Highlights

• The World Radiocommunication Conference 2015 (WRC-15) which recently concluded in Geneva has identi fied more frequency bands for mobile broadband (MBB): - L-band (1427-1518MHz); and - Lower part of C-band (3.4-3.6GHz)

• Achieved agreement on some additional portions in other bands that were also allocated to MBB services in order to be used in regions where there was no interference with other services.

• To counteract the difficulties in finding additional spectrums below 6GHz, WRC-15 has decided to include studies in the agenda for the next WRC in 2019 for the identification of bands above 6GHz that will allow technology to meet demand for greater capacity.

• Took a key decision that will provide enhanced capacity for MBB in the 694-790MHz frequency band in ITU Region-1 (Europe, Africa, the Middle East and Central Asia) and a globally harmonized solution for the implementation of the digital dividend. Full protection has been given to television broadcasting as well as to the aeronautical ration navigation systems operating in this frequency band.

Comments

• A key milestone for the industry by winning these two spectra which are originally reserved for satellite communications. On top of the 700MHz, both L and C-bands will be the newly harmonized global bands for MBB.

• All 3 are complementary and form a complete collection for coverage and capacity capabilities; 700MHz for coverage, Lband for good mix of both and C-band for capacity.

• The extension of 700MHz from Americas and APAC to global availability solidify our previous optimism in the sector (refer to our report titled “4G LTE on 700MHz” dated 20 June 2013).

• 4G is engineered to be frequency agnostic as well for future standards. All these new bands can be easily implemented once made available using carrier aggregation feature.

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

• Axiata (BUY, TP: RM7.52) - Gradual turnarounds in Celcom and XL, strong growths by other OpCos in developing countries, synergistic M&As and tower listing.
• DiGi (BUY, TP: RM6.22) - data leadership through rapid 4G deployment and potential beneficiary of 900MHz refarming exercise.

Source: Hong Leong Investment Bank Research - 14 Dec 2015