瑞信-5G：低成本才是王道-2019.2.13-110页.pdf

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.13 February 2019Asia PacificEquity ResearchTelecommunication Services Asia Telecoms Sector CONNECTIONS SERIESThe Credit Suisse Connections Series leverages our exceptional breadth of macro and micro research to deliver incisive cross-sector and cross-border thematic insights for our clients.Research AnalystsColin McCallum,CA852 2101 6514colin.mccallumcredit-Keiichi Yoneshima81 3 4550 9740keiichi.yoneshimacredit-Sunil Tirumalai91 22 6777 3714sunil.tirumalaicredit-Entcho Raykovski61 3 9280 1716entcho.raykovskicredit-Varun Ahuja,CFA65 6212 3017varun.ahujacredit-Danny Chan60 3 2723 2082danny.chancredit-Soyun Shin82 2 3707 3736soyun.shincredit-Billy Lee852 2101 6529billy.leecredit-Viral Shah91 22 6777 3827viral.shahcredit-Lachlan Brown61 3 9280 1659lachlan.browncredit-5G:Counting the cost and picking the winnersFigure 1:5G costs becoming a realitytelco capex forecasts(US$mn)020,00040,00060,00080,000100,000120,000FY17FY18FY19FY20ChinaIndiaIndonesiaMalaysiaThailandAustraliaHong KongKoreaTaiwanSingaporeJapanSource:,Credit Suisse estimatesOperators beginning to incur real costs for 5G.Operators in Korea and Australia have already purchased 5G spectrum at auction.In China,on 7 December 2018,the MIIT issued allocations of mid-band 5G spectrum to the three China telcos for nationwide trials,and in Japan allocations are to be awarded in March 2019.Operators are therefore beginning to incur real costs for 5G,in the form of spectrum fees and,in 2019,capex.End use cases still not convincing.There still seems to be no pressing need for nationwide 5G coverage for mass market consumers,in the way that video,e-commerce and gaming were facilitated by 4G.This suggests that a gradual rollout using a hotspot approach would be the least damaging strategy for profitability,but this strategy is unlikely to be acceptable in Japan,Korea or China.We expect returns on invested capital(ROIC)to decline in Japan,China,Australia and Hong Kong over FY19-24.Factoring in expected spectrum costs in Hong Kong,we lower our target prices for SmarTone,HKT Trust and HTHK by 9.1%,1.1%and 3.2%,respectively,to HK$11.15,HK$13.05 and HK$3.05,respectively.Overweight 4G market repair situations.The proximity of real costs(spectrum fees and capex)in contrast with a lack of clarity over the monetization of 5Gleads us to adopt a relatively cautious stance on telcos in China,Australia,Korea and Japan.Our top OUTPERFORM calls namely DTAC,PT Telkom and SingTelhave exposure to markets that look set to adopt a gradual hotspot approach to 5G rollout,while they enjoy improving 4G competitive dynamics.China Tower Corp(CTC)is likely to prove the winner from 5G over-investment in China.13 February 2019Asia Telecoms Sector2Focus charts and tablesFigure 2:Key enablers of 5GSource:Telstra5G investor day,December 2018Figure 3:Status of 5G in AsiaMid-band spectrum issuance Timing/expected timing28GHz spectrum issued?5G soft launch5G commercial launchSpectrum issuedAustraliaYes2018No 20192020ChinaYes2018No 20192020KoreaYes2018Yes20192020Auctions/applications plannedJapanYes2019No 20192020Hong KongYes 2019No 2020/20212021Plans not yet clearSingaporeNo 2020No 2020/20212021TaiwanNo 2020No 2020/20212021IndonesiaNoPost 2020No 2020/20212021Thailand No Post 2020No 2020/20212021MalaysiaNo Post 2020No 2020/20212021IndiaNo Post 2020No Post 2021Post 2021Source:Company data,Credit Suisse estimatesFigure 4:5G spectrum costs in Asia to dateCountryOperatorMid-band spectrumUpfront cost(US$mn)Price per MHz per pop(US$)High-band mmWave spectrumUpfront cost(US$mn)Price per MHz per