Asia Pacific Telecommunications Insight - November 2012

7/29/2019 Asia Pacific Telecommunications Insight - November 2012

1/17

IMPORTANT NOTICE:

The information in this PDF file is subject to Business Monitor Internationals full copyright

and entitlements as defined and protected by international law. The contents of the file are for thesole use of the addressee. All content in this file is owned and operated by Business MonitorInternational, and the copying or distribution of this file, internally or externally, is strictly prohibitedwithout the prior written permission and consent of Business Monitor International Ltd.If you wish to distribute the file, please email the Subscriptions Department [email protected], providing details of your subscription and the number of recipients

you wish to forward or distribute this information to.

DISCLAIMER

All information contained in this publication has been researched and compiled from sources believed tobe accurate and reliable at the time of publishing. However, in view of the natural scope for human and/ormechanical error, either at source or during production, Business Monitor International accepts no liability

whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part ofthe publication. All information is provided without warranty, and Business Monitor International makes norepresentation of warranty of any kind as to the accuracy or completeness of any information hereto


2/17

CONTENTS

Asia Pacifc

Telecommunications INSIGHTMIs monthly market intelligence, trend analysis and forecasts for the telecommunications industry across Asia Pacific

vmb 2012 I 78

Asia

Polynesia Support For Pacic Cable .....................................................................

New Zealand

New Zealand To Be Left Behind ..........................................................................

Australia

iiNet's Acquisitions Paying Off ........................................................................... ..

Indonesia

3G Auction Set For September .......................................................................... .

Singapore

M1 First To Nationwide LTE ............................................................................. ...

MalaysiaCloud Projects Get PPP Boost ........................................................................... ..

Thailand

MVNO Market On Track For Growth ....................................................................

Vietnam

Government Unlikely To Intervene On Higher Charges .........................................

Myanmar

True Plans Myanmar Pay-TV Venture ...................................................................

Hong Kong

SmarTone Launches LTE ................................................................................. ...

Taiwan

Chunghwa Network Separation Threat Comes Closer ...........................................

Global

LGE's Handset Woes Deepen ............................................................................ ..

Japan

Sony Acquires So-net For Content Boost .............................................................

China

Lenovo And EMC Form Complementary Partnership .............................................

4G And VAS Key For China .................................................................................

Bangladesh

GSM Switch To Boost Citycell's Outlook...............................................................

Maldives

Mobile Broadband Takes Over ............................................................................

India

Prohibitive 2G Price Set......................................................................................

Bharti Share Price Plunges On Weak Results ........................................................

Sri Lanka

Mobile Internet Poised For Further Growth ..........................................................

ASIA

Polynesia Support For Pacic CableAlthough Pacic Fibre failed to raise the required funds to build a

submarine cable linking Sydney and Los Angeles via New Zealand,

another company, Hawaiki Cable, has emerged with a similar project

that includes a group of Pacic Islands. BMI reafrms that there is a

business case for an additional cross-Pacic submarine cable, and the

support of the Polynesian countries could push Hawaiki Cable's plan

towards realisation.

BMI previously reported that Pacic Fibre had planned to build a

13,000 kilometre (km) high-speed bre optic cable connecting Australiaand New Zealand to California (see our online service, August 3, 'New

Zealand To Be Left Behind'). Hawaiki Cable's plan is slightly different

with a backbone linking Sydney and Auckland with Hawaii and optical

add-drop multiplexer branching units that will enable the connection of

Apia (Samoa), Pago Pago (America Samoa), Norfolk Island, Noumea

(New Caledonia), Port Vila (Vanuatu), Suva (Fiji) and Wallis and Fu-

tuna. Additional connections to Tahiti (French Polynesia) and the Cooks

Islands have also been proposed. The Hawaiki cable is a repeatered

two bre pairs submarine cable system with a design capacity of eight

terabytes per second (Tbps), and it is expected to be delivered by 2014,

assuming that it is able to gather the necessary nancial support.

The Hawaiki cable project has been in the works for approximately

three years, although it was only made public during the Pacic Islands

Forum in late August 2012. Details about the project remain scant,

but it reportedly has the support of Samoa, America Samoa and New

Caledonia. This is unsurprising, given that these countries tend to be

overlooked due to their location and size. Several countries in the Pa-

cic Islands are connected to submarine cables such as the American

Samoa-Hawaii cable, Gondwana-1, Honotua and Southern Cross Cable

Network. However, the fragmented geography comprising many islands

means that countries such as the Cooks Islands have to rely on satellite,

which is more expensive and less reliable.

Economic growth has a positive correlation with having access to

fast and affordable broadband connections. The Pacic Islands are at a

disadvantage due to their geographical location and small market size,which leave them with limited bargaining power when negotiating with

submarine cable networks and satellite operators.

Hawaiki Cable has yet to publicly disclose cables cost, although the

defunct Pacic Fibre, which needed to raise US$400mn, could be used

as a benchmark. The cost would be higher if more countries intended

to link to the network, although they will most likely have to foot the

bill. It is also not known if Hawaiki Cable has garnered the support of

investors in New Zealand and Australia. Previously, telecoms operators

such as iiNet and Vodafone New Zealand had pledged their support

for Pacic Fibre. However, the Pacic Fibre cable would have linked

directly to the US, while Hawaiki Cable would land in Hawaii.


3/17

Asia TelecommunicationsNew ZeAlANd

NEW ZEALAND

New Zealand To Be Left BehindPacic Fibre announced on August 1 2012 that its planned subma-

rine cable linking Sydney and Los Angeles via New Zealand has

been cancelled after the rm failed to raise the required US$400mn.

This is a blow to the country's telecoms sector, which will continue

relying on the Southern Cross Cable for international bandwidth

access. Although the existing cable still has the capacity to meet

near- to medium-term demand, we believe the country still needs an

alternative for competition, future proong and risk management.

Pacic Fibre was launched in March 2010, and it planned to

build a 13,000km high-speed bre optic cable connecting Australia

and New Zealand to California. However, securing investors for a

new cable when the Southern Cross still has plenty of capacity was

a challenging task. Furthermore, New Zealand is a relatively small

market, and it was difcult to solely rely on local investors. Turn-

ing to overseas funding has its problems too, with Pacic Fibre's

co-founder Rod Drury stating that political wrangles, includingtensions between the US and China over investment, surfaced dur-

ing negotiations.

The launch of the Pacic Fibre cable would have provided

competition for the Southern Cross, and international bandwidth

prices would most likely have declined, with consumers enjoying

more affordable internet access. Presently, telecoms operators such

as iiNet and Vodafone New Zealand, which had supported Pacic

Fibre, will continue to rely on the Southern Cross Cable, which is

owned by Telecom Corporation of New Zealand, SingTel Optus

and Verizon Business.

Pacic Fibre would have gone hand in hand with New Zealand's

Ultra Fast Broadband and Rural Broadband Initiative, which aims

to provide ubiquitous bre broadband connectivity. Data demand

would grow exponentially when bre broadband gains mass adop-

tion as consumers embrace high-bandwidth activities such as

video streaming, which would justify the construction of another

international submarine cable. Incidents such as natural disasters or

accidental cut-off by ships can disrupt internet access, and a lack of

alternatives means that New Zealand will remain highly vulnerable.

Despite the setback, we continue to see a business case for

another submarine cable linking New Zealand to the international

community, although companies would still face an uphill battle.

As aforementioned, New Zealand is a small market and its place

in the international submarine cable community is an add-on to the

Australian market. However, Australia is already well served by

systems such as the Australia-Japan Cable and the SEA-ME-WE-3,

which indirectly connect across the Pacic Ocean. The lack of sup-port from the New Zealand Superannuation Fund, which believed

that the Pacic Cable was too risky to invest in, is also perplexing,

given that the New Zealand government's research network and the

Australian pension fund had provided funding.

