Starhub

CIMB RESEARCH on 20 June 2012

CLEARING the airwaves for 4G: The reserve price has not been determined. We do not expect runaway bids as there is ample spectrum unless: the telcos try to bid for more spectrum than optimum, or new players enter the fray, which is unlikely.

The sector remains a "neutral". This development does not change our view of StarHub as our top pick.
Singapore's telco regulator Infocomm Development Authority (IDA) issued a consultation paper on April 10 outlining its plans to re-farm and auction the 1800MHz, 2.3GHz and 2.5GHz spectrum bands.

The auction is likely to be held in H1 2013, way ahead of the expiry of these spectrum allocations in 2015 and 2017, to allow telcos to plan ahead. The much-prized 700MHz band is not being put on the block as it is still being coordinated with Singapore's neighbours. The 900MHz band will also not be included in the re-farming for 4G, as the IDA feels that it is geared towards re-farming for 3G.

We do not anticipate aggressive bids as there is ample spectrum, unless: all three telcos bid for more than 2x20MHz, which is the optimum required; or new contenders emerge, which we think is unlikely given Singapore's small population with a very mature and competitive market.

There were no new takers for the residual 3G spectrum in 2010. The 3G auction in 2001 and 2010 were awarded at reserve price as there was sufficient spectrum for the three incumbents.

Higher capex in 2013: This auction will raise the telcos' outlay in 2013. Based on the price per population per MHz paid for 2x5MHz in the 1800MHz band in 2011, we estimate the 4G spectrum to cost about $138 million. This could raise the 2013 capex for M1, SingTel and StarHub by 131 per cent, 6 per cent and 56 per cent respectively, and increase their 2013 net debt/Ebitda by 0.47 times, 0.02 times and 0.19 times to 0.84 times, 1.17 times and 0.73 times respectively.

Rolling out 4G will not spike up capex as it is an add-on to the 3G network. All three telcos are already rolling out 4G using their existing 2.3GHz and 2.5GHz spectrum. The spectrum re-farm will enable them to use 1800MHz for 4G.

Stay invested in StarHub as we do not think its potential to increase dividends will be affected by the higher capital outlay, thanks to its strong balance sheet and free cashflows. However, uncertainties over this auction may cause StarHub to delay an increase in dividends.