Greater freedom for pay TV viewers from March 2012

MDA has put out guidelines that cap early termination charges

The battle for the pay television dollar will soon intensify with a new guideline that makes it easier for dissatisfied subscribers to vote with their feet.

The Media Development Authority (MDA) has put out guidelines that cap the early termination charges (ETCs) that viewers have to pay if they cut short a pay TV contract with an operator.

From March 1, 2012, operators may charge ETCs made up only of the unfulfilled value of the subscription contract less any avoidable costs. Avoidable costs are expenses that the operator does not have to incur as a result of the contract termination. This guideline applies to contracts that are at least three months long.

A cap of 24 months will also be placed on any pay TV subscription contract so that consumers are not unreasonably tied down.

While such consumer rights are already alluded to in the Media Market Conduct Code, MDA is now spelling them out for the operators in response to consumer complaints and increasing competition.

‘In recent years, MDA has received feedback from subscribers of pay TV services that they are unfairly disadvantaged by having to pay ETCs due to unilateral changes initiated by the pay TV retailers on the channel line-up or pricing of their subscription packages,’ MDA said.

Even as disgruntled viewers clamour for redress, pay TV incumbents will have to contend with upstart competitors. The Next Generation Nationwide Broadband Network (Next Gen NBN) could mean an influx of new entrants in the pay TV field.

The response from the three main operators – StarHub, SingTel, and M1 – has been divided along the lines of who stands to gain or lose from the new guidelines.

There are more than 857,000 subscribers today, the bulk of which belong to StarHub. M1 is the newest on the pay TV scene with its 1box service which is run on a broadband network. SingTel, with its mioTV service launched in 2007, is somewhere in between.

‘SingTel’s current ETC policy already takes into account the interests of customers. We believe that there is no market failure to warrant new guidelines,’ a SingTel spokesman said.

‘Whilst we will review the new ETC guidelines . . . we are concerned that the guidelines may result in limiting consumers’ choices and deprive them of the opportunity to obtain attractive premiums.’

While StarHub said that it would ‘consider the feasibility of any new recommendations’, it suggested that alternative ETC structures be allowed to co-exist with the one laid down by the MDA in its feedback to the agency. StarHub told BT that the percentage of customers opting for early termination is ‘very small’.

M1, on the other hand, has embraced the idea of subscribers having more freedom to switch operators. ‘This will ensure that customers will not be unduly restricted or hampered should they wish to switch or terminate a pay TV service,’ it told BT.

It suggested to MDA that it go one better and allow subscribers to switch to the Next Generation Interactive Multimedia, Applications, and Services (NIMS) platform without having to pay ETCs at all for a period of time.

The NIMS platform will give consumers access to pay TV content over a broadband network.

MDA has decided against the suggestion. ‘This is something best left to commercial considerations of the pay TV retailers,’ said Toh Kai Ling, MDA’s policy director.

Operators, however, will have to toe the new line come March, or risk being ‘taken to task accordingly’, MDA said.

Greater freedom for pay TV viewers from March 2012

MDA has put out guidelines that cap early termination charges

The battle for the pay television dollar will soon intensify with a new guideline that makes it easier for dissatisfied subscribers to vote with their feet.

The Media Development Authority (MDA) has put out guidelines that cap the early termination charges (ETCs) that viewers have to pay if they cut short a pay TV contract with an operator.

From March 1, 2012, operators may charge ETCs made up only of the unfulfilled value of the subscription contract less any avoidable costs. Avoidable costs are expenses that the operator does not have to incur as a result of the contract termination. This guideline applies to contracts that are at least three months long.

A cap of 24 months will also be placed on any pay TV subscription contract so that consumers are not unreasonably tied down.

While such consumer rights are already alluded to in the Media Market Conduct Code, MDA is now spelling them out for the operators in response to consumer complaints and increasing competition.

‘In recent years, MDA has received feedback from subscribers of pay TV services that they are unfairly disadvantaged by having to pay ETCs due to unilateral changes initiated by the pay TV retailers on the channel line-up or pricing of their subscription packages,’ MDA said.

Even as disgruntled viewers clamour for redress, pay TV incumbents will have to contend with upstart competitors. The Next Generation Nationwide Broadband Network (Next Gen NBN) could mean an influx of new entrants in the pay TV field.

The response from the three main operators – StarHub, SingTel, and M1 – has been divided along the lines of who stands to gain or lose from the new guidelines.

There are more than 857,000 subscribers today, the bulk of which belong to StarHub. M1 is the newest on the pay TV scene with its 1box service which is run on a broadband network. SingTel, with its mioTV service launched in 2007, is somewhere in between.

‘SingTel’s current ETC policy already takes into account the interests of customers. We believe that there is no market failure to warrant new guidelines,’ a SingTel spokesman said.

‘Whilst we will review the new ETC guidelines . . . we are concerned that the guidelines may result in limiting consumers’ choices and deprive them of the opportunity to obtain attractive premiums.’

While StarHub said that it would ‘consider the feasibility of any new recommendations’, it suggested that alternative ETC structures be allowed to co-exist with the one laid down by the MDA in its feedback to the agency. StarHub told BT that the percentage of customers opting for early termination is ‘very small’.

M1, on the other hand, has embraced the idea of subscribers having more freedom to switch operators. ‘This will ensure that customers will not be unduly restricted or hampered should they wish to switch or terminate a pay TV service,’ it told BT.