AUSTRALIA

iiNet's Acquisitions Paying OffiiNet reported a bumper FY2011/2012 (July-June), with net prot

increasing by 11% year-on-year (y-o-y) after a slew of acquisi-

tions that expanded the internet service provider's footprint intothe Australian telecoms market. The growth strategy has been

well executed, with further benets expected as iiNet continues to

integrate the operations.

iiNet has made more than 40 acquisitions in the last 15 years,

although the more signicant ones happened in the last two years.

IiNet acquired Melbourne-based ISP Netspace and AAPT's resi-

dential business in 2010 before purchasing Canberra-based telecoms

company TransACT, which signicantly boosted iiNet's presence in

the Australian enterprise market (see our online service, November

18 2011, 'iiNet Poised To Grow With Another Acquisition'). Perhaps

more importantly, iiNet bought key rival Internode (see our online

service, December 23 2011, 'iiNet Charging Ahead In NBN-Fuelled

Consolidation'), which helped to consolidate the former's position

as Australia's second-largest DSL provider.

SELECTED FIXED BROADBAND GROWTH IN THE PACIFIC ISLANDS

2010 2011

Fixed Broadband Subscribers('000)

Penetration Rate (%) Fixed Broadband Subscribers('000)

Penetration Rate (%)

New Caledonia 38.2 15.2 42.8 16.8

French Polynesia 32.2 11.9 36.0 13.2

Fiji 23.2 2.7 23.2 2.7

Tonga 1.1 1.1 1.3 1.2

Wallis and Futuna 1.1 7.8 1.1 8.4

Tuvalu 0.2 2.4 0.4 4.6

Samoa 0.2 0.1 na na

No Alternative To Southern CrossPlanned Pacifc Fibre Route

Source: Pacic Fibre


4/17

Asia TelecommunicationsAustrAlIA

iiNet reported a 19% y-o-y increase in revenue to AUD831mn,

while EBITDA was up 47% to AUD145mn due to factors such as

organic growth in iiNet's operations and the inclusion of TransACT's

and Internode's revenues. Encouragingly, the rm has yet to reap the

full rewards as it has not completely integrated its acquisitions. The

process of merging TransACT and Internode is expected to run into

Q413, and we foresee further upside potential. TransACT has helped

increased iiNet's business revenue to AUD120mn (AUD170mn an-

nualised), from AUD57mn the previous nancial year. The increase

in iiNet's economies of scale will translate into cost savings as the

rm enters into new international bandwidth agreements.

The growing presence in Australia's internet market is also al-

lowing iiNet to ramp up its expansion into the mobile sector. Theability to offer multiple services across the telecoms industry is a

powerful tool to attract and retain subscribers, and it also helps iiNet

to better compete with multi-play operators Telstra and Optus.

Since the acquisition of Internode in December 2011, iiNet's

share price has been trending upwards, before reaching an all-time

high on the back of positive nancial results. Given the rm's strong

fundamentals and growing opportunities in light of its participation

in Australia's National Broadband Network, we continue to see

upside potential in terms of support.

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-09

Apr

-09

Jul-09

Oct

-09

Jan-10

Apr

-10

Jul-10

Oct

-10

Jan-11

Apr

-11

Jul-11

Oct

-11

Jan-12

Apr

-12

Jul-12

Acquisitions Spurring SurgeiiNet Share Price (AUD), 2009-2012

Source: BMI, Bloomberg

0

500

1,000

1,500

2,000

2,500

3,000

Telstra

iiNet

Optus

TPG

Internode

Jun-11

Jun-12

A Strong Grip On SecondAustralia DSL Market By Operators (000)

Source: Company reports, other public media and management statements, DSL only

and excludes HFC, Fibre and satellite customers, iiNet


5/17

Asia TelecommunicationsININdoNesIA

2.1GHZ SPECTRUM ALLOCATION

Channel Frequency Band Operator Uplink/Downlink Licence Period

1 19201925 Hutchinson CP UL 20062016

2 19251930 Natrindo TS (Axis) UL 20112021

3 19301935 Natrindo TS (Axis) UL 20062016

4 19351940 Telkomunikasi Selular UL 20092019

5 19401945 Telkomunikasi Selular UL 20062016

6 19451950 Hutchinson CP UL 20112021

7 19501955 Indosat UL 20062016

8 19551960 Indosat UL 20092019

9 19601965 XL Axiata UL 20062016

10 19651970 XL Axiata UL 20102020

11 19701975 To be auction in September 2012 UL

12 19751980 To be auction in September 2012 UL

1 21102115 Hutchinson CP DL 20062016

2 21152120 Natrindo TS (Axis) DL 20112021

3 21202125 Natrindo TS (Axis) DL 20062016

4 21252130 Telkomunikasi Selular DL 20092019

5 21302135 Telkomunikasi Selular DL 20062016

6 21352140 Hutchinson CP DL 20112021

7 21402145 Indosat DL 20062016

8 21452150 Indosat DL 20092019

9 21502155 XL Axiata DL 20062016

10 21552160 XL Axiata DL 20102020

11 21602165 To be auction in September 2012 DL

ININDONESIA

3G Auction Set For SeptemberThe Indonesian government has announced that it will adopt the

revised Ministerial Degree of Information and Communication

Technology No.1/2006 for the tender of spectrum in the 2.1 gigahertz(GHz) band. The planned auction, which was to take place by late

September, was delayed after Telecomunikasi Selular (Telkom-

sel) was declared bankrupt. Nevertheless, the growth potential of

Indonesias 3G sector is evident from the strong interest in the last

two blocks of spectrum. We retain our belief that Telkomsel and

XL Axiata are the front runners given their larger subscriber bases,

which translates into more users per spectrum.

Despite Telkomsels announced bankruptcy, we believe there

will be strong interest in acquiring spectrum when the government

reopens the bidding. The base price of the last two 3G spectrum

block has been set at IDR200bn (US$21.1mn) per year each, which

is higher from the previous auction price of IDR180bn in December

2011 after adjusting for factors such as ination. Competition for

the spectrum is expected to be intense, with Telkomsel, XL Axiata,

Axis Telekom and Hutchison CP Telecommunications all inter-

ested in securing additional bandwidth for 3G services. However,

Telkomsels nancial position will need to be claried before it can

participate in the auction.

Although we believe that the bulk of the Indonesian consumers

are still using the older and cheaper 2.5G GPRS technology for

mobile internet access, demand for faster 3G services has been on

the rise. While the Indonesian regulator and mobile operators do not

disclose their 3G subscriber data, we have seen anecdotal evidence

to support our view. For example, Axis Telekom announced in

February 2012 that it will invest US$800mn in 2012 to expand its

network, with an emphasis on improving HSPA coverage. Mean-

while, XL Axiata reported that the number of mobile data users on

its network grew by 32% y-o-y to 26.5mn at the end of June 2012,

with data trafc for H112 reaching 10,945TB, up from 3,749TB in

H111. XL Axiata has claimed that its national 3G network utilisation

is about 50%, with utilisation reaching 100% in the largest cities and

certain areas. It is a similar scenario for alternative operators such

as Telkomsel, which reported an 82% y-o-y increase in the number

of mobile data users, to 47mn.

Indonesias top ve mobile operators - Telkomsel, Indosat, XL

Axiata, Axis Telekom and Hutchison CP Telecommunications - each

have two blocks of 3G spectrum (see below table). Axis Telekom and

Hutchison CP Telecommunications were the latest companies to gain

additional spectrum in 2011, and their intent to secure a third block

is further testament to the sectors growth momentum and potential.

It is difcult to determine which two operators will emerge vic-torious in their bid to secure an additional block of 3G spectrum.

However, we believe that XL Axiata will adopt an aggressive ap-

proach, given that it has comparatively less spectrum holdings than

Telkomsel and Indosat. XL Axiata has one 3G spectrum block in

the 1800 megahertz (MHz) frequency band, while Telkomsel and

Indosat have three blocks and one block respectively.

