www.dbsvickers.com Refer to important disclosures at the end of this reported: MY / sa: JC

STI : 2,997.65

AnalystSachin Mittal (65) 6398-7950sachin@dbsvickers.com

PERFCF YieldEV/ EBITDA

Singapore Telecom, FY11 & FY12 earnings respectively

Source: DBS Vickers

DBS Group Research. Equity30 July 2010

Singapore Industry Focus

Telecom Companies

Recommendations Price Mkt Cap Target RatingPriceSINGAPORE S$ S$ (bn) S$

MobileOne 2.14 1,406 2.30 BUYStarHub 2.35 2,946 2.20FULLYVALUEDSingapore Telecom 3.11 36,231 3.45 BUY

Source: DBS Vickers

iPad- lessons learnt from AT&T

•

iPad’s microSIM is smaller than traditional SIM; Newrevenue stream for operators from iPad’s 3G-data plan.

•

Potential could be 2-3% of revenue and 3-4% of earnings,plus for cellular players.

•

M1 offers cheaper iPad plans with limited usage, a lessonlearnt from AT&T. SingTel and StarHub offer premiumplans with higher usage.

•

We prefer SingTel & M1 to StarHub.New revenue-stream for cellular players.

iPad uses microSIMcard, which is smaller than traditional SIM card. Arguably SIM cardcan be trimmed to a microSIM card but then it would becomeuseless for smartphone ruling out interchangeability. As such, iPadowners would need to buy new 3G-data plan, which would be anew revenue stream for cellular players. We estimate 50K and150K iPad households in 2010 and 2011, based on 5% and 15%household penetration rate in Singapore in 2010 & 2011respectively. Assuming 80% of iPad users subscribe to 3G-data planwith average ARPU of S$25, we estimate iPad data revenue ofS$18m in 2011F, about 2.5% of industry cellular revenue. With nodevice subsidy involved, we expect 70-80% of revenue to flow tothe bottomline, contributing about 3-4% of cellular industrybottomline in 2011.

M1’s iPad plan targets light 3G-users, lesson learnt fromAT&T.

In terms of strategy, M1 seems to target light 3G-data userswith cheaper plans, more appealing to the students. This is incontrast to SingTel and StarHub, who are targeting heavy-datausers with premium plans. Plus there is no initial fee for M1 iPadplans in contrast to its competitors. This is also inline with AT&T’sexperience where it stopped offering unlimited 3G-plans to its newiPad customers and offers maximum 2GB data limit (lower thanM1’s 3GB) due to capacity constraints, most probably. AT&Trealized that only 2% of people used more than 2GB, congestingthe network for the rest 98%. In our view, iPad is like a notebookwith more indoor (Wi-Fi) usage and consumers should bediscouraged to use excessive 3G-data over Wi-Fi data. While M1does offer unlimited data plan, we expect more traction forcheaper plans as consumers budget their iPad bills on top ofsmartphone bills. SingTel targets high-end users with 50GB of datalimit while StarHub offers unlimited data under its iPad plans, whichraises questions on the efficient use of 3G-network.

Pure cellular players should benefit more.

We favor M1 as thechief beneficiary of iPad’s growth in Singapore. We continue tofavor SingTel and M1 over StarHub. We like SingTel for strongOptus, recovering Bharti and attractive valuations. We like M1 forits ability to gain its market share, capital management potentialand defensive 7% dividend yield. For StarHub, we are afraid thatgroup equity may become negative, if it continues with 20 cents

11.812.115.211.611.513.505101520M1 SingTel Starhub2010F 2011F(x)

7.26.36.48.66.68.70246810M1 SingTel Starhub2010F 2011F(%)

6.67.37.76.56.97.25.56.06.57.07.58.0M1 SingTel Starhub2010F 2011F(x)

Industry Focus

Singapore Telecom Companies

Page 2

M1 offers lowest priced data plans (postpaid) with limited capacity and no initial fee.Data Lite DataUnlimitedMonthly Subscription

$20 $39.40

Data Limit

3GB Unlimited

Excess Charge Cap

$51.36 N/A

One-time fee

N/A

Source: M1 website, DBS Vickers

StarHub offers most premium plans (postpaid) with unlimited capacity and highest initial fee.2-year contractand free USB modemWithoutcontractMonthly Subscription

$43.66 $36.38

Data Limit

Unlimited

Excess Charge Cap

N/A

One-time fee

$37.45

Source: StarHub website, DBS Vickers

SingTel offers reasonable plans (postpaid) with high capacity and moderate initial fee2-year contractand free USB dongle plusmicroSIM to SIM adaptor2-year contract Without contractMonthly Subscription

$36.50 $30.50 $34.50

Data Limit

50GB

Excess Charge Cap

$94.16

One-time fee

$13.38

Source: M1 website, DBS Vickers

M1 & StarHub are more aggressive than SingTel in prepaid iPad plans. M1 offers cheaper plans for light users

SingTel StarHub M1Initial Price

$20 $12.60 $32

Data Limit

1GB Unlimited 2.5GB

Valid Period

30 Days 3 Days 60 Days

Top Up

S$49.50 for 30 days S$32 for 60 days S$30 for 2GBS$24.50 for 7 days S$25 for 7 days S$18 for 1GBS$10 for 2 days S$16 for 3 days S$5 for 256MB

Source: operator’s website, DBS Vickers

Industry Focus

Singapore Telecom Companies

Page 3

M1 should benefit in 2010F from higher capex to service revenue ratio for 2009 & 2010F

Capex (S$m) 2007 2008 2009 2010F

M1 56 95 120 100StarHub 212 222 232 250*SingTel 500 800 680 800

Capex/Service Rev 2007 2008 2009 2010F

M1 7.7% 12.7% 7.1% 13.3%StarHub 11.1% 10.9% 11.3% 11.7%*SingTel 11.0% 15.5%12.1% 13.2%

* Excludes an estimated S$50m for OpCo related capex, overall should be around 14%Source: Operators, DBS Vickers

SingTel’s higher capex to service revenue of 15.5% in2008 helped SingTel gain market share in 2008. Weexpect M1 to defend or slightly increase market share in2010, on account of its over 17% & 13% capex to salesratio in 2009 and 2010F respectively. SingTel’s relativelyhigh ratio of 13.2% for 2010F indicates that thecompany may not lose market share in 2010F.

M1’s market share decline reversed in 2Q09 and has been rising gradually for the last five quarters

Source: Operators, DBS Vickers

Substantial rise in data as % of revenue contribution in Singapore over the last five quarters

Source: Operators, DBS Vickers