Sunday, November 20, 2016

My Comments on 4th Telco

It is becoming clearer who will be on the bid to be the NESA. It is going to be Myrepublic and TPG. It is not surprising that airYotta got kick out as it is a last minute formed company with only two executives from OMGTel.

now, assuming that both potential qualifiers bid, then the auction price is definitely not going to be lower than the minimum reserved price of $35m. TPG definitely have much deeper pockets than MyRepublic to go in a price war as they are a big provider of broad band in Australia.It is listed in Australia and the company make good profits.

If MyRepublic loses the bid, it may as well kiss goodbye to their business in singapore. M1's current broadbind pricing is even better than theirs and Starhub is closing it.It do not see how with a small base of 35K broadband users, they can survive with TPG being the fourth NMO.If MyRepublic won the bid, due to their lack of scale and financing, I seriously doubt they can launch a challenge to the incumbents. The mobile price war has already started as evidence from the drop in revenues from m1 and Starhub recent quarter.They have to satisfy the stringent QoS requirements of mobile coverage
which is going to soak up a lot of resources and funds in the next few years.There is also the impending capex expenditure that will eventually come up with 4.5G/5G in a few years time.

If TPG will to win the bid (which I think they stand a better chance), they will have to start from a fresh slate in a foreign country without any prior presence.TPG has done well it Australia previously as a high growth company via some smart acquisitions and M&A. but in the recent quarter, the revenues slowed down drastically and share price drop by 25%.Going into a 4th telco is going to be s slow and tedious grind. It will not help them repeat the high growth that they have achieved before.
The intention of TPG to come in is not clear to me as they are competing with Optus in Australia in broadband and in mobile as a MVNO.They may have other agenda in mind.

In any case, without local roaming agreement, it is not easy for a new telco unless they are going to soak in for the long term and burn hard cash.At the end of the day, the outcome is still uncertain as the incumbents have show a willingness to slash price to compete.

The current downward draft in share prices of Starhub and M1 provide some opportunities if you are willing to take some calculated risks.The effect of a 4th telco competiion will only come in a few years later if they manage to put up the requisite infrastructure to meet the QoS standards set in the bid process.

As a final comment, it is a human tendency to both overshoot on the extremes of optimism and pessimism.

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