BMI estimates that there were about 16.238mn 3G subscribers

in Indonesia at the end of 2011, representing a 25% y-o-y increase


6/17

Asia TelecommunicationssINgAPore

on the back of increasing demand for smartphones (such as the

BlackBerry device) and tablet computers. We operators to step up

their expansion and market plans in 2012 in order to increase rev-

enue generated from premium 3G services and mitigate downward

pressure, amid the countrys intense competition. We expect the

number of Indonesias 3G subscribers to reach 25.61mn, or 10.1%

of the mobile market, by end-2016.

SINGAPORE

M1 First To Nationwide LTEAfter becoming the rst mobile operator in South East Asia to launch

a commercial Long-Term Evolution (LTE) network in mid-2011,

albeit limited in availability, Singapore's M1 4G service became

fully operational with nationwide coverage on September 15 2012.

BMI has seen LTE gaining traction in other parts of the region, and

we expect Singapore to follow suit, given the increasing number of

compatible devices and network coverage. The growth momentum

should accelerate once all three mobile operators have deployedpan-island services.

M1's LTE service, which operates in the 1800MHz and 2.6GHz

bands, encompass both street level and in-building coverage. Previ-

ously, the service was only available to enterprise mobile broadband

users in Singapore's nancial district, but consumers are now able

to access the next generation service via other mobile devices such

as smartphones and tablet computers.

While M1 is not the rst mobile operator in Singapore to launch

LTE services for smartphones, it is the rst to launch a nationwide

network. SingTel Mobile launched its 4G smartphone service in

June 2012, but the operator is only expected to deliver 95% island

coverage by March 2013. Meanwhile, StarHub is building its LTE

network in key business areas and is expected to launch commercial

services by end-2012.

Nationwide coverage is important for attracting consumer in-

terest as subscribers will be able to enjoy LTE speeds throughout

Singapore. At present, SingTel Mobile's LTE subscribers drop down

to 3G/HSPA+ when outside of the LTE network. South Korean

mobile operators had been aggressive in terms of rolling out theirLTE networks, and they achieved nationwide coverage by June

2012. At the end of July, there were 8.663mn LTE subscribers in

recorded between December 2011 and March 2012.

However, the LTE growth momentum in Singapore could be af-

fected by several factors. All three mobile operators have previously

lowered their generous data caps from 12 gigabytes (GB) to as low as

2GB, meaning that consumers may opt for slower 3G speeds instead

of running the risk of exceeding the allowance. Secondly, there is

a high proportion of postpaid subscribers in the country (53% as of

June), although it is a similar scenario in South Korea and its growth

trajectory has been robust. Thirdly, the adoption of the LTE service

is dependent on popular device availability. While operators have

launched smartphones from makers such as Samsung Electronics

and HTC, the majority of Singaporean subscribers favour Apple's

iPhone, according to a ConsumerLab report by Ericsson. Unlike

most of Asia Pacic (such as Australia, Malaysia, Indonesia and

Thailand), iOS is the preferred mobile operating system in Sin-

gapore, accounting for 46% of the total, while Google's Android

was second at 29%. Android was the favoured system if looking

at the region as a whole, accounting for 31% compared with iOS'

19%. Consequently, if Apple's next iPhone does not support LTE

technology or the bandwidths of Singaporean LTE networks, theLTE adoption momentum would be lower. However, the opposite

could see LTE adoption spike.

Lastly, competition is vital, and the intensity should peak once

SingTel Mobile and StarHub fully enter the LTE market. We have

started to see operators adjusting their pricing after SingTel Mobile

announced shortly after M1's LTE announcement that it will not

position its 4G service as a value-added service by pricing its 3G

and 4G services the same.

MALAYSIA

Cloud Projects Get PPP BoostEight new projects to expand cloud computing services in Malay-

sia are to be started in 2012 with an investment of MYR300mn

(US$94.6mn) from public-private partnerships (PPPs). The invest-

ment aims to improve the take-up of enterprise cloud services and

is expected to generate MYR1.68bn to gross national income (GNI)

by 2020. BMI believes using PPPs to encourage the roll-out of

cloud computing is a good step for Malaysia's IT market, combining

government support with industry expertise.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009

2010

2

011e

2

012f

2

013f

2

014f

2

015f

2

016f

Software sales, US$mn

Services sales, US$mn

Computer hardware sales, US$mn

Cloud Services To GrowMalaysia IT Market Forecasts By Sector

e/f = BMI estimate/forecast. Source: BMI, EITO, World Bank, ITU, EU, IDC, Gartner, ISI

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

20,000

25,000

30,000

35,000

40,000

45,000

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

3G LTE (RHS)2G (RHS) WiBro (RHS)

Strong LTE Growth In South KoreaMobile Market Growth By Technology (000)

Source: ITSTAT


7/17

Asia TelecommunicationsthAIlANd

which includes a number of ICT projects aiming to boost ICT as a

percentage of GDP from around 10% in 2010 to 17%. The initia-

tive is also expected to generate around 160,000 jobs, with a total

investment from PPPs reaching MYR31.2bn by 2020. The eight

projects focused on enterprise cloud computing will contribute 710

high-value jobs to the total.

Encouraging enterprise cloud computing is one of a number of

ambitious initiatives, including a national cloud computing platform.

With government backing, concerns over where data is stored a

major issue in the proliferation of cloud computing internation-

ally may be reduced as it can be assumed that the cloud will be

located within Malaysian territory. Data stored in cloud servers

outside a country can be subject to different regulations and laws

governing privacy.

The benets for Malaysian businesses will come in the form of

reduced overheads for IT services, which is an area that is set to grow

rapidly in this market. BMI forecasts a 10.7% CAGR between 2012

and 2016 higher than the market total CAGR of 8.6%. The Digital

Malaysia initiative should prove a signicant driver of new services

in the market and encourage greater usage of new IT products.With government and operator investment in Malaysia's high-speed

broadband network (HSBB) boosting broadband connectivity in the

country, cloud computing will be a logical step for many organisa-

tions, particularly those wishing to keep their overheads down.

Other Digital Malaysia projects include the Asian e-Fullment

Hub aiming to put Malaysia at the centre of e-commerce in the

region, an e-payments service for SMEs, microsourcing for income

generation, customised online education and an m-wallet platform,

reports Telecom Asia.

THAILAND

MVNO Market On Track For

GrowthThai state-owned telecoms operator TOT is in the midst of revamp-

ing its mobile virtual network operator (MVNO) business model and

has so far awarded 40% of its 3G network capacity to a subsidiary

ofSamart Corporation. TOT previously signed ve companies as

MVNOs to resell its 3G services; however, growth was limited by

the lack of coverage and capacity. However, with TOT currently

expanding its 3G network, we believe that the prospects for its

MVNOs are brighter. This would in turn spur more similar deals

from alternative telecoms operators.

Under a ve-year agreement, I-Mobile Plus will have the ex-

clusive right to TOT's 3G network capacity, which would position

the company as TOT's main MVNO. This is similar to the situation

under TOT's previous MVNO model, where I-Mobile had report-

edly sold 170,000 3G connections out of the 500,000 available.

Meanwhile, another MVNO, Loxley, is in talks with TOT for

exclusive rights to 20% of 3G network capacity, silencing reports

that Loxley is considering bidding for a 3G licence in the upcom-

ing auction. Instead, Loxley has formed an alliance with Malaysia's

MVNO Tune Talk , which would also help Loxley expand into the

Malaysian ICT industry.

In February 2012, TOT announced that it was in talks with two

European telecoms operators to provide 3G services as MVNOs.

However, given the ongoing turmoil and uncertainties in Europe,

we believe that the remaining MVNOs will comprise primarily do-

mestic rms, which have knowledge about the market and possess

the distribution channels. The Bangkok Post has reported that the

prospective winners for the remaining 40% are 365 Communica-

tion, M Consult Asia, IEC Technology, Acumen and JasmineTelecom Systems, several of which are existing TOT MVNOs.

We believe that the MVNO business model can thrive in the

Thai market, assuming that the regulations permit, due to the pent-

up demand for 3G services after constant delays in the issuance of

licences. We believe that at the initial launch, 3G providers will look

to serve as much of the market as possible. However, as the market

matures, MVNOs will become a more attractive option to monetise

excess capacity, which would otherwise be unused, by targeting

lower protable niche segments, such as low-income consumers

and foreign labourers.

