Asia Telecom

Telecom Carriers, Asia-Pacific (BI TELCA)

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Overview > Industry Outlook >> Exhibit 1 of 24

Asia Telecom Bull & Bear Pit Cheap Phones vs. Costs: BI Outlook 11/23/2013The BI Industry Outlookoutlines the major themes andtrends that are shaping theAsia-Pacific telecom industry.The Bull Case calls for low-cost smartphones to spur datatraffic and for Korean carriersto cut marketing spending.Indian operators may alsogain from higher rates andrevenue following industryconsolidation. The BearCase says profits may becrimped by expensive networkupgrades and spectrumauctions, driven by increaseddata usage.

Praveen Menon & John ButlerTelecom Carriers Team--Bloomberg Industries




SK Telecom, KT Corp. Avoid Korean IPhone Price War: Bull Case 11/22/2013South Korean telecomsare working to significantlyboost profit this year bycutting handset subsidiesand lowering contractdiscounts. Bulls contend thatgreater regulatory scrutinyfollowing a competitionprobe may help these effortswithstand marquee productlaunches. KT Corp. slashed3Q marketing expenses23% yoy, while SK madea 20% reduction and LGUplus cut by 2%. KT's "doubledata" promotion for LTEfailed to prevent a decline incustomers in 3Q.

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--Bloomberg Industries




China, India Smartphone Sales Doubling Spurs Data Use: Bull Case 10/10/2013Smartphone shipments inChina and India doubledyoy to 95.7 million in 2Q,according to IDC, fueled bysales of handsets costing lessthan $150 from the likes ofLenovo, Huawei and Coolpad.The surge may be a boonfor mobile operators as itwill probably lead to greateruse of data services. Highlylucrative data accounts forless than 15% of mobileservice revenue in Chinaand India, vs. 47% in Japan,as users have previouslystruggled to afford devices.





India Voice Rates May Rise as Competition Tumbles: Bull Case 10/10/2013Bharti Airtel, India's biggestwireless carrier, has saidvoice rates may rise forthe next three to fiveyears because of industryconsolidation and reduceddiscounting. The companyposted a 3.9% increase inaverage revenue per minutein the June quarter, whileReliance had a 4.5% gain,underscoring the rising pricingpower. The largest Indianoperators have an averagerevenue per minute of 73U.S. cents, 30% below 2009levels.

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Chinese Telecoms Get Data Boost From Cheap Handsets: Bull Case 08/19/2013Rising sales of low-costsmartphones in China mayboost data traffic for wirelesscarriers, helping offsetSMS and voice revenuedeclines. Total smartphoneshipments may jump 30% in2H, according to IDC, fueledby devices priced below $100,which accounted for 33% of1H unit sales. Affordable dataplans and tie-ups with popularservices such as WeChat mayalso boost data use. ChinaMobile's 1H data revenue rose62% yoy, while Unicom's 3Grevenue jumped 52%.





Smartphone Surge Forces Asia Carriers to Buy Spectrum: Bear Case 10/10/2013Bears contend that explosivegrowth in Asian smartphonesales may push operatorsinto expensive purchasesof spectrum and equipmentto cope with a jump in datatraffic. Carriers in India andJapan are already planningto buy spectrum as licensesexpire, while operators inChina, Korea and Australiaintend to expand capacityusing small cells and Wi-Fioffloading.

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Korea Telcos Miss Out on 4G Boom Amid Price Scrutiny: Bear Case 08/19/2013South Korea's telecomsregulator fined wirelessoperators for unfair marketingpractices in July. In a bearcase, greater scrutiny mayprevent rate increases,particularly for 4G services.LG Uplus also said thefines could damp customeradditions. Market leader SKTelecom scrapped a goal ofboosting average revenueper user 8% by 4Q, in favorof a 4% increase for 2013.Uplus and KT have targeted8% growth by 4Q. About 42%of Korean mobile users have4G.

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Reliance Mobile-Data Rate Cut Stokes India Price War: Bear Case 07/19/2013Reliance halved headline3G data rates to $2 for 1GB,undercutting peers suchas Bharti, Vodafone andIdea, which have alreadylowered prices on excessdata usage by as much as90%. Bears contend thata data price war will offsetrecent optimism surroundingvoice price increases spurredby regulatory action havingreduced competition. Ebitdamargins for India's threelargest carriers have fallen byas much as 10% since 2008.3G penetration remains below5%.

