StarHub Ltd. (STH), Singapore’s second- largest phone company, will roll out a faster network at key business centers as more people use smartphones such as Apple Inc. (AAPL:US)’s iPhone to browse the Internet and watch videos.
Users will be able to get on the fourth-generation network in the central business district, where major banks have offices, and Changi Airport later this year as handset makers start unveiling 4G handsets, Chief Executive Officer Neil Montefiore said in a July 6 interview. The cost to roll out throughout Singapore in two years will be “marginal,” supporting the company’s “stable” profitability, he said.
StarHub, competing with Singapore Telecommunications Ltd. (ST) for mobile-phone and pay-TV customers in the city-state, will also use a new fiber-optic grid to get clients in commercial buildings in the suburbs, Montefiore said. Smartphones such as the iPhone and Samsung Electronics Co. (005930)’s Galaxy models, used to access social media and stream videos, have increased demand for capacity and prompted carriers across Asia to upgrade networks.
“The rollout of 4G network will enable StarHub to cross- sell its content,” said Gregory Yap, an analyst at Maybank Kim Eng Securities Pte, who rates the company a buy. “Mobile will continue to provide steady cash flow.”
StarHub shares rose 0.9 percent today, closing at record high of S$3.52 while the benchmark Straits Times Index dropped 1.7 percent. StarHub extended the gains this year to 21 percent, outpacing bigger competitor SingTel’s 7.1 percent advance and smaller competitor M1 Ltd. (M1)’s 1.2 percent increase. StarHub rose 11 percent last year and 22 percent in 2010.
Trading at 18 times its estimated earnings, StarHub is the most expensive phone company in the city-state. The company offers investors a dividend yield of about 5.7 percent, better than the 3.7 percent average for the 30 companies on the Straits Times Index.
“Definitely it’s the most expensive phone carrier in Singapore, but I’ve had a buy rating for so long because I was looking at its capacity to pay more dividend,” said Maybank Kim Eng’s Yap. Five of 23 analysts tracking StarHub have a buy rating on the stock, with 15 recommending investors hold, and the rest with a sell rating.
The next generation of wireless networks use a standard called long-term evolution, or LTE, which offers higher up- and download speeds and latency, or response time, that’s three times quicker on average than previous technology.
About 65 percent of the existing post-paid mobile-phone users in Singapore, and as many as 90 percent of new subscribers, are smartphone users, according to DBS Vickers Securities Pte, a local brokerage. Post-paid customers have a contract with the company and pay their bills after usage.
Almost 95 percent of StarHub’s new customers are buying smartphones, devices that can be used to surf the web, play and record high-quality movies and photographs and create documents. About 80 percent of the company’s 1.1 million post-paid customers are already using smartphones, according to Jeannie Ong, a company spokeswoman, adding she has no details on Apple’s plan to introduce a 4G-enabled iPhone.
In addition to handsets, usage of tablets such as Apple’s iPad and Samsung’s Galaxy Tab are boosting the need for capacity as people increasingly watch streaming video wirelessly.
Singapore Telecommunications, also known as SingTel, last month unveiled its 4G services in the country, offering the network through three handsets: HTC Corp. (2498)’s One XL, LG Electronics Inc. (066570)’s Optimus LTE and Samsung’s Galaxy S2 LTE, it said in a June 4 statement.
StarHub’s corporate-data services are available in about 1,100 office buildings in the business district, where the company has built its own fiber-optic network. The new broadband platform will allow the operator to get new clients in 20,000 commercial buildings across the island. Potential revenue from these is about S$1 billion ($786 million), Montefiore said.
“It’s a game changer,” said Montefiore, 59. “The rollout of the next generation broadband network to more buildings will give us access to a market that’s still a monopoly.”
Most of StarHub’s corporate business comes from large companies and the new network will allow it to tap small and medium enterprises, Montefiore said.
“This is the most attractive pie for service providers,” Sachin Mittal, an analyst at DBS Vickers, wrote in a note to clients on July 4. “Each commercial connection commands much higher average revenue per user than residential connections.”
A veteran with more than 35 years of experience in the telecommunications industry, Montefiore joined StarHub in January 2010 as its CEO. Before that he was the head of M1, the country’s No. 3 phone operator. Montefiore is a permanent resident of Singapore, according to the company’s website, and has lived in the city for 16 years.
Singapore phone companies have been offering 12-gigabyte mobile-data subscriptions for S$10 to S$15 per month and this has cannibalized their voice and text-messaging revenue, DBS Vickers said.
Besides the corporate data services business, Montefiore said he is optimistic mobile revenue will continue to grow by bringing the company’s pay television content to handsets and other devices. He may also introduce so-called tiered pricing for wireless data, where customers pay for usage based on actual consumption.
“We just need to get the revenue-growth tied to the data usage,” Montefiore said.
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