Towards Financial Freedom
4G Spectrum At Reserve Prices
The Infocomm Development Authority (IDA) of Singapore has provisionally awarded the 1800MHz and 2500MHz spectrum rights to SingTel, StarHub and M1 at their reserve prices. As expected, there was no bidding war given the more than sufficient spectrum available. The award also puts to rest talks of a new operator emerging. We maintain our NEUTRAL rating on the Singapore telco sector, with SingTel and M1 as our top picks. We see potential special dividends going into 2014 in light of the recent developments.
- Supply meets demand. The IDA has provisionally awarded 150MHz of the 1800MHz and 120MHz of the 2500MHz spectrum to SingTel, StarHub and M1. Both spectrum bands were awarded to the telcos at their reserve prices of SGD16m (1800MHz) and SGD10m (2500MHz) per blocks of 5MHz each as there were more than sufficient spectrum available (see Fig. 1), eliminating earlier fears of a bidding war and the potential entry of a new operator.
- Awarded at reserve prices. At the reserve price, the cost per MHz/population of the 1.8GHz band is some 26% lower than the corresponding price M1 paid for a 5MHz block under a competitive auction in 2011. The new spectrum rights will commence on 1 July 2015 for the 2.5GHz band and 1 April 2017 for the 1.8GHz band, upon expiration of their existing rights. The telcos are required to provide nationwide coverage for 4G on the new spectrum bands by 30 June 2016, with coverage extending to underground MRT stations/roads/tunnels by 30 June 2018.
- SingTel has the largest chunk of 1800MHz. SingTel was awarded the biggest chunk of the 1.8GHz spectrum, at 2x30MHz - the maximum allowed under an individual bid, while StarHub and M1 obtained 2x25MHz and 2x20MHz respectively. The telcos were awarded equal blocks of 2x20MHz of the 2.5GHz spectrum, a less desirable property in view of its inferior reach and poor in-building coverage. We expect the telcos to reallocate part of the 1800MHz spectrum for 2G services.
- Prefer SingTel and M1 for their more attractive valuations. Although we are NEUTRAL on the Singapore telecoms sector, we prefer SINGTEL (NEUTRAL, FV: SGD3.70) and M1 (NEUTRAL, FV: SGD2.70) for exposure given their more attractive valuations compared to STARHUB (NEUTRAL, FV: SGD4.18). After having lost its bid for a Myanmar telco licence and with the 4G spectrum awarded at reserve prices, there is scope for SingTel to increase its dividend payout. We think there is a possibility of StarHub declaring a special dividend by end- 2013 as the group's capex is likely to trend lower in FY14.
Source: OSK
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