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Spectrum Auctions, China 4G Lead Asia Telecom Themes: BI Outlook 11/23/2013Major themes developingacross Asian telecoms includeincreasingly expensivespectrum auctions, such asa Taiwanese sale that raised$4 billion, or 3.3x the reserveprice. Chinese carriers arealso preparing for the arrivalof 4G licenses later this yearby boosting capex plans. Datarevenue in China jumped 55%in the first eight months of theyear, as greater use of 3Ghandsets helped spur a 65%surge in data traffic.

Telecom Carriers Team--Bloomberg Industries




Taiwan Raises $4 Billion in Spectrum Auction, Triple Reserve 10/31/2013Taiwan raised $4 billion ina wireless spectrum auction,with aggregate receiptsmore than 3.3x the reserveprices recommended bythe regulator. The landmarkauction drew 393 rounds ofbids, as unlike comparablesales it had no pre-definedend date. (It began Sept. 3.)Other recent Asia-Pacificauctions include one in SouthKorea that raised $2.2 billionand a Singapore sale thatpulled in $300 million.

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Chunghwa, Far Eastone Buy Most Spectrum in Taiwanese Auction 10/31/2013Taiwan's incumbent mobileoperators, led by Chunghwaand Far Eastone, snappedup 190 MHz of the 270 MHzof wireless spectrum sold inan auction. In the 1,800 MHzband preferred globally byLTE operators, Chunghwagot two blocks for a total priceof $1.2 billion, or $0.99 perMHz-Pop. Far Eastone wontwo blocks for $0.89 andTaiwan Mobile added oneblock for $0.90. The average1,800 MHz price of $0.93was a sizeable premium toSouth Korea's $0.72 andSingapore's $0.25.

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Telenor Predicts 50% Mobile Usage in Myanmar, Targets Payments 09/30/2013Telenor expects mobilepenetration in Myanmar toreach 50% in three years,according to BloombergNews. That would provide25 million new subscribersfor new entrants, Telenorand Ooredoo, and the twoexisting operators. Telenorexpects mobile paymentsto be a significant growthdriver, given a lack of financialservices. In Pakistan, 17% ofTelenor customers use mobilepayments, racking up $2.5billion of cash transfers peryear.

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China Unicoms 13.9% Sales Growth Leads Peers on Customer Gains 09/23/2013China Unicom boostedrevenue 13.9% ytd throughAugust, outpacing a 5.7%gain for market leader ChinaMobile and an 11.4% increasefor China Telecom, accordingto MIIT. The operator'scustomer number rose 19.2%,surpassing 16.5% growth forTelecom and 8.1% for Mobile.Mobile's revenue share hasfallen by 150 bps to 53.4%.The company may stem thedecline with the conversion of2G customers to 3G, whichhas helped it account for 66%of China's new 3G subs.

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China's 55% Surge in Mobile Data Sales Offsets Voice Slowdown 09/23/2013Mobile data revenue atChinese telecoms jumped55% in the first eight monthsof the year, as increased useof 3G handsets helped spura 65% surge in data traffic.Wireline internet revenuerose 7.1% because of greaterbroadband use. The datagain offset slower growth forvoice, which still accountsfor 47% of industry revenue.Total voice revenue rose just0.9%, as mobile-voice growthslumped to 2.4%, half theyear-earlier pace, and wirelinevoice declined 10.3%.

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Asia Telecom Profits Seen Rising 22% on Data Usage: BI Outlook 10/10/2013Asian telecom carriers mayboost 3Q profits 22%, basedon consensus, because ofhigher data use and lowerdiscounts. DoCoMo's profitgrowth may be hamperedby customer gains trailingcompetitors KDDI andSoftbank. Indian telecomsmay win further increasesin voice rates as reduceddiscounting cycles throughtheir subscriber base. Thecarriers have warned thatinflation may damp earnings.Korean operators may cutmarketing spending on fearsabout regulatory scrutiny.





IPhone Subsidies, Data Use in Focus for 3Q Asia Telecom Earnings 10/03/2013Asia telecom earningsstart with Singapore's M1on Oct. 14 and end in mid-November with the Koreancarriers. Investors may focuson marketing initiatives andsubsidy models for Apple'snew iPhones, particularlyin Japan, where marketleader NTT DoCoMo willcarry the devices for the firsttime. Korean telcos will bescrutinized over 3Q marketingcosts. Indian telecoms mayonly report modest progressin voice pricing on seasonalweakness.

