Singapore Telcos

Singapore Telcos | Negative

Maybank Kim Eng Research, March 13

We review Info-Communications Media Development Authority (IMDA) regulations governing the spectrum rights recently acquired by TPG to ascertain if there is an avenue for more positive scenarios for Singapore's incumbents. The worst case scenario of a more aggressive tariff war cannot be ruled out, thus we maintain our negative view on the sector. De-rating catalysts are expected from the start of operations by TPG or any insight into its tariff plans and strategy. Continue to "hold" Singtel and "sell" StarHub and M1.

Live-and-let-live scenario: We currently assume that TPG's competition will erode incumbents' wireless revenue, though not necessarily by double digits. We estimate 2-4 per cent declines for 2017-2019E (estimate).

Cut-loss scenario: We think this scenario would provide the quickest relief for the incumbents' operations and stock performances. However, as any capex and start-up opex will naturally be forgone for TPG, we doubt that it would opt for such an exit without putting up a fight.

Go-all-the-way scenario: As IMDA regulations discourage any sale of its licence before it fulfils all its coverage commitments, TPG may opt for accelerated service roll-out and aggressive market-share grab. This could tempt an incumbent to take it out of the market.

With Singapore's wireless service revenue at S$4 billion in calendar year 2017, a 10 per cent per annum erosion over five years would translate to S$1.6 billion of present value in potential lost revenue for the incumbents. This amount is higher than TPG's spectrum costs and capex budget of S$300 million for Singapore.

Theoretically, somewhere between its costs and the industry's destruction value is a price that an incumbent could pay for an acquisition or merger to stem revenue losses.

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