Fourth mobile operator may get a call-up

IDA may free up remaining 3G spectrum and pave way for new player, says consultation paper

Singapore’s telco scene could add a splash of colour beyond the current red, green and orange if the Republic’s telecommunications regulator goes ahead with a plan to free up its remaining third-generation (3G) cellular spectrum.

The Infocomm Development Authority of Singapore (IDA) is considering parcelling out the final lot of a 3G spectrum which has been left unused for the last nine years.

The move is envisioned to boost cellular bandwidth for the three incumbent operators – Singapore Telecommunications, StarHub and MobileOne – to provide mobile broadband services. At the same time, it could allow a fourth operator to join the trio in providing high-speed mobile services to local users.

‘To meet mobile operators’ increased demand for frequency spectrum so as to enhance their 3G system, and also to open the door for a fourth 3G operator, IDA would like to make available the remaining spectrum in the 3G Band,’ the regulator said in a consultation paper on its website.

This spectrum falls within the 1900 to 2100 Mhz (megahertz) range, the band which is currently used by telcos to offer 3G services such as mobile broadband and video calling.

Four lots within this frequency range were initially put up for auction in March 2001. However, these did not go under the hammer as IDA received offers only from the three local operators.

SingTel, StarHub and M1 eventually paid the reserve price of $100 million each for their 3G licence and the fourth lot was left unclaimed.

However, with the explosive adoption of mobile broadband services in recent years, IDA said it has recently received requests from telecom industry players to release the remaining spectrum.

‘Based on IDA’s statistics, between September 2008 and September 2009, 3G subscriptions grew by over 25 per cent while High-Speed Packet Access (HSPA) subscriptions grew by 240 per cent,’ it said.

HSPA, commonly referred to as 3.5G, is the technology being used to power mobile Web surfing on newfangled smart phones. All three operators also provide token-like devices called HSPA modems that can be connected to laptops to enjoy broadband connectivity on the go.

According to IDA’s latest figures, 3G subscribers currently account for close to half of Singapore’s sizeable base of 6.9 million cellphone users.

‘IDA believes that demand for 3G services will continue to grow steadily as more consumers upgrade from 2G to 3G services and take up mobile broadband services,’ it said.

‘To meet this growing consumption, the incumbent mobile operators will need to increase the capacity of their 3G networks. On the other hand, IDA cannot foreclose the possibility that the growing demand for 3G services may also present a viable business case for another operator to enter the 3G market in Singapore,’ the regulator added.

Singapore did have a fourth operator once in 2002 in the form of Virgin Mobile, a joint venture between SingTel and Richard Branson’s Virgin Group. However, it failed to make a dent in the market and the company pulled out within a year.

IDA is currently seeking views from the telecom industry and the public on its proposal. Feedback must be submitted by April 26.

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 What's New

The rising costs of exclusive TV content should no longer be the bugbear it once was once Pay TV operators are required by the Media Development Authority (MDA) to cross‐carry each other's exclusive content later this year. In our view, the biggest beneficiary of the latest change in government regulation will be M1 (BUY, TP $2.45) which will now be able to compete equally with SingTel and Starhub. We also see more advantages for SingTel (BUY, TP $3.42) than Starhub (SELL, TP $1.80).

Our View

In our view, the change in ruling is advantageous for SingTel. Critically, SingTel's exclusive rights to broadcast the EPL are not affected as it acquired the rights last year. The new cross‐carriage ruling applies only to exclusive content acquired or renewed after 12 March 2010.

In the short term, the damage to Starhub is mostly to sentiment as it has locked in key content in multi‐year exclusive contracts, hence margins should stabilise and even improve this year. However, the lack of clarity on which content is involved, when they were renewed or the length of the contracts will still overhang the stock. In the long term, the impact is negative as Starhub will see its hubbing proposition and ability to offer exclusive content devalued.

With equal access to content and infrastructure (once the Next Generation National Broadband Network or NGNBN is up and running throughout the country), M1's main disadvantage as a pure mobile operator will be removed. We would therefore expect M1 to be the biggest winner (other than the consumer).

Action & Recommendation

We see no reason to change our recommendations. All along, our preference has been for M1 (BUY, TP $2.45) among all the telcos. The MDA's policy change further reinforces our view. SingTel (BUY, TP $3.42) should also reap more benefits fairly immediately compared to what it will lose in the longer term. However, the long term impact on Starhub (SELL, $1.80) is negative.

SingTel, StarHub to double mobile broadband speeds by this year

SINGAPORE Telecom and StarHub aim to upgrade their cellular networks to double mobile data broadband speeds by the end of this year. This will allow users to surf the Web and download applications on their handphones at speeds of up to 42.2 Mbps (megabits per second) – twice as fast as the current 21.1 Mbps limit.

SingTel expects to complete its upgrade by the second half of this year, while StarHub said its network will be ready by the third quarter. Neither company has disclosed the cost of the upgrade.

When contacted, MobileOne said it will be ready for 42.2 Mbps by this quarter.

Although the speed boost can be achieved this year, SingTel’s executive vice-president for consumer business Yuan Kuan Moon said ‘it will take a while for devices to catch up’.

Most smart phones and mobile broadband dongles available today support download speeds of only 7.2Mbps to 14.4Mbps.

