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Invests in ASE JV

Building the ASE network. StarHub Ltd announced that it has joined several Asian carriers to build and operate the Asia Submarine-Cable Express (ASE) – a 7,200 km undersea cable system linking Singapore directly to Japan, the Philippines and Hong Kong. The ASE will also have connectivity to Malaysia and potentially future connectivity to China, as well as other SE Asian countries. StarHub, NTT Communications, PLDT and Telekom Malaysia will jointly build the system, which is estimated to cost around US$430m (S$552m), and is expected to start operation by Jun 2012. According to StarHub, the launch of ASE will bring about strong connections into the US via the Asia-America Gateway, and also allow network operators to compete on speed and reliability, as the ASE will boost a total bandwidth capacity in excess of 15 terabits per second and is specifically designed to avoid earthquake and typhoon-prone regions.

Internal resources sufficient for now. StarHub did not give further details on how much is its investment in the ASE. Assuming that each partner takes an equal share of the cost, we estimate that StarHub could be investing up to S$138m over the next 18 months to build the infrastructure. We also understand that other telco operators typically buy-in into such ventures closer to the operational date, thus further reducing the investment put in by the original partners. In any case, looking at its cash balance of S$246.8m (as of 30 Sep 2010), net gearing of just under 52%, and free cashflow of S$308m for 9M10, we believe that StarHub should be able to finance its investment using internal resources and more bank loans. We do not expect the new investment to put its current S$0.05/share quarterly dividend at risk.

Data usage on the rise. We are positive on the latest development for a couple of reasons. Firstly from a demand point of view, we agree that the phenomenal rise of data usage is expected to continue, fuelled by the proliferation of smartphones, tablets and other Internet-ready devices that are constantly fetching data to keep users connected. Hence having access to such infrastructure is crucial; and by being an “owner”, StarHub will also be able to benefit from a cost point of view. Note that ASE is the telco’s second investment in submarine cables.

Maintain BUY with S$3.02 fair value. As such, we maintain our BUY rating and S$3.02 DCF-based fair value.

Invests in ASE JV

Building the ASE network. StarHub Ltd announced that it has joined several Asian carriers to build and operate the Asia Submarine-Cable Express (ASE) – a 7,200 km undersea cable system linking Singapore directly to Japan, the Philippines and Hong Kong. The ASE will also have connectivity to Malaysia and potentially future connectivity to China, as well as other SE Asian countries. StarHub, NTT Communications, PLDT and Telekom Malaysia will jointly build the system, which is estimated to cost around US$430m (S$552m), and is expected to start operation by Jun 2012. According to StarHub, the launch of ASE will bring about strong connections into the US via the Asia-America Gateway, and also allow network operators to compete on speed and reliability, as the ASE will boost a total bandwidth capacity in excess of 15 terabits per second and is specifically designed to avoid earthquake and typhoon-prone regions.

Internal resources sufficient for now. StarHub did not give further details on how much is its investment in the ASE. Assuming that each partner takes an equal share of the cost, we estimate that StarHub could be investing up to S$138m over the next 18 months to build the infrastructure. We also understand that other telco operators typically buy-in into such ventures closer to the operational date, thus further reducing the investment put in by the original partners. In any case, looking at its cash balance of S$246.8m (as of 30 Sep 2010), net gearing of just under 52%, and free cashflow of S$308m for 9M10, we believe that StarHub should be able to finance its investment using internal resources and more bank loans. We do not expect the new investment to put its current S$0.05/share quarterly dividend at risk.

Data usage on the rise. We are positive on the latest development for a couple of reasons. Firstly from a demand point of view, we agree that the phenomenal rise of data usage is expected to continue, fuelled by the proliferation of smartphones, tablets and other Internet-ready devices that are constantly fetching data to keep users connected. Hence having access to such infrastructure is crucial; and by being an “owner”, StarHub will also be able to benefit from a cost point of view. Note that ASE is the telco’s second investment in submarine cables.

Maintain BUY with S$3.02 fair value. As such, we maintain our BUY rating and S$3.02 DCF-based fair value.

StarHub invests in US$430m submarine cable project

Venture with 3 regional telcos will link up Singapore and Japan directly

STARHUB is improving its regional connectivity further by investing in a new US$430 million undersea cable project to provide a direct, high-speed data link between Singapore and Japan.

Singapore’s second-largest operator has joined hands with three regional telcos – Japan-based NTT Communications, Philippines-based PLDT and Malaysia-based Telekom Malaysia to build the new submarine cable system.

Called the Asia Submarine-Cable Express (ASE), the 7,200 kilometre undersea project is expected to be operational by June 2012.

Besides linking Singapore to Japan, the cable network also connects to the Philippines and Hong Kong.

It will also be linked to Malaysia and potentially mainland China and other South-east Asian countries, according to a StarHub statement issued yesterday.

As with all recent submarine cable investments in the region, the ASE is designed to avoid disaster-prone areas such as the Bashi Channel located south of Taiwan.

At the same time, it will take the shortest possible route to link Singapore with Hong Kong and Japan to minimise network latency (communication lags), the operator said.

‘For businesses, especially those that deal with time-critical transactions, a network that minimises latency is vital and can make or break a deal,’ said StarHub’s chief operating officer, Tan Tong Hai.

The ASE incorporates the latest ’40G’ optical networking technologies and is capable of carrying data in excess of 15 terabits per second. It can also accommodate speed upgrades by supporting newer 100G equipment, the firm added.

This is StarHub’s second major regional submarine cable investment in the last two years. In June 2009, it partnered eight other Asian telcos to build the Asia-Pacific Gateway.

The 8,000 km Asia-Pacific Gateway system links Malaysia, Singapore, Thailand, Vietnam, Hong Kong, the Philippines, Taiwan, mainland China, Japan and Korea.

Over in Tokyo, a spokesperson for NTT Communications (NTT Comm) told The Business Times: ‘Since demand (for such communications) is growing so rapidly in Asia, we have decided to provide new capacity.’

The new network will boost the capacity of NTT Com’s Asian cable networks, paving the way for enhanced global network services that will meet the region’s increasing needs for global traffic, low network latency and reliability.

The ASE also has a capability to incorporate 100 Gbps optical technology in the future.

‘The ASE’s planned launch is further testament to NTT Com’s growing presence in the markets of Asia,’ said Akira Arima, president and CEO of NTT Com.

‘We are excited about the business opportunities we expect to realise by bridging Tokyo and other Asian economic hubs with our high-speed, high-capacity ASE cable network,’ he added.