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Thursday, December 15, 2016

TPG has won the 4th mobile licence, so what’s next?


By PC Lee / theedgemarkets.com.sg | December 15, 2016 : 12:24 PM MYT

SINGAPORE (Dec 15): CIMB is maintaining Singtel as its preferred telco pick with an "add" call with S$4.50 target price while sticking to its “hold” calls for M1 and StarHub.

This comes after last night’s announcement that TPG Telecom had won the bid to become Singapore's fourth mobile operator.

(See also: TPG Telecom wins race to become Singapore’s fourth telco)

Although M1’s and StarHub’s share prices have fallen in the past 24 months, CIMB believes their current valuations are “just about fair”.

CIMB has target prices of S$3.20 and S$2.10 for StarHub and M1 respectively.

In a Thursday report, analyst Foong Choong Chen says CIMB sees a big overhang on their share prices at least until TPG’s service launch in mid-2018, when the market gets better visibility of its impact.

Foong says TPG Telecom’s win over contender MyRepublic did not come as a surprise given its stronger balance sheet.

TPG put in the winning bid of S$105 million for the allocated 2 x 10MHz in the 900MHz and 40MHz in the 2.3GHz spectrum bands.

Launch of its mobile service is expected to start in mid 2018 as TPG will require time to roll out its network and ensure that the initial customer experience is reasonable.

Foong says the incumbents have already rolled out many new offerings in preparation for the entry of the fourth mobile player. As such, he does not expect too many new launches or major price cuts in 2017.

“However, incumbents may incur high subs acquisition and retention cost (SARC) to lock in customers for the next two years, especially coinciding with the launch of the iPhone 8 in Sep 2017,” says the analyst.

Foong believes TPG’s services will initially appeal more to the price-sensitive subscribers as its network quality and coverage is likely not to be par with that of the incumbents.

“M1 and, to a lesser extent, StarHub, would have a bigger exposure to this segment of subscribers. For SingTel, 37% of its mobile service revenues come from Enterprise customers, which are less likely to switch,” says Foong.

Looking ahead, Foong says all eyes are now on the General Spectrum Auction (GSA) expected to be held in February. This auction will be open to existing players, as well as TPG.

TPG has said it will join the GSA to bid for an additional 15MHz spectrum. Foong believes the incumbents may try to deny TPG access to the valuable 700MHz spectrum by bidding for 2 x 15MHz each. “If TPG pursues the 700MHz, this may see the final spectrum price ending up higher than the reserve price,” says Foong.

However, the analyst believes rationality will prevail and prevent auction prices from reaching exorbitant levels.

Shares of Singtel are down 3 cents to S$3.72 while StarHub is down 9 cents at S$2.81 and M1 is down 5 cents at S$1.96.

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