SingTel to take another bite at new iPhone?

The phone which launched a thousand queues will hog the technology spotlight all over again as Apple kick-starts its annual developer conference today.

If the third incarnation of the iPhone is indeed unveiled, Singapore Telecommunications looks set to take another exclusive bite at the coveted device.

This is because the operator’s iPhone monopoly will last for another year at least, according to a telecommunications industry insider.

With the dearth of competing touch-screen phones from handset giants such as Samsung, LG Electronics and HTC, Apple will take the quickest route to market by relying on its existing distribution agreements in Asia. ‘It (the exclusivity) also adds to the phone’s appeal,’ he said.

SingTel and its three regional units were given the right to sell Apple’s iPhone 3G last year under a regional pact covering Singapore, Australia, India and the Philippines.

Speculation is rife that new models – which could include enhancements to its camera module and storage capacity – could surface as early as tonight during Apple’s annual WorldWide Developers Conference in the United States, the same platform for the iPhone 3G launch last year.

Beyond a hardware refresh, they are also expected to incorporate iPhone 3.0, a new operating system which promises to fix niggling quirks such as the inability to copy and paste text and send multimedia messages.

‘Apple has made an art of launching evolutionary upgrades with each iPod refresh – slimmer designs, more colours and more memory. This has enabled the longevity of the product line. The iPhone likewise does not need a radical redesign, but beyond a lower price and more memory, it could certainly benefit from some cosmetic retouching,’ said Aloysius Choong, a research manager with technology analyst firm IDC Asia-Pacific.

When contacted, both SingTel and Apple declined comment on the tenure of their current contract. ‘Since the launch of the iPhone 3G last August, we have been working closely with Apple to enhance our customers’ iPhone experience and will definitely look at introducing new products from Apple whenever these are ready for market in Singapore,’ said SingTel spokesman Peter Heng.

SingTel has sold more than 100,000 units of the phone and it continues to rank among the company’s top-selling models today. Apple forbids individual operators from disclosing their sales tally but the gadget maker said 8.2 million iPhones were sold globally in the six months ended March 28.

‘Apple came out of nowhere to capture a 10 per cent share of the Singapore converged (devices) market in 2008. Shipments have declined over time but (iPhone) volumes remain impressive given that Apple’s entire portfolio comprises a grand total of two models,’ said Mr Choong.

StarHub and MobileOne were initially confident of breaking the iPhone stranglehold last year, but the handset is still docked at only one local operator.

Mobile users who are locked down by their M1 and StarHub subscription deals have to wait out their contracts or buy unsubsidised iPhones from the grey market at hefty prices. This has prompted some consumers to resort to online petitions to try and get Apple to change its mind.

‘We continue to receive feedback from our customers that they would like to get the iPhone and be connected to StarHub’s network. We really want to meet these requests and have continuously indicated our keen interest to Apple to distribute the iPhone,’ a StarHub spokeswoman said.

Denies fund raising rumours

Fund raising article “misleading”; Maintain BUY. We spoke to SingTel’s spokesperson following a Bloomberg article suggesting that the telco was seeking US$4b in funds to “protect its stake in Bharti Airtel”. He said that the article was “misleading” and “very wrong”. The fact is that SingTel did engage a financial adviser, but it was for the purpose of assessing the potential merger between Bharti and South-Africa based MTN, and not specifically to look into fund raising. We estimate that Bharti would need US$4b for this deal, which will likely be in the form of debt financing. But even if it were to do equity fund raising, SingTel will be in a good position to support. Maintain BUY on SingTel, with price target of S$3.17 based on SOTP. Bharti accounts for 25% of our SOTP.

Recapping the deal. Bharti would acquire 49% shareholding in MTN, and MTN would in turn acquire a 36% stake in Bharti. The combined entity would create an operator with revenue of more than US$20b and combined customer base of 200m users. Both parties have agreed to discuss the potential transaction exclusively till 31 Jul 09, which if successful, will make it the world’s third largest mobile phone company. The deal prices Bharti at EV/EBITDA of 11x, and MTN at 5.5x. Moreover, MTN currently generates free cash flow, while Bharti is only expected to be FCF neutral this year. Hence, the deal appears to favour the latter.

Potential merger impact on SingTel. Post-merger, SingTel’s stake in the Bharti will be reduced from 30% to 19%, while SingTel’s EPS is estimated to slide by 1.5%in FY11. We believe that should Bharti require funds for this merger, SingTel will stand ready to support. Based on our estimates, Bharti may need to raise up to US$4b if the deal goes through. According to the media in India, Bharti will fund the acquisition through debt, but assuming half the amount is through equity, SingTel may have to fork out US$600m.This would raise SingTel’s net gearing from 28% to 32%, still very manageable given its strong balance sheet.

