asia pacific telecommunications insight - september 2012
TRANSCRIPT
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CONTENTS
Asia Pacifc
Telecommunications INSIGHTMIs monthly market intelligence, trend analysis and forecasts for the telecommunications industry across Asia Pacific
pmb 2012 Iss 76
Asia
More Efforts Needed To Promote Cloud Sector .....................................................
Australia
Site Sharing To Boost VHAs and Optuss Networks ...............................................
New Zealand
Stronger Vodafone NZ To Challenge TCNZ ...........................................................
Indonesia
Telkom's Pacnet Bid May Not Yield Expected Results ............................................
Timor-Leste
New Licences To Introduce Competition ..............................................................
MalaysiaFRiENDi Looks East ...................................................................................... .....
Thailand
3G Auction On Track, Outlook Remains Uncertain ................................................
Vietnam
Resolve Skewed Competitive Landscape Before MNP............................................
Philippines
Domestic Dominance Could Fuel Overseas Expansion ..........................................
Cambodia
Emaxx-Excell Deal Long Over ........................................................................... ..
Myanmar
Still A Major Risk For Entrants .......................................................................... ..
Japan
Amazon To Launch Prepaid Internet ...................................................................
Flicker Of Opportunity For Japan's Smart TVs ......................................................
South Korea
LGs First-Mover Advantage May Not Last ............................................................
Taiwan
EV-DO Upgrade To Boost APT .............................................. ..............................
China
Baidu's New Smartphone A Safe Bet ...................................................................
China Telecom Eyes Future With Cloud Gaming ...................................................
India
Industry To Suffer From Continued Regulatory Uncertainties ................................
Challenges Remain Ahead For Reliance Communications ......................................
Bangladesh
GSM Switch To Boost Citycell's Outlook ...............................................................
Afghanistan
3G Competition Heating Up ............................................................................. ...
ASIA
More Efforts Needed To Promote
Cloud SectorThe cloud computing industry in Asia Pacic is starting to gain traction
with the increasing proliferation of quality xed and mobile internet
connectivity with, unsurprisingly, developed countries and regional
hubs such as Japan, Hong Kong and Singapore leading the way. While
emerging markets are trailing behind by a distance due to various reasons,
we believe that telecoms companies should not be deterred by initial
challenges, especially in the consumer segment, as the long-term revenuepotential is too big to ignore.
At present, one of the easiest entry point for telecoms rms to break
into the cloud industry would be through the enterprise market where
business clients are more receptive to cloud services in light of poten-
tial cost savings. Further, concerns about network reliability and data
protection are gradually being addressed by cloud service providers.
Indonesia's XL Axiata started marketing its Xcloud services in May and
has allocated US$1mn to develop its cloud business. The rm is working
with established players such as Microsoft, Fujitsu and IBM to reduce
development cost and bolster its product portfolio. The mobile operator
has a revenue target of US$5-6mn for its cloud services (comprising
hosting, storage-as-a-service and server-as-a-service).
By contrast, the consumer market is slightly trickier as evident from
the fact that telecoms operators globally have yet to devise a success-
ful model due to the prevalence of over-the-top (OTT) services such
as Skype and WhatsApp. These OTT services pose a direct threat to
telecoms operators' revenue stream while increasing stress on their data
networks. However, like the Middle East, BMI believes that operators in
emerging Asia still have room and the time to carve out a greater revenue
share due to lower smart device adoption rates and wcultural differences.
Teguh Prasetya, founder of the Indonesian Cloud Forum (ICF), has
urged domestic telecoms operators to invest in cloud-based services,
content and applications in order to leverage on their assets, which
include the sizeable mobile subscriber bases, their user data and embed-
ded billing. This is in line with our view that introducing cloud-basedvalue-added services will reduce the possibility of operators becoming
mere 'dumb-pipes' and generating revenue only through subscriptions.
BMI believes that the immediate challenge for telecoms operators
in emerging Asia is to encourage the adoption of internet services, par-
ticularly mobile data. According to the ICF, only 22mn out of Indone-
sia's 230mn mobile subscribers can be categorised as internet-friendly.
Mobile 3G subscription rates in alternative Asian emerging market
are still generally low. For example, Indian operators Bharti Airtel,
IDEA Cellular and Vodafone India have slashed their 3G tariff rates
due to poor consumer response. We believe that companies can take
the opportunity presented by an infant mobile internet market and pro-
mote mobile data and cloud-base services together. Indonesian mobile
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Asia TelecommunicationsAuStrAlIA
operators are eyeing the domestic 3G market, and we believe that
launching localised services will not only encourage consumers to
sign up for data services, but also lessen the threat of OTT providers.
Private Companies Cannot Do It AloneThe Asia Cloud Computing Association (an organisation compris-
ing rms such as Alcatel-Lucent, Cisco, Dimension Data Asia
Pacic, Rackspace and Telstra International) announced a Cloud
Readiness Index in September 2011, which ranks 14 Asian countries.
The index looks at criteria and conditions required for the successful
implementation and uptake of cloud computing technology through
10 key attributes, which affect how products and services can be
offered, delivered and consumed by the market.
Developed countries scored well due to strong underlying infra-
structure (quality of broadband and power grid as well as interna -
tional connectivity) and an environment conducive for businesses
and cloud developments (for example, regulatory conditions, data
protection policy, government prioritisation and business efciency
index). While emerging markets generally fared poorly in several of
these aspects, the situation could be improved if the governmentsare able to provide more support in addition to efforts from the
private sector.
Despite their relatively low readiness, BMI believes that the
growth potential in emerging markets should attract companies to
invest in the technology. The Asia Cloud Computing Association
reckons that worldwide spending on cloud services is expected to
reach US$150bn by 2014, and the spending on cloud computing is
forecast to reach 30-40% of IT budgets by 2013. While the gov-
ernments in emerging Asia are starting to create a cloud-friendly
environment, the progress often hampered by slow policy reform
and a lack of coordination with the private sector.
AUSTRALIA
Site Sharing To Boost VHAs
and Optuss NetworksVodafone Hutchison Australia (VHA) and Optus signed a bind-
ing Memorandum of Understanding in May to expand their current
network joint venture agreement, which would lower the cost to
challenge the resurgence of mobile market leader Telstra. This
development chimes with BMIs core view that telecoms opera-
tors would seek network-sharing opportunities in spite of intense
competition due to the benets.
VHA and Optus signed an agreement in 2004 to share about 2,000mobile sites in their 3G networks across Australia, and the enhanced
agreement will see the two mobile operators build 500 new shared
sites in the next four years in capital cities Geelong in Victoria and
the central coast in New South Wales. The two rms will install its
own transmitting equipment but they will share the AUD400,000
ASIA CLOUD READINESS INDEX
RegulatoryConditions
InternationalConnectivity
DataProtection
Policy
BroadbandQuality
GovernmentPrioritisation
PowerGrid
Quality
InternetFiltering
BusinessEfficiency
Index
GlobalRisk
ICTDevelop-
ment
IndexScore
Rank
Japan 8.7 9.0 10.0 8.0 8.2 9.0 10.0 6.8 6.5 8.4 85 1
Hong Kong 7.5 9.0 10.0 6.4 8.4 9.2 10.0 9.3 5.0 8.4 83 2
South Korea 8.7 7.0 10.0 9.0 8.6 8.4 7.5 6.4 8.0 8.8 82 3
Singapore 10.0 9.0 6.0 5.6 9.4 8.9 7.5 8.9 8.0 8.3 82 4
Australia 10.0 6.0 8.0 5.3 6.6 8.0 10.0 8.1 8.0 7.7 78 5
Taiwan 6.2 8.0 10.0 5.4 7.3 8.2 10.0 7.8 5.0 7.7 76 6
New Zealand 7.5 4.0 10.0 5.3 8.7 6.9 8.7 7.5 6.5 8.2 73 7
Malaysia 7.5 6.0 6.0 4.7 8.8 7.6 10.0 6.5 5.0 6.3 68 8
China 8.7 9.0 2.0 4.9 5.2 7.0 6.2 6.3 5.0 5.7 60 9
India 6.2 6.0 6.0 4.7 6.6 4.1 7.5 5.9 2.0 4.2 53 10
Thailand 5.0 5.0 2.0 5.0 4.1 7.6 7.5 6.6 2.0 5.7 51 11
Indonesia 7.5 4.0 6.0 4.6 4.3 4.8 8.7 3.3 2.0 5.0 50 12Vietnam 7.5 5.0 4.0 4.5 3.5 4.8 3.7 5.0 5.0 5.5 48 13
The Philippines 5 0 5 0 2 0 4 6 3 7 4 5 7 5 5 1 2 0 5 4 45 14
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Dec-09
Feb-10
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TelstraOptusVodafone Hutchison Australia
Resurgent Telstra Is Cause For ConcernAustralia Mobile Subscribers By Operator (000)
Source: Operators, BMI
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Asia TelecommunicationsNew ZeAlANd
(US$405,505) construction cost. Optus has announced that the
expanded deal with VHA will bolster its new mobile sites by about
960, thereby strengthening its 3G and 4G networks. Meanwhile,
VHA will have approximately 1,800 new sites (after incorporating
400 Optus sites, the 500 new shared sites and 900 sites from its 3
mobile network). The new agreement is subject to the Australia
Competition and Consumer Commission's approval, but we do not
expect any opposition.
