TELCOs – OSK DMG
SingTel Asked To Cross-Carry BPL Content
Singapore’s Media Development Authority (MDA) has directed SingTel to cross-carry the Barclays Premier League (BPL) for the 2013-2016 season starting in August. We are surprised by the directive but view it as favorable for StarHub as it would help to mitigate pay-TV churn. StarHub subscribers would now have access to the iconic content without a second set-top box. The decision is, however, negative for SingTel as it has to share content as well as bear the associated cross carriage costs despite having signed for the BPL on non-exclusive terms. We are keeping our NEUTRAL ratings on both companies given the recent strong share price re-rating for the sector. StarHub remains our preferred exposure to Singapore telecoms.
Getting a fair play. MDA’s directive was in response to the complaint filed by StarHub in February on its inability to negotiate for separate rights to the BPL. Media reports have said that SingTel had built in ‘restrictive conditions’ after inking the non-exclusive agreement with the Football Association Premier League (FAPL). This was said to have prevented the FAPL from commencing negotiations with other parties for an extended period of time.
Positive for StarHub. StarHub welcomes the development and sees pay-TV subscribers as the ultimate beneficiaries. We gather from management that it had capitalized on a provision within the cross carriage guidelines which stipulate that non-exclusive content can be shared if the agreement signed by another provider contained certain clauses which prevent or restrict, or are likely to prevent or restrict, the same content from being acquired or otherwise obtained for transmission on selected pay-TV platforms in Singapore.
SingTel to file an appeal. SingTel said it is “gravely disappointed” with MDA’s decision as it would ”disadvantage” both consumers and the industry. The company would appeal the decision and seek legal recourse, if necessary. Management believes the directive will discourage pay-TV operators from acting swiftly in the future to procure top quality content as this penalizes the operator and would see consumers losing out since it may no longer be economically viable for broadcasters to continue investing in quality programming for the benefit of consumers and businesses.
The red camp may play hardball. We believe SingTel could still make it difficult for StarHub’s subscribers to access the BPL with commercial terms of carriage that may be less favorable. SingTel is caught in a bind as it is mandated to charge other viewers the same rate it charges its own customers. The directive is negative for SingTel as it forces the company to share the content – although signed on a non-exclusive basis – and bear all costs associated with the carriage cost.
TELCOs – CIMB
SingTel directed to share BPL
In a surprising move, the regulator has directed SingTel to cross-carry the 2013-16 seasons of the Barclays Premier League. This is despite SingTel having non-exclusive rights to the BPL, which allows it to not share its content. This raises the question of MDA over-ruling again.
StarHub stands to gain a little as this lowers the likelihood of churns and generates revenues from providing cross carriage. It is a setback for SingTel in its efforts to build up a pay TV franchise. All in, this development does not change our forecasts and views on SingTel and StarHub. The sector remains a Neutral with M1 (Outperform) as our top pick.
What Happened
In a surprising move, the Media Development Authority (MDA) has directed SingTel to cross-carry Barclays Premier League (BPL) 2013-16 seasons. This is despite SingTel acquiring the rights to the BPL on a non-exclusive basis, which it is not required to share. SingTel said it will “appeal this decision and seek legal recourse if necessary”. It added that customers who wish to watch BPL on its own (via cross carriage) will most likely have to pay significantly higher monthly fees.
What We Think
MDA’s decision surprised us as it contradicts its cross-carriage ruling that was enforced in March 2010. The MDA ruled that holders of exclusive content are obligated to open their content while holders of non-exclusive content are not required to share. With this about-turn, it raises the question of MDA over-ruling again in the future. This is a major setback for SingTel in its quest to capture a bigger piece of the pay TV pie. By having to share the BPL, SingTel’s ability to have users sign up to mio TV is sharply reduced. This ruling is a small positive for StarHub as its customers can now subscribe for BPL directly from SingTel without having to sign up with SingTel’s overall pay TV service. This reduces the likelihood of StarHub’s customers leaving for SingTel.
What You Should Do
Stay invested in M1, our top Singapore telco pick. While positive for StarHub, this regulatory outcome does not change our Neutral recommendation on StarHub. The negative impact on SingTel reinforces our Underperform recommendation on the stock.
TELCOs – CIMB
SingTel directed to share BPL
In a surprising move, the regulator has directed SingTel to cross-carry the 2013-16 seasons of the Barclays Premier League. This is despite SingTel having non-exclusive rights to the BPL, which allows it to not share its content. This raises the question of MDA over-ruling again.
StarHub stands to gain a little as this lowers the likelihood of churns and generates revenues from providing cross carriage. It is a setback for SingTel in its efforts to build up a pay TV franchise. All in, this development does not change our forecasts and views on SingTel and StarHub. The sector remains a Neutral with M1 (Outperform) as our top pick.
What Happened
In a surprising move, the Media Development Authority (MDA) has directed SingTel to cross-carry Barclays Premier League (BPL) 2013-16 seasons. This is despite SingTel acquiring the rights to the BPL on a non-exclusive basis, which it is not required to share. SingTel said it will “appeal this decision and seek legal recourse if necessary”. It added that customers who wish to watch BPL on its own (via cross carriage) will most likely have to pay significantly higher monthly fees.
