4G beckons. Malaysia will be among the first in South-East Asia to embrace Long Term Evolution (LTE) - or 4G services in 2013. However, due to the lack of LTE-enabled handsets, the telcos’ initial focus will be on big-screen, targeting key market centres. LTE will be positioned as a premium network as the operators attempt to improve data yields. Recall that the Malaysian Communications and Multimedia Commission (MCMC) had last December awarded the 2600Mhz/4G spectrum to eight companies (Celcom Axiata, Digi Telecommunications, Maxis Broadband, Redtone Marketing, U Mobile, Puncak Semangat, Packet One and YTL Communications) to rollout 4G. Save for Puncak Semangat, a controversial newcomer granted a 40MHz block, the other seven operators received 20MHz each. Implicit in the award by the regulator is a condition that all operators share their infrastructure and spectrum to lower the cost of rollout, minimise the duplication of resources and provide better customer experience.
More innovative data packages in the offing. Having upgraded their networks over the past two years, the telcos are in a good position to capitalise on the rising data under the 3G/4G environment. We expect more innovative packages to be unveiled as the telcos seek to improve data ARPUs. The unrelenting competition on device subsidies will continue to spur data take-up as smartphone usage rises. While revenue contribution from voice services will continue to decline, we expect some stabilisation in voice revenue due to the many efforts to stimulate call traffic. We expect Maxis to maintain its strong marketing traction to bolster its market share while Digi should enjoy stronger data revenue growth following the completion of its network upgrade to single RAN by mid-2013 (3G coverage to reach 70% of the population by end-2013). Celcom, meanwhile, should be able to sustain its solid operational showing in 2013, thanks to good cost management and improved wholesale contribution.
Litmus test for Unifi. We expect Maxis to unveil new IPTV packages in 1Q2013 in collaboration with Astro. This will pit its product against TM’s Unifi, which has since inception been marketed as a triple play service comprising fixed voice, broadband and IPTV. Maxis had so far signed-up more than 20,000 fiber customers versus Unifi’s 0.5m customers, which had the benefit of a two-year headstart. Unifi’s subscriberaddition has nonetheless decelerated, from the peak of 79,000 in 1Q2012 to 43,000 in 3Q2012 due to competition from Maxis. TM hopes to be able to retain the estimated 33,000 Unifi customers coming out of contract by end-2012, via more retention benefits. We do not rule out TM bundling higher speed for the same price to counter the threat from Maxis. While Maxis has increased the price-points of its entry-level fiber plan over the past nine months, the key value proposition of its product lies in the higher speed bundle for equivalent packages offered by TM. We expect IPTV to become a differentiator of fiber services in the longer-term, with broadband services increasingly commoditised.
On the regulation front. We do not rule out the possibility of few mobile operators looking to set up business trusts to unlock the value of their assets and ensure future dividends are not compromised by profits in the longer-term. With the new lower interconnect rates implemented from Jan 2013, the telcos could look to further improve tariff competitiveness.
OVERWEIGHT. Our sector call is predicated on the uncertain macroeconomic outlook and telcos being safe haven investments. Although we recently downgraded our call on AXIATA to NEUTRAL from BUY (FV: RM6.62), we still like the stock’s capital management prospects, its strong operational execution and attractive regional mobile footprint. With its robust YTD revenue and EBITDA growth likely to continue into 4Q12, we expect the group to outperform its FY12 revenue and EBITDA targets of 5.3% and 1.8%. We maintain BUY on TM (FV: RM6.20) and TIMECOM (FV: RM4.98) and NEUTRAL on MAXIS (FV: RM6.50) and Digi (FV: RM5.00).
More innovative data packages in the offing. Having upgraded their networks over the past two years, the telcos are in a good position to capitalise on the rising data under the 3G/4G environment. We expect more innovative packages to be unveiled as the telcos seek to improve data ARPUs. The unrelenting competition on device subsidies will continue to spur data take-up as smartphone usage rises. While revenue contribution from voice services will continue to decline, we expect some stabilisation in voice revenue due to the many efforts to stimulate call traffic. We expect Maxis to maintain its strong marketing traction to bolster its market share while Digi should enjoy stronger data revenue growth following the completion of its network upgrade to single RAN by mid-2013 (3G coverage to reach 70% of the population by end-2013). Celcom, meanwhile, should be able to sustain its solid operational showing in 2013, thanks to good cost management and improved wholesale contribution.
Litmus test for Unifi. We expect Maxis to unveil new IPTV packages in 1Q2013 in collaboration with Astro. This will pit its product against TM’s Unifi, which has since inception been marketed as a triple play service comprising fixed voice, broadband and IPTV. Maxis had so far signed-up more than 20,000 fiber customers versus Unifi’s 0.5m customers, which had the benefit of a two-year headstart. Unifi’s subscriberaddition has nonetheless decelerated, from the peak of 79,000 in 1Q2012 to 43,000 in 3Q2012 due to competition from Maxis. TM hopes to be able to retain the estimated 33,000 Unifi customers coming out of contract by end-2012, via more retention benefits. We do not rule out TM bundling higher speed for the same price to counter the threat from Maxis. While Maxis has increased the price-points of its entry-level fiber plan over the past nine months, the key value proposition of its product lies in the higher speed bundle for equivalent packages offered by TM. We expect IPTV to become a differentiator of fiber services in the longer-term, with broadband services increasingly commoditised.
On the regulation front. We do not rule out the possibility of few mobile operators looking to set up business trusts to unlock the value of their assets and ensure future dividends are not compromised by profits in the longer-term. With the new lower interconnect rates implemented from Jan 2013, the telcos could look to further improve tariff competitiveness.
OVERWEIGHT. Our sector call is predicated on the uncertain macroeconomic outlook and telcos being safe haven investments. Although we recently downgraded our call on AXIATA to NEUTRAL from BUY (FV: RM6.62), we still like the stock’s capital management prospects, its strong operational execution and attractive regional mobile footprint. With its robust YTD revenue and EBITDA growth likely to continue into 4Q12, we expect the group to outperform its FY12 revenue and EBITDA targets of 5.3% and 1.8%. We maintain BUY on TM (FV: RM6.20) and TIMECOM (FV: RM4.98) and NEUTRAL on MAXIS (FV: RM6.50) and Digi (FV: RM5.00).
Source: OSK
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