BMI previously reported that Telstra nished 2011 strongly
by gaining 1.699mn mobile subscribers (see 'Telstra's Recovery
On Track, February 10), which dwarfed Optus's net addition of
444,000 and VHA's net loss of 554,000, and we believe that the
network-sharing agreement highlights the two companies' intent to
catch up with Telstra.
There are several benets arising from the closer cooperation
between the second- and third-ranked mobile operators. Firstly, the
two companies will be able to bolster their 3G network coverage and
better challenge Telstra, which has the widest network in Australia.
At present, smartphones and tablet computers that depend on 3G
connectivity are the main revenue drivers for the Australian telecomsindustry. It is necessary for operators to ensure that they have suf-
cient network capacity and coverage to cope with the burgeoning
data demand to prevent loss of the revenue opportunity. Secondly,
Telstra has taken a lead in the 4G market by rolling out commercial
LTE services in September 2011. Sharing telecoms infrastructure
should accelerate the efforts of VHA and Optus to deploy their own
4G services. Thirdly, cost savings should allow the rms to channel
capital into areas that could boost revenues. VHA is already burdened
with a hefty network upgrade bill following complaints about poor
network performances. Similarly, Optus slashed 750 jobs, almost
8% of its total workforce, in early May to improve efciencies.
NEW ZEALAND
Stronger Vodafone NZ To
Challenge TCNZVodafone New Zealand (Vodafone NZ) and Telstra announced
on July 12 that they have reached an agreement for the sale of
TelstraClear (TCNZ) to the former for a cash consideration of
NZD840mn (US$633mn). BMI reafrms our view that the transac-
tion is a good deal as Vodafone NZ will be in a better position to
compete with Telecom Corporation of New Zealand (TCNZ) on
multiple fronts while Telstra will be able to focus on restructuring
its main Australian operation.
While Vodafone NZ is the country's leading mobile operator,
it lags behind TCNZ in the xed-line sector, particularly in terms
of network infrastructure. The acquisition of TelstraClear lls the
decit, which will bolster Vodafone NZ's presence in the enterprise
market, and allow the operator to offer a stronger telecoms solution
in the retail sector. As previously highlighted, Vodafone NZ will
have approximately 29% of the xed broadband market, up from
13% before the acquisition, thereby closing the gap with leader
TCNZ, which had 49% market share (as of June).
TelstraClear's sale price of NZD840mn well exceeded analysts'
valuations, which ranged from NZD350-425mn, according to theAustralian Financial Review. Telstra has announced that it will
return about NZD490mn in cash to Australia via a pre-com-
In the past year, Telstra has been restructuring its operations in
light of the changing Australian competitive landscape, driven bythe country's National Broadband Network project. Telstra was
the rst Australian mobile operator to launch LTE services, and it
has been aggressively expanding into new high-growth businesses
such as cloud computing and machine-to-machine, in addition to
key overseas markets (India, Japan and Singapore).
The allure of New Zealand has been fading in light of the coun-
try's limited growth potential and the distraction it has on Telstra's
overall nancial position. Additionally, the sale of AAPT's consumer
arm to iiNet by TCNZ in September 2010 meant that there is less
incentive for Telstra to remain in New Zealand as a defensive
mechanism.
The transaction is expected to complete in Q412, subject to the ap-proval by the New Zealand Commerce Commission, the Ministry of
Business, Innovation and Employment and the Overseas Investment
Ofce. While the acquisition means that there is one less player in
the market, we still expect regulatory approval since Vodafone NZ
will be able to better challenge TCNZ in the xed telecoms industry.
INDONESIA
Telkom's Pacnet Bid May Not
Yield Expected ResultsTelekomunikasi Indonesia (Telkom) has reportedly submitted
a bid for submarine cable operator Pacnet as the Indonesian rm
looks to reinvest prots generated from its domestic telecoms busi-
ness. While acquiring Pacnet should boost Telkom's international
recognition among other benets, we are concerned about Telkom
gaining signicant exposure to the submarine cable industry, which
is experiencing intense competition and declining prices.
Telkom is a dominant player in the Indonesian telecoms market
with strong market positions in the mobile, xed-line and broadband
sectors. Through its subsidiary Telekomunikasi Selular (Telkom-
sel), Telkom has about 40% market share in Indonesia's mobile
industry. While the mobile penetration rate has almost reached
100%, we believe that the market still possesses substantial growthopportunities with prepaid being the main form of mobile subscrip-
tion. Furthermore, 3G services have yet to gain traction, and mobile
0%
20%
40%
60%
80%
100%
120%
Mobile Fixed Broadband
Oth ers 2d eg rees
TCNZ Vo dafo ne NZ
Equal FightNew Zealand Mobile And Fixed Broadband Market Shares (%), June 2011
Vodafone NZs xed broadband market share includes TelstraClears 16%. Source:
Commerce Commission
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Asia TelecommunicationstIMor-leSte
7% and 12% year-on-year (y-o-y) respectively, and the operator
generated net prot of IDR3.322trn (US$362mn), up by 17.5%.
With a strong position in the Indonesian telecoms industry, it is
no surprise that Telkom would look to overseas markets and inor-
ganic growth for more revenue-generating opportunities. Telkom
wanted to purchase Cambodian mobile operator CamGSM but
cancelled the plan reportedly due to differences in valuation. BMI
believes that acquiring another telecoms operator would be one of the
more conservative means of expansion as it leverages on Telkom's
expertise, but potentially attractive targets in South East Asia are
limited. Frontier markets such as Myanmar hold signicant long-
term prospects but they carry equivalent risks.
Pacnet owns the EAC-C2C submarine cable network that spans
36,800km between Hong Kong, China, South Korea, Japan, Taiwan,the Philippines and Singapore. Pacnet's network was extended across
the Pacic Ocean via the EAC Pacic, which connects Chikura, Ja-
pan to Los Angeles and other Points of Presence in the US. In April
2011, Pacnet expanded its network reach to Chennai, India through
the i2i cable system. The rm is also expanding its data centre and
cloud business, and it announced in May that it will triple the capac-
ity of its data centre in Sydney over the next year.
Telkom's CEO has said that the rm aims to invest in bre
optic cables in order to improve connection speeds and it is open
to mergers and acquisitions. BMI believes that Pacnet would t
the bill, and acquiring the submarine cable operator would raise
Telkom's prole in Asia Pacic. Further, the submarine cable busi-
ness is highly related to the telecoms industry. However, the two
businesses are distinct, and Telkom does not have prior experience
operating a submarine cable network. Telkom could allow Pacnet
to maintain full autonomy but it would defeat the purpose of gain-
ing full ownership.
It is common for telecoms operators to invest in submarine cable
networks, but they tend to form a consortium to reduce costs and
risks. The entry of telecoms operators has also increased international
bandwidth, resulting in declining prices. Like the telecoms sector,
the submarine cable market is capital-intensive, and Telkom could
suffer as it tries to grow the two businesses.
TIMOR-LESTE
New Licences To Introduce
Competition
The Government of the Democratic Republic of Timor-Leste has an-nounced the award of two new telecommunications licences, ending
the monopoly ofPortugal Telecom-owned Timor Telecom. The
two licences have been issued to Viettel Global Investment and PT
Telekomunikasi Indonesia International (Telin). BMI expects the
competitive dynamic introduced by the licensing of new operators
to benet consumers. However, given the small size of the market,
we consider Timor-Leste to hold limited potential for operators.
