Optus considers sale of HFC to NBN

• Wholly-owned SingTel unit, Optus in Australia is evaluating various options for its participation in the Government’s National Broadband Network (NBN) project. These are:

(1) Taking an equity stake not exceeding 30%
(2) Not having a stake at all at the infrastructure level (i.e. the NBN) and just participating at the reseller level
(3) Selling its existing Hybrid fibre-coaxial (HFC) network to NBN either for cash or in exchange for an equity stake in NBN

• Brief recap: The Australia Government had rejected all bids for the NBN project in April 2008. It will instead spearhead the project by forming a new company to build and operate NBN. In the early years, the Government will own 51% stake, with the rest from private sector players.

• Based on a wholesale model, NBN will invest A$43bil over eight years to offer broadband speeds of up to 100 Mbps to 90% of all schools, homes and businesses, and delivery of up to 12 Mbps to the remaining. (See report 8 April 2009)

• We think a sale of its A$1.5bil HFC to NBN would make most fundamental sense for Optus, price notwithstanding. With the industry moving towards a high-speed NBN platform, Optus will be left stranded with a redundant legacy network. Optus’s HFC network was built in the early 1990s and offers speeds of up to 2 Mbps today as Optus had not focused on upgrading it.

• While the network is scalable and can be upgraded to higher speeds, this would seem a duplication of resources. If Optus plans to participate in the NBN, a high speed HFC platform will be competing headlong with NBN.

• Todate, Optus’s HFC covers much of metropolitan areas in Australia and provides access to 55% of population. But at (March) FY09, Optus’s had 525,000 customers using telephony services and 424,000 customers using broadband services on its HFC network, a small penetration of a market with Australis’s population at 21 million.

• At the same time, EBITDA margins for its Consumer and SMB segment are lowest among Optus’s three business segments – the other two being mobile, and business and wholesale. Service revenues from its HFC platform account for 71% of Consumer and SMB segment. For FY09, Consumer and SMB segment saw EBITDA margins of 14%, much lower than 28% for mobile and 24% for business and wholesale.

• All said, it is still early days in anticipating the route NBN will take. The Government is currently carrying out an implementation study, which will take about nine months to complete from time of announcement in April.

• We maintain our HOLD rating on SingTel, which is trading at 4% premium to fair value of S$2.80/ share.

SingTel offers ‘music buffet’ to customers

Subscribers can download to heart’s content from array of 500,000 songs

Singapore Telecommunications is going all out to strike the right chord with customers.

The operator launched a new buffet-style music store yesterday with the Universal Music Group in an effort to swing subscriber votes and boost its flagging voice revenues.

‘In the past, it (the telco) used to be about carriage services – carrying voice and data from one point to another. SingTel decided two years ago that the telco of the future needs to be more than just bits and bytes,’ said SingTel chief executive Allen Lew.

Unlike previous offerings from Nokia and Sony Ericsson which are tied to specific phones, SingTel’s new Amped music service works across multiple handsets and is bundled free with three of its 3G subscription plans.

Beyond the usual talktime and mobile Internet bundles, these plans – which costs between $39 to $95 – offer subscribers the added benefit of being able to download to their hearts’ content from the firm’s new music portal.

Existing SingTel customers can opt for a separate $9.90 monthly mobile data add-on to receive the same perk. All other charges usually levied on over-the-air downloads are waived for this service.

The operator’s music repertoire is currently made up of nearly half-a-million songs from major Universal artistes such as the Black Eyed Peas, Lady Gaga and the Pussycat Dolls, as well as Asian stars Jacky Cheung and Eason Chen.

Consumers can feast on this musical buffet on both their computers and mobile phones but the majority of the downloaded tracks will expire at the end of their two-year SingTel contracts.

However, customers will be allowed to keep 15 ‘DRM (digital rights management)-free’ songs every month and these can be transferred to other phones or music players, according to SingTel’s consumer chief Yuen Kuan Moon.

SingTel Amped currently works with 12 handset models from Nokia, Samsung, LG Electronics and Sony Ericsson but the compatibility list will be expanded to include the likes of HTC in the coming months, he added.

The operator may also get more labels to back the service in the near future, a move which market watchers feel is needed to guarantee its longer-term success.

‘Consumers today look for variety and choice. SingTel will need to get other music distributors and labels on board,’ said Foong King Yew, research director for carrier operations and strategies at technology analyst firm Gartner.

‘SingTel’s clearly trying to avoid the fate of a fat dumb pipe,’ added IDC Asia-Pacific research manager Aloysius Choong.

SingTel Amped is the third legitimate music service to make its Singapore debut this year, coming after Nokia Comes With Music in February and Sony Ericsson’s PlayNow Plus launch in April.

The Sony Ericsson service is also exclusive to SingTel and it is only offered alongside the purchase of the W705 Walkman handset. The Nokia offering, on the other hand, is extended to all three telcos and is bundled with seven phones.

A fourth local online music portal opened nearly a decade ago by Motorola unit Soundbuzz will be shut down next month, while Apple’s popular iTunes Music Store continues to be off-limits to Singaporeans.