Highlights

• Crafted to gauge independent and unbiased views from experienced industry experts covering the full spectrum of telco services: Ericsson on mobile, MyRepublic on fixed and TSGN on satellite.

• Data will the lead drive for industry growth but monetization is vital which may lead to continuous modernization in billing and charging capabilities.

• QoS will be paramount important in service differentiation which will strengthen loyalty and improve retention.

• M2M is next growth frontier. While ARPU is likely to be low, this will be offset by the sheer volume of connected devices. 5G will be developed with networked society as the main theme for new business opportunities.

• Rivalry remains elevated but contained in postpaid segment. DiGi is likely to be the least impacted compared to Maxis and Celcom.

• Competition swayed into fixed fibre market. Higher data quota offerings by cellcos may erode the FTTH’s value propositions in the near term.

• DiGi is the clear winner in spectrum reallocation; U Mobile has dependency on partnership with Maxis; Celcom and Maxis may not be able to deploy LTE on 900MHz early.

• Cellcos will lobby hard for 700MHz which is expected to command high premium.

• CAPEX is expected to remain high in order to catch up with technology trend while serving data demand efficiently.

• The entry price for fixed fibre service remains high although price per Mbps has declined. MyRepublic has no immediate plan for Malaysia but it will be very disruptive if materialize based on its thin operating model.

• HTS will play a bigger role in broadband market, positioning itself as an alternative to mobile and fixed broadband.

Catalysts

• Cost savings from partnerships.

• Managed services / outsourcing.

• Increased demand for wholesale bandwidth.

Risks

• Price war, irrational airwave tender, new entrant, FOREX, and tariff regulation.

Forecasts

• Unchanged.

Rating

NEUTRAL

Positives

• Low beta, defensive, strong cash-generation and dividends should underpin share prices.

Negatives

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

Top Picks

• DiGi (BUY, TP: RM5.78) – Under-leveraged balance sheet capable of supporting spectrum fee with steady dividend payout. Low frequency band would enhance its efficiency.

Source: Hong Leong Investment Bank Research - 8 Apr 2016