The government initially awarded the licence to Digicel Pacic
Limited, which has considerable experience operating in develop-
ing small island markets across the Caribbean, and Telin. Digicel
had committed to launching GSM and 3G services to cover 91% of
the population within four months. However, it was announced on
July 11 that Digicel has withdrawn its application without providinga reason. According to the tender process rules in the Request for
Applications of April 12 2012, the applicant with the next highest
score would be awarded the licence. In this case, it was Viettel,
which had scored 0.5 points less than Digicel out of 100 points.
Viettel is committed to provide initial GSM and 3G coverage of
93% of the population and 95% in the next three months. Meanwhile,
Telin has committed to launching services in under six months, with
GSM and 3G access for 94% of the population. Given Viettel's ex-
perience in emerging markets and Telin's experience in Indonesia
through sister company Telkomcel, we have a positive outlook for
the commencement of services in Timor-Leste.
Portugal Telecom reported it had 616,000 subscribers in Timor-
Leste at the end of March 2012, up 16.8% y-o-y. Based on this gure,
Timor-Leste had a mobile penetration rate of just over 53% in Q112.
BMI forecasts penetration will rise to over 58% at YE16, a forecast
we previously upgraded when the end of Timor Telecom's monopoly
was announced in April 2012. With the majority of Timor-Leste's
population likely to have the option to choose between three mobile
providers by Q113, BMI expects competition to change dynamicsin the market.
We expect the introduction of competition will benet consum-
0
10
20
30
40
50
60
70
0
100
200
300
400
500
600
700
800
900
20
09
20
10
20
11
201
2f
201
3f
201
4f
201
5f
201
6f
Number of Cell ular Mobile Phone Subscribers ('000) LHS
Number of Mobile Phone Subscribers/100 Inhabitants RHS
Limited Opportunities Despite LiberalisationTimor-Leste Mobile Market Forecast, 2009-2016
f = BMI forecast. Source: BMI, ITU, Portugal Telecom
0
500
1,000
1,500
2,000
2,500
3,000
3,500
15,000
15,500
16,000
16,500
17,000
17,500
18,000
18,500
19,000
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Reven ue Net Pro fi t RHS
Domestic Business Fuelling Expansion AmbitionTelkom Financial Results (IDRbn), 2010-2012
Source: Telkom
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Asia TelecommunicationsMAlAySIA
for mobile markets, and indicates there is signicant potential for
downward movement in prices with the introduction of competition.
In terms of service innovation, with all three providers expected to
offer 3G mobile broadband services by Q113, the data market has
strong growth potential from a reasonable base Timor Telecom
reported 17.7% of mobile service revenue derived from Q112 data.
Meanwhile, the government of Timor-Leste is also considering
benets beyond the consumer market, with ICT service availability
to medical clinics, schools, agricultural management and other social
areas outlined as an important benet.
BMI shares the Timor-Leste government's outlook for the
contribution of competition to social goals and consumer welfare.
However, we believe that, with a population of just 1.154mn in
2011 (albeit expected to reach 1.6mn by 2016), potential nancial
rewards are limited. Financial reward will also be limited by low
incomes with GDP per capita of US$777 in 2011. However,
both new operators have experience of operating successfully in
markets with similar incomes, geography and scale and as such are
well positioned to maximise potential benet from real growth in
private consumption over the medium term, which BMI forecaststo average 7.5% 2012-2020.
MALAYSIA
FRiENDi Looks EastMiddle Eastern mobile virtual network operator (MVNO) FRiENDi
will launch services in Malaysia by the end of 2012. FRiENDi
will partner with sovereign wealth fund Kumpulan Perangsang
Selangor Berhad (KPS) to roll out services. Following its merger
with MVNO Virgin Mobile, FRiENDi announced plans to expand
services in the Middle East, North Africa, Sub-Saharan Africa andSouth Asia. BMI believes Malaysian mobile network operators
(MNOs') receptive approach to MVNOs makes it a good market in
which to begin operations in the region.
Malaysian MNOs have not treated MVNOs as a threat to their
main business, unlike operators in other markets. MVNOs can serve
as a useful addition to a mobile market, boosting competition while
allowing MNOs to focus on new services, mobile content and up -grading networks. Malaysian MVNOs vary from low-cost options
such as Happy Prepaid and Tune Talk while XOX and Merchantrade
a good market in which to start operations. While the market seems
a little crowded, FRiENDi's long experience in offering services
as an MVNO should see it nd success in the Malaysian market.
KPS has invested in the mobile market through its subsidiary
Perangsang Telco Sdn Bhd, which has entered into a partnership
agreement with FRiENDi, Samena Telecom Limited and Ceres
Telekom Sdn Bhd through a 30% equity stake in Ceres. The com-
pany's entry into the Malaysian market can be immediate as Ceres
already holds the licences needed to launch services. FRiENDi
believes there is still signicant opportunity to take a leadership
position in Malaysia's MVNO sphere, stating both the FRiENDi
and Virgin Mobile brands would be used in the launch.
Outside Malaysia, BMI believes the Thai market offers signi-
cant opportunities for FRiENDi, given the lower mobile penetration
rate and smaller number of MVNOs in the market. However, much
like Malaysia, the mobile market is already highly competitive.
FRiENDi's experience should again hold it in good stead in Thai -
land and, if welcomed by MNOs in the market, could bring more
subscribers into the market.
While Pakistan, Bangladesh and India offer signicant growthopportunities, regulatory difculties will likely make these countries
more difcult for service launches. In Pakistan the price of an MVNO
licence increased from US$10,000 to US$5mn in October 2009,
which only served to dissuade companies from entering the market
as an MVNO. With low potential returns and a difcult political
and business environment, the relative low risk and investment of
launching as an MVNO was successfully removed by the increased
price. Meanwhile, India's new regulations for the telecoms market
includes introducing MVNOs into the market, but BMI does not
expect licences to be made available in the near term and there is not
yet any conrmation on when the National Telecom Policy will be
enforced. Regulations in Bangladesh could also prove prohibitive.Indonesia's mobile market has eight active operators and no cur-
rent MVNOs. With growth expected to remain strong in the market,
MVNOs could be important in ensuring lower cost services continue
to meet subscriber needs. However, Tune Talk has already hinted it
would be interested in entering the Indonesian mobile market, which
could suggest a gradual opening up to new operators.
BMI believes FRiENDi and Virgin Mobile's experience in
offering mobile services as MVNOs make them well suited to of-
fering services in new markets. While Malaysia's market is already
competitive, we believe the companies have a strong outlook as they
expand services outside the MEA region.
THAILAND
3G Auction On Track, Outlook
Remains UncertainThe 3G licence auction in Thailand is gradually approaching reality
after the National Broadcasting and Telecommunications Commis-
sion (NBTC) announced in mid-June further details such as a rough
reserve price for the spectrum. However, the convoluted nature
of the Thai telecoms industry means that it is difcult to predict
the outcome of the auction, which is scheduled for Q412, and the
potential impact.The NBTC believes that the reserve price for each of the nine
blocks of 5MHz spectrum will start from THB4bn, which is in line
0
20
40
60
80
100
120
140
160
180
2009
2010
2011
2012f
2013f
2014f
2015f
2016f
Malaysia In donesiaTh ailand Bang ladeshIndia Pakistan
Opportunities For ExpansionMobile Penetration (%)
f = BMI forecast. Source: BMI, operators, regulators, World Bank (ITU)
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Asia TelecommunicationsVIetNAM
participant can potentially secure a maximum of 20MHz of 2.1GHz
spectrum during the simultaneous ascending-bid auction. Under
the new draft information memorandum, the NBTC has removed
the N-1 rule, which would have resulted in the cancellation of the
auction if there were only one bidder.
Thailand is one of the last countries in Asia Pacic that has yet
to auction 3G licences. While we believe that the market is more
than ready for 3G services, previous attempts to issue licences have
been primarily foiled by political wrangles and complications aris-
ing from concessions between private and state telecoms operators.
Following the collapse of the 3G auction in September 2010, True
and CAT Telecom modied their concession agreement to allow
the former to introduce 3G services. However, the deal has beendeemed illegal by the NBTC as the regulator decided that it was in
violation of the Frequency Allocation Act. Consequently, a series of
amendments to the contract such as stipulating that CAT Telecom
is solely responsible for spectrum control must be made.
