We reiterate our OVERWEIGHT call on the telecommunication sector. Maxis yesterday introduced its iPhone 5 4G-LTE services that operate at 1.8GHz instead of the official 2.6GHz spectrum band that assigned by MCMC in last December. We are positive on this latest industry development given the 1.8GHz spectrum could provide wider LTE coverage as well as better indoor signal strength. On top of that, we also do not discount that Celcos could potentially review its LTE capex albeit the quantum may not be extensive given the 1.8GHz frequency is required 3x lesser base stations as compared to the 2.6GHz band. We are maintaining all our Telco companies’ FY13-FY14 earnings estimates. Telekom Malaysia (“TM”, “OP”, TP: RM6.25) remains our top pick in the sector. We also reiterate our OUTPERFORM calls on Maxis (TP: RM6.75); Digi (TP: RM5.30) and Redtone (TP: RM0.56) while maintaining our MARKET PERFORM rating on Axiata (TP: RM6.60).
4G-LTE services under the 1.8GHz spectrum. Maxis has received a consent to offer its 4G-LTE services via its 2x25MHz 1.8GHz spectrum band, which currently assigning for its 3G network. The group had on yesterday introduced its latest iPhone 5 4G-LTE packages that operate at 1800MHz instead of the official 2600MHz LTE spectrum band that awarded by MCMC together with the other seven industry players in December last year. Both Celcom Axiata and Digi have also bagged the same 1.8GHz spectrum band size as Maxis. Based on our industry source, Celcom Axiata has received a green light from the authority to deploy its 4G-LTE under the 1.8GHz spectrum band while Digi is still in the midst of processing the application. We understand that 4G-LTE would allow subscribers to enjoy super-fast speeds of up to 75Mbps with the typical average speeds of between 10Mbps to 30Mbps within the coverage areas.
Key differences between 2.6GHz vs 1.8GHz spectrum band for LTE are the former band is suitable for covering densely populated areas and handling large volumes while the latter could provide two times wider coverage (than the LTE 2.6GHz) and better indoor signal strength.
Celcos’ capex is likely to revise downward? With the authority now approving celco operators to operate their LTE services under the 1.8GHz frequency, which require 3x fewer base stations as compared to the 2.6GHz band, we believe that celco players could now potentially review their LTE capex going forward although the quantum may not be big. To recap, Celcom has allocated RM100m (out of its RM1.0b capex allocation) to roll out its LTE services in FY13 while Maxis is expected to spend about 75% of its targeted “slightly less than RM1b capex” on its network services. Digi, meanwhile, is targeting a capex/sales ratio target of 11% for 2013, which implies FY13 capex of about RM730m.
4G trends going forward. The latest move to deploy 4G-LTE under the 1.8GHz frequency will no doubt further strengthen the local 4G eco-system due to the big availability of handset devices for this spectrum. Based on the global mobile suppliers association, there are 58 handset devices support LTE 1800 as compared to 49 in LTE 2600 as of early Jan 2013. Meanwhile, we also believe that celcos will pursue carrier aggregation (inter-band 1.8GHz + 2.6Ghz) to further increase its bandwidth and prepare for the upcoming data trend surge. This will ultimately benefit to the network backhaul providers such as TM and Time dotCom.
Snapshot of Maxis iPhone 5 4G-LTE package. Maxis has introduced five iValue packages under its iPhone 5 4G-LTE services with a minimum rate plan ranging from RM50 to RM375 that bundled with 1GB-10GB mobile data as well as 4GB WiFi services. In order to enjoy 4G LTE speeds, subscribers need to attach with a mobile internet plan of 1GB and above. Following the 4G LTE activation for Maxis iPhone 5, customers on Maxis iValue plans as well as data plans of 1G and above will receive an SMS requesting them to update the settings on their respective devices. Once customers do so, they will automatically be able to experience 4G LTE speeds in the coverage areas and will automatically and seamless fall back onto the 3G network when the LTE services are not available.
Source: Kenanga
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