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DoCoMo IPhones May Help Close 50% User-Gain Gap vs. Peers in 3Q 10/03/2013NTT DoCoMo's agreementto carry Apple's new iPhonesin Japan may end a dismalrun of data-hungry customerlosses, which has seen itsmarket share fall by 7% since2007. DoCoMo, still Japan'slargest carrier, added 215,500customers in July and August,trailing Softbank's 504,800and KDDI's 434,400. Thecompany's Ebitda may rise2% in the year ending March,compared to a 60% jump forSoftbank, including Sprint,and a 24% gain for KDDI,including JCOM, based onconsensus.

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Korean Telecoms 3Q Profit Growth May Quicken on Marketing Cuts 10/03/2013Korean telecoms' earninggrowth may accelerate in 3Qfrom 2Q after governmentpenalties handed out in Julyover unfair pricing policies. LGUplus's 3Q Ebitda may jump52%, while SK Telecom'smay rise 22%, according toconsensus estimates. KTCorp. may only post a 10%gain because of a greaterreliance on fixed-line services.The anticipated growth mayspur industry efforts to paremarketing costs for newsubscribers, while squeezingmore data revenue from 4Gusers.

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Idea, Reliance May Lead India Telecom Profit Gain on Voice Rates 10/03/2013Idea boosted realized ratesper minute (ARPM) 6.1% inthe June quarter, the mostin India. ARPM rose 4.5% atReliance and 4% at Bhartiafter several flat quarters.Industrywide consolidationhas let carriers raise callingrates and cut discounts, suchas free voice minutes. For theyear ending March, Ebitdamay rise 37% at Idea, 29% atReliance and 11% at Bharti,according to consensus.





Asia's Largest Telecom Carriers Trade at 20% Premium: BI Outlook 10/18/2013Bloomberg Industries'Asian telecom carrierspeer group rose 29% ytd,outperforming the MSCIAsia Pacific Index's 9% gain.The largest Asian operatorstrade 20% above long-termEV/Ebitda averages, asthe bulk of network-relatedspending concludes. Chinesecarriers have the biggest pricegap to analyst consensustargets, as handset subsidieserode margins. Japanesestocks have been the bestperformers this year, boostedby Abenomics.





Chinese Telecoms Trade at Lowest Multiples Among Asia Operators 09/18/2013The Bloomberg Industrieslarge-cap Asia telecomcarriers peer group(BILTELVP) has rebounded5% in the past month andtrades at a median EV/Ebitdaof 5.8x 2014 consensusEbitda. The highest-valuedcarriers include Singapore'sSingTel, Malaysia's Maxisand Digi.com, Taiwan Mobileand AIS (Thailand). Chinesetelecoms trade below 4.0xas higher handset subsidiesto lure 3G customers amidintense price competition maycontinue to crimp profits.

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Asian Telecoms Trade 20% Above Long-Term EV/Ebitda, Led by KDDI 10/18/2013Asia-Pacific telecom carrierstrade at 7.6x trailing 12-month EV/Ebitda, 20% abovethe long-term average of6.4x. Japan-based KDDIand Singapore's M1 tradeat the highest premiums tolong-term valuations. Indiancarrier Bharti is trading 14%below its average, as aresult of falling profitabilityat African operations. ChinaMobile trades 42% belowits average as over-the-top calling and messagingapplications caused voicerevenue declines.

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Japan Telecoms Outperform on Abenomics; Chinese Trail Peers 10/18/2013Japanese telecoms havereacted favorably to the newgovernment's growth policiesand significantly outperformedother Asian carriers ytd,surging 81% on average vs.the wider group's 25% gain.Leading the increases areSoftbank, up 135% and KDDI,up 80%. Chinese carriers trail,with China Mobile and ChinaTelecom posting negativereturns ytd. Korean operatorstrade furthest from pricetargets, with an average 17%gap between share price andconsensus target.

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KDDI, Softbank, SK Telecom Lead Asian Operators' Analyst Ratings 08/21/2013The most profitable Japanesetelecoms have some ofthe highest analyst ratingsfor Asian operators, whileaverage price targets arerising slightly. KDDI, Softbankand Korea-based SK Telecomall score at least 4.5 (1 = sell,3 = hold, 5 = buy), and arerated buy by more than 80%of analysts covering them.India's Bharti Airtel has thelargest gap to consensustarget price at 22%, followedby SK and Korea-based KT atabout 20%.

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