March 4, 2010 / 7:47 AM / 7 years ago

ANALYSIS - Southeast Asia telcos shine, tap mobile data for growth

A customer sends a text message from her phone in a mobile phone shop in Jakarta in this June 2008 file photo.Crack Palinggi

BANGKOK (Reuters) - Trendy smartphones are emerging as a boon for telecom operators in Southeast Asia, where growth in telecom services is set to outpace the rest of Asia as the region snaps back from the financial crisis.

From the saturated markets of Singapore and Malaysia to fast-developing Indonesia, Thailand, Vietnam and the Philippines, telecoms operators are seeing increases in data revenue, a trend analysts see continuing for five years in some markets.

Mobile broadband is at the heart of the growth, delivered by laptop, netbooks and handsets especially smartphones, said Nathan Burley, a Singapore-based telecoms analyst at consultancy Ovum.

Southeast Asia's telecoms service market, including data and Internet services, is forecast to rise 8 percent to $36.1 billion in 2010, according to market researcher IDC. That compares with 6 percent growth for Asia-Pacific excluding Japan.

For a graphic on mobile phone penetration, click r.reuters.com/syc33j

Several factors underpin optimism in a region best known for bruising telecom price wars.

Recent price declines have put Apple's iPhone, Research In Motion's BlackBerry and other smartphones within reach of growing middle classes in Southeast Asia's top six economies, a region of nearly 500 million people.

That is combined with widespread third-generation mobile services. "Almost every country has 3G services, which will boost mobile data usage," said IDC analyst Worajate Charoennish.

Consolidation, Cheap Valuations

Indonesia, Southeast Asia's biggest economy, will likely lead growth, with wireless broadband services coming up as the main way people surf the web in the country of 225 million people due to small numbers of fixed telephone lines in the archipelago.

Indonesia, whose carriers are emerging from a two-year price war, is dominated by the "Big Three": Telekomunikasi Indonesia, Indosat and Indo XL Axiata, with smaller firms facing tough capital spending constraints.

"We expect 10 percent revenue growth for the Big Three telcos driving recurring net profit growth of 10-15 percent," said Citibank analyst Karen Ang, who upgraded Telkom last month to a "buy" from a "hold" with a medium level of risk.

"This growth stands up well against the region, justifying premium valuations, particularly for Telkom -- only the Malaysian telcos are more expensive," she added, describing Indosat as a "turnaround play" after recent management changes.

Indo XL, she added, could overtake Indosat as the country's second-biggest player by market share -- a prospect that has contributed to a nearly 70 percent surge this year alone in the tightly held stock, only 0.2 percent of which is publicly listed.

Analysts also see some potential for consolidation in Indonesia where 13 mobile licences are held by 11 operators.

Smartphones to Drive Growth

Among other players, Singapore Telecommunications (SingTel), Thailand's Advanced Info Service, Total Access Communication and Philippine Long Distance Telephone Co (PLDT) expect single digit revenue growth this year.

In the Philippines, where a price war will likely remain fierce, top operators PLDT and Globe Telecom Inc are seeking more broadband revenue to counter the impact of a fall in in revenue from voice services.

Broadband revenue is expected to grow 28 percent in the Philippines this year, helping to cushion a 9 percent drop in average revenue per mobile subscriber, analysts said,

Across the region, carriers are ramping up smartphone shipments, which are forecast to rise 25 percent to 9.7 million in Southeast Asia this year -- more than triple the 8 percent growth for overall mobile phones, IDC says.

The trend dovetails with the rest of Asia where the number of smartphone users are expected to jump sixfold by 2015, according to Credit Suisse, which considers SingTel and MobileOne top picks in Singapore, while expecting Maxis to outperform its Malaysian peers.

"We believe Maxis is best positioned to benefit from rising smartphone penetration due to its dominance in the high-end post-paid subscriber base," Credit Suisse said, referring to people who pay monthly bills instead of using pre-paid phones.

Southeast Asia telecoms firms have been attractive defensive plays given relatively low valuations and attractive yields.

Shares in SingTel, Southeast Asia's biggest telecoms operator, trade at 12.6 times 2010 earnings, among the industry's cheapest and compared with Telkom Indonesia's 13.9 times, Maxis' 16.8 times and XL Axiata's 18.7 times, according to Thomson Reuters data.

In Thailand, where a long-awaited auction of third-generation mobile services has been delayed to the second half of this year, growing popularity of mobile social networking and limited landline internet access is boosting data-service revenue.

Market leader AIS expects data revenue to rise 20 percent in 2010, against a 5 percent rise in subscribers in the saturated market. But concern over fallout from a court ruling against former premier Thaksin Shinawatra is battering Thai telco stocks.

Additional Reporting by Sunanda Creagh in Jakarta, Julie Goh in Kuala Lumpur, Rosemarie Francisco in Manila and Harry Suhartono in Singapore. Editing by Jason Szep and Anshuman Daga

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