The existing concession-based telecoms model in Thailand is
resulting in a high degree of uncertainty for operators. Spectrum will
be returned to the regulator for reallocation, and it is still unclear what
the competitive landscape will become, thereby potentially prevent-
ing operators from competing aggressively for the 2.1GHz spectrum.
Further, the Asia Pacic market is transitioning towards 4G services,
and Thai operators are caught right in the middle where launching
3G services now may not have the desired long-term outlook. While
BMI acknowledges that the NBTC is trying to implement reforms
in the market, immediate drastic changes are unlikely. Although
there is pent-up demand for 3G services among Thai consumers,
we do not expect strong interest from foreign operators due to the
lack of clarity on rules and regulations within the telecoms sector,
especially on the issue of foreign ownership.
VIETNAM
Resolve Skewed Competitive
Landscape Before MNPVietnam's Ministry of Information and Communications (MIC) hasannounced that it plans to implement mobile number portability
with the fundamental benets that MNP brings, we struggle to see
the scheme realising the potential rewards based on the existing
market situation.
Although the MIC started drafting the MNP guidelines in
late 2010, details about the scheme remain scant. However, the
ministry announced at the end of May that all mobile numbers will
be centrally managed by its telecoms department instead of being
partially managed by each network provider. The MIC claimed
that the central numbers management method is being applied by
as many as 70 countries worldwide.
Introducing MNP in Vietnam has the potential to slightly level
the competitive landscape and provide a much-needed boost to
the increasingly marginalised smaller operators: GTEL Mobile,S-Fone and Vietnamobile. The three rms account for about 5%
of Vietnam's mobile market while state-backed operators Viettel,
MobiFone and VinaPhone control the remaining 95%. Giving
consumers the option to switch providers while retaining their
mobile numbers could encourage subscribers of Viettel, MobiFone
and VinaPhone to migrate to smaller operators, especially if smaller
operators introduce competitively priced or tailored packages.
However, this scenario may not play out nicely. Firstly, we have
seen MNP schemes in countries such as India, Thailand and China
receive muted response due to factors such as slow porting process
and the fact that subscribers own multiple prepaid SIM cards. Sec-
ondly, larger operators could intensify the competition by matching
smaller operators' strategies, which is a relatively easy move given
their signicantly larger scale.
Thirdly, the Vietnamese mobile industry's competitive landscape
could undergo signicant changes in the next two years. The Vietnam
Posts and Telecommunications Group, parent company of MobiFone
and VinaPhone, has proposed merging the two mobile operators in
order to comply with a change in business law. A possible outcome
is a merged entity that has strong competitive advantage such as
more than 50% of the mobile market share and extensive telecoms
infrastructure. This in turn could drive smaller operators closer to
the brink of exit. South Korea's SK Telecom has already withdrawn
investment from S-Fone while Russia's VimpelCom followed suit in
April. Without the support of foreign investors, S-Fone and GTELMobile could face the same fate of as EVN Telecom, which strug-
gled to generate protability and was taken over by Viettel in early
Viettel37%
MobiFone29%
VinaPhone29%
VimpelCom3%
Vietnamobile2%
S-Fone0%
MNP To Have Limited ImpactVietnam Estimated Mobile Market Share, June 2012
Source: VimpelCom, BMI
0
10
20
30
40
50
60
70
IndustryRewards
CountryRewards
Industry
Risks
Country Risk
TelecomsRating
Thailand Regional Average
Attractiveness Hindered By UncertaintiesAsia Pacic Telecoms Risk/Reward Ratings Q312
Source: BMI
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Asia TelecommunicationsPhIlIPPINeS
Consequently, the worst case scenario would be a duopoly in the
Vietnamese mobile market, and we foresee MNP having limited
impact on consumer choices.
PHILIPPINES
Domestic Dominance CouldFuel Overseas ExpansionAlthough the Philippine Long Distance Telephone Company
(PLDT) has denied a media report that it is in discussion to acquire
TV stations in Indonesia or Vietnam, BMI believes that it is still
a possible scenario in the future as it would provide the country's
largest telecoms operator additional revenues from alternative geo-
graphical and sectorial markets, especially if it successfully invests
in GMA Networks.
GMA Networks is the Philippines second largest TV broad-
caster, and discussions between the rm and PLDT to strike a deal
have taken place in the last decade with no success due to pricingdisagreements. While PLDT already owns a stake in third-ranked
TV 5, acquiring a part of GMA Network would match the telecoms
operator's strategy of bolstering its content portfolio, thereby helping
PLDT shift away from its traditional business model of providing
basic telecoms services and countering the threat of over-the-top
(OTT) service providers.
GMA Networks has conrmed that discussions with PLDT are
ongoing and an agreement has not been reached (as of mid-June).
However, PLDT is condent that a deal will be forged by end-2012
and the price tag would be less than the PHP100bn (US$2.3bn) mark
previously mentioned by GMA chairperson.
GMA Networks and TV market leader ABS-CBN reportedly
account for 60% of the Philippines' audience share with TV 5 in
a distant third. Assuming that PLDT succeeds in acquiring GMA
Networks, the combined market share of GMA Networks and TV 5
should top the market, thereby forming a duopoly with ABS-CBN as
the second-ranked provider. While PLDT chairperson has said that
it remains to be seen if the government would approve the acquisi-tion, a repeat of PLDT's purchase ofDigital Telecommunications
Philippines, which resulted in a duopoly in the mobile industry,
Eventually, PLDT could dominate both the Philippine telecoms
and broadcasting industries, and BMI believes that this would pave
the way for the rm to expand overseas with its enlarged scale and
greater experience. Investing in another telecoms operator is the
traditional model and could be seen as the more conservative ap -
proach, but at present, the content market presents stronger growth
potential. Consequently, we believe that it is possible that PLDT
could look to invest in the broadcasting industries of Indonesia and
Vietnam as growing afuence and improving connectivity would
spur demand for content. The prospects are not limited to the
broadcasting industry as other OTT services such as SMS over IP
are becoming increasingly lucrative.
CAMBODIA
Emaxx-Excell Deal Long OverDigital Star Media's planned acquisition of Cambodia's GT-Tell,
which operates under the brand Excell, collapsed in February, al-
though this news has only just come to light. While this developmentis a blow to the mobile market given its overcrowded landscape,
BMI reafrms that the short-to-medium outlook would not have
been promising even if the deal had gone through, as Digital Star
Media had planned to focus on 4G technologies.
In July 2011, the Phnom Penh Post reported that WiMAX opera-
tor Digital Star Media, which operates under the brand Emaxx, was
in talks to acquire Cambodia's smallest mobile operator, GT-Tell,
for an undisclosed sum. Digital Star Media planned to offer both
WiMAX and LTE services in the Cambodian market, and it believed
that the country's only CDMA operator would complement its
strategy in terms of technological advancement. Digital Star Media
originally planned to purchase GT-Tell's 28 mobile towers in all 24Cambodian provinces.
It was revealed in January 2012 by Digital Star Media's then-CEO
Frank May that the company was still conducting the due diligence
process. No reasons were given for the subsequent collapse in
February. Regardless, we would have maintained our view that the
Cambodian market is not ready for next-generation mobile technolo-
gies, much like many emerging markets in the region.While data from Cambodia's Ministry of Post and Telecommu-
nications as well as mobile operators suggest that the penetration
Metfone,8,200
Excell, 42hello , 1,978
Mfone, 414
Beeline,1,078
CambodiaAdvance
Communicati
ons, 90
Mobitel, 2,600
Smart Mobile,2,400
Unsustainable SituationCambodia Estimated Mobile Market Share, March 2012 (000)
Only Beeline and hello provided March 2012 data. Source: MPTC, operators, BMI
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Mobile Fixed-Line Broadband
Globe Telecom PLDT
Firm Grip On The Telecoms MarketOperator Market Shares By Segment (%)
PLDTs subscriber gures include Digitel. Source: Operators, BMI
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Asia TelecommunicationsMyANMAr
are using prepaid subscriptions and that 3G is still an underused
and expensive service. Theoretically, WiMAX and LTE are ideal
for bringing internet access to a large proportion of the population
in a cost-effective manner. However, BMI believes that there is a
lack of demand necessary to make Digital Star Media's plan com-
mercially viable in the near term.
