TELCOs – CIMB
No 3G spectrum auction
The IDA has announced that it has received a total of three applications for the 3G spectrum rights auction. As there was only one offer for each of the three lots, the IDA will allocate each lot at the reserve price of S$20m. The news is not a major surprise as we had not expected any new bidders to emerge from this process and is in fact positive as the three telcos avoided a bidding warfare and obtained the spectrum at a fairly low cost. The additional spectrum will give the telcos more capacity for mobile broadband. The cost of the spectrum should not affect dividend payouts given the telcos’ fairly solid balance sheet. We retain our UNDERWEIGHT stance on the sector as we remain perturbed over the rising content costs, pressure on fixed broadband ARPUs and escalating subsidies. M1 (OUTPERFORM, TP: S$2.60) remains the top pick for its capital management potential, most upside from NGNBN and as it benefits from the soaring inbound visitors.
The IDA has received three applications from each of the three telcos who were interested in participating in the 3G spectrum rights auction. As there was only one offer for each of the three lots of 2×5 MHz, the IDA will not be conducting an auction and the 3G spectrum will be allocated to each of the incumbents at the reserve price of S$20m.
Not a surprise. As mentioned in our previous note, we had not expected any new bidders to emerge given Singapore’s small and mature market with well-established incumbents. We had also not expected any of the incumbents to go after more than one lot as the incumbents would have a total of 2×20 MHz, following this round of auction, which is more than sufficient in our view.
No bidding warfare, increased capacity. The development is on the whole positive as the three telcos avoided a bidding warfare and was able to obtain the additional spectrum at a relatively low cost of S$20m. Moreover, the three incumbents would benefit from having more real estate, ie spectrum, that would help increase the capacity for the three operators and enable them to cater for current and future growth in the mobile data and wireless broadband business. It would also enable them to plan their networks more efficiently with the additional spectrum.
No impact to dividend payouts. At the assigned price of S$20m, the spectrum cost would boost SingTel, StarHub and M1’s 2010 capex by 1%, 6% and 19% respectively. The spectrum cost should not affect the dividend payouts of the telcos given their solid balance sheet, in our view. Of the three telcos, M1 would be the most affected in terms of capex outlay given its smaller balance sheet but we do not think that this would inhibit any capital management potential there.
Valuation and recommendation
Maintain UNDERWEIGHT on the sector as we are concerned over the rising content cost, escalating subsidies and pressure on broadband ARPUs. Our top pick within the sector is M1 (OUTPERFORM, TP: S$2.60) for its capital management potential, the most upside from NGNBN and as it benefits from soaring inbound visitors.