MHz) range.

The auction documents were published on IDA’s website last Friday. IDA said it will accept minimum bids of $20 million for each radio frequency bandwidth at an auction set for Nov 15. Bidders will not be limited to the three existing telcos.

IDA had in 2001 issued four spectrums, of which three spectrums were snapped up by SingTel, StarHub and M1 for $100 million each, leaving one unclaimed band which IDA is now seeking to allot.

Responding to the news, DMG & Partners Securities reaffirmed its ‘neutral’ call on the telco sector yesterday on expectations that competition in the industry will intensify.

‘We question the rational of a fresh auction as the additional spectrum could otherwise be more equitably distributed among the existing operators to meet the rising 3G data uptake,’ the brokerage said in a note.

But independent telecoms consultant Soh Siow Meng noted that the prospect is slim for a fourth operator to enter the market given the high mobile penetration in Singapore.

There were seven million mobile subscriptions in Singapore as at June this year, translating to a penetration rate of 140.7 per cent, IDA data shows.

‘For a new player to invest in a new network and possibly get into a price war with the three existing mobile operators, I don’t think this is a feasible business for the new player,’ Mr Soh said.

James Sullivan, head of Asia Telecom Research at JPMorgan, also noted that Singapore’s high penetration and small market size make it more likely for the incumbents to use this as an opportunity to buy additional spectrum to shore up their wireless broadband capabilities.

In the meantime, rumours that SingTel is likely to bid for the UK’s Cable & Wireless Worldwide appeared to have been quashed after SingTel clarified in a meeting with analysts that it wants to focus on the Asia-Pacific region.

Citi analysts Arthur Pineda and Ravi Sarathy said that this indicated to them that ‘there is likely to be limited interest on the part of SingTel in acquiring C&W Worldwide, contrary to UK press reports’. The speculated move was, however, perceived positively by various research houses given C&W’s attractive growth and valuations.

CIMB maintained an ‘underperform’ call on SingTel yesterday with a target price of $3.09 in view of headwinds faced by its key units. DMG’s top pick for sector exposure is M1 with a ‘buy’ call, while it is keeping ‘neutral’ on SingTel and StarHub.

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