4G-compatible mobile devices have yet to reach the requirednumber to reap economies of scale, partially due to the wide range
of frequencies used. The situation in Cambodia is further exacerbated
by language and cultural barriers, and a lack of awareness of the
benets of internet accessibility.
Digital Star Media has not disclosed its strategy following the
unsuccessful acquisition of GT-Tell. The operator could continue
focusing on WiMAX, although the technology is being increasingly
marginalised on the global scale. Mergers and acquisitions are still
a possibility, but BMI believes that it is more likely Digital Star
Media now becomes a target for a larger mobile operator such as
Smart Mobile or Metfone.
Meanwhile, the outlook for GT-Tell continues to look unsus-
tainable in the long term. Besides being the only CDMA opera-tor, local media reported that its subscriber base has stagnated at
around 40,000 (BMI estimates that GT-Tell had 42,000 mobile
subscribers in March). By comparison, market leader Metfone saw
its subscriber base double between March 2011 and March 2012 to
8.2mn, although we caution that the number could be inated through
the inclusion of inactive accounts. We continue to see a need for
consolidation in the Cambodian mobile market, and highlight the
benets of merging networks and services. In June, Smart Mobile
announced that its subscriber base has crossed the 3mn mark, an
achievement that we believe was aided by the acquisition of the
previously TeliaSonera-owned Applifone (marketed as Star-Cell)
in December 2010.
MYANMAR
Still A Major Risk For EntrantsMyanmar announced in July that it is working on a reform plan to
bring affordable telecommunications services that are on par with
international standards. It is also looking for consultants to facilitate
the industry liberalisation process, which would in turn open up the
market to interested foreign companies. While the Myanmarese tel-
ecoms market harbours signicant long-term growth opportunities in
light of years of isolation, BMI holds rm to our view that there is
too much uncertainty at the moment, which poses a myriad of risks.
The minister of communications, posts and telegraphs, Thein
Tun, has announced that state-owned telecoms operators Myanmar
Post and Telecommunication and internet service provider Yatan-
arpon Teleport are planning to form joint ventures with local and
international rms, which is in line with our view previously stated
in our special report. Having a local partner is important because the
international community has little knowledge about the Myanmarese
business practices and consumer preferences, in addition to helping
to reduce bureaucratic red tape.
However, selecting a competent local partner in a frontier market
is a challenging task. The monopoly of Myanmar Post and Telecom-
munication and Yatanarpon Teleport means that there is a lack ofoptions for international players. Further, Investor protection and
general legal framework are also particularly lacking in Myanmar,
system, it would be extremely difcult to prevent unwanted transfer
of technology and/or intellectual property to a local partner that may
be inclined to break contract.
The ministry has highlighted it is drafting a new communica-
tions law, which should address some of the legal and regulatory
concerns. However, the robustness of legislation and the govern-
ment's willingness to enforce laws are separate issues, especially
for the latter considering the problem of cronyism, corruption, and
government and political agendas, which are particularly prevalent
in emerging economies.
BMI expects telecoms operators that have vast experience op-
erating in emerging markets to have the greatest chance of creating
a protable business in Myanmar. These would include companies
such as Vietnam's Viettel, which has presence in Cambodia, Laos,Peru, Haiti and Mozambique, and Telekomunikasi Indonesia,
which recently acquired a mobile licence in Timor-Leste. We expect
less interest from operators in developed countries such as Telenor,
Vodafone and Axiata, many of which have suffered setbacks in
emerging markets recently due to regulatory uncertainties and
intense competition.
JAPAN
Amazon To Launch Prepaid
InternetAmazon is to launch a prepaid internet service in Japan before the
end of Q212, according to Japanese business journal Nikkei. The
company will sell SIM cards with 500MB data usage for US$25 a
month, becoming the rst company to offer such a service in Japan.
BMI believes the service will be popular in the Japanese market,
which reports buoyant mobile internet growth. Further, it gives an
indication of the changes we expect to see in Amazon's global of-
ferings throughout 2012.
Amazon will use the MVNO model to deploy services. It is
expected to partner with Japan Communications (JC), which uses
NTT DoCoMo's 4G LTE network. Despite JC seeming to refute
claims in a press release, BMI believes this is unlikely to indicate therumours are false. It is common practice in Japan to refute claims of
a product launch if such news is leaked prior to an ofcial announce-
0
5
10
15
20
25
0
100
200
300
400
500
600
700
800
900
1,000
2009
2010
2011e
2012f
2013f
2014f
2015f
2016f
Number of Cell ular Mobile Phone Subscribers ('000) LHS
Number of Broadband Internet Subscribers ('000) RHS
Signifcant Barriers To Realising PotentialMyanmar Mobile And Broadband Subscriber Forecasts, 2009-2016
e/f = BMI estimate/forecast. Source: BMI, ITU
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Asia TelecommunicationsJAPAN
The leak also suggested that the SIM cards would be compatible
with unlocked smartphones and tablets using iOS, Android and
other operating systems, in addition to the Kindle. This could be anindication that Amazon is aiming to increase outreach of its Kindle
ebook, which it has yet to launch on the Japanese market.
The Amazon share price has been following a downtrend over
the past month, as poor prot margins deter investors. However,
revenue continues to rise, as the company seems intent on growth
at the expense of income. Further, the ambiguity over its strategy
is causing alarm among some investors. However, it enjoys a soar-
ing PE ratio (over 175), which maintains investor interest, and its
growth strategy is likely to pay off in the medium term once market
share is secured.
BMI believes there is still potential for growth in the mobile
internet market, which Amazon can capitalise on. The country is
highly receptive to new technology, which bodes well for the release
of the prepaid SIM cards and also for the future success of the Kindle
ebook. ARPUs are among the highest in the Asia-Pacic region and
the potential for LTE expansion is high.
However, BMI believes there are a number of issues which
Amazon will have to contend with when entering the Japanese mar-
ket. The mobile internet market is highly competitive and ARPUsare falling, while bureaucratic obstacles may limit the potential for
expansion.
through 2012. The government is enacting scal tightening and as
the yen depreciates, there is less potential for consumption growth
in the market, which will provide an obstacle for expansion.
Flicker Of Opportunity For
Japan's Smart TVsJapanese consumer electronics manufacturers have had a rough time
recently. A generally bearish view of the country's manufacturers is
a far cry from the strong reputation previously held by the likes of
Sony, Panasonic and Toshiba. The yen continues to appreciate and
newcomers from South Korea, China and Taiwan have also made
their impact felt. However, new data on sales of smart TV sets a
new segment of the AV market show that Japanese manufacturers
are keeping up with their rivals, which BMI believes could suggest
an opportunity to turn around agging businesses.
Japan's largest consumer electronics OEMs have struggled to
keep up with innovative newcomers that have successfully built
their brands in both developed and emerging markets. Major
Japanese electronics manufacturers Sony, Sharp and Panasonic
reported nancial losses, with Sony's JPY457bn (US$5.7bn) FY
2012 loss, its fourth straight nancial year without prot. As BMI
highlighted before, several factors have affected these companies'
ability to turn around their businesses. The yen's continued strength
makes devices from Sony, Sharp, Panasonic and their peers more
expensive and less competitive, particularly when newcomers from
China have lower costs and accept reduced margins to get their
products to market.
Despite the disadvantages facing Japanese manufacturers, data
from NPD Display Search's quarterly report on smart TV shipments,
Japan reports the highest percentage of smart TVs in overall TVshipments. In Q112, 36% of all TVs shipped to Japan were smart
TVs, considerably higher than the global average of 20%. Japanese
consumers are forward looking, expecting the latest innovations,
which has helped drive the demand for smart TVs. Sales of smart
TVs in regional peer China were around 30% but this is largely
driven by the strength of local manufacturers such as Skyworth,
Konka, Changhong and TCL. Sony was the strongest brand in
Q112, according to the NPD's report, but not considerably higher
than Skyworth.
While Chinese brands perform well in their home market, they
do not yet have the international recognition of Japan's major ven -
dors. Although newcomers such as LG Electronics and Samsung
Electronics, both based in South Korea, have gained signicant
ground, BMI believes the Japanese vendors still have some cur-
rency in their brands. Asia News Networks reports that Japanese
brands are trusted among Indian consumers 'to deliver quality' and
BMI believes the companies must build on this in other markets to
regain their position.