TOT has said it currently has 2,300 3G base stations, and it ex-

pects the number to increase to 5,320 by October 2012. In the nexttwo years, the network will comprise about 18,000-20,000 base

stations, which would boost the attractiveness of its 3G MVNOs,

thereby offsetting lost concession revenue in light of the changing

competitive landscape.

VIETNAM

Government Unlikely To Inter-

vene On Higher ChargesThe lopsided Vietnamese telecoms market is starting to rear its head,

after local media reported that the Vietnam Post and Telecommu-

nications Group (VNPT) and Viettel have raised various charges,

which are to the detriment of their smaller rivals.BMIhas long high-

lighted that unhealthy competition exists due to the two dominant

players, but we do not foresee the situation improving in the near

term as the government has shown little willingness to intervene.

In late June 2012, VietNamNet Bridge, citing operators such as

CMC TI and Hanoi Telecom -owned Vietnamobile, reported that

VNPT and Viettel have raised telecoms circuit leasing charges by

about 200-300%. Both companies have provided legitimate reasons

for increasing the leasing charges. VNPT has asked its subsidiaries

to maintain independent accounts, which means that companies

such as VTN have to revise their business plans in order to protectprotability. Meanwhile, Viettel has acquired EVN Telecom, which

used to lease out its infrastructure. However, Viettel has claimed that0

5

10

15

20

25

30

35

40

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000Number of 3G Pho ne Subscribers ('000) (LHS)3G Market As % Of Entire Mobile Market (RHS)

3G Expected To BoomThailand 3G Subscriber Forecast, 2009-2016


8/17

Asia TelecommunicationsMyANMAr

Regardless, competition in Vietnam's telecoms market is becom-

ing less healthy. While it was operating an unsustainable business

model, EVN Telecom was a disruptive presence, which provided

much relief to alternative smaller operators. We believe that com-

panies such as Vietnamobile are now left with limited options but to

accept leasing rates from VNPT and Viettel, as alternatives such as

building their own infrastructure takes too long and are too costly.

In July, Hanoi Telecom ofcially lodged a complaint with the

Ministry of Information and Communications (MIC), claiming that

VNPT has unexpectedly raised the leasing fees for base transceiver

stations by 110-562%. While Hanoi Telecom accepts that higher

rates are inevitable in light of ination, particularly energy cost, it

believes that the increases are overly high and unbearable.

As aforementioned, Hanoi Telecom has the option of construct-

ing its own stations instead of renting. In fact, the operator has said

that the increase in annual leasing fees would allow it to build a new

station. While this could be a viable alternative, it would go against

the government's policy of encouraging network sharing in order to

reduce cost and resource wastage.

Two prominent international telecoms operators South Korea's

SK Telecom and Russia's VimpelCom have already ed the Vi-

etnamese market, and BMIwould not be surprised if Hong Kong's

Hutchison Telecommunications International, which co-owns

Vietnamobile, follows suit.

At present, the MIC does not control infrastructure leasing fees.

However, we believe that it is necessary for some form of interven-tions such as a price oor and price ceiling to protect the interests of

the lessors and lessees, especially if the government is able to nd

the rental tariff hikes until end-July, with the ministry seeking an

explanation for the sizeable raises. However, allowing Viettel to

acquire EVN Telecom, and the prospect of approving VNPT's plan

to merge MobiFone and VinaPhone suggest to us that the govern-

ment might not have a signicant inuence over the rental hikes,

which remain justiable from an operational perspective.

MYANMAR

True Plans Myanmar Pay-TV

VentureThai converged services operator True Corporations has unveiled

ambitious expansion plans for its pay-TV business, including estab-

lishing operations in nearby Myanmar and Vietnam. BMI believes

that, with a reported 60% share of the Thai TV market at the end of

2011 and strong adoption rates in provincial Thailand, True has a

good chance of making a success of its international growth initia-

tive. This strategy will also help the company reduce its dependenceon the Thai market, which is increasingly competitive and, owing to

converged product bundling, is seeing margins weakening.

Details regarding expansion into Myanmar and Vietnam are

scant, but the Bangkok Post cites True CEO Suphachai Chearavanont

as saying that at least THB1bn has been earmarked for investment

in a joint venture with local partners, which is most likely to be

the state-owned national broadcasting authority. Reportedly, True

will produce local language programming, but a reference to the

popularity of Thai content in Myanmar and other international

markets suggest it could quickly build a large and loyal customer

base by leveraging its existing content portfolio.

In Thailand, the TrueVisions arm of the True group offers free-

to-view and subscription TV services to 1.7mn registered subscribers

via digital direct-to-home (DTH) satellite and digital hybrid bre-

coaxial (HFC) cable networks. The company has invested heavily in

the implementation of DOCSIS 3.0 technology on its cable network,

which passes approximately 800,000 homes in the Bangkok metro-

politan areas. It has also subsidised the roll-out of satellite receivers

in less afuent provincial areas of the country and is upgrading itsset-top-boxes to support high-denition (HD) content. The latter also

sees the introduction of more secure MPEG-4 encryption systems,

Viettel, 40.5%

MobiFone,

17.9%

VinaPhone,

30.1%

SPT, 0.1%

EVN

Telecom,

0.2%

Vietnamobile,

8.0%

Beeline, 3.2%

Strong Inuence Over OthersVietnam Mobile And Fixed-Line Market Shares (%), 2011

VNPT, 68.0%

FPT Telecom,0.2%

Viettel, 22.3%

SPT, 1.5%

VTC, 0.1%

EVN

Telecom,

7.9%

Source: MIC

0

200

400

600

800

1,000

1,200

1,400

1,600

700

720

740

760

780

800

820

840

860

880

900

Q109 Q309 Q110 Q310 Q111 Q311 Q112

Free to air Premium StandardFreev iew ARPU (THB)RHS

Sun Always Shines On TVTrueVisions Pay-TV Subscribers (000) And ARPU (THB)

Source: True Corporations


9/17

Asia TelecommunicationshoNg KoNg

exploit business growth opportunities in the Thai pay-TV market,

particularly in the advertising eld. Advertising revenue increased

by 46.7% to THB707mn in 2011, enabling TrueVisions to secure

more attractive programming content and expand the range of

channels it offers.

We expect similar strategies to be used in Myanmar and Vietnam,

where satellite-based services are widely received by consumers.

However, formal pay-TV service provision models run greater op-

erational risks in these markets due to low household expenditure on

intangible services, dependence on free-to-air and pirate broadcasts

due to non-existent or poorly enforced regulatory systems, and risks

that state-imposed censorship could dull the attractiveness of the

new services.

We believe that low returns on investment are the most immediate

risk. In Thailand, TrueVisions has had mixed success sustaining Av-

erage Revenue Per User (ARPU) growth. Blended ARPU of THB825

(US$26.10) per subscriber each month in Q112 resulted in y-o-y and

quarter-on-quarter (q-o-q) growth of 9.7% and 5.1% respectively, but

comes after considerable infrastructural and content-related invest-

ments and as (piracy notwithstanding) customers increasingly shunstandalone premium services (down 8.5% y-o-y and 0.5% q-o-q)

in favour of advertising-based free-to-air and 'Freeview' offerings.

In regards to state intervention in the media, Myanmar and

Vietnam have poor track records and True could easily nd itself

inadvertently breaching the countries' uid and byzantine laws

regarding broadcasting. It is likely that in both countries, True will

have to partner with the local state-owned broadcasters, which

presents potential difculties in terms of managing the business'

growth along prot-making lines, developing local content and

distributing foreign made programmes. Premium services are also

virtually unknown in both markets, and convincing consumers to

pay a monthly fee for a range of content they have already been ableto, freely or cheaply, access through other means would be another

obstacle for True.

Nevertheless, state attitudes towards the media are beginning to

thaw, most notably in Myanmar, and by being at the forefront of

liberalisation in these markets, True should be comfortably posi-

tioned for growth in the long term.