What We Think
MDA’s decision surprised us as it contradicts its cross-carriage ruling that was enforced in March 2010. The MDA ruled that holders of exclusive content are obligated to open their content while holders of non-exclusive content are not required to share. With this about-turn, it raises the question of MDA over-ruling again in the future. This is a major setback for SingTel in its quest to capture a bigger piece of the pay TV pie. By having to share the BPL, SingTel’s ability to have users sign up to mio TV is sharply reduced. This ruling is a small positive for StarHub as its customers can now subscribe for BPL directly from SingTel without having to sign up with SingTel’s overall pay TV service. This reduces the likelihood of StarHub’s customers leaving for SingTel.
What You Should Do
Stay invested in M1, our top Singapore telco pick. While positive for StarHub, this regulatory outcome does not change our Neutral recommendation on StarHub. The negative impact on SingTel reinforces our Underperform recommendation on the stock.
M1 – OSK DMG
A Seasonally Weaker Quarter, Roaming Revenues Stay Under Pressure
There were no surprises in M1’s 1QFY13 results, which reflected typical seasonality and the extended weakness in roaming revenue. Management expects margin upside to be capped as subscriber acquisition cost (SAC) will likely remain high. We maintain our core earnings forecasts, which assume a two-year CAGR of 14.5%. Our FV remains at SGD2.70, based on DCF (10% WACC). Maintain NEUTRAL.
Weaker roaming revenue set to persist. We remain concerned over the decline in M1’s roaming revenue – which makes up 12%-15% of its overall mobile revenue – as it is suffering from a growing number of travelers opting for connectivity via Wi-Fi. To mitigate the pressure on traditional roaming revenues, M1 has signed agreements with operators in over 120 countries to provide unlimited Wi-Fi data roaming services.
9% of subs consuming data in excess of bundle. M1 revealed that 20% of its postpaid subscribers are on tiered data plans, with 9% of these subscribers exceeding their data bundle – average revenue per unit (ARPU) uplift of 8%-10%. This suggests that it is only able to monetize 2% of its postpaid base on its LTE plans. Average data consumption on smartphones has exceeded 2GB/month vs 1.6GB/month a year ago.
Flattish fiber subs addition. Although M1 grew its fiber customers to 60k in 1QFY13, subscriber net additions have been relatively flat, at 8k, in the past two quarters. Its share of the fiber additions have also been on a decline, a reflection of the more aggressive acquisition campaigns and bundling promotions by SingTel and StarHub. Management does not see the absence of premium content as a hindrance in growing its fiber business.
Share price playing catch-up. M1’s share price has risen 11.3% YTD, which could indicate a laggard play following its relative underperformance vis-à-vis its peers in 2012. Management has reaffirmed its previous net profit guidance of ‘moderate growth’ and capex guidance of SGD130m-SGD150m for FY13 (excluding 4G spectrum cost). We make no changes to our core earnings forecasts of SGD161m and SGD192m for FY13 and FY14 respectively. NEUTRAL.
M1 – OSK DMG
A Seasonally Weaker Quarter, Roaming Revenues Stay Under Pressure
There were no surprises in M1’s 1QFY13 results, which reflected typical seasonality and the extended weakness in roaming revenue. Management expects margin upside to be capped as subscriber acquisition cost (SAC) will likely remain high. We maintain our core earnings forecasts, which assume a two-year CAGR of 14.5%. Our FV remains at SGD2.70, based on DCF (10% WACC). Maintain NEUTRAL.
Weaker roaming revenue set to persist. We remain concerned over the decline in M1’s roaming revenue – which makes up 12%-15% of its overall mobile revenue – as it is suffering from a growing number of travelers opting for connectivity via Wi-Fi. To mitigate the pressure on traditional roaming revenues, M1 has signed agreements with operators in over 120 countries to provide unlimited Wi-Fi data roaming services.
9% of subs consuming data in excess of bundle. M1 revealed that 20% of its postpaid subscribers are on tiered data plans, with 9% of these subscribers exceeding their data bundle – average revenue per unit (ARPU) uplift of 8%-10%. This suggests that it is only able to monetize 2% of its postpaid base on its LTE plans. Average data consumption on smartphones has exceeded 2GB/month vs 1.6GB/month a year ago.
Flattish fiber subs addition. Although M1 grew its fiber customers to 60k in 1QFY13, subscriber net additions have been relatively flat, at 8k, in the past two quarters. Its share of the fiber additions have also been on a decline, a reflection of the more aggressive acquisition campaigns and bundling promotions by SingTel and StarHub. Management does not see the absence of premium content as a hindrance in growing its fiber business.
Share price playing catch-up. M1’s share price has risen 11.3% YTD, which could indicate a laggard play following its relative underperformance vis-à-vis its peers in 2012. Management has reaffirmed its previous net profit guidance of ‘moderate growth’ and capex guidance of SGD130m-SGD150m for FY13 (excluding 4G spectrum cost). We make no changes to our core earnings forecasts of SGD161m and SGD192m for FY13 and FY14 respectively. NEUTRAL.