Telco sector
Maintain neutral: India's 3G auction is slated for today, and the broadband wireless access (BWA) auction will follow two days after the conclusion of the 3G auction. The government hopes to raise about Rs350 billion (RM25.23 billion) in total. The spectrum usage rights for both auctions last for a period of 20 years.
Nine bidders, mostly incumbents and a handful of new entrants, have been qualified for the 3G auction where six are bidding on a nationwide basis. The government will auction three slots in 17 of the 22 circles and four slots in the remaining five circles. Each slot is a 2X5 MHz spectrum. The reserve price for a pan-Indian licence remains unchanged at Rs35 billion.
Winning bidders must pay the full amount within 10 days of the auction's close. Winners can only launch commercial operations on Sept 1, 2010. Within five years of the grant date, the winner will have to roll out to 90% of the population in metro areas and in other service areas, and to 50% of the district headquarters (DHQ), out of which at least 15% of the DHQs should be rural short-distance charging areas.
The BWA auction has 11 qualified bidders vying for two blocks of 20MHz unpaired spectrum in each circle. The reserve price is unchanged at Rs17.5 billion for a pan-Indian licence. The spectrum will be allocated immediately and rollout obligations are the same as 3G's.
The combination of a limited amount of spectrum blocks and the high number of bidders will drive up the bid prices for both the 3G and BWA auctions, in our view.
We think that the winning bids for a nationwide 3G spectrum could range anywhere from US$1 billion to US$1.5 billion higher than the nationwide base price as operators jostle for this prized resource.
Similarly, we think that the competition for the BWA auction could be even more intense as there are fewer blocks and even more bidders than the 3G auction.
We believe that Bharti and Vodafone are bound to go in more aggressively given their presence in all the 22 circles and the spectrum crunch experienced by both.
We also think that nationwide CDMA players - Reliance and Tata - will bid aggressively to further drive wireless data take-up and get additional spectrum even though they already offer EV-DO datacard services.
We believe that smaller incumbents such as Idea and Aircel will bid selectively in circles where they are strong in and have a large subscriber base.
The winners will also have to fork out for capex to roll out 3G services, adding burden to their balance sheet. That said, the burden may not be that high due to passive infrastructure sharing and falling equipment prices among others.
We believe that new licences will weigh down sentiment on SingTel (underperform) as Bharti makes up about 18% of both SingTel's sum-of-parts-based (SOP) target price and FY10 core net profit. Idea contributes a smaller 4% to Axiata's estimated FY10 earnings. We remain neutral on the telco sector. - CIMB Research, April 8
This article appeared in The Edge Financial Daily, April 9, 2010.
Maintain neutral: India's 3G auction is slated for today, and the broadband wireless access (BWA) auction will follow two days after the conclusion of the 3G auction. The government hopes to raise about Rs350 billion (RM25.23 billion) in total. The spectrum usage rights for both auctions last for a period of 20 years.
Nine bidders, mostly incumbents and a handful of new entrants, have been qualified for the 3G auction where six are bidding on a nationwide basis. The government will auction three slots in 17 of the 22 circles and four slots in the remaining five circles. Each slot is a 2X5 MHz spectrum. The reserve price for a pan-Indian licence remains unchanged at Rs35 billion.
Winning bidders must pay the full amount within 10 days of the auction's close. Winners can only launch commercial operations on Sept 1, 2010. Within five years of the grant date, the winner will have to roll out to 90% of the population in metro areas and in other service areas, and to 50% of the district headquarters (DHQ), out of which at least 15% of the DHQs should be rural short-distance charging areas.
The BWA auction has 11 qualified bidders vying for two blocks of 20MHz unpaired spectrum in each circle. The reserve price is unchanged at Rs17.5 billion for a pan-Indian licence. The spectrum will be allocated immediately and rollout obligations are the same as 3G's.
The combination of a limited amount of spectrum blocks and the high number of bidders will drive up the bid prices for both the 3G and BWA auctions, in our view.
We think that the winning bids for a nationwide 3G spectrum could range anywhere from US$1 billion to US$1.5 billion higher than the nationwide base price as operators jostle for this prized resource.
Similarly, we think that the competition for the BWA auction could be even more intense as there are fewer blocks and even more bidders than the 3G auction.
We believe that Bharti and Vodafone are bound to go in more aggressively given their presence in all the 22 circles and the spectrum crunch experienced by both.
We also think that nationwide CDMA players - Reliance and Tata - will bid aggressively to further drive wireless data take-up and get additional spectrum even though they already offer EV-DO datacard services.
We believe that smaller incumbents such as Idea and Aircel will bid selectively in circles where they are strong in and have a large subscriber base.
The winners will also have to fork out for capex to roll out 3G services, adding burden to their balance sheet. That said, the burden may not be that high due to passive infrastructure sharing and falling equipment prices among others.
We believe that new licences will weigh down sentiment on SingTel (underperform) as Bharti makes up about 18% of both SingTel's sum-of-parts-based (SOP) target price and FY10 core net profit. Idea contributes a smaller 4% to Axiata's estimated FY10 earnings. We remain neutral on the telco sector. - CIMB Research, April 8
This article appeared in The Edge Financial Daily, April 9, 2010.
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