HONG KONG

SmarTone Launches LTESmarTone has launched commercial 4G LTE services in the

1,800MHz band, becoming the last of Hong Kong's ve operators

to offer LTE services. BMI believes SmarTone has considerable

potential to upsell 4G LTE services to its existing subscription base;

however, we expect gains from rival operators' subscription bases

to be limited as they all already offer LTE services.

Hong Kong is one of the most developed wireless data markets

in the world, with SmarTone the last of ve mobile operators to

launch LTE by refarming 10MHz of its 1,800MHz spectrum for

the service. The new LTE service was initially only available to

customers by invitation and became available on general sale from

September 11 2012. SmarTone offers volume-based plans ranging

from 5GB to 20GB, costing up to US$60 per month.

BMI believes demand for the service from SmarTone's existingsubscription base will be strong. The growth in 3G/4G subscrip-

tions in Hong Kong has been robust, as has growth in the volume of

also believe that SmarTone's strategic focus on the higher end of

the market, with a signicant proportion of postpaid subscriptions,

is an asset when promoting new higher value services.

However, with SmarTone trailing its rivals in the launch of

LTE services, the opportunities to poach subscribers are limited.

SmarTone's launch follows a move by CSL New World Mobility,

which was the rst mobile operator to simultaneously deploy Dual

Cell HSPA+ (42Mbps) and LTE over an entire national network in

2011. Following this, China Mobile Hong Kong introduced com-

mercial 4G LTE services in April 2012. Meanwhile, PCCW and

Hutchison Telecommunications Hong Kong built a collaborative

network, and 3 Hong Kong and PCCW Mobile launched 2.6GHz

LTE in May 2012.One potential source of competitive advantage that may enable

SmarTone to attract subscriptions from its rivals is its utilisation

of the 1,800MHz band. Compared to services in the 2.6GHz band,

SmarTone's service will offer superior indoor coverage due to the

use of lower frequency spectrum. However, this opportunity is lim-

ited, given other operator's capacity to utilise 1,800MHz spectrum

(CSL is aiming for 100% 1,800MHz LTE population coverage by

YE12). Furthermore,BMIbelieves SmarTone would face signicant

challenges in communicating a competitive advantage in indoor

coverage to consumers, given the lack of precision of the claims.

Therefore, while there is some short-term potential, we consider

SmarTone's LTE launch to be a value generation strategy, rather

than a competitive threat for other operators.

TAIWAN

Chunghwa Network Separation

Threat Comes CloserThe National Communications Commission (NCC) of Taiwan has

reportedly decided to remove the monopoly on last-mile network

access held by incumbent Chunghwa Telecom (CHT). BMI's view

is that network separation would give alternative xed-line and

broadband operators fair, transparent and affordable access to themillions of homes and ofces served by the CHT network and, more

importantly, help lower the cost of broadband and voice telephony

0

100

200

300

400

500

600

700

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

2.5G Subscrip tions ('000)

3G/4G Subscriptions ('000)

Mobile Data Usag e Per Subscription (MB) RHS

LTE Roll-out To Meet Wireless Data DemandMobile Subscriptions By Technology (000) & Mobile Data Usage Per

Subscription (MB) RHS

Source: OFCA


10/17

Asia TelecommunicationsgloBAl

since June 2001, and although some strong players have entered

the market, mostly backed by nancially well-endowed local and

international businesses, CHT continues to account for 95.3% of

the local telephony market, 74.1% of the domestic and international

long-distance services market and 79.2% of the xed broadband

market, principally through its ability to control access to its last-

mile infrastructure and set prices.

Alternative operators have had to rely on local loop unbundling

and co-location facilities to provide services to their customers,

but negotiating these arrangements with CHT can be a lengthy and

expensive process. Network separation would require the incumbent

to establish separate wholesale and retail businesses and to offer

last-mile access at cost. Restructuring CHT will be an expensive task

and will weigh on the company's prots across multiple quarters, aswill a marked reduction in network access fees that have historically

cushioned the operator from the effects of declining xed-line usage.

Taiwan's Executive Yuan and Legislative Yuan still need to

approve the changes to the telecommunications law. As the state

continues to own 37.2% of CHT, it may have a vested interest in

ensuring that the company's revenues which are a signicant

contributor to state coffers are not adversely affected and could

therefore block the amendment or at least impose a phased intro-

duction of network separation. This seems unlikely to BMI, given

the relatively open nature of the government and its willingness to

incentivise foreign investment in key industries such as telecom-

munications. Nevertheless, it remains a potential downside risk of

which investors should be mindful.

BMI expects the principal xed-line and broadband alterna-

tive players Taiwan Fixed Network, New Century Infocomm

Technology, Asia Pacic Telecom, cable TV operator kbro and

international cable operators Reach Global and FLAG Telecom

to respond enthusiastically to this development and seek new and

improved network access agreements with CHT. Fairer access pric-

ing should help them develop more attractively priced products and

services, and will ultimately help to slow or reverse the decline in

xed-line usage and bolster xed broadband growth in Taiwan. BMI

forecasts the number of xed-line connections to fall from 12.553mn

in 2012 to 11.579mn in 2016, while the number of broadband con-

nections boosted by popular mobile broadband services willgrow from 24.784mn to 27.614mn over the same period.

LGE's Handset Woes DeepenSouth Korean consumer electronics manufacturer LG Electron-

ics has revealed further losses at its mobile handset business, as

the company comes under increasing competitive pressure in the

smartphone segment. This was not completely unexpected as the

feature phone market which accounts for at least half of LGE's

handset sales is in decline, while the smartphone segment is suf-fering from pricing pressure from low-cost Indochinese suppliers.

Although LGE hopes that investment in new LTE-enabled devices

will improve its performance, BMI thinks that margins in its handset

business will remain low for the foreseeable future.

Handset sales totalled KRW2,286bn in Q212, down 6.8% q-o-q

and by 28.6% y-o-y; this was mostly due to a 47.2% y-o-y decline in

quarterly handset shipments from 24.8mn to 13.1mn. The company

has stopped reporting its smartphone shipment gures; this could be

because these would seem fairly weak when compared to the tens

of millions of iPhones being sold every quarter by arch-rival Apple.

Analysts estimate that, despite consistent increases in smartphone

shipments, such devices still account for less than half of LGE'shandset output, leaving the handset business exposed.

In moving to counter Apple, Samsung , HTC and Research In

Motion at the higher end of the market, LGE has been incurring

higher marketing and distribution costs, and may also be under

increased pressure from mobile network operators to offer attrac-

tive discounts on key devices. In the US, AT&T and Verizon havereported better Q212 operating margins as a result of lower iPhone

sales, as well as a new focus on less expensive smartphones while

still largely forsaking feature phones. This is having a devastating

effect on LGE's handset margins, with an operating loss of KR-

W59bn recorded in Q211; this is in stark contrast to the prot of

KRW35bn seen in Q112.

The company reports that sales of LTE products are strong and

that demand for such devices will continue to increase. Its plan is to

continuously launch new LTE-enabled devices in developed markets

and increase the efciency of its supply chain management processes

in order to return to protability. While BMI agrees that the company

needs a good range of next generation devices capable of supporting

LTE access, we caution that commercial LTE networks (and thus,

potential device buyers) are still few in number and that operators

ill b i h i i k l b f LTE

-160

-140

-120

-100

-80

-60

-40

-20

0

20

40

60

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Q111 Q211 Q311 Q411 Q112 Q212

Mobile LHS Handset LHSMobi le Op Income Handset Op Income

Darkening Outlook Despite LTE FocusLGE Mobile And Handset Financial Indicators

Source: LGE

0

5,000

10,000

15,000

20,000

25,000

30,000

2009

2010

2011

2012f

2013f

2014f

2015f

2016f

Number of Main Telephone Lines in Service ('000)

Number of Broadband Internet Subscribers ('000)

CHTs Support Pillars Under ThreatTaiwan Fixed-Line And Broadband Market Trends

f = BMI forecast. Source: BMI, operators, NCC


11/17

Asia TelecommunicationsJAPAN

costs remain very high.

