Taiwan Mobile Co’s (TWM, 台灣大哥大) latest telecommunication partnership with Hon Hai Group (鴻海集團) is set to allow it to benefit from the latter’s handset and Internet of Things expertise, as well as a good spectrum deal.
Some analysts say the move will also push its major rivals, Chunghwa Telecom Co (中華電信) and Far EasTone Telecommunications Co (遠傳電信), to be more aggressive in future spectrum auctions or industry collaboration to retain competitiveness, while leaving new player Taiwan Star Telecom Corp (台灣之星) more vulnerable then ever.
However, others say it is not clear if the deal will be positive overall for Taiwan Mobile, as smaller rivals may be gaining more ammunition to disrupt the market and hit incumbents’ revenues and earnings in the future.
Shares of Taiwan Mobile outperformed the broader market by 4 percent last week, after the company announced a deal with Hon Hai’s telecom subsidiary Ambit Microsystems Corp (國碁電子) to acquire a 5 megahertz (MHz) block in the latter’s 700MHz band of 4G spectrum for NT$3.4 billion (US$113 million) and take a 14.9 percent stake in the company for NT$2.98 billion.
The 14.9 percent stake in Ambit is equivalent to a holding of 3.45 percent in the combined entity of Ambit and Asia Pacific Telecom Co (APT, 亞太電信), the fourth-largest telecom operator in Taiwan, after the merger takes effect next year.
Taiwan Mobile shares closed at NT$92 on Friday, in Taipei trading, up 2.69 percent from the previous session, while Chunghwa shares remained unchanged at NT$91.5 and Far EasTone dropped 0.51 percent to NT$59.
If the spectrum deal receives regulatory approvals from the National Communications Commission and the Fair Trade Commission, Taiwan Mobile’s spectrum portfolio is to include a 20MHz continuous block in the 700MHz band, capable of enhancing its 4G speed to a potential 140 megabits per second (Mbps) from the current 100Mbps.
As Taiwan Mobile also has a 15MHz block in the 1800MHz band, the company is to have the same 4G spectrum of 35MHz as industry leader Chunghwa Telecom, with the combined number of mobile users of Taiwan Mobile and Asia Pacific Telecom reaching 9.6 million as per the latest deal.
Chunghwa Telecom has 11 million mobile users and Far EasTone serves nearly 7.4 million users.
Analysts and market observers have long argued that collaboration between smaller telecom operators would allow them to cut costs, expand coverage and attract more 4G subscribers. A solid partnership would improve their chances of competing against Chunghwa in terms of subscriber numbers and market share.
“We think this deal makes good strategic sense for TWM,” JPMorgan Securities Ltd analysts led by Michelle Wei (魏子清) wrote in a client note on Friday.
For Taiwan Mobile, the deal provides it with roaming revenues from Ambit/APT, advantages in wider spectrum and faster 4G speed, superior wireless coverage through reverse roaming onto Ambit/APT’s network and the elimination of duplicate infrastructure investment with lower deployment costs.
“More importantly, by getting voice roaming revenue from Ambit and owning a stake in the latter, TWM effectively hedges against the potential risk of Ambit gaining market from the incumbents. As Hon Hai is diversifying its business portfolio and TMW itself is a multi-platform service provider, there could be more areas to explore in the long run,” JPMorgan analysts wrote.
The deal would also allow Taiwan Mobile to gain potential influence over the smaller Ambit/APT in the future, while foretelling potential collaboration in this market, Deutsche Bank’s Hong Kong-based analyst Peter Milliken said.
Analysts agreed that the deal would allow Ambit/APT to speed up its network deployment and resolve the voice fallback issue by leveraging on Taiwan Mobile’s network, placing an earlier-than-expected pressure on the incumbents such as Chunghwa and Far EasTone.
However, Neale Anderson, a Hong Kong-based analyst at HSBC’s global research division, said the deal would not be completely positive for Taiwan Mobile.
“Taiwan Mobile, with just a 3.45 percent stake in the merger APT/Ambit, will have little say on strategy or pricing,” Anderson wrote on Thursday. “The risk is that — in seeking to keep roaming revenues from its peers — it has created a much more powerful competitor.”
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