Telecoms Sector

OCBC on 17 Sept 2012

Apple has unveiled the latest reiteration of the hotly popular iPhone, which will be available in Singapore from 21 Sep, which is 4G LTE-enabled and will work on the 4G networks being implemented here. As with the previous versions of the iPhone, we expect the demand for the new iPhone 5 to be pretty strong. We also expect the smartphone’s popularity to help drive LTE adoption over the medium to longer term; this could eventually lead to a gradual recovery in margins as the faster LTE speeds are likely to encourage higher data usage. While we expect the iPhone 5 to help subscribers make the jump from 3G to 4G LTE, we still opine that LTE is still a 2013 story at best. Nevertheless, we continue to like the overall telco sector for its defensive earnings and attractive dividend yields (backed by strong operating cashflows). Maintain OVERWEIGHT.

Launch of new iPhone 5
Apple has unveiled the latest reiteration of the hotly popular iPhone, which will be available in Singapore from 21 Sep. Besides sporting a slightly larger screen and better resolution, faster processor, improved battery life, the iPhone 5 is 4G LTE-enabled and will work on the 4G (1800MHz) networks being implemented here.

Demand likely strong
As with the previous versions of the iPhone, we expect the demand for the new iPhone 5 to be pretty strong, especially from people still holding the iPhone 4, which is becoming pretty long in the tooth. We also believe that most iPhone 4 subscribers are eligible for a subsidized upgrade, as the 2-year lock-up period should be over by now.

Should help drive LTE adoption
While the strong demand could see near-term pressure on the telcos’ EBITDA margins due to the higher subsidies for the new iPhone (as compared to Android phones), we also expect the smartphone’s popularity to help drive LTE adoption over the medium to longer term. We had earlier identified the lack of LTE-enabled handsets to be a stumbling block to the adoption of LTE.

Gradual recovery in margins
However, with both M1 and StarHub recently announcing their new mobile plans with tiered data pricing, new and re-contracting subscribers will get greatly reduced free data bundles (starting from 2gig compared to 12gig previously). Because of this, we could see subscribers initially reining in their data usage, thus resulting in minimal – if any - ARPU uplift for the telcos. However, we think that this is just a temporary setback, and should see data usage continuing to increase, thus resulting in a gradual recovery in margins.

LTE is still 2013 story at best
While we expect the iPhone 5 to help subscribers make the jump from 3G to 4G LTE, we still opine that LTE is still a 2013 story at best. Nevertheless, we continue to like the overall telco sector for its defensive earnings and attractive dividend yields (backed by strong operating cashflows). Maintain OVERWEIGHT.