For these reasons, we do not expect LGE to completely escape

its handset protability problems in the short to medium term and

may be better advised to focus on developing a small range of high-

end LTE-enabled devices that compete more effectively with the

iPhone and the Samsung Galaxy family, which currently spearhead

this market.

JAPAN

Sony Acquires So-net For Con-

tent BoostSony's latest attempt to improve its nancial performance and

outlook has comprised the Japanese rm reaching an agreement to

acquire all of the outstanding shares ofSo-net Entertainment that

it does not currently own. Sony plans to position So-net as one of the

key components of its network services business in Japan and Asia,

which in turn would boost Sony's growing emphasis on generatinghigher revenue from content.

So-net was jointly established by Sony, Sony Music Entertain-

ment and Sony Finance International in 1995, before launching

internet services the following year. In addition to providing internet

connections such as bre-to-the-home and mobile data, So-net also

operates in the media and entertainment sector through subsidiar-

ies M3 (medical portal) and Gamepot (social gaming). Sony has

announced that it will explore the possibility of collaborating with

M3, which would complement a potential alliance between Sony

and the world's largest endoscope maker, Olympus.

By making So-net a wholly owned subsidiary, Sony also believes

that it will be able to fully leverage on So-net's business portfolioand assets through the simplication of their capital relationships.

The aggregate consideration of the acquisition is expected to be

about JPY60bn.

Sony has been under immense pressure from its shareholders in

light of its continued abysmal nancial performance. While sales in

the quarter ended June 2012 increased by 1.4% y-o-y, net loss wid-ened from JPY15.5bn to JPY24.6bn. In its earnings announcement in

early August 2012, Sony also downgraded its FY2012/2013 (April-

as purchasing Ericsson's stake in the joint venture Sony Ericsson,

selling its share in an LCD plant to partner Samsung Electronics

and acquiring cloud-based gaming company Gaikai. The move to

take over So-net was well received by its shareholders, although we

remain concerned about the company's near-term outlook, especially

in light of the challenging business environment. In addition to a

slow response to consumers' changing preferences and competition

from rivals such as Samsung Electronics, Sony's main markets the

US, Europe and Japan are still in economic turmoil, which would

limit consumers' spending on consumer electronics and discretionary

services such as entertainment.

BMI previously highlighted that Sony's rapidly declining com-

petitiveness in the consumer electronics market means that the rm

should turn its attention to generating revenue from its portfolio

of content services such as music and games. While we believe

that So-net is another piece to the puzzle, the transition is a slow

process due to Sony's size and structure, in addition to the fact that

its consumer electronics business is still a major revenue generator,

despite protability having been weak.

CHINA

Lenovo And EMC Form Comple-

mentary PartnershipLenovo and EMC have announced a strategic and complementary

partnership, leveraging the two companies' respective strengths

in order to boost the sales of server and storage technology. BMI

believes that the collaboration is a good t for the rms gaining

market exposure to areas that they lack in.

The collaboration will span across three main areas: Lenovo and EMC have formed a server technology develop-

ment programme that will accelerate and extend the former's

capabilities in the x86 industry-standard server segment.

Lenovo will market these servers, while EMC will also

embed them into selected storage systems.

The two rms have established an OEM and reseller re-

lationship, in which Lenovo will resell EMC's network

storage solutions to its clients. This will initially occur in

China before extending to the global market, in accordance

to Lenovo's server expansion plan.

Lenovo and EMC will use Iomega's assets to provide Net-

work Attached Storage systems to SMBs and distributed

enterprise sites.

Lenovo is still an emerging player in the server, services and soft-

ware market, with the rm having generated 90% of its revenue in

FY2011/12 (April-March) via notebooks and desktops. We believe

that the partnership with EMC will help Lenovo to build up its IT

portfolio and credential in China, given the former's technologies

and expertise, before leveraging on EMC's global network to expand

into overseas markets. Although Lenovo is the world's second-

largest PC manufacturer, the rm is highly reliant on Asian markets,

particularly China, for sales. This would help Lenovo close the gap

with IT enterprise market leaders Dell, Hewlett-Packard and IBM.

The venture away from the personal computer market is a

necessary step for Lenovo, due to shifting consumer and businesspreferences. Sales of desktops and notebooks have been declining as

consumers increasingly opt for smartphones and tablet computers for

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Aug-11

Nov-11

Feb-12

May-12

Aug-12

Acquired Ericsson'sstake in SonyEricsson

Divested stakein S-LCD

Acquired

Gaikai

AcquiredSo-net

No Major ChangesSony Share Price (JPY) And Selected Acquisitions And Divestments

(2011-2012)



12/17

Asia TelecommunicationsChINA

mean that the scenario is not too far off from becoming a reality.

Meanwhile, having Lenovo as a partner will help EMC break

into the Chinese market, which would otherwise be challenging for a

foreign company. Lenovo's extensive client base, which includes the

Chinese government, enterprises and SMBs, and distribution chan-

nel would be immediately available to EMC. Although the Chinese

economy is facing economic uncertainty, the signicant market size

and potential will provide long-term revenue opportunities, as well as

diversication away from the traditional US and European markets.

The reselling of EMC's network storage solutions would also

bolster EMC's brand awareness, while the joint venture would al-

low EMC to target SMBs, leaving the parent company to continue

focusing on more lucrative large enterprises.

4G And VAS Key For ChinaChina Mobile saw a signicant plunge in its share price after the

operator's H112 nancial results missed analysts' estimates, on the

back of rising subscriber acquisition costs. Although China Mobile

is still the world's largest mobile operator by subscriber base, it is in-

herently disadvantaged by its proprietary 3G TD-SCDMA network,

which is not as widely supported by device manufacturers as rival

technologies W-CDMA and CDMA2000. We continue to expect

China Mobile to push for the commercial launch of 4G TD-LTE

and mobile content as its main future revenue drivers.

China Mobile's H112 operating revenue increased by 6.6%y-o-y) to CNY266.530bn, but EBITDA declined by 0.9% to

CNY123.051bn, resulting in a 3.4 percentage point (pp) decrease in

attract consumers. The operator's TD-SCDMA network is not as

well as supported by international handset makers, which puts China

Mobile at a disadvantage in comparison with rivals such as China

Unicom and China Telecom, with both having had an agreement

with Apple to sell the iPhone. Net prot was boosted by alternative

sources such as interest income and prot from associates to reach

CNY62.240bn. Nevertheless, net prot margin still fell by 1.2pp,

from 24.5% to 23.3%.

China Mobile had 683.076mn mobile subscribers at the end of

June 2012, 67.079mn of which are using 3G subscription, represent-

ing 9.8% of its total. By comparison, China Unicom's proportion of

3G subscribers (57.530mn) was 26.2%, while China Telecom came

out on top with 35.3% (50.960mn). China Mobile still occupies the

market leadership position in China's 3G sector, although it is underpressure from China Unicom. Between July 2011 and June 2012,

China Unicom gained 33.585mn 3G subscribers. China Mobile came

in second with 32.052mn, while China Telecom added 29.420mn.

In order to fend off competition, China Mobile chairperson Xi

Guohua has announced that the operator will increase handset subsi-

dies in 2012 to CNY26bn, up from the CNY20bn originally forecast.

The operator is also eyeing more compatible mobile devices with a

possibility that the next iPhone variant could support TD-SCDMA.

Securing an agreement with Apple would be a short-term boost

to China Mobile's outlook, but we believe that the key long-term

revenue generator would come in the form of 4G services. Unlike

the TD-SCDMA standard, TD-LTE has been adopted by operators in

other countries such as India and Australia, which means that there

is a greater incentive for device makers to manufacture compatible

handsets. Furthermore, while selling the iPhone would bolster China

Mobile's data user base, revenues generator from mobile applications

(apps) would ow towards Apple and developers. China Mobile

is currently testing its own mobile app store for Android-based

smartphones as paid apps on the ofcial Google Play store is not

accessible in the country. This would create a source of sustainable,

long-term earnings for China Mobile, which would otherwise rely

largely on selling connectivity for revenue.

