Fri, Oct 11, 2013 - Page 13 News List

Ongoing bidding for 4G licenses pushes up prices

SPECTRUM COSTS:The skyrocketing total bidding price will be a negative for the local telecom sector, as it will affect tariff levels and structures, analysts said

By Kevin Chen  /  Staff reporter

The ongoing bidding for the nation’s fourth-generation (4G) spectrum telecommunications licenses has pushed the total bidding price to NT$87.04 billion (US$2.95 billion) as of Wednesday, local media reported yesterday.

The bidding, which began on Sept. 3, has seen prices climb 142 percent higher than the floor price of NT$35.9 billion set by the National Communications Commission.

The competition has mainly been in the 1,800 megahertz (MHz) band, particularly for the C5 block, with bidding prices reaching as high as NT$24.21 billion as of Wednesday, eight times higher than the floor price of NT$3 billion, local media reported.

However, analysts said higher spectrum costs would be a negative for the local telecom sector.

“Higher spectrum costs may not be matched by higher revenues, which will be determined separately by future tariff levels and structures,” Chate Benchavitvilai, an analyst at Credit Suisse, said yesterday in a note.

In addition, “higher costs will result in higher amortization and financing costs, which would affect earnings and absolute dividend even if payout ratio is maintained,” he said.

Benchavitvilai said a more fierce competition if there is a well-capitalized new entrant, such as industrial conglomerates Hon Hai Group (鴻海集團) or Ting Hsin International Group (頂新集團), would remain an uncertainty to incumbent telecom operators.

Barclays Capital analyst Anand Ramachandran also expressed concern about the downside earnings risks to major telecom players in the long term.

As major telecom operators like Chunghwa Telecom Co (中華電信), Taiwan Mobile Corp (台灣大哥大) and Far EasTone Telecommunications Co (遠傳電信) have failed to introduce better tiered pricing for current 3G services, Ramachandran said in a separate note yesterday that whether local carriers are able to mark up 4G services prices in order to drive higher revenue will remain one critical question.

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