Singtel gains an edge in Australia; Attractive entry point

  • Optus gains an edge over Telstra from winning more 900 MHz spectrum
  • Regulatory limits on spectrum holdings prevented Telstra from acquiring more spectrum
  • Attractive entry point; BUY with unrevised TP of S$3.13 implying 28% upside potential and ~4% yield

Optus has acquired 2 x 25 MHz of 900 MHz spectrum nation-wide for a total of A$1.476 billion. The spectrum licences have been awarded for a 20-year term commencing 1 July 2024, with early access expected. According to Optus “The 900MHz boost will help Optus deliver a significant uplift of 5G coverage nation-wide, in addition to its fastest 5G network as recognised by independent benchmarks.  It also lays the foundation for strong national competition in the mobile market”.  

Due to the limits imposed that restrict telcos to holding 40% of spectrum under 1GHz, Telstra was only able to pick up two lots of 10Mhz in the 850MHz band for almost A$616 million. Telstra had contested the regulatory limit earlier in July 2021 but to no avail. The 900 MHz spectrum carries mobile signals further than higher bands, so fewer base stations are needed to service a broad area. This characteristic is particularly important in regional areas as it lowers the infrastructure investment required to service customers over a wide area. The 900MHz spectrum also provides superior in-building coverage as it can penetrate deeper than mid and high band spectrum.

We like to highlight that Singtel is benefitting from across-the-board improvement across its core markets in Singapore, Australia and regional investments in India and Indonesia. Recent pressure on broader STI index has impacted Singtel adversely despite improving fundamentals. This provides an attractive entry point for entry into the stock at more than 35% holding company discount