Category: StarHub
StarHub – BT
StarHub sees content costs staying high
An intended benefit of government intervention may not materialise after all, as Singapore's largest pay-TV operator says that content acquisition costs could stay high despite the new cross-carriage ruling.
'It doesn't mean that once (content) is non-exclusive, it (prices) will go down,' StarHub chief operating officer Tan Tong Hai said yesterday. 'Some providers still attach a premium to their content.'
The ongoing talks with Fifa for 2010 World Cup broadcast rights are a good example, Mr Tan said.
Despite the introduction of the Media Development Authority's cross-carriage ruling on March 12, a deal has not been struck between Singapore's big two telcos and Fifa's regional sales agent Football Media Services.
Under the MDA directive, pay-TV operators that sign exclusive content agreements are forced to share these programmes with their competitors.
This removes the incentive to pay top dollar for exclusive programming, and is widely expected to help control the rocketing cost of pay-TV content.
Market watchers are divided on how the directive would affect SingTel and StarHub.
Some believe that SingTel stands to gain because it can now poach its arch-rival's programming. But others say that StarHub may have the upper hand because the cost of acquiring content will go down now that the exclusivity bargaining chip is no longer in play.
In the short term, StarHub's programmes will not be affected because most content was locked in before the ruling kicked in, the company's head of content, Kathleen Syron, said yesterday.
'Next year, maybe there will be some changes,' she told reporters at a media briefing to announce changes to StarHub's cable-TV numbering system.
From April 30, StarHub will re-organise its 150 or so TV channels under a three-digit system.
According to Ms Syron, this will make it easier for consumers to toggle between different genres of content.
The move from its current two-digit format to the three-digit system will also help make room for the addition of more channels, she said.
Under the new system, free-to-air programming such as Channels 8 and 5 will be in the 101-199 channel range, with ethnic and so-called international offerings such as South Korea's KBS World and Japan's NHK World Premium.
Sports and kids-related channels will occupy the 200 and 300 numbering spectrum, followed by education and lifestyle content and entertainment programmes under the 400 and 500 groups.
Movies, news channels and Chinese programmes will occupy the remaining 600, 700 and 800 series respectively.
StarHub – OCBC
New Pay TV ruling more positive
Good share price performance. StarHub’s share price has done pretty well since dipping to a low of S$2.08 on 18 Feb with a 11.1% rebound to hit a high of S$2.31; this compared to the 4.6% rise in the STI over the same period. Besides the expected improvement in its defensive earnings and its attractive dividend yield of 9.6% (based on then price of S$2.08), we believe that the recent gains were also driven by the latest revamp made by the Singapore government in the Pay TV industry recently.
Significant revamp for Pay TV industry. As a recap, Pay TV providers are now required to cross-carry each other’s content that is acquired or renewed on an exclusive basis; this allows Pay TV customers to watch all Pay TV content with their preferred operator without having to 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.
Move more positive for StarHub. Still, the new ruling is likely to be slightly more positive for StarHub, 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). The mandate to “share” exclusive content would also reduce SingTel’s impetus to use its strong balance sheet to acquire such content to drive the take up of its mio TV services; this likely leading to less aggressive content bidding (but not eliminate in our view as having more content to offer still means higher revenue), further reducing StarHub’s content cost.
Maintain BUY with improved S$2.44 fair value. We also think that the potential subscriber loss for its Pay TV services would not be as large as previously estimated (in light of the loss of 2010-2012 EPL broadcast right). As such, we are revising up our FY10 and FY11 revenue by 9.0% and 1.4% and net profit by 3.0% and 6.6% respectively. Our DCF-based fair value also rises from S$2.29 to S$2.44. Coupled with a 8.7% dividend yield, we maintain our BUY rating.
TELCOs – Kim Eng
Share and share alike
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.
TELCOs – BT
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.
StarHub – Daiwa
A beneficiary of the revised Media Market Conduct Code
What has changed?
• On 12 March 2010, the government announced a revision to the Media Market Conduct Code that requires pay-TV providers to cross-carry each other's content acquired or renewed on an exclusive basis on or after 12 March 2010.
Impact
• We believe the new regulation could improve the current competitive environment for pay-TV content, as evidenced by the aggressive bidding for the rights to broadcast the BPL by Singapore Telecom (SingTel) (ST SP, S$3.14, 3, TP: S$3.09) in 2009. Pay-TV operators look unlikely to bid aggressively for exclusive content in the future as they can still have the access to this and, at the same time, increase their subsidies to gain market share. We think this means the rising cost of content can be curbed in the long run, but that the competition may shift from exclusive content to customer subsidies.
• The new regulation will not be applied retroactively, and therefore, it should have little impact on StarHub, given StarHub's existing exclusive content is under multi-year contracts (StarHub did not disclose the details of its existing agreements with content partners due to confidentiality).
Valuation
• We have raised our six-month target price to S$2.27 (from S$1.92), equivalent to a PER of 13x on our FY10 EPS forecasts, on a par with the sector average as we believe the new regulation would probably remove the share-price overhang from the content competition driven by SingTel.
Catalysts and action
• Considering what we consider to be its attractive dividend yield of 9.1% for FY10-12, one of the highest in the region, its valuation (a 12.6x PER on our FY10 EPS forecast) looks undemanding to us. Nevertheless, SingTel's aggressive stance in the pay-TV market, which may shift the scope of competition from exclusive content to customer subsidies, could impair the defensiveness of StarHub. We maintain our 3 (Hold) rating, as we see limited upside potential to our target price.