The results of the fourth-generation (4G) spectrum auction, which ended on Wednesday after 393 rounds of bidding over 40 days, favor the three major players in the domestic telecommunications industry, analysts said yesterday.
They said the results showed the trio’s construction costs for 4G, or Long-Term Evolution (LTE), services were either in line with or better than their expectations, while the failure of the two new entrants to win the 1,800 megahertz (MHz) bandwidth or the bigger frequency blocks in the 700MHz bandwidth means where will not be any major change in the current market dynamics, they added.
“We see limited downside risk from spectrum costs to our current earnings forecasts on Chunghwa Telecom Co (中華電信), Taiwan Mobile Co (台灣大) and Far EasTone Telecommunications Co (遠傳電信),” Yuanta Securities Co (元大證券) analysts led by Bonnie Chang (張文慧) said in a note to clients.
Hong Kong-based UBS Securities analyst Wang Jinjin (王晶晶) also said the auction results were not a big surprise and therefore would not have a significant impact on major players’ earnings.
However, Credit Suisse analyst Chate Benchavitvila said that higher amortization and financing costs could affect earnings for Chunghwa, Taiwan Mobile and Far EasTone by 4 percent, 8 percent and 12 percent between 2015 and 2016 respectively.
“The real challenge for the sector is how these incumbents would improve the monetization of increasing mobile data usage in order to offset higher cost and deliver medium-longer term growth,” Benchavitvila wrote in a note.
“The introduction of tiered-pricing for 4G services would be positive, but the actual impact would depend on details,” Benchavitvila added.
On Wednesday, the National Communications Commission released the 4G spectrum auction results, with Chunghwa securing B2, C2 and C5 frequency blocks at a total cost of NT$39.08 billion (US$1.33 billion); Far EasTone Telecommunications Co (遠傳電信) winning A2, C2 and C4 blocks for NT$31.32 billion; and Taiwan Mobile acquiring A4 and C1 blocks for NT$29.01 billion.
Since the firms secured all the C frequency blocks in the much-desired 1,800MHz bandwidth, they would enjoy a time-to-market advantage over new entrants after they launch their 4G services during the second half of next year, analysts said.
“New entrants received only A or B blocks, which will delay them in competing with the top three by at least 12 months, due to the supply issue in 700MHz and 900MHz-related equipment and smart devices,” Yuanta analysts said.
According to the commission, Hon Hai Group’s (鴻海集團) Ambit Microsystems Corp (國碁電子) won A3 and B3 blocks at a total cost of NT$9.18 billion; Star of Taiwan (台灣之星), a subsidiary backed by Ting Hsin International Group (頂新集團), took B1 block for NT$3.655 billion; and existing code division multiple access technology operator Asia Pacific Telecom Co (亞太電信) secured A1 block for NT$6.415 billion.
UBS Securities said that of the top three, it believed that Chunghwa is best positioned to launch 4G services, because its C5 block can be deployed right away and it has the widest bandwidth of 15MHz each for upload and download.
Taiwan Mobile could be in a less favorable position for 4G rollout, as its C1 block is currently occupied by Far EasTone and will be available only until June 2017, the brokerage said.