With that, IMDA intends to launch an auction to all existing MNOs to allocate the new spectrum. The auction is slated to take place some time at the end of this year.
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Of the 12 available lots of 2x5MHz each, IMDA already plans to allocate one lot each to Singtel, StarHub and M1 on a first right of refusal (FROR) basis for the continued provision of 3G services, which can be used for 5G later when IMDA approves 3G network shutdown
IMDA intends to impose a spectrum cap of five lots per MNO (including the FROR lot), which would also apply to the StarHub-M1 consortium (SMC). The proposed price is $10-15 million for each of the 12 paired lots of airwaves available, with a 15-year rights duration starting from Jan 2022.
To recap, Singtel, as well as a joint venture between StarHub and M1 were already awarded licenses in April last year to build two nationwide standalone 5G networks in Singapore. They were each allocated 100 megahertz of spectrum in the 3.5 GHz band.
Following this announcement, CGS-CIMB Research is keeping its “overweight” rating on the telco sector, while keeping Singtel as its top pick within the sector.
In a July 27 report, lead analyst Foong Choong Chen says, “We reiterate Overweight on the Singapore telco sector. After a 6-year bear cycle since Apr 2015 (StarHub: -74%, Singtel: -50%), we believe the earnings risk from stiffer mobile competition due to TPG’s entry is priced-in, and see progressively more stable mobile competition and enterprise revenues growing stronger in 2021-2022.”
According to Foong, several scenarios could playout following the auction.
If Singtel and/or StarHub-M1 consortium secure the 2.1GHz, they can use both 2.1GHz and 3.5GHz to meet their existing 5G coverage rollout obligations (50%/95% outdoor coverage by end-2022/25).
If TPG, StarHub and/or M1 (bid separately) win, they must achieve 50% outdoor coverage using 2.1GHz by end-2023, and 95% outdoor coverage by end-2026 using 2.1GHz and any other spectrum.
Winning bidders will have to provide 5G wholesale capacity to any requesting MNOs/MVNOs.
“If the above applies, we believe TPG may not get any 2.1GHz spectrum, though the Big 3 telcos may have to bid up spectrum prices to deny it,” says Foong.
The way Foong sees it, possibly only nine lots will be up for open auction as Singtel, StarHub and M1 will likely exercise their option for the FROR lot. “We think Singtel and StarHub M1 consortium will then bid to secure another four lots each in the open auction (ie. the maximum, given IMDA’s spectrum cap),” he adds.
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Assuming TPG is not able to outbid Singtel and the StarHub-M1 consortium, it will be left with only one lot, which it may not take up as it would not be cost-effective to roll out a 5G network on just 2x5MHz, as it has to fork out the same equipment capex, despite the limited bandwidth. Assuming the final price of the 2.1GHz is 3x times that of the reserve price, Singtel and Singtel-M1 consortium may have to fork out $120-180 million for four lots each, plus another $10-15 million each for the FROR lot.
As at 11.55am, shares in Singtel are trading at $2.23 or 21.5 times FY2021 earnings with a dividend yield of 4.0%, while shares in StarHub are trading at $1.20 or 27.5 times FY2021 earnings with a dividend yield of 4.2%.
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