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Analysts positive on developments in 4G trends in telco sector

Tan KW
Publish date: Fri, 01 Jan 2016, 03:05 PM
Tan KW
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January 1, 2016, Friday 

KUCHING: Analysts are generally positive on the developments in 4G trends in the telecommunications sector, as operators strive to provide consumers with the best 4G LTE experience.

According to the research arm of TA Securities Holdings Bhd (TA Research), over the last couple of months, mobile operators have been trying to one up each other.

“Operators have made various claims of having a superior 4G LTE network in one way or another,” it said.

TA Research noted that Maxis Bhd (Maxis) and Celcom Axiata Bhd (Celcom) advertise themselves as the number one 4G LTE network.

The research arm further noted that DiGi.Com Bhd (Digi) claims to have the widest 4G LTE coverage, while U Mobile Sdn Bhd (UMobile) has been awarded the title of Malaysia’s fastest mobile network.

TA Research highlighted that at face value, published figures appeared to be in favour of Maxis (for widest coverage) and UMobile (for fastest network).

“Based on updated figures on its website, Maxis boasts a 71 per cent population coverage, followed by Digi at 60 per cent (November 2015), Celcom at 48.5 per cent (3Q2015) and UMobile at 27 per cent (based on news sources as at October 2015).

“In terms of network speeds, an independent analysis conducted by Ookla revealed that UMobile had the fastest network among mobile operators,” the research arm said.

As for UMobile’s 4G LTE download and upload speeds, TA Research noted that it averaged at 22.6 megabits per second (Mbps) and 10.3Mbps respectively, edging out the operator’s competition.

“Not far away, results were followed by Celcom, Maxis and Digi with average download speeds of 19.5Mbps, 18.2Mbps and 17.5Mbps respectively,” it added.

TA Research underlined that though UMobile has been deemed as the fastest mobile network provider, both population coverage and network speed numbers must be taken into account to determine a consistent experience.

It noted that UMobile’s population coverage pales in comparison to Maxis, Digi and Celcom.

“Instead, with relatively similar speeds to match, Maxis appears to provide the most consistent experience based on its leading population coverage numbers (assuming latest data available and measurements from Celcom and UMobile are provided in -110dBm),” the research arm said.

TA Research has however pointed out that there are flaws to this conclusion as numbers are not entirely comparable.

“Different methods are available for computing population coverage. Network quality is also a function of signal quality, which is measured in –dBm.

“A higher number represents stronger signal strength, resulting in more reliable connections and better speeds,” it said.

On another note, the research arm said that Maxis reports the group’s population coverage numbers in two measures, -98dBm (three to four bar of signals) and -110dBm (two bars of signal).

“Digi meanwhile measures its coverage at a minimum signal strength of -110dBm.

“Celcom and UMobile have not disclosed their methods of measurement,” it added.

TA Research further noted that timing issues must also be taken into consideration.

“Latest available population coverage figures are recorded at different points in time. Out of the four, only Maxis and Digi provide regular updates to its population coverage figures,” it said.

Overall, while the numbers provide a gauge on the aggregate experience on each network, user experience can still vary based on a number of factors such as location, timing, spectrum and phone model.

“Ultimately, it is likely that users will gravitate to operators that provide them the most consistent experience, in line with their daily needs,” the research arm said.

Regardless, TA Research was positive on the developments in 4G trends, as operators strive to provide consumers with the best 4G LTE experience.

The research arm referred to the Ericsson Mobility Report, noting that worldwide LTE subscriptions are expected to more than quadruple to 4.1 billion subscriptions from 850 million as at the third quarter of 2015 (3Q15).

“It is estimated that there will be a shift from GSM/EDGE only subscriptions to a world dominated by LTE and WCDMA/HSPA subscriptions,” the research arm said.

Moving forward, TA Research noted that global mobile traffic is forecasted to increase at a compound annual growth rate (CAGR) of 45 per cent, between 2015 and 2021, to 51 exabytes (EB) per month.

The research arm further noted that within this figure, 70 per cent of mobile traffic are expected to be derived from video, which will grow by 55 per cent annually over the same period.

“Instead of web browsing, consumer preferences are shifting towards video and app-based mobile use,” it said.

TA Research highlighted that mirroring global trends, the growing demand for data can be seen through steadily increasing data revenues.

“Amid falling traditional voice and SMS revenues, contributions from data to overall revenue has been edging up,” the research arm said.

It added that over the past year, revenue contributions from data for Celcom and Digi has increased by five to six percentage point (ppt) to 29 per cent and 41 per cent respectively.

TA Research expected these trends to continue as data services become more accessible.

“Helped by the proliferation of mid to lower end smartphones, all three mobile operators have seen increasing smartphone penetration rates.

“Smartphone penetration rates for Maxis, Celcom and Digi stood at 67 per cent, 59 per cent and 58 per cent as at the 3Q15,” it said.

TA Research added that the increasing availability of faster technologies can encourage the use of data heavy applications.

It noted that for video streaming, faster speeds provide users the capability of viewing higher quality videos with lower buffering periods.

“Already, Maxis reports that its 4G LTE users consumes 2.3 gigabytes (GB) per month, approximately 37 per cent higher than the average data usage for its users,” the research arm said.

In conclusion, based on reported numbers, TA Research determined Maxis provides the most consistent 4G LTE experience.

“There are, however, flaws to this, as not all numbers are entirely comparable.

“User experience can also vary based on a number of factors,” it said.

Nonetheless, the research arm reiterated that it was positive on developing 4G LTE trends, as this allows operators to serve the rising needs for data.

Trends aside, it believed the environment remains challenging, in the presence of stiff competition.

The research arm added that valuations appear stretched, as the sector is trading at a forward equity value (EV)/ earnings before interest, tax, depreciation and amortisation (EBITDA) of 10.7-fold, close to one standard deviation (SD) above its historical mean of 10.8-fold.

As such, TA Research maintained ‘underweight’ on the telecommunications sector.

The research arm only had a ‘buy’ on Telekom Malaysia Bhd (TM) due to the group’s attractive valuation, near monopoly status in fixed voice and broadband, and earnings growth opportunities from its venture into mobile segment via P1 and the launch of HSBB2 and SUBB.

Meanwhile, TA Research has a ‘hold’ on Axiata Group Bhd due to relatively cheaper valuation compared to Maxis and Digi, and geographically diversified earnings contribution.

“Lastly, ‘sell’ on Digi and Maxis on valuations perspective and limited growth from their operations that are confined to domestic sphere,” it said.

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