Highlights

Channel checks revealed that YTL Communications (Yes), a subsidiary of YTLP (HOLD, TP: RM1.85) is preparing for TDD-LTE rollout, abandoning WiMAX technology.

LTE trials are currently conducted not only on the 20MHz of 2.6GHz spectrum which was awarded by MCMC in 2012, but also on its 30MHz of 2.3GHz spectrum which is presently occupied by its commercial WiMAX business.

Surprisingly, trials are also being carried out on Asiaspace’s 30MHz allocation on the 2.3GHz band.

Indirectly, this has implied that Yes is eyeing to takeover Asiaspace’s spectrum which is currently idle as the latter’s WiMAX business did not materialize.

Comments

Yes’ exit from WiMAX is a very much anticipated move as this standard is widely believed to be phasing out and LTE is the only logical technology progression for telcos.

If Yes successfully lobbied for Asiaspace’s spectrum, it will allow Yes to migrate its existing WiMAX subscribers to LTE seamlessly while providing better quality of service.

Upon complete migration, Yes could use the whole 60MHz of 2.3GHz to offer TDD-LTE with theoretical download speed of up to 220Mbps (assumed based on latest carrier aggregation technology with 2 component carriers coupled with downlinkuplink time division ratio of 3 to 1).

With this capability, Yes can be a competent challenger to the incumbents with the niche of offering rich / high definition voice and text services over a pure advance data network supported by IMS, without the worry of legacy voice network.

We believe that compatible devices will be abundant in the near future on the back of China’s commitment following recent TD-LTE license awards which also consist of 2.3GHz spectrum. Notably, this (LTE band 40) is supported by iPhone 5S (model A1530).

If Yes does invade the LTE market as such, this will undoubtedly elevate the competition in the cellular space one notch higher, while benefiting the fixed players through data bandwidth wholesale for backhaul transmission. Overall, this coincides with our sector outlook whereby we prefer fixed.

Catalysts

• Cost savings from partnerships.
• Managed services / outsourcing.
• Increased demand for wholesale bandwidth.

Risks

Irrational competition, regulation of tariffs, FOREX.

Forecasts

Maintained.

Rating

Neutral

Positives – Low beta, defensive, strong cash-generation and dividends should underpin the share prices.

Negatives – Potential irrational competition, regulatory risks, unable to monetize data and dumb pipes.

Top Picks

Prefer fixed over mobile as it is an inevitable pre-requisite to cellcos who are seeking growth in data.

Fixed has healthy market landscape - monopoly in retail segment and duopoly in wholesale and enterprise segment.

TdC (BUY, TP: RM4.03) and TM (BUY, TP: RM5.82).

Source: Hong Leong Investment Bank Research - 6 Feb 2014