News analysis

Telcos may pay the price for airwaves bids

Consumers could end up paying the price after the recently concluded mobile spectrum auction saw Singtel, StarHub and M1 bid up to six times the reserve price for premium airwaves.

Including TPG Telecom, the four telcos stumped up a record $1.14 billion for airwaves, including bands which will be freed up after 2G services end in two weeks. Consumers can expect faster surfing and better connectivity as more airwaves are allocated for 4G networks.

The price tag surprised analysts, who believe it could hit the bottom line for some of these telcos, and some of the costs could be passed to consumers in the long term.

Most of the analysts The Straits Times spoke to also advised investors to be cautious about investing in telco stocks for the time being.

"The most pressing question now for investors is how these bids could impact operators' earnings and cash flow," said Mr Ramakrishna Maruvada, a telecoms researcher at Daiwa Capital Markets.

In the five-day auction, which concluded on Tuesday, Singtel paid a total of $563.7 million for blocks in all the frequency bands that went on sale - 700MHz, 900MHz and 2.5GHz.

Notably, the telco offered a whopping $132 million, or 6.6 times the reserve price of $20 million, for one lot of the 900MHz spectrum. It is a premium range as it allows for better signal propagation, especially through concrete, with less mobile equipment. This translates into lower installation costs.

The total bill for StarHub was $349.6 million for blocks in all the frequency bands, while M1 paid $208 million for blocks in only the 700MHz and 900MHz bands. TPG, which is expected to roll out nationwide mobile services by September next year, was awarded a block in the 2.5GHz band for $23.8 million.

Analysts did not foresee the high bids, having initially expected the telcos to offer about double the reserve price for any frequency band. But instead, the three telcos bid up prices by four to six times for the 700MHz and 900MHz bands, driven in part by the scarcity of the 900MHz band.

Analysts are more sanguine about Singtel's position, saying Singapore's biggest telco can better shoulder the hefty bill than StarHub and M1.

Singtel's profit for the quarter ended Dec 31 last year was $972.8 million, while StarHub's was $54 million and M1's $31.8 million for the same quarter. Unlike the other two, Singtel also has operations overseas such as Australia, Indonesia and Thailand.

Maybank Kim Eng analyst Gregory Yap said: "These huge premiums will have negative repercussions for StarHub and M1 even with conservative payment schedules." In a similar vein, Mr Eugene Chua, investment analyst at OCBC Investment Research, added: "There's more downside than upside for StarHub and M1, which are both fully dependent on domestic revenue."

M1's three biggest shareholders - which together own 60 per cent of M1 - had said last month that they were reviewing their stakes in the telco. The shareholders are Malaysia-listed Axiata Group, Keppel Telecommunications & Transportation and Singapore Press Holdings. "While it would be near impossible to increase mobile prices with the entrance of fourth telco, TPG Telecom, the equilibrium may change if M1 is acquired, or if TPG decides to exit the market," said Mr Maruvada.

A version of this article appeared in the print edition of The Straits Times on April 06, 2017, with the headline 'Telcos may pay the price for aggressive bids'. Print Edition | Subscribe