China Mobile reported that traditional voice services contributed

66.5% of total operating revenue in H112, while data services ac -

counted for 28.5%. The importance of applications and informationservices is highlighted by the fact that they accounted 9.2% of total

operating revenue. Although we expect the proportion of wireless

65

70

75

80

85

90

95

an-

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Hefty Subsidies Is The Root CauseChina Mobile Share Price (HKD), 2011-2012


Notebook,56.5%

Desktop,33.4%

MIDH, 5.0%Others, 5.1%

EMC Can Be A Big HelpLenovo Revenue By Product (LHS) And Geography (RHS)

China, 12395

EmergingMarkets (ExChina), 4803

MatureMarkets,

12763

Others include servers, services and software, and Medions non-PC business. Source:

Lenovo


13/17

Asia TelecommunicationsBANglAdesh

monetise China Mobile's data network, instead of allowing the

revenue to ow to other stakeholders.

BANGLADESH

GSM Switch To Boost Citycell's

OutlookPacic Bangladesh Telecom, which markets under Citycell, has

announced that it plans to spend BDT16bn (US$196mn) to switch

from CDMA technology to GSM. The decision has been made fol-

lowing continuous bad performances, which were due to technology

limitations. The long-awaited change, assuming that the operator

receives regulatory approval, should help bolster Citycell's outlook

as it would allow subscribers of rivals rms to easily migrate to its

network.

According to the Bangladesh Telecommunication Regulatory

Commission (BTRC), Citycell had 1.713mn subscribers at the end of

May, representing only 1.9% market share. Since launching services

in 2005, Citycell's mobile subscriber base has not exceeded the 2mn

mark and signicantly lags behind larger rivals Grameenphone

(38.412mn), Banglalink (25.252mn), Robi Axiata (18.733mn)

and Airtel (6.667mn).

CDMA is typically more cost-effective, and Citycell's 800MHzspectrum is suitable for target sparsely populated rural regions. How-

ever, the technology can also become a disadvantage in emerging

phones are locked to one network, and the switching process requires

cooperation of the old and new operators. Citycell's situation is

further exacerbated by the fact that it is Bangladesh's only CDMA

1x mobile operator.

The BTRC has rejected Citycell's requests to switch to GSM

technology over the years. However, Citycell is undergoing a mobile

licence renewal, and the new licence will be technology neutral,

thereby technically allowing Citycell to change from CDMA to

GSM. Citycell's migration plan involves paying BDT7.5bn for

5MHz of spectrum in the 1800MHz band, while retaining 5MHz of

spectrum in the 800MHz band for subscribers who refuse to make the

switch. As a result of the shift to higher frequency, Citycell plans to

increase its number of base transceiver stations from 860 to 2,500.We do not expect signicant resistance from the regulator, es-

pecially if Citycell pays its licence renewal fees (operators such as

Grameenphone are in disagreement with the BTRC over the dues).

BMI believes that making the switch would bring Citycell to the

same competitive landscape as its rival operators. However, oper-

ating two separate networks is a costly and inefcient model. We

believe that this solution to prevent subscriber backlash is temporary,

but we eventually expect Citycell to fully migrate to GSM.

MALDIVES

Mobile Broadband Takes OverMobile subscriptions in the Maldives reached 549,934 in June 2012.

The market continues to add new subscribers, despite penetration

reaching 172%. We have upgraded our forecasts slightly for this

market for year-end 2012 as a result of new data. However, looking

at historical trends for the market, BMI expects growth and some

subscriber losses to take place in H212. What is more noteworthy is

the continued strong growth in mobile broadband gures, accounting

for almost 80% of the broadband market.

The mobile market grew 3.7% in the rst six months of 2012

and 2.8% y-o-y, with especially strong growth in prepaid services,

according to data from the Communications Authority of the Mal-

dives. Y-o-y growth was slowed by a 4.2% decrease in postpaidsubscriptions, offsetting the 3.9% increase in prepaid connections.

While we have raised our forecasts for the mobile market, we an -

0

20,000

40,000

60,000

80,000

100,000

120,000

Mar

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Jun

-10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

Teletalk

Citycell

Airtel

Robi Axiata

Bangladesh

Grameenphone

Citycell Not Keeping Pace With IndustryBangladesh Mobile Subscriber Growth By Operator (000), 2009-2012

Robi Axiatas subscriber data differ from that of the BTRC. Source: BTRC, Operators, BMI

Voice69.3%

Others4.8%

SMS & MMS9.1%

Wireless DataTraffic7.7%

Appli cationsand

InformationServices

9.1%

Data25.9%

H111

Data And VAS Equally ImportantChina Mobile Operating Revenue Breakdown

Voice66.5%

Others5.0%

SMS & MMS8.3%

Wireless DataTraffic11.0%

Appl icationsand

InformationServices

9.2%

Data28.5%

H112

Source: China Mobile


14/17

Asia TelecommunicationsINdIA

discounted later in the year.

More encouragingly for mobile operators in the Maldives, mobile

broadband saw 50.6% y-o-y growth in June 2012, reecting a trend

BMI has observed across many emerging markets. In the Maldives,

the xed line market had been declining; it picked up mid-2012,

but BMI believes that this is temporary. We believe the market

will continue declining but at a slower pace, with lower demand

for xed broadband accelerating the decline. Mobile broadband

already dominates broadband connections and will continue to rise

as a proportion of total connections.

INDIA

Prohibitive 2G Price SetThe Indian government has nally set the reserve price for 2G

spectrum that was freed up after the Supreme Court cancelled 122

licences in February 2012. Although the new base price is lower

than the one previously recommended by the Telecommunication

Regulatory Authority of India (TRAI), it still represents a signicant

hike that is most likely to be passed on to consumers.

The Hindu reported on August 3 that the Union Cabinet has xed

a minimum price of INR140bn (US$2.53bn) for 5MHz of pan-India

2G spectrum in the 1800MHz GSM band. Meanwhile, the reserve

price of 5MHz of CDMA spectrum is set at INR182bn (US$3.29bn).

The Hindu has also reported that the auction is likely to miss the

Supreme Court's August 31 deadline and take place in Q412 instead,

given the pace of auction preparation and auctioneer appointments.

This is because the Department of Telecommunications has said

that it will only release the information memorandum containing

details about the spectrum sale to the empowered group of ministers

on August 27, thereby leaving the government with three days to

carry out the necessary procedures such as inviting applicants and

clarifying queries. Additionally, India's telecoms industry has often

resorted to litigious options to resolve disputes with the government,

and it is no different this time. The Cellular Operators Association

of India (COAI), the industry body that represents GSM operators

such as Bharti Airtel and Aircel , is 'carefully examining its legal

options' about issues, which include 'discrimination' in terms ofspectrum fees and charges between GSM and CDMA operators.

previously recommended by the TRAI. Unsurprisingly, it has still

attracted the criticism from operators such as Bharti Airtel and

IDEA Cellular given that the price is still a massive increase from

previous allocations.

There is no doubt that the higher reserve price is a fairer repre-

sentation of the spectrum's scarcity, in addition to the fact that the

2008 spectrum allocation has been tainted with alleged corruption,

which resulted in the resource being undervaluedoperators paid

INR16.5bn for 4.4MHz of 2G spectrum. However, there is still

inconsistency in the pricing as the base price for 3G spectrum auc-

tion in 2010 was INR35bn. At the end of the auction, the average

price was approximately INR167.5bn, just slightly higher than the

reserve price of the upcoming 2G auction. A mitigating factor would

be that the 2G spectrum will be technology-neutral, thereby allow-

ing operators to roll out 2G, 3G or 4G services. Nevertheless, the

majority of the Indian consumers are still likely to rely on the basic

2G service in the near-to-medium term as evident from the slow

take-up of 3G services in the country, which means that advanced

technologies are unlikely to be highly lucrative even if operators

deploy the services.