While the data suggests a more positive outlook for Japan's
OEMs, we do not believe the companies are out of the woods yet.
We maintain our view that fundamental problems still need to be ad-
dressed, particularly innovation and distinctiveness in their products.
Nevertheless, the companies retain some of their earlier reputation
for quality, building on this to regain their position as innovators will
go a long way to making Japanese consumer electronics companieserce global competitors once more.
60
80
100
120
140
160
180
200
220
240
260
Apr
-09
Jun
-09
Aug
-09
Oct
-09
Dec
-09
Feb-10
Apr
-10
Jun
-10
Aug
-10
Oct
-10
Dec
-10
Feb-11
Apr
-11
Jun
-11
Aug
-11
Oct
-11
Dec
-11
Feb-12
Apr
-12
Jun
-12
Will Performance Improve?Amazon Share Price (US$)
Source: BMI , Bloomberg
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
84,000
86,000
88,000
90,000
92,000
94,000
96,000
98,000
100,000
102,000
104,000
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
No. o f Mobile Internet Subscribers ('000)% chg q -o-q RHS
Growth ContinuesMobile Internet Subscribers 2009-2012
Source: BMI, Operators
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Asia TelecommunicationsSouth KoreA
SOUTH KOREA
LGs First-Mover Advantage
May Not Last
LG Electronics announced in end-May that global sales of its LTEsmartphones have reached 3mn units, which positioned the rm
among the frontrunners in the nascent LTE market. While this should
provide a much-needed boost to the South Korean manufacturer's
stuttering mobile business, the competitive landscape will quickly
intensify as the global LTE industry matures and rival handset mak-
ers ramp up their LTE device portfolio.
Despite the growing potential, not all device manufacturers have
been able to capture the boom in global demand for smartphones and
tablet computers. Apple and Samsung Electronics are the notable
outperformers but rivals such as Motorola Mobility, Research In
Motion, Sony, HTC and LG Electronics have struggled in light of
the strong competition.
BMI previously reported that the focus on the infant LTE handsetmarket puts LG Electronics in a good position as more LTE net-
works are coming online. Besides sales from North America and
Japan, LG Electronics's domestic market also played a vital role
as all three mobile operators have launched LTE services. At the
end of April, there were 4.850mn LTE subscribers in South Korea,
according to IT Statistics of Korea, up from 1.191mn in December
2011. During this period, the number of 3G subscribers declined
from 44.334mn to 41.794mn.
LG Electronics expects to expand its LTE market presence to 20
countries by end-2012. A key factor to support its strategic emphasis
on the 4G technology is LG Electronics's ownership of 23% of ap-
proximately 1,400 LTE patents led worldwide, according to themanufacturer citing a report from Jefferies & Company.
While BMI agrees that LTE-compatible handsets are the future,
more conventional 3G mobile devices are still the main growth and
revenue driver. For example, Samsung Electronics announced in
February that it has sold 20mn Galaxy S II units since April 2011,
and the device's successor similarly does not feature LTE capability.Although a larger battery has allowed Apple to introduce an LTE
iPad, the company could not offer the high-speed connectivity glob-
LG Electronics may have a rst-mover advantage with its early
focus on LTE. However, we believe that rival manufacturers are
waiting for the technology to mature, which is largely pegged to
the availability of the necessary spectrum. For example, several
operators in Asia Pacic are refarming existing spectrum such as
1800MHz while waiting for the country to complete the transition
to digital TV, which will free up spectrum in the 700MHz frequency
band. Once companies are able to launch the same product in mul-
tiple markets (without the need to modify them to work on differ-
ent LTE networks), LG Electronics's upper hand could be quickly
eroded, especially if market leaders Samsung Electronics and Apple
try to convince existing users of their products to upgrade.
TAIWAN
EV-DO Upgrade To Boost APTAfter repeated delays, Asia Pacic Telecom (previously Asia
Pacic Broadband Wireless) announced in June that its new
CDMA2000 1xEV-DO mobile broadband service will be launchedon October 1. BMI believes the upgrade, as well as the potential
introduction of attractive smartphone models, could help reverse the
operator's declining 3G subscriber base, although there are limita-
tions to its growth potential.
Asia Pacic Telecom is the only CDMA2000 operator in Taiwan,
although it competes with Chunghwa Telecom, Taiwan Mobile,
Far EasTone and VIBO Telecom in the country's overall 3G sec-
tor. However, along with VIBO Telecom, Asia Pacic Telecom
lags behind the remaining operators as they also offer 2G services.
Asia Pacic Telecom reported 3mn 3G subscribers in April 2011,
up from 2.6mn in June 2010, but it has seen limited growth since
then. Instead, the operator said that its subscriber base declined to
3.05mn in June from 3.1mn in February.
The decrease in the number of subscribers has been attributed
to the delay in rolling out its new EV-DO service, which is about
one year behind schedule. As of March, Asia Pacic Telecom had
upgraded more than 600 CDMA2000 to EV-DO, and another 2,000
are scheduled to be upgraded in Q312.According to Asia Pacic Telecom, the CDMA2000 1xEV-DO
infrastructure gives the operator a cost advantage over its rivals. In
0
20
40
60
80
100
120
140
0
5,000
10,000
15,000
20,000
25,000
30,000
2009
2010
2011e
2012f
2013f
2014f
2015f
2016f
Number of 3G Pho ne Subscribers ('000) LHS
Number of 3G Pho ne Subscribers/100 Inhabitants RHS
Positive Growth ExpectedTaiwan 3G Subscriber Forecast, 2009-2016
e/f = BMI estimate/forecast. Source: NCC, Operators, BMI
-350
-300
-250
-200
-150
-100
-50
0
50
100
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Q110
Q210
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Sales
Operating Profit RHS
Early Emphasis On LTE Yielding ResultsLG Handset Unit Financial Results (KRWbn), 2010-2012
Source: LG Electronics
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Asia TelecommunicationsChINA
counterparts would need to roll out 6,000-8,000 base stations.
Additionally, Asia Pacic Telecom plans to partner with China's
CDMA2000 mobile operator China Telecom to jointly procure
handsets to further lower cost.
This would allow Asia Pacic Telecom to target more cost-
conscious consumers and those who have yet to make the transition
to smartphones. The operator plans to procure 1.1mn handsets in
2012, of which 20-30% will be smartphones. Further, Asia Pacic
Telecom was negotiating a deal with Apple to sell a CDMA variant
of the iPhone, and BMI believes that this could become a reality
in the near future given that China Telecom secured an agreement
to sell CDMA iPhones in China in February. However, this is de-
pendent on Asia Pacic proving that its network can cope with a
surge in data use.
Due to its smaller scale when compared with the likes of Chun-
ghwa Telecom and Taiwan Mobile, as well as a different mobile
technology, it would be difcult for Asia Pacic Telecom to become
the market leader in terms of subscriber. The operator also recognises
the limitations as it envisages 4mn 3G subscribers in 2014. However,
the strategy of targeting the low-to-middle segment of the marketcould still protable.
CHINA
Baidu's New Smartphone A
Safe BetBaidu, the leading Chinese internet search engine, has launched a
new smartphone powered by its proprietary cloud-centric operating
system (OS). The low-cost, sub-US$150 handset will be sold through
China Unicom and, thanks to its deep connectivity with Baidu'sonline search, location and entertainment services and applications,
should mirror the success of international rivals touting the Google
Android operating system. BMI believes that the range of the new
phone's capabilities, plus its affordability, is a surer bet for the
company, which is looking to differentiate itself from established
global and local rivals alike.
The Changhong H5019 is a Foxconn-manufactured touchscreen
device that sports cloud-based voice and handwriting recognition,
interfaces are also linked to Baidu's cloud-based services, which are
expanding rapidly and include mapping and location-based services,
music and video content, gaming, social networking, advertising and
news. In many ways, Baidu mirrors global search giant Google and
has sought to replicate its success in the connected device market
with a proprietary operating system linked to all of its services and
features.
While Google-developed Android products are slowly enter-
ing the Chinese smartphone market, their impact is blunted by the
fact that Google services are heavily censored and restricted at the
delivery end of the service supply chain, rendering them slow and
ineffective in accessing specic content and applications. This is why
many Chinese still prefer Windows and Nokia Symbian handsets.