pop(US$)Total cost as%of market capAustraliaTelstra1x60MHz at 3.6GHz2800.19None-1.0%AustraliaOptus1x100MHz at 3.5GHz*690.03None-n.a.AustraliaVodafone/TPG JV 1x60MHz at 3.6GHz1910.13None-n.a.ChinaChina Mobile1x200MHz at 2.6GHz,1x100MHz at 4.9GHz-None-0.0%ChinaUnicom 1x100MHz at 3.5GHz-None-0.0%ChinaChina Telecom1x100MHz at 3.5GHz-None-0.0%KoreaSKT1x100MHz at 3.5GHz1,0970.21 1x800MHz at 28GHz1870.0056.8%KoreaKT1x100MHz at 3.5GHz8710.17 1x800MHz at 28GHz1870.00515.8%KoreaLGU+1x80MHz at 3.5GHz7290.18 1x800MHz at 28GHz1870.00515.1%Source:Company data,Credit Suisse estimates Note:*2x50MHz spectrum bands were purchased for A$95.3m in October 2000 by AKAL Pty Limited(Unwired),later named Vividwireless.Optus acquired Vividwireless for A$230m in February 2012,which owned the aforementioned 100MHz of spectrum in the 3.5GHz frequency and 98MHz of spectrum in the 4G 2.3GHz frequency13 February 2019Asia Telecoms Sector35G:Counting the cost&picking the winners5G progressing:Some markets now have spectrum.A standalone version of 5G(5G-S)was finalised by the 3GPP in July 2018,in 3GPP Release 15.The standards are sufficient for vendors to construct end-to-end network elements,as well as preliminary 5G devices.Operators in Korea and Australia have already purchased 5G spectrum at auction.In China,on 7 December 2018,the MIIT issued allocations of mid-band 5G spectrum to the three China telcos for nationwide trials,and in Japan allocations will be awarded in March 2019.Operators are therefore beginning to incur real costs for 5G,in the form of spectrum fees and,in 2019,capex.though use cases are still not overly convincingAfter purchasing or being allocated 5G spectrum resources,operators want to use it to provide additional low cost capacity(low cost on a per GB basis at least),and offload traffic from congested 3G and 4G networks.Thus capacity provision is likely to be the key initial driver for 5G rollout on the operator side.However,demand pull use cases are lagging.There still seems to be no pressing need for nationwide 5G coverage for mass market consumers,in the way that video,and therefore content,e-commerce and gaming were facilitated by stable speeds of over 4Mbps through 4G technology.This suggests that gradual rollout using a hotspot approach would be the least damaging strategy for profitability,but this strategy is unlikely to be acceptable in Japan,Korea or China.Nevertheless,5G capex to commence in 2019Indeed,spectrum costs are already now a fact(at least,in Australia and Korea),and capital is being deployed on equipment during 2019.We forecast rising capex-to-sales ratios in Hong Kong,Korea,Japan and China across FY19-21.Given high 4G penetration,and what currently looks to be poor prospects for 5G monetisation,we expect returns on invested capital(ROIC)to decline in Japan,China,Australia and Hong Kong across FY19-24.Factoring in expected spectrum costs in Hong Kong,we lower our DCF-based target prices for SmarTone,HKT Trust and HTHK by 9.1%,1.1%and 3.2%,respectively,to HK$11.15,HK$13.05 and HK$3.05,respectively.Stock calls:Overweight 4G market repair situationsThe proximity of real costs(spectrum fees and capex)in contrast with a lack of clarity over the prospects of monetising 5Gleads us to adopt a relatively cautious stance on telcos in China,Australia,Korea and Japan.Our top OUTPERFORM callsnamely DTAC,PT Telkom and SingTelhave exposure to markets that look set to adopt a gradual hotspot approach to 5G rollout,while they enjoy improving 4G dynamics.For DTAC,the receipt of 2300MHz spectrum in April 2018,followed by acquisition of 1800MHz spectrum in August 2018 and 850/900MHz spectrum