It suggested to MDA that it go one better and allow subscribers to switch to the Next Generation Interactive Multimedia, Applications, and Services (NIMS) platform without having to pay ETCs at all for a period of time.

The NIMS platform will give consumers access to pay TV content over a broadband network.

MDA has decided against the suggestion. ‘This is something best left to commercial considerations of the pay TV retailers,’ said Toh Kai Ling, MDA’s policy director.

Operators, however, will have to toe the new line come March, or risk being ‘taken to task accordingly’, MDA said.

StarHub connects with Vodafone

Switching partners

A day after M1 disclosed its decision not to renew its 8-year partnership with Vodafone after this year, StarHub announced that it is tying up with Vodafone beginning 1 Jan 12. We are mildly positive as StarHub should benefit from: 1) roaming traffic funnelled by Vodafone to StarHub’s network; 2) preferential rates for StarHub’s users roaming overseas; and 3) more multinational-corporation customers in Singapore for StarHub through Vodafone’s global accounts. While details are scanty, we believe the positives will be partially offset by fees charged by Vodafone for the benefits it brings along, similar to what were imposed on M1. Also, the impact on M1’s earnings from its decision not to renew its partnership could be less than our original estimate of 5-10%, because the loss of revenue may be compensated by the cessation of fees payable to Vodafone. No changes to our earnings estimates or target prices. SingTel remains our top Singapore telco pick, followed by StarHub.

The news

A day after M1 revealed its decision not to renew its 8-year partnership with Vodafone when it ends this year, StarHub announced that it is tying up with Vodafone beginning 1 Jan 12. The partnership will encompass inbound and outbound roaming, as well as providing Vodafone’s enterprise customers with mobile services in Singapore. StarHub said this collaboration would enable it to penetrate the local enterprise mobile market with Vodafone’s enhanced roaming experience.

Comments

Small positive for StarHub. We are mildly positive on this news, based on what we know. StarHub should gain from inbound roamers from Vodafone’s users and Vodafone’s partner networks as well as MNC customers in Singapore that are part of Vodafone’s global accounts. However, the benefits should be partially offset by fees charged by Vodafone for channelling traffic and business to StarHub, akin to those levied on its current partner, M1.

Small negative for M1. We earlier estimated a 5-10% dent on M1’s core net profit from the cessation of its partnership with Vodafone but now gather from M1 that the impact on its earnings could be negligible. We understand that the loss of inbound roaming traffic should be partially compensated by the cessation fees that M1 currently pays to Vodafone.

Valuation and recommendation

No changes to our numbers. We maintain our earnings forecasts and target prices for StarHub and M1 and look forward to more details of the impact on each during the next results season. SingTel (Outperform) is our top telco pick in Singapore, followed by StarHub (Outperform). We maintain our OVERWEIGHT on the sector given the telcos’ resilient earnings and cash flows that support attractive and steady dividends.

Decent 2QCY11 scorecard; maintain OVERWEIGHT

Decent 2CY11 showing. All the three telcos – M1, SingTel and StarHub – put in pretty decent showing in their 2QCY results recently, mostly meeting our forecasts, and largely demonstrating the defensive nature of their businesses. Both M1 and StarHub declared an interim and quarterly dividend of S$0.066/share and S$0.05, respectively.

Review of Singapore operations. SingTel continues to dominate the local telecoms market, with a ~46% share in the post-paid mobile market, followed by StarHub with ~28% and M1 ~26%. Collectively, we note that the post-paid subscriber base here grew by around 90k QoQ to 3912k; M1 added 13k, SingTel +57k, and StarHub +20k in the last quarter. And with the bulk of the phones sold continuing to be smartphones, we also see higher contribution from data as a percentage of post-paid ARPU (min of 36% for StarHub to a max of 41% for SingTel), although monthly ARPUs have already stayed largely flat at S$55 for M1, S$87 for SingTel and S$73 for StarHub. The broadband segment was generally quite lackluster for all the three telcos, hampered by the slower than-expected take-up of the new Fiber plans under NBN (National Broadband Network) initiative. The Pay TV segment for both SingTel and StarHub continued to show modest growth as households are increasingly getting used to the idea of having two set-top boxes.

2H11 outlook remains stable. Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by continued customer additions and increasing mobile data usage; note that StarHub though has nudged its revenue growth to low single-digit from single digit previously. We expect the three telcos’ EBITDA margins to remain around current levels – 42% for M1, 42% for SingTel and 30% for StarHub. Both M1 and SingTel have also kept their earlier capex guidances unchanged; but StarHub has pared its capex from 13% of revenue to 12%. And thanks to their strong cashflow-generative businesses, the telcos have largely kept their dividend payout guidance; M1 to pay at least 80% of underlying net profit; SingTel to pay 55-70% of underlying earnings; StarHub to pay S$0.20/share, or S$0.05/share per quarter.

Overweight on telcos. In light of the increased volatility in the market due to the unresolved uncertainties in Europe, the still floundering economic recovery in the US and potentially slowing economic growth in China, we continue to like the telcos’ defensive earnings and relatively attractive dividend yields. Maintain OVERWEIGHT. While we have BUY ratings on all three telcos, our preference is for M1 as we believe it has potentially the most to gain from the NBN in the coming two years.