Gartner estimates that Nokia handsets accounted for 23% of the
Chinese smartphone market in Q411 and Samsung accounted for a
further 28% with its Windows and Bada-powered phones.
Apple's iPhone is very popular among the more afuent, youthful
sections of urban society, but availability is relatively limited and
the high cost of the handset means that it will remain unaffordable
for the vast majority of consumers. Gartner estimates that Appleaccounted for 9% of the market in Q411.
Local handset suppliers include Huawei Technologies and ZTE
(market shares of 15% and 9%, respectively), offering a mix of
Windows and Android-powered phones, but these offer only limited
connectivity to locally optimised services, solutions and applications.
This is where Baidu hopes its new offering will score over its rivals
and how it can outmanoeuvre consumer electronics giant Lenovo,
which is also pushing into the smartphone market after dominating
the personal computer segment.
Ostensibly, Baidu's latest foray into the smartphone market is
more compelling than its earlier, lacklustre partnership with Dell.
And, with its signicant existing online user base, the Baidu smart-phone has every chance of becoming a leading force in the market,
very quickly, BMI believes.
China Telecom Eyes Future
With Cloud GamingChina Telecom and Taiwan-based xed-mobile convergence appli-
cations provider Ubitus announced in June that they have formed a
partnership to deliver cloud gaming services to internet-connected
TVs in China. BMI believes that there are several important factors
that could bring success to this collaboration, which include China
Telecom's xed broadband market leadership, local regulations pro-
hibiting gaming consoles and strong demand for internet-connected
TVs in China.
Unlike 3D TVs, which have suffered languid consumer demand
due to factors such as limited content and poor viewing experience,
internet-connected or smart TVs are more well received as consum-
ers can combine multiple online services (for example, social media
and online videos) on a single platform. Under China's policy for
xed-mobile convergence, the Chinese internet-connected TV mar-
ket is expected to expand to 53mn by end-2013, and cloud gaming
is another feature that could help spur demand for internet TVs.
We have recently seen major TV manufacturers establishing part-
nerships with cloud gaming service providers. In early June duringthe Electronic Entertainment Expo conference, Samsung Electronics
signed a deal with Gaikai to stream gaming titles written for Sony's
Nokia23%
Samsung28%
SonyEricsson
4%
ZTE13%
Huawei15%
Apple9%
HTC3%
Others5%
Baidu Taking On The GiantsChina Smartphone Market Share By Vendor, Q411
Source: Gartner
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Asia TelecommunicationsINdIA
gaming consoles. Similarly, OnLive announced at the same time
that it was adding LG Electronics's smart TVs to the number of
platforms that could run its cloud-based gaming system.
Cloud gaming carries out the processing and video rendering in
the cloud, which is then streamed to users, thereby removing the need
for a gaming console. This method of bringing gaming to Chinese
consumers could become a lucrative business as Chinese regulations
prohibit the sales of consoles such as the PlayStation, although units
are available through the grey market. Ubitus's GameCloud platform
will be launched on October 1, and we expect China Telecom to
enjoy exclusivity.
China Telecom is the country's largest xed broadband provider
with 81.45mn subscribers at the end of April. The operator is cur-
rently in the midst of deploying the world's largest bre optic network
and it plans to grow its bre broadband subscriber base to 100mn by
2015. Although most of the intensive processes are handled in the
cloud, high-speed broadband connectivity is still required to deliver
a seamless and low-latency cloud gaming experience to consumers.
Consequently, we believe that China Telecom is well placed to help
drive development in the cloud gaming market.
As cloud gaming eliminates the need for consumers to purchase
a gaming console, thereby reducing cost, the combined cost of an
internet-connected TV and high-speed broadband connection could
still be beyond the reach of majority of the consumer market. The
cloud gaming market is also still at its infancy, and at the current
stage where quality such as frame rates and response time are inferior
to console gaming, we do not expect serious gamers to be swayed.
INDIA
Industry To Suffer From Continued
Regulatory UncertaintiesThe collateral damage arising from the Indian telecoms regula-
tory debacle has widened after Augere has reportedly decided towithdraw from the market due to difculties in raising funds. The
drawn-out investigations and contentious measures to resolve issues
Augere is backed by France Telecom and private equity rms
such as Harbinger Capital, New Silk Route and Vedanta Oppor-
tunity Fund. Through its subsidiary Augere (Mauritius), the rm
secured 20MHz of broadband wireless access (BWA) spectrum in
Madhya Pradesh during the June 2010 auction, and it had announced
plans to soft launch TD-LTE services under its Zoosh brand in
Madhya Pradesh and Chattisgarh in early Q212. Augere displayed
its commitment by becoming one of the rst BWA licence holders to
contract a network vendor after selecting Ericsson in October 2011.
Augere is an unfortunate victim as it was not implicated in the
2G licence scandal that affected companies such as Bahrain Tel-
ecommunications, Telenor and Etisalat, some of which have exited
the Indian telecoms industry. Back in February, BMI had expected
limited collateral damage from the cancellation of 2G licences with
the greatest impact on companies in directly related sectors. For
example, telecoms towers rm Viom Networks would lose 20-21%
of its tenancy if Telenor withdraws its investments.
However, the negative effects have spilled out after the Indian
government and regulator failed to swiftly resolve the issues. Instead,
we have seen the authorities place a high price on the 2G re-auctionand try to revive the Vodafone tax case, which were detrimental to
domestic and foreign investor condence.
According to Augere CEO Lars Henrick Stork, through an in-
terview with the Economic Times, the rm's investors have been
rufed by the 2G scandal, in addition to the repeated delay in the
unveiling of the New Telecom Policy, which was scheduled to be
announced in 2011. As a result, its investors have halted funding.
Assuming that Augere follows up on its divestment plan, we
expect alternative BWA licence holders, namely Bharti Airtel,
Tikona Digital Networks and Aircel, to be interested in its spectrum
and network infrastructure. Consequently, there is limited negative
effect on the overall Indian 4G market. However, we believe thatAugere's exit sends out further warning signs to the Indian govern-
ment with more capital outow as a real possibility.
Due to the convoluted nature of the telecoms mess in India, a
quick resolution within by end-2012 is unlikely, especially when
the government remains undecided on key issues. A white paper
on 'black money' has been published by the Indian government,
which noted that the 'Vodafone tax case provides an instance of themisuse of corporate structure for avoiding the payment of taxes'.
This indicates that the government will continue pursuing Vodafone
0
10
20
30
40
50
60
70
80
Industry
Rewards
Country
Rewards
Industry
Risks
Country
Risk
Telecoms
Rating
Indonesia
China
India
India Was Leading In Early 2011Asia Pacic Telecoms Risk/Reward Ratings Q312
Source: BMI
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Chin a Telecom
China Unicom
Cloud Gaming Complements LeadershipChina Telecom And China Unicom Fixed Broadband Subscribers (000)
Source: Operators
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Asia TelecommunicationsINdIA
has not provided immediate clarity on the issue after it postponed
the implementation of measures to claw back taxes owed by foreign
investors by a year from early May after backlash from the inter-
national community.
Challenges Remain Ahead ForReliance CommunicationsReliance Communications has announced better-than-expected
nancial results for the quarter ended March, which was a signi-
cant improvement from previous quarters. However, the operator
continues to be laden with hefty debt, although it is planning to list
its submarine cable assets in Singapore, in addition to negotiating a
sale of its tower arm. BMI believes that the immediate outlook for
the rm remains uncertain largely due to the regulatory uncertainty,
which is unlikely to be resolved in the near future.
Reliance Communication's revenue declined by 32.6% y-o-y to
INR53.1bn (US$958mn) in the quarter ended March, but this was
higher than analysts' expectations as polled by Reuters. Similarly,
the operator's net prot for the quarter exceeded analyst estimates
and grew by 96.7% to INR3.316bn, representing the rst y-o-y
increase since the quarter ended June 2009.
The protability improvement could be attributed to Reliance
Communication's position as the second-largest mobile operator in
India, and a surprise increase in the minutes of use (MOU). MOU
grew for the rst time in ve years to 227 minutes, up from 224
minutes the previous quarter, which is a particularly impressive feat
given that Indian mobile operators have been hiking voice tariff
rates. Reliance Communications also reported that its revenue of
INR0.44 per minute was among the highest in the industry for the
last eight consecutive quarters.
