SingTel paints a clearer picture of download speeds

Telco will now publish a speed range for its broadband plans

SINGAPORE Telecommunications has set a new precedent by becoming the first local operator to give consumers a clearer indication of the download speeds they can realistically expect when they sign up for a mobile broadband service.

Until now, telcos have been marketing Internet access based on theoretical top speeds that are unattainable outside controlled laboratory conditions.

This practice, coupled with the issue of network congestion that resulted from the explosive growth in mobile broadband usage in recent years, has led a string of complaints from consumers that they are not getting what they are paying for.

Instead of sticking to the prevailing custom, SingTel will now publish a so-called ‘typical speed range’ that customers are likely to experience during their daily use.

This will first be applied to subscribers of its three dedicated mobile broadband plans who are now surfing on the go by connecting a token-like modem to their laptops.

SingTel says those on its 3.6Mbps (megabit per second) service can expect a typical speed range of 0.8 Mbps to 2.1Mbps. Subscribers of its higher-end 7.2 Mbps and 21Mbps plans on the other hand, should mostly expect download speeds of 1.4 Mbps to 3.7Mbps, and 1.7Mbps to 4.8Mbps respectively.

‘We are confident we can deliver this range of speeds 80 per cent of the time,’ said SingTel’s executive vice-president of consumer business Yuen Kuan Moon.

A customer’s mobile surfing speed is affected by a number of factors including the site he is visiting, the hardware specifications of the computer, and the applications that are being used.

Such variables make it difficult for telcos to pinpoint the average download speed for each user with accuracy, he explained.

A speed range offers a more realistic gauge and it is also the easiest way of explaining service quality to customers, Mr Yuen told reporters at a media briefing yesterday.

By becoming more transparent, SingTel is also hoping to convince more customers to opt for its higher- end mobile broadband plans.

Without such clarity, most have now opted for the most basic 3.6Mbps offering as they are worried they may not get more bang for their buck, Mr Yuen said.

As an added incentive, SingTel has also introduced a special ‘priority-pass’ feature to give its 7.2 Mbps and 21 Mbps subscribers dedicated fast lanes so that they can consistently enjoy a speedier and more reliable connection.

Customers who are already subscribing to these two plans will automatically enjoy the new perk at no additional cost.

The monthly subscription fee of SingTel’s three mobile broadband plans will remain unchanged at $29.90, $40, and $59.90.

Earlier this year, the Republic’s telecommunications regulator announced its plan to make it compulsory for telcos to provide consumers with more realistic download speeds.

The Infocomm Development Authority of Singapore has sought public feedback on the parameters for measuring typical Internet speeds and the plan is expected to be ready by early next year.

Bharti to boost Africa margins, confident of goals

(NEW DELHI) Top Indian mobile carrier Bharti Airtel, which last year bought mobile operations in 15 African countries, is on target to generate US$5 billion in revenue from the continent and reach 100 million subscribers there by the end of March 2013, a top executive says.

Bharti (in which SingTel has a stake of about 32 per cent) paid US$9 billion for most of Kuwait-based Zain’s African cellular operations, which generated about US$2.9 billion in revenue in the year ended March 31 and had 44.2 million subscribers. The loss- making operations have been a drag on Bharti’s consolidated earnings.

‘Let me assure you the objective I have stated . . . 100 million subscribers, US$5 billion in revenue, US$2 billion in Ebitda – we are definitely moving towards that steadily,’ Manoj Kohli, Bharti Airtel’s chief executive for international operations, told Reuters in an interview yesterday.

‘We are confident we’ll achieve it,’ he said, a day after Bharti completed one year since the African acquisition that made it the world’s fifth-biggest mobile carrier by subscribers.

Bharti ventured into Africa at a time when growth in its home market was slowing and stiff competition was eroding the carriers’ profitability.

Margins in Africa have been under pressure due to the high cost of operations. Bharti had operating margins of 24 per cent in its African operations for the year ended March, compared with 36.8 per cent from its India and other South Asian operations.

Bharti has implemented its low-cost, high-volume Indian model in Africa including outsourcing of network, information technology and back office operations to reduce costs, and Mr Kohli expected those moves to have positive impact on margins.

‘One thing I can say confidently that our business model has now been implanted in Africa . . . you’ll see, quarter after quarter, a positive impact of the business model,’ said Mr Kohli, who moved to Nairobi last year to head Bharti’s Africa operations.

Turning profitable in Africa is ‘a very important objective’, he said, although he declined to say when he expected Africa would start making profits.

