Mar 01, 2016 12:27:31
Staying Connected – February 2016

Spectrum developments dotted the Asean-4 telco landscape in recent weeks. Concerns over a competitive spectrum auction spooked MY investors just as the TH telcos prepare for the first tranche of spectrum payouts. We downgraded TH sector to UNDERWEIGHT on earnings concerns and intensifying competition. The MY telcos were earlier downgraded on auction fears albeit the about-turn in policy (spectrum assignment vs auction) prompted us to restore our NEUTRAL stance. The INDO telco sector remains the sole OVERWEIGHT of the Asean-4 telcos.

¨ ASEAN-4 telcos down 2.5% YTD. The strongest declines were see in MY (-11.6%) and SG (-5.2%) while both INDO and TH telcos gained 6-9%.

¨ Lost in translation. The announcement of a spectrum bidding exercise during the tabling of the revised Budget 2016 on 28 Jan clearly spooked investors. It was only a month earlier that the Thai Government raised a whopping USD6.5bn (MYR28bn) from an auction of the 900MHz band. A competitive bidding (a first for Malaysia) would have been value destructive for the sector. On 1 Feb, the Government announced that the 900/1800MHz spectrum would be re-allocated to Maxis, DiGi.Com (Digi), Celcom and U-Mobile under a new spectrum framework (kindly refer to our report dated 3 Feb – Telecommunications : A Fuzzy Line Restored). While the ‘awards’ ruled-out a cataclysmic auction, the ‘change of heart’ costs the telcos some MYR14bn in market capitalisation. Expect further details on the spectrum fees in the coming months. The remaining 5MHz on the 900MHz is likely reserved for the high speed rail (HSR).

¨ Singapore confirms a fourth mobile entrant. The Infocomm Development Authority (IDA) has set aside 60MHz for a new operator in a two-stage spectrum auction scheduled for 3Q16. This follows the announcement of the revised spectrum framework on 18 Feb (kindly refer to our report dated 19 Feb – Firing The Fourth Cylinder)

¨ Results season well underway – shaping up to be another lacklustre quarter. INDO telcos are seen to continue outperforming with the last of the results due late March. 4Q15 earnings season has ended for the SG telcos. Key takeaways were: i) the continuing sluggish mobile revenue from weak usage/roaming revenues, and ii) ARPU pressure from a stronger take-up of SIM-only plans. While the usual seasonality in subscriber acquisition cost (SAC) pummelled 4Q15 EBITDA, the impact was particularly acute for StarHub due to additional provisions and costs. It was also another lacklustre quarter for the Malaysian and Thai mobile operators due to weak consumer sentiment and heightened competition, with the TH telcos ramping-up handset subsidies to drive 3G/4G upgrades ahead of the spectrum transfers. The bright spot continues to be in Indonesia where a steady competitive environment and rapid mobile data take-up have hitherto driven the superior mobile revenue growth.