in October 2018,confirms it as a going concern.Absence of Bt4.0 bn per quarter in concession-related depreciation charges should help DTAC monetise the remaining 4G opportunity,and beat consensus forecasts in FY19.PT Telkom is the only liquid way to invest in 4G market repair in Indonesia,and is best placed for 5G rollout in terms of both cellular and fibre network resources.While SingTel is exposed to competition in the domestic Singapore market,due to the entry of TPG,this represents a small proportion of SingTels sum-of-the parts.Its associates in Indonesia and Thailand,benefiting from market repair and low 5G capex risk,and much more material drivers of SingTel.We are also less negative on SingTels exposure to the competitive dynamics in India as we look forward,given that Jio has already reached 25.0%market share by revenue.On a two-year view,it is reasonable to expect Jio to starting behaving more like an incumbentfocused on monetising its existing subscriber baseand less like a new entrant cutting prices to gain scale.Operators now incurring real costs for 5G Still no killer apps to drive demand or revenueSpectrum payments incurred,capex commencing in 2019Top picks:DTAC,PT Telkom and SingTel13 February 2019Asia Telecoms Sector4Sector valuationsFigure 5:Asia telco comparative multiplesCloseTarget Mkt capP/EEV/EBITDAFCF yieldDiv yieldTickerCcyprice Ratingprice(US$bn)19E20E19E20E19E20E19E20EChina Tower788 HKHK$1.67O1.8336.744.929.77.36.73.2%4.0%1.1%2.0%Integrated operatorsPT TelkomTLKM IJRp 3,930.00O4,500.0027.617.816.58.37.62.9%6.0%4.4%5.5%China Telecom728 HKHK$4.26N3.9543.912.411.73.23.26.8%4.9%4.0%5.5%China Unicom762 HKHK$9.05N9.9535.317.213.93.43.211.2%8.5%2.9%4.3%Chunghwa2412 TTNT$106.50U90.0026.725.025.110.510.44.7%4.6%4.0%4.0%HTHK215 HKHK$3.11N3.051.936.535.518.417.90.6%0.9%2.1%2.1%KDDI9433 JP2,656O3,30057.911.211.24.74.711.1%11.1%3.4%3.4%KT030200 KSW28,700N32,0006.710.49.52.52.320.2%18.9%3.5%3.5%Softbank9984 JP10,015O11,70098.89.119.97.37.34.5%9.1%0.4%0.4%PCCW8 HKHK$4.76O5.554.740.533.810.09.710.1%10.8%6.9%7.3%HKT Trust6823 HKHK$11.88O13.0511.517.517.110.910.67.7%8.0%6.0%6.4%PLDTTEL PMP1,216U1,1505.011.911.75.95.7-0.9%-0.2%5.1%6.9%SingTelST SPS$3.05O3.8536.615.313.36.45.26.8%7.4%5.7%5.7%TMT MKRM2.85O3.202.616.115.14.74.44.5%5.3%3.1%3.3%TelstraTLS AUA$3.24N3.1027.417.613.06.35.46.8%9.1%5.2%5.2%True CorpTRUE TBBt5.20U3.455.564.759.96.96.78.6%8.5%0.0%0.0%Link NetLINK IJRp 4,380.00O8,350.000.98.77.64.53.88.6%10.3%5.7%7.9%HKBN1310 HKHK$12.04O14.751.528.620.910.57.95.8%6.1%5.7%7.1%Dr Peng600804 CHRmb8.34N9.001.836.419.05.54.75.1%1.3%0.8%1.6%Asia average-integrated14.515.75.75.45.7%6.6%2.8%3.1%NJA-integrated18.716.76.45.96.9%6.9%4.4%5.0%CloseTarget Mkt capP/EEV/EBITDAFCF yieldDiv yieldTickerCcyprice Ratingprice(US$bn)19E20E19E20ETickerCcypriceRatingMobile operatorsAISADVANC TBBt181.00O230.0017.116.716.18.08.27.7%8.2%4.2%6.2%AXIATAAXIATA MKRM3.83O4.608.522.019.24.74.69.5%10.0%3.6%4.2%BhartiBHARTI INRs312.20N320.0017.5105.828.38.17.5-5.5%-10.6%0.1%0.4%China Mobile941 HKHK$82.25N82.50214.512.612.63.23.15.8%5.1%4.3%4.4%DiGiDIGI MKRM4.55U3.408.723.724.512.612.82.2%2.2%4.2%4.1%XLEXCL IJRp2,130O3,3001.6110.928.53.73.17.9%14.0%0.8%3.2%FarEasTone4904 TTNT$72.00N77.007.623.623.29.29.16.8%6.3%5.2%5.2%GlobeGLO PMP1,980N2,0005.013.712.85.85.81.6%3.5%4.6%5.2%IDEAIDEA ININR31.15U28.501.6n.m.n.m.11.79.6-98.6%-139.4%0.0%0.0%IndosatISAT IJRp3,520O4,0001.4n.m.n.m.4.54.3-8.7%-6.7%0.0%0.0%LG Uplus 032640 KSW15,100N14,8005.913.912.23.73.65.7%5.1%2.6%2.6%MaxisMAXIS MKRM5.70U4.5010.923.123.412.913.13.6%3.6%3.5%3.5%NTT DoCoMo9437 JP2,552N2,70087.412.312.36.06.05.4%5.4%4.3%4.3%SKT017670 KSW 