Taiwan Mobile Co (台灣大哥大) became the leader in the local mobile telecom market in the second quarter after its mobile service revenue grew the most among the nation’s three major telecoms.
The nation’s No. 2 telecom said its profit for the first half of the year was also ahead of its guidance set earlier and it is ready for the upcoming bidding for fourth-generation (4G) spectrum licenses.
Seven incumbent operators and new entrants are scheduled to bid for the 4G, or Long-Term Evolution (LTE), licenses on Saturday, according to the National Communications Commission (NCC). The regulator is expected to award between four and seven licenses to the winners by the end of the year.
“The most important task for all the telecoms will be the 4G spectrum auction. Taiwan Mobile is confident in its preparation for the challenge,” the Taipei-based company said in a statement on Tuesday after reporting its second-quarter results.
Like its peers Chunghwa Telecom Co (中華電信) and Far EasTone Telecommunications Co (遠傳電信), Taiwan Mobile is pinning its hopes on getting a 4G license and introducing a tiered-pricing mechanism to help increase its profitability, given that early adopters of 4G are likely to be heavy data users, but analysts say uncertainty over the 4G business and increasing competition in the cable TV business could bring potential downside risks to the company in the future.
Taiwan Mobile also provides cable TV and broadband Internet services.
“Introducing tiered-pricing on 4G, while still offering unlimited data on 3G, would reduce its effectiveness,” Credit Suisse analyst Chate Benchavitvila said in a note yesterday.
Benchavitvila was referring to so-called “all-you-can-eat” 3G Internet services, whereby telecoms provide users with unlimited Internet access via a mobile phone or tablet computer at a fixed monthly rate.
While 4G could represent an opportunity, the investment in the service would take time to bear fruit, with the commercial launch of 4G services likely to start in 2015 at the earliest, Benchavitvila said.
In the April-to-June quarter, Taiwan Mobile posted annual growth of 7 percent in mobile service revenue to NT$15.9 billion (US$527.9 million). Overall, its consolidated revenue increased 12 percent year-on-year and 1 percent quarter-on-quarter to NT$26.77 billion in the second quarter.
The company’s 7 percent increase in mobile service revenue compared with 5 percent growth at larger rival Chunghwa in the second quarter and 3 percent growth at Far EasTone, according to Taiwan Mobile.
Net profit reached NT$3.96 billion, or earnings per share of NT$1.47, in the second quarter, down 4 percent year-on-year, but up 4 percent quarter-on-quarter.
In the first half, accumulated net profit totaled NT$7.76 billion, or earnings per share of NT$2.89, which was 105 percent its earlier net profit guidance and higher than that of its local peers over the same period.
Earnings before interest, tax, depreciation and amortization (EBITDA), which provides a better gauge of profitability for telecoms with large capital expenditure, was NT$7.78 billion in the quarter, up 2 percent from the previous year and 4 percent higher than the previous quarter, which the company attributed to a revenue increase and margin expansion in both its online and TV home shopping businesses.
EBITDA margin rose to 29.04 percent in the second quarter from 28.1 percent the previous quarter, but the figure remained lower than the 31.7 percent recorded a year earlier.
Analysts also said lower-than-expected sales of high-end smartphones, particularly the HTC One and the Samsung Galaxy S4, and lower procurement costs, thanks to pricing pressures on low-end phones, meant Taiwan Mobile spend less in handset subsidies last quarter, helping it report a sequential increase of 4 percent in net profit.
“We expect the operating environment to remain healthy for operators until the expected big-screen iPhone launch in the second half of 2014,” Citigroup Global Markets Inc analyst Timothy Chen (陳建光) said in a separate note.
Nevertheless, the potential launch of a low-cost iPhone and the iPhone 5S later this year could affect Taiwan Mobile’s handset sales and subsidy costs, clouding its EBITDA margin outlook in the second half, analysts said.
Taiwan Mobile shares closed 0.46 percent lower at NT$109 yesterday.