What Now?We expect operators that participate in the auction will largely focus

on 2G services, but the high reserve price would translate into tariff

hikes for consumers. The director general of the COAI has said that

operators would incur an additional debt of INR3.25trn in order to

bid for the spectrum, while tariff rates could increase by INR0.30

a minute. This would put a dampener on India's mobile subscriber

growth, which is already showing signs of weakness. Latest data

from the TRAI note that the market expanded by 14.921mn in Q212

to 934.094mn, down from the 40.107mn increase seen in Q211.

With penetration rates in urban cities well above 100%, consumersin rural regions would get the short end of the stick as operators

scale back on network expansion while raising prices.

Existing players in the Indian telecoms market have yet to express

interest in participating in the auction after the reserve prices have

been determined, although IDEA Cellular has said that the reserve

price does not present a commercially viable business case. BMI

believes that we will not see new entrants, given the high cost ofentry, while existing operators would most likely look to secure 2G

spectrum in some telecoms circles, instead of a pan-India licence,

0

5

10

15

20

25

30

35

0

100

200

300

400

500

600

700

2009

2010

2011

2012f

2013f

2014f

2015f

2016f

Number of Cellular Mobile Phone Subscribers ('000) (LHS)Number of Broadband Internet Subscribers ('000) (RHS)Number of Main Telephone Lines in Service ('000) (RHS)

Slower Growth To ComeMaldives Telecoms Subscriber Forecasts

f = BMI forecast. Source: BMI, CAM

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Total Mobile Subscribers (LHS) No of Net Additions (LHS)

India Struggling To Maintain MomentumIndia Mobile Subscriber Growth (000), 2009-2012

Due to non-submission of data for March 2 012, gure includes operators data from Janu-

ary and February 2012. Source: BMI, TRAI, operators


15/17

Asia TelecommunicationssrI lANKA

could be looking to bid for 2G spectrum in as many telecoms circles

as possible in order to support its telecoms business ambitions. Ad-

ditionally, Reliance Industries, along with incumbents such as Bharti

Airtel and IDEA Cellular, could acquire telecoms assets of rms

such as Etisalat-DB, S Tel and Loop Telecom, which have had

their licences cancelled. This would in turn bring much-needed

consolidation in the industry.

While the Indian government is making it easier for operators

to borrow money from banks (for example, spectrum can now be

mortgaged and banks can auction the asset in the event of default),

major Indian mobile operators such as Bharti Airtel, Reliance

Communications, Vodafone India and Aircel are already saddled

with hefty debt, following the 3G and broadband wireless access

auctions in 2010. Raising funds through equity is another option,

although we are sceptical that investors would buy into the Indian

growth story after the weak global macroeconomic outlook, subdued

performance by the Indian economy (see our online service, August

2, 'Growth Forecast Toned Down) and prolonged telecoms regula-

tory uncertainty, as well as the high spectrum base prices.

Bharti Share Price Plunges On

Weak ResultsIndia's Bharti Airtel saw a major plunge in its share price after

announcing disappointing earnings, which resulted in the operator

being downgraded by several investment banks. Adverse market

developments such as intense competition have eroded the operator's

protability even though its revenue and consolidated subscriber

base have been on the rise. BMI foresees continued weakness in

the near term, given the ongoing turmoil in Bharti Airtel's main

Indian operation.

Bharti Airtel's consolidated nancials, which include its op-erations in South Asia and Africa, continued to show increasing

revenue. However, protability has not improved as its net prot

declined to INR7.622bn in the quarter ended June 2012, down from

INR12.152bn in the same period in 2011. This is a result of poor

performances from both regions.

In India and other countries in South Asia, Bharti Airtel reportedthat net prot declined by 5.5% y-o-y to INR14.338bn in the quarter

ended June 2012. The operator attributed the weaker nancial per-

tax hike to 10.3% to 12.36%, effective April 1 2012. Meanwhile, the

net loss in Africa widened to INR6.693bn from INR3.016bn over

the same period in light of pressures on EBITDA, higher deprecia-

tion and substantial nance cost including foreign exchange losses.

Although Bharti Airtel is India's mobile market leader, it

had a market share of only 20.1% at the end of June, due to the

overcrowded landscape. BMI believes that the near-term outlook

for the operator remains challenging as it continues its aggressive

strategy to retain and grow its subscriber bases. Bharti Airtel has

been offering subscribers free talk time while slashing 3G tariff

rates in light of weak consumer demand. Additionally, the operator

is engaging in network upgrades and expansions such as the deploy-

ment of India's rst 4G network, which BMI argues the country is

not yet ready for. Perhaps the biggest risk for the company is the

uncertain regulatory environment. India's law ministry announced

in end-July that the telecoms department can terminate the mobile

permit of Bharti Airtel, along with other rms such as Vodafone

India and IDEA Cellular, for entering into 3G roaming agreements.

The prohibitive reserve price for 2G spectrum (see our online service,

August 7, 'Prohibitive 2G Price Set') will also have an impact onBharti Airtel when it is time for the operator to renew its 2G licence.

SRI LANKA

Mobile Internet Poised For Fur-

ther GrowthLatest data from the Telecommunications Regulatory Commission of

Sri Lanka (TRCSL) showed that the mobile sector continued to lead

growth in the country's internet industry with a 108% y-o-y increase

in the number of subscribers. Unsurprisingly, mobile operators suchas Etisalat Sri Lanka are eyeing the opportunities in the nascent

market, and BMI expects efforts such as network expansion and

localised content to drive service adoption.

The TRCSL reported that there were 765,062 mobile internet

and email subscribers at the end of June 2012, up from 367,764

the previous year. During this period, the number of xed internetsubscribers grew from 323,000 to 380,525. The exponential mobile

internet growth and the growing disparity between the number of

0

200

400

600

800

1,000

1,200

1,400

Dec-09

Mar-10e

Jun-10

Sep-10

Dec-10

Mar-11e

Jun-11

Sep-11e

Dec-11

Mar-12

Jun-12

Mo bi le Fi xed

Mobile Soaring AheadSri Lanka Internet Subscriber Growth (000), 2009-2012

e = BMI estimate. Source: TRCSL

200

250

300

350

400

450

500

550

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Investors Losing CondenceBharti Airtel Share Price (INR), 2009-2012



16/17

Asia TelecommunicationssrI lANKA

ally, mobile devices such as smartphones and netbooks are more

affordable and convenient compared with traditional desktop, the

former being an important factor given Sri Lanka's GDP per capita

of US$2,835 in 2011 (according to the World Bank).

Due to low-base effects, Sri Lanka's mobile internet sector has

been growing at more than 100% y-o-yover the past two years.

We expect high double-digit growth in the near to medium term,

considering that mobile internet has yet to be adopted by majority

of the population Sri Lanka's mobile internet penetration rate at

the end of June is less than 4%.

BMI reported that Etisalat Sri Lanka became the rst operator

in the country to launch Dual Cell-HSPA+, which is expected to

deliver faster mobile broadband speeds compared with rival mobile

technologies (see our online service, August 14, 'Upgrade To Capi-

talise On Demand'). However, unlike in more developed countries,

merely expanding network coverage does not translate into a higher

adoption of mobile internet services. There is generally a lack of

awareness and understanding about the benets of having internet

access, which is a running theme in many emerging markets. Ad -

ditionally, there is typically a deciency in content in vernacular

languages. According to the rm's marketing manager, although Sri

Lanka has a high literary rate and English is a commonly used second

language, consumers are more comfortable using local languages

when accessing the internet.

Besides planning to increase internet adoption by focusing on

smartphones and other mobile devices, Etisalat is adopting measures

to reduce the language barriers and educate consumers. We believe

that initiatives could include providing tools for the general public

to create localised mobile applications or deploying staff at the

grassroots level to improve consumer awareness.


17/17

Reproducedwithpermissionof thecopyrightowner. Further reproductionprohibitedwithoutpermission.

Asia Pacific Telecommunications Insight - November 2012

Documents

Transcript of Asia Pacific Telecommunications Insight - November 2012