Six of Bharti’s 16 African markets are currently making losses, while the debt cost for the acquisition has also weighed on the company’s earnings.

Mr Kohli said Bharti had increased its revenue market share in all its 16 markets over the past year and that the firm’s focus would be more on larger markets including Nigeria, Democratic Republic of Congo, Zambia and Tanzania.

Bharti may look at buying companies in Africa to expand beyond its 16 existing markets, but the priority is to improve operations in its existing markets first, Mr Kohli said.

‘Our objective is to first get these 16 markets into good health. Once the 16 markets are in good health, we’ll definitely look beyond 16,’ he said. — Reuters

Bharti to boost Africa margins, confident of goals

(NEW DELHI) Top Indian mobile carrier Bharti Airtel, which last year bought mobile operations in 15 African countries, is on target to generate US$5 billion in revenue from the continent and reach 100 million subscribers there by the end of March 2013, a top executive says.

Bharti (in which SingTel has a stake of about 32 per cent) paid US$9 billion for most of Kuwait-based Zain’s African cellular operations, which generated about US$2.9 billion in revenue in the year ended March 31 and had 44.2 million subscribers. The loss- making operations have been a drag on Bharti’s consolidated earnings.

‘Let me assure you the objective I have stated . . . 100 million subscribers, US$5 billion in revenue, US$2 billion in Ebitda – we are definitely moving towards that steadily,’ Manoj Kohli, Bharti Airtel’s chief executive for international operations, told Reuters in an interview yesterday.

‘We are confident we’ll achieve it,’ he said, a day after Bharti completed one year since the African acquisition that made it the world’s fifth-biggest mobile carrier by subscribers.

Bharti ventured into Africa at a time when growth in its home market was slowing and stiff competition was eroding the carriers’ profitability.

Margins in Africa have been under pressure due to the high cost of operations. Bharti had operating margins of 24 per cent in its African operations for the year ended March, compared with 36.8 per cent from its India and other South Asian operations.

Bharti has implemented its low-cost, high-volume Indian model in Africa including outsourcing of network, information technology and back office operations to reduce costs, and Mr Kohli expected those moves to have positive impact on margins.

‘One thing I can say confidently that our business model has now been implanted in Africa . . . you’ll see, quarter after quarter, a positive impact of the business model,’ said Mr Kohli, who moved to Nairobi last year to head Bharti’s Africa operations.

Turning profitable in Africa is ‘a very important objective’, he said, although he declined to say when he expected Africa would start making profits.

Six of Bharti’s 16 African markets are currently making losses, while the debt cost for the acquisition has also weighed on the company’s earnings.

Mr Kohli said Bharti had increased its revenue market share in all its 16 markets over the past year and that the firm’s focus would be more on larger markets including Nigeria, Democratic Republic of Congo, Zambia and Tanzania.

Bharti may look at buying companies in Africa to expand beyond its 16 existing markets, but the priority is to improve operations in its existing markets first, Mr Kohli said.

‘Our objective is to first get these 16 markets into good health. Once the 16 markets are in good health, we’ll definitely look beyond 16,’ he said. — Reuters

Telkom to buy SingTel’s stake in Telkomsel Government wants Telkomsel back

Maintain Underweight on sector. We maintain our UNDERPERFORM rating for SingTel and urge investors to sell into expected strength in its share price on news that Telkom Indonesia plans to buy SingTel’s 35% stake in Telkomsel. Should the acquisition take place, we believe SingTel will return the proceeds to shareholders. However, any acquisition will take time and SingTel’s share price could be de-rated after the initial euphoria. Telkom remains an UNDERPERFORM with an unchanged DCF-based target price of Rp7,400 (WACC 12.2%) as the acquisition would deplete its cash, ratchet up its gearing, and possibly affect its plans for a share buyback. Axiata remains our top regional telco pick.

The news

Indonesia’s State-Owned Enterprise (SOE) Ministry has asked Telkom Indonesia to buy SingTel’s 35% stake in Telkomsel. The Minister Mr Mustafa Abubakar said the acquisition will “strengthen the position of Telkom.” Eddy Kurnia, Telkom’s Head of Corporate Communication said, “We support the statement by the SOE Minister because it was expected by Telkom or the shareholders.” But he added that it would take a while to buy back the shares and did not provide a timeframe.