Operations Still StrugglingOn May 28, the date that Reliance Communications released its
latest nancial results, its share price opened 3.4% higher than the
previous day. However, BMI believes that Reliance Communica-
tions remain vulnerable fundamentally. Due to strong competitionand price-sensitive consumers, the operator's ARPU dipped below
the INR100 mark to INR99 for the quarter ended March while its
data services but, like its peers, consumer adoption has been below
expectations. Consequently, the operator followed Bharti Airtel,
IDEA Cellular and Vodafone India and have slashed tariff rates by
almost 62%. The price cut should spur consumer interest, although
there is a risk that sustained subscriber growth in the nascent market
would require a price war.
Debt Is Still A BurdenAs of March, Reliance Communication's net debt has grown to
INR358.393bn, up from INR320.485bn in March 2011. The hefty
debt, a result of the 3G auction and roll-out, has been an ongoing
concern, especially when the operator has repeatedly failed to reduce
the amount.
In April, Reliance Communications received initial approval
to list its submarine cable unit in Singapore, which is forecast to
raise US$1.4bn. The operator's submarine cable assets span across
68,000km, and have landing sites at 46 locations in 26 countries.
Further, an average of 80% of capacity on its network is available to
be monetised with useful life ranging from 2022 to 2031. An initial
public offering (IPO) could take place in Q212 and proceeds would
help alleviate pressure on the operator.
Meanwhile, Reliance Communications also has been trying to
ofoad its tower unit Reliance Infratel, rst through an IPO before
turning to private equity rms. However, the plan to divest Reli -
ance Infratel has been in place for about two years without success,
although Reliance Communications has announced that it is waitingfor regulatory clarify from the government.
-100
-50
0
50
100
150
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Net Profit (INRmn)
% chg y-o-y RHS
Finally GrowthReliance Communications Net Prot
Source: Reliance Communications
0% 20% 40% 60% 80% 100%
Trans-Atlantic
Intra Asia
Midd le East-West
Midd le East-East
India-West
India-East
Uti li sed Un uti li sed
Part Of Reliance Infratels AppealReliance Infratels Network Capacity And Useful Life
2015 2020 2025 2030 2035
Trans-Atlantic
Intra Asia
Midd le East-West
Midd le East-East
India-West
India-East
Source: Reliance Communications
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Asia TelecommunicationsBANglAdeSh
Regulatory Risk Runs HighThe ongoing regulatory debacle has not helped Reliance Commu-
nications. BMI has highlighted the growing collateral damage from
the Indian government's inability to quickly resolve issues, and it is
possible that private equity rms in talks with Reliance Communica-
tions could be increasingly concerned, especially when the prospect
of the tower sector is highly tied to the mobile market.Reliance Communications has announced that the sale of Reli-
ance Infratel will only proceed once the Department of Telecommu-
nications and the Telecommunication Regulatory Authority of India
clear the issues on spectrum allocation and licensing guidelines. We
believe that given the contentious decision of setting a high price,
a resolution may not emerge in the near future.
BANGLADESH
GSM Switch To Boost Citycell's
OutlookPacic Bangladesh Telecom, which markets under Citycell, has an-
nounced that it plans to spend BDT16bn (US$196mn) to switch from
CDMA technology to GSM due to continuous bad performances in
light of technology limitations. The long-awaited change, assuming
that the operator receives regulatory approval, should help bolster
Citycell's outlook as it would allow subscribers of rivals rms to
easily migrate to its network.
According to the Bangladesh Telecommunication Regulatory
Commission (BTRC), Citycell had 1.713mn subscribers at the end of
May, representing only 1.9% market share. Since launching services
in 2005, Citycell's mobile subscriber base has not exceeded the 2mn
mark and signicantly lags behind larger rivals Grameenphone(38.412mn), Banglalink (25.252mn), Robi Axiata (18.733mn)
and Airtel (6.667mn).
CDMA is typically more cost-effective, and Citycell's 800MHz
spectrum is suitable for target sparsely populated rural regions. How-
ever, the technology can also become a disadvantage in emerging
markets. GSM consumers can easily switch providers by swapping
SIM cards without purchasing new handsets. By contrast, CDMAphones are locked to one network, and the switching process requires
cooperation of the old and new operators Citycell's situation is
The BTRC has rejected Citycell's requests to switch to GSM
technology over the years. However, Citycell is undergoing a mobile
licence renewal, and the new licence will be technology neutral,
thereby technically allowing Citycell to change from CDMA to
GSM. Citycell's migration plan involves paying BDT7.5bn for
5MHz of spectrum in the 1800MHz band while retaining 5MHz of
spectrum in the 800MHz band for subscribers who refuse to make
the switch. As a result of the shift to higher frequency, Citycell plans
to increase its number of base transceiver stations from 860 to 2,500.
We do not expect signicant resistance from the regulator, es-
pecially if Citycell pays its licence renewal fees (operators such as
Grameenphone are in disagreement with the BTRC over the dues).
BMI believes that making the switch would bring Citycell to the
same competitive landscape as its rival operators. However, oper-
ating two separate networks is a costly and inefcient model. We
believe that this solution to prevent subscriber backlash is temporary,
but we eventually expect Citycell to fully migrate to GSM.
AFGHANISTAN
3G Competition Heating UpThe Afghanistan Telecom Regulatory Authority (ATRA) awarded
the country's second 3G licence to MTN Afghanistan on June
20, three months after rival Etisalat launched its network. More
licences are expected to be awarded with remaining mobile opera-
tors expressing interest, according to the regulator. BMI believes
that the added competition should provide a much-needed boost to
the country's telecoms industry, particularly in lowering the cost of
accessing the internet.
The ATRA invited bids for 3G licences in August 2011 but dis-
qualied potential new entrants Sahar 3G, Toseye Eatemad Mobinand Shezai Tel USA as they were deemed to have failed to meet the
requirements. Sequentially, the licences are to be awarded to exist-
ing GSM operators, namely Etisalat, MTN Afghanistan, Afghan
Wireless Communications (AWCC) and Telecom Development
Company Afghanistan (Roshan), as per the approval of the min-
isters' committee for the telecoms sector and 3G tender conditions.
Both licences that have been awarded cost US$25mn each, and the
price is expected to be the same for Roshan and AWCC.
MTN Afghanistan expects to launch 3G services by mid-July,
although BMI believes that coverage would be limited. At launch,
Etisalat's 3G services were only available in Kabul, but the opera-
tor expanded coverage into Jalalabad in June. The rapid commer-
cialisation of 3G services indicates that operators have already been
upgrading their equipment and networks. If the ATRA awards the
remaining two licences in the near future, we expect commercial
3G services from all four operators by end-2012, which presents an
upward risk to our Afghanistan 3G subscriber forecast.
We believe that the existing high prices for internet services will
provide signicant demand for 3G. According to the Ministry of
Communication and Information Technology, the internet price for
1MB of data per month fell by 67% from 2011 to 2012 but remains
a prohibitive US$300. During this period of time, the number of
internet users increased from 1mn to 2mn. Meanwhile, Etisalat's
3G plans vary from AFN499 (US$10) a month for 1GB of data
(smartphone) to AFN899 (US$19) for 4GB of data (USB dongle).Given a level playing eld each 3G licence costs US$25mn and
individual operator's market share is about 22-29% we expect
0
20,000
40,000
60,000
80,000
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120,000
Mar-09
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Teletalk
Citycell
Airtel
Robi Axiata
Bangladesh
Grameenphone
Citycell Not Keeping Pace With IndustryBangladesh Mobile Subscriber Growth By Operator (000)
Robi Axiatas subscriber data differ from that of the BTRC. Source: BTRC, Operators, BMI
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Asia TelecommunicationsAfghANIStAN
try at the end of 2016, up from 50,000 in 2012. However, the
potential large-scale availability of affordable 3G services could
result in rapid subscriber growth. That said, development is de-
pendent on operators being able to expand their networks, a situation
complicated by doubts surrounding the country's security.
2009
2010
2011
2012
2013f
2014f
2015f
2016f
Number of 3G Phon e Subscribers ('000) LHS
Number of 3G Phone Subscribers/100 Inhabitants RHS
Growth Could AccelerateAfghanistan 3G Subscriber Forecast, 2009-2016
f = BMI Forecast. Source: MCIT, ATRA, Operators, BMI
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