261,000O315,00018.79.17.54.84.57.0%5.7%4.2%4.2%SmarTone315 HKHK$9.62O11.151.415.915.36.17.78.0%7.2%4.7%4.9%StarHubSTH SPS$1.91U1.552.416.621.67.37.88.1%6.7%5.2%5.2%TACDTAC TBBt47.75O71.003.616.316.25.14.89.1%9.8%3.1%3.1%Taiwan Mobile3045 TTNT$109.50N110.0012.123.323.29.69.66.1%5.7%5.1%5.1%Asia average-mobile18.514.95.15.04.9%4.2%4.1%4.2%NJA-mobile19.414.94.94.84.8%3.9%4.0%4.2%Asia average-telecoms16.415.35.45.25.3%5.5%3.4%3.6%NJA-telecoms19.115.65.55.35.7%5.1%4.2%4.5%Source:Company data,Credit Suisse estimates13 February 2019Asia Telecoms Sector55G progressing:Some markets now have spectrum.Standards for standalone(5G-S)already set The 3GPPthe de-facto standard-setting body for 5Gannounced the first version of the 3GPP 5G standard in December 2017.This standard,termed 5G non-standalone(5G-NS),requires 4G-LTE(both LTE radio and LTE core)to act as an anchor for the 5G network,and therefore 5G-NS acts an as overlay on an existing 4G network.A standalone version of 5G(5G-S)was finalised by the 3GPP in July 2018,in 3GPP Release 15.This release brought a new end-to-end infrastructure,facilitating the ability to deploy 5G independently,without the need for LTE(neither LTE radio nor LTE core)as an anchor to operate.While a further step in 5G standardisation comes with 3GPPs Release 16,known as 5G phase 2,currently scheduled for December 2019,the 5G-S standards set in July 2018 are sufficient for vendors to construct end-to-end network elements,as well as preliminary 5G devices.Operators with appropriate licences and spectrum resources are now therefore in a position to broaden 5G tests and move towards full commercial launch.So,what actually constitutes 5G?Crucially,both 5G-NS and 5G-S use OFDM(orthogonal frequency division multiplexing)as the radio access waveform,the same radio waveform used in 4G-LTE.Thus,in itself,the improvement in spectral efficiency(bps/Hz)from a 5G RAN(radio access network)versus a 4G RAN is actually substantially lower than the increase seen in previous generation upgrades(4G vs 3G,3G vs 2G etc).However,several aspects of 5G technology come together to produce higher speeds(circa 10 x 4G levels,at up to 20Gbps),and lower latency(circa 1/30th 4G levels,a 1 millisecond)for users,as well as dramatically higher capacity for operators.Figure 6:Key enablers of 5GSource:Telstra5G investor day,December 2018Those aspects include beam forming,which directs capacity to a device on the move,multi-user MIMO(Multiple In-Multiple Out),which allows devices to receive multiple allocations of capacity,distributed cores,which allow core network resources to be positioned closer to customers,and network slicing,which allows a portion of core and radio network to be dedicated to a specific user or user group.The other critical factor is wider channel bandwidths.Release 16 allows radio carriers up to 1000MHz wide,compared to the 20MHz maximum carrier width of 4G(LTE).Operators are currently achieving high speeds(up to 2Gbps)on LTE by aggregating several 10-20MHz channels.The signalling used to support such carrier aggregation Standalone version of 5G(5G-S)finalised in July 2018Wider channel bandwidths are crucial13 February 2019Asia Telecoms Sector6creates inefficiencies.5G can therefore boost efficiency by using wider single bands to begin with,obviating the need for carrier aggregation and therefore reducing signaling overhead.The key implication of this is that additional spectrum resourceswith much wider carrier bandsare needed.and spectrum has been issued in Korea,China and Australia(with issuance in Japan by end March)Thus,to enjoy the significantly higher speeds and improved performance o