Comments

A surprise. The news surprised us although rumours had been circulating. It is indeed puzzling why the government is now eyeing Telkomsel. This comes after ST Telemedia, another Singapore government-linked corporation, sold its stake in Indosat after Indonesia ruled that Indosat and Telkomsel were fixing prices. We suspect Telkom’s intention to own 100% of Telkomsel is related to SingTel’s reluctance for Telkomsel to sell its towers to Telkom. Telkom had intended to park all the towers of its units under Daya Mitra and eventually list this entity. Taking full control of Telkomsel could pave the way for this transaction. Telkomsel controls the largest number of towers in Indonesia, about 20k or 40% of the industry total.

Negative for Telkom. This news is negative for Telkom because SingTel will not relinquish its stake cheaply, in our view. Having said that, the government may find means to compel SingTel or the Singapore government to do so. The purchase could deplete Telkomsel’s cash pile of Rp10tr (US$1.25bn), weaken its balance sheet of 0.2x net debt/EBITDA and possibly affect its plans for a share buyback.

Assuming Telkom buys Telkomsel at 16x CY11 P/E or Rp72tr (US$8.5bn) and funds 70% of this with debt, Telkom’s gearing and net debt/EBITDA will rise from 0.2x and 0.3x to 1.1x and 1.4x respectively. While Telkomsel is the growth driver for Telkom, we believe Telkom should return excess cash to shareholders instead of sinking more money into Telkomsel given the lacklustre performance of Telkomsel and a maturing mobile industry. We also believe SingTel has been injecting talent and its regional experience into Telkomsel, and has been instrumental in driving Telkomsel’s operations.

Positive for SingTel’s shareholders, as proceeds from the sale are likely to be returned to them. Assuming an acquisition price of US$8.5bn or S$10.1bn, the sale would raise S$10.1bn (US$8.4bn) or a hefty S$0.70/SingTel share. Telkomsel has not been the growth driver it used to be as the Indonesian telco market matures, having lost market share. However, this may be a protracted transaction as price will be a key contention, in our view.

Valuation and recommendation

Sell SingTel into strength. We reiterate our UNDERPERFORM on SingTel and urge investors to sell into expected strength in its share price on news that Telkom Indonesia plans to buy its 35% stake in Telkomsel. Should the acquisition take place, we believe SingTel will return the proceeds to shareholders. However, any acquisition may take time and SingTel’s share price could be de-rated after the initial euphoria. Lastly, even if Telkom acquires Telkomsel at a 30% premium (i.e. 16x CY11 earnings) to our valuation of Telkom (based on 12.5), our SOP valuation for SingTel would only rise by S$0.15/share or 5%. SingTel continues to face competitive headwinds in Australia, margin pressure in Singapore and earnings drags in India, in our view.

Telkom remains an UNDERPERFORM with an unchanged DCF-based target price of Rp7,400 as the acquisition would deplete its cash, ratchet up its gearing, and possibly affect its plans for a share buyback. We believe Telkom’s outlook remains poor with declining fixed-line revenue and a lacklustre mobile performance due to a maturing industry and Telkomsel’s loss of market share. Axiata remains our top regional telco pick.

Next special dividend could be 3 years away

At a Glance

• 4Q11 underlying profit of S$998m (-2.4% YoY, +3QoQ) was inline with consensus. Strong Optus offset disappointment from associates.

• Proposed special DPS of 10 Scts after 4 years wait. Final DPS of 9 Scts (plus interim DPS of 6.8 Scts) translates to 66% payout ratio.

• Next capital management could be 3 years away. 70% earnings payout ratio may not be very attractive in our view.

Comment on Results

Strong Optus offset disappointment from associates. Optus’ 4Q11 net profit of A$261m was up 54% QoQ versus our expectation of 30% mainly due to sequential decline of A$25m (S$32m) in outpayment and leasing costs thanks to stronger AUD versus USD and write back of a one-off provision. This offset the weak earnings contribution from associates Bharti & Telkomsel.

Management guidance for FY12F brings no surprises.

(a) Stable EBITDA for Singapore (1.6% decline in FY11) and capex of S$900m (S$726m in FY11). This is slightly lower than our estimate of 2% EBITDA growth. (b) Low-single digit growth in EBITDA for Optus (8% growth in FY11) and capex of A$1.2bn (A$1bn in FY11). This is broadly inline with our estimate of 4% EBITDA growth. (c) No concrete guidance on pre-tax profit for associates as usual (10% decline in FY11). We estimate 9% growth for associates.

With 3% earning growth in FY12F, investors might appreciate regular yield north of 6%. SingTel declared a special dividend of 10 Scts after a gap of four years taking total FY11 dividend yield to an impressive 8%. However, SingTel reviews capital management potential every 3 years, implying 3 years wait for next special dividend. We maintain HOLD as regular dividend yield of less than 6% is not very attractive.