SingTel expected to top up Bharti stake if dilution occurs

SINGAPORE Telecommunications’ stake in Bharti Airtel could be slashed by up to 10 percentage points or more if the latter’s merger with the MTN Group comes through but industry observers say the Singapore operator might be willing to pump in more money to make up for the dilution.

According to a Financial Times report citing unnamed sources, SingTel can be expected to acquire some, or all, of the 11 per cent Bharti shareholding expected to be offloaded by MTN shareholders who do not want to end up with Bharti shares after the planned deal.

If ongoing negotiations between Bharti and MTN bear fruit, the Indian operator will own a 49 per cent stake in its South African counterpart under a complex share-and-cash swap transaction valued at nearly US$23 billion.

Bharti last week offered to pay 86 South African rand and 0.5 newly issued Bharti global depository receipts for each MTN share. In return, MTN will lay claim to 25 per cent of Bharti while its shareholders will own another 11 per cent.

Market analysts said a successful Bharti-MTN merger is likely to reduce SingTel’s 30.5 per cent stake in its Indian associate to around 19 per cent, although Singapore’s largest operator will gain from having indirect access to Africa’s burgeoning telecommunications markets.

If SingTel acquires the 11 per cent Bharti shareholding from MTN shareholders after the deal, the move would restore its Bharti stake back to pre-merger levels. However, industry watchers say SingTel may have to raise more capital to fund this purchase.

When contacted, SingTel said it does not comment on market speculation. ‘Discussions between Bharti and MTN are ongoing, and SingTel will continue to be actively involved in due diligence and key aspects of the transaction,’ a company spokesman said.

However, SingTel’s recent track record would suggest it is always ready to seize opportunities for increasing its overseas stakes.

In March this year, the firm pumped in an additional US$25 million into Pacific Bangladesh Telecom Limited to take its total investment in the associate to US$143 million. SingTel also injected an additional US$75 million into its Pakistani associate Warid Telecom in January.

BT understands that Goldman Sachs is advising SingTel on the Bharti-MTN deal. Deutsche Bank and Bank of America Merrill Lynch are counselling MTN, while Standard Chartered is the financial adviser for Bharti.

IDA denies SingTel full regulatory relief

4 of 7 appeals over dominant licensee obligations rejected

After deliberating for 18 months, the Infocomm Development Authority of Singapore (IDA) is standing firm on its decision to deny Singapore Telecom full exemption from government regulations designed to keep the country’s largest operator in check.

The telecommunications regulator has officially turned down four of SingTel’s seven appeals to be freed from so-called ‘dominant licensee obligations’ relating to the provision of business telephony services.

Under Singapore’s Telecom Competition Code, SingTel is subject to these stringent operating rules in areas where it is deemed to have a commanding market presence. The conditions were put in place to ensure SingTel deals with other telecommunications licensees in a fair and non-discriminatory manner. For example, it requires SingTel to offer other service providers access to parts of its infrastructure under prices and conditions set by the government.

SingTel submitted two appeals for regulatory relief to IDA in October 2007. The first ‘customer segment request’ applied to corporate clients who spend more than $250,000 a year on telecom services, while the second ‘market-based request’ was for six business telephony services.

IDA reached a final decision this week after three rounds of public feedback and interviews with other industry players over the past 18 months.

‘SingTel’s request is far broader than its three previous exemption requests,’ IDA’s deputy director-general of telecom and post Andrew Haire said in a letter to SingTel on Tuesday.

‘If IDA were to grant SingTel’s request in its entirety, SingTel would be relieved from dominant licensee regulation for all telecommunication services it provides to government and business customers who spend at least $250,000 a year on telecommunication services.’

Full exemption in this customer segment would mean that SingTel would be unshackled from dominant licensee stipulations for most of the services it provides to businesses with a telecom budget below $250,000, he added.

Given these considerations, IDA decided to reject SingTel’s first customer-segment request. However, the regulator will grant SingTel regulatory relief for three of the six market segments contained in its second request.

According to Mr Haire, the backhaul and terrestrial international private leased circuits (IPLC) segments ‘are now effectively competitive’ and SingTel will be freed from its dominant licensee obligations in these markets. In addition, the regulator will continue to exempt SingTel in the international managed data services market.

These exemptions, however, will not be extended to the remaining three Singapore-centric business segments detailed by SingTel.

‘IDA has concluded that because effective competition has not yet taken root in the business local telephony service, LLC (local leased circuit) and local managed data service, IDA will not grant exemption in those markets,’ Mr Haire said.

The rulings are expected to kick in by June 16. When contacted, SingTel did not confirm whether it will appeal to IDA. ‘We are reviewing the decision. However, we welcome IDA’s decision to relieve us from dominant licensee obligations in respect to the terrestrial IPLC market and the backhaul market,’ a SingTel spokesman said.