‘We are talking to all the major (handset) providers,’ Mr Yuan told reporters at a media briefing.

Swedish telecom equipment maker Ericsson clinched the upgrading contract with SingTel, while StarHub chose to go with China’s Huawei.

Besides the ongoing improvements, both operators said yesterday they are also embarking on local technical trials of another technology called Long Term Evolution (LTE). MobileOne launched a similar trial in January this year and it expects its LTE network to be ready in 2011.

LTE is considered by pundits to be the obvious successor to existing third-generation cellular technology. It will allow telcos to offer mobile broadband speeds of 100Mbps or more – a feat that rivals the fastest fixed-line broadband speeds available in Singapore today.

In Europe, Swedish operator Telia has already started on this upgrade, while NTT Docomo plans to launch its LTE network in Japan by the end of the year.

‘While we are committed to LTE for the future growth of our network, the upgrade of our existing HSPA+ network to 42Mbps DC (dual-carrier) is relatively straightforward and will provide peak data rates for our customers comparable to that which can be achieved with current LTE technologies,’ a StarHub spokeswoman said.

Revamp of Pay TV Segment

Significant revamp for Pay TV industry. The Singapore government has significantly revamped the Pay TV industry by requiring Pay TV providers to cross-carry each other's content that is acquired or renewed on an exclusive basis. In short, Pay TV customers will be able to watch all Pay TV content with their preferred operator and need not pay any extra fee for doing so. Instead, the content supplier needs to pay competitors a fee for carrying its content; in return, the competitor must not modify the content in any way, including ads and branding. However, this only applies to any contract signed or renewed from 12 Mar 2010: this means that previously signed content like the much-watched English Premier League (EPL) will continue to be carried exclusively by SingTel's mio TV. 

Good for Pay TV customers. Overall, we view the latest move as positive for Pay TV customers; it may also translate into lower subscription fees due to less aggressive bidding by the service providers, although we are unlikely to see a drastic reduction as having more content to offer still means higher revenue. Furthermore, the ruling may be a boon to new entrants to the Pay TV market as they can offer their content via existing operators' infrastructure without having to fork out their own hefty capital investments. As advocated before, we believe that MobileOne (M1) will be one such key beneficiary; it will also be able to strengthen its triple-play offering. 

Impact slightly mixed for incumbents. But the impact is slightly more mixed for the incumbents, especially SingTel where it had been able to use its strong balance sheet to pay more for exclusive content; with the EPL rights expiring by mid-2012, SingTel may have until then to aggressively expand its fledging mio TV subscriber base from the current 155k users (as of end 2009). For StarHub, the latest move is slightly more positive, as its cable TV system is likely to remain the preferred mode of transmission, given that it has already penetrated some 539k homes (as of end 2009). Less aggressive content bidding is also expected to reduce its content cost, currently at around 70% of revenue. 

Maintain OVERWEIGHT. It is still too early to discern the financial impact as we think that there may still be a lot of logistics that need to be worked out – the devil is in the details. We still like the telcos for their defensive earnings and attractive yields. Maintain our OVERWEIGHT rating.

Second IPTV success story in Asia?

• MDA will require SingTel and StarHub to share the content, excluding EPL for 2010-12 season.

• In the near term, except football world cup rights, not many channels are up for renewal.

• In the long term,(i) incumbent StarHub would lose its content-advantage offset to some extent by lower content cost,(ii) challenger SingTel would benefit in both content line up and cost,(iii) better case for M1 to enter IPTV business, riding on National Broadband Network (NBN) and shared content.

Content-sharing regulations finally. Media Development Authority (MDA) finally announced mandatory content-sharing for agreements signed after 12 March 2010. MDA would go through industry consultation for content-sharing mechanism and pricing. The timing could pertain to upcoming football world cup rights so that SingTel-StarHub do not engage in overbidding again. Many popular channels may not be up for renewal in the next 2-3 years, so we do not see any major impact in the near term. SingTel would continue to be the exclusive carrier for English Premier League for 2010-12 season as content sharing applies to agreements done after 12 March 2010.

Impact over the long-term. Positive for SingTel. Besides EPL, SingTel does not have much attractive content, as StarHub holds majority of the popular channels exclusively. As and when SingTel secures these channels, it should diminish StarHub's content advantage. In fact, SingTel has a good chance to convert its EPL only subscribers to full subscribers by offering them StarHub's pay TV channels. SingTel's existing mobile and broadband subscribers should be easy targets. Upcoming launch of NBN in 2010 would also help SingTel to improve bandwidth hungry video-on-demand (VOD) and interactive programs. Besides, M1 could also enter IPTV market in order to offer a complete triple-play product. We reckon that Singapore could be the second IPTV success story in Asia after Hong Kong.

Cautious on StarHub. We see StarHub as a victim in (i) the pay TV business due to its loss of its virtual content-monopoly – beginning with EPL loss (ii) the broadband business due to NBN and its network leasing agreement with SingTel till 2015. With fixed network leasing cost, an expected decline in broadband ARPU due to NBN would directly impact bottomline. We prefer M1 to StarHub as (i) M1 offers 16% yield (regular 7%) for FY10F compared to StarHub's 9% yield (ii) M1, being a pure cellular player would benefit more from higher tourist arrival in Singapore. We also like SingTel for its attractive 12x FY11F PER compared to its historical average around 13x.