Chunghwa Telecom Co (CHT, 中華電信), the nation’s biggest telecom, would take an “absolute advantage” in the commercialization of Taiwan’s 5G network, but the cost of buying bandwidth in the 3.5 gigahertz (GHz) frequency band would prove painful for the firm, as well as its peers, over the next two decades, analysts said.
The remarks came after Chunghwa Telecom secured 90 megahertz (MHz) of bandwidth in the 3.5GHz band during the nation’s first 5G spectrum auction, which ended on Thursday, while Far EasTone Telecommunications Co (FET, 遠傳電信) secured the second-most bandwidth with 80MHz in the 3.5GHz band.
Taiwan Mobile Co (TWM, 台灣大哥大), the nation’s second-largest telecom, only won 60MHz in the 3.5GHz band and might not be able to provide effective 5G services, Yuanta Securities Investment Consulting Co (元大投顧) analyst Amber Lee (李瑜芳) said in a note on Friday, adding that 80MHz to 100MHz is widely considered the minimum bandwidth required for 5G services.
The company is expected to begin talks with Taiwan Star Telecom Co (T-Star, 台灣之星), which secured 40MHz in the 3.5GHz band, to provide better 5G services, Lee said.
On a positive note, having “lower amortization costs than both CHT and FET should still be a relief to TWM, given Taiwan telecoms’ already dampened earnings performances,” she said.
The 5G spectrum auction’s first phase ended after 261 rounds of bidding over 27 days, with bids totaling NT$138.08 billion (US$4.61 billion), 4.6 times more than the floor price and the third-highest in the world, the National Communications Commission said in a statement on its Web site.
The frequency bands on auction were 1.8GHz, 3.5GHz and 28GHz.
Telecoms are expected to launch their 5G services in the third quarter of this year at the earliest.
However, the cost of winning bandwidth in the 3.5GHz spectrum, NT$136.43 billion, would be painful for telecoms, as 5G spectrum is amortized over 20 years, analysts said.
“We expect the four operators [CHT, TWM, FET and T-Star] to incur NT$2.2 billion, NT$1.5 billion, NT$2 billion and NT$1 billion in amortization costs per year, for 20 years from the second half of this year, respectively,” Lee said.
The scale of the amortization costs is also equivalent to 5 percent, 9 percent and 19 percent of CHT, TWM and FET’s pre-tax profits last year respectively, she said.
Capital Investment Management Corp (群益投顧) analyst Joanne Wang (王莙涵) said in a note on Friday that the NT$136.43 billion in bids for the 3.5GHz spectrum equates to NT$505 million per megahertz and 88 percent higher than the global average of NT$269 million.
It would be hard for telecoms to effectively improve their average revenue per user in the near term, as they also face potential costs in the second stage of the 5G spectrum auction and 5G infrastructure investment, let alone the existing amortization costs for 4G services, and have no value-added 5G services yet, she said.
The second stage of the 5G auction begins tomorrow, the commission said, adding that winners would bid for the location of their frequency bands they won in the afternoon, if negotiations in the morning over their preferred location end up being inconclusive.
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