asia pacific telecommunications insight - september 2012

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CONTENTS

Asia Pacifc

Telecommunications INSIGHTMIs monthly market intelligence, trend analysis and forecasts for the telecommunications industry across Asia Pacific

pmb 2012 Iss 76

Asia

More Efforts Needed To Promote Cloud Sector .....................................................

Australia

Site Sharing To Boost VHAs and Optuss Networks ...............................................

New Zealand

Stronger Vodafone NZ To Challenge TCNZ ...........................................................

Indonesia

Telkom's Pacnet Bid May Not Yield Expected Results ............................................

Timor-Leste

New Licences To Introduce Competition ..............................................................

MalaysiaFRiENDi Looks East ...................................................................................... .....

Thailand

3G Auction On Track, Outlook Remains Uncertain ................................................

Vietnam

Resolve Skewed Competitive Landscape Before MNP............................................

Philippines

Domestic Dominance Could Fuel Overseas Expansion ..........................................

Cambodia

Emaxx-Excell Deal Long Over ........................................................................... ..

Myanmar

Still A Major Risk For Entrants .......................................................................... ..

Japan

Amazon To Launch Prepaid Internet ...................................................................

Flicker Of Opportunity For Japan's Smart TVs ......................................................

South Korea

LGs First-Mover Advantage May Not Last ............................................................

Taiwan

EV-DO Upgrade To Boost APT .............................................. ..............................

China

Baidu's New Smartphone A Safe Bet ...................................................................

China Telecom Eyes Future With Cloud Gaming ...................................................

India

Industry To Suffer From Continued Regulatory Uncertainties ................................

Challenges Remain Ahead For Reliance Communications ......................................

Bangladesh

GSM Switch To Boost Citycell's Outlook ...............................................................

Afghanistan

3G Competition Heating Up ............................................................................. ...

ASIA

More Efforts Needed To Promote

Cloud SectorThe cloud computing industry in Asia Pacic is starting to gain traction

with the increasing proliferation of quality xed and mobile internet

connectivity with, unsurprisingly, developed countries and regional

hubs such as Japan, Hong Kong and Singapore leading the way. While

emerging markets are trailing behind by a distance due to various reasons,

we believe that telecoms companies should not be deterred by initial

challenges, especially in the consumer segment, as the long-term revenuepotential is too big to ignore.

At present, one of the easiest entry point for telecoms rms to break

into the cloud industry would be through the enterprise market where

business clients are more receptive to cloud services in light of poten-

tial cost savings. Further, concerns about network reliability and data

protection are gradually being addressed by cloud service providers.

Indonesia's XL Axiata started marketing its Xcloud services in May and

has allocated US$1mn to develop its cloud business. The rm is working

with established players such as Microsoft, Fujitsu and IBM to reduce

development cost and bolster its product portfolio. The mobile operator

has a revenue target of US$5-6mn for its cloud services (comprising

hosting, storage-as-a-service and server-as-a-service).

By contrast, the consumer market is slightly trickier as evident from

the fact that telecoms operators globally have yet to devise a success-

ful model due to the prevalence of over-the-top (OTT) services such

as Skype and WhatsApp. These OTT services pose a direct threat to

telecoms operators' revenue stream while increasing stress on their data

networks. However, like the Middle East, BMI believes that operators in

emerging Asia still have room and the time to carve out a greater revenue

share due to lower smart device adoption rates and wcultural differences.

Teguh Prasetya, founder of the Indonesian Cloud Forum (ICF), has

urged domestic telecoms operators to invest in cloud-based services,

content and applications in order to leverage on their assets, which

include the sizeable mobile subscriber bases, their user data and embed-

ded billing. This is in line with our view that introducing cloud-basedvalue-added services will reduce the possibility of operators becoming

mere 'dumb-pipes' and generating revenue only through subscriptions.

BMI believes that the immediate challenge for telecoms operators

in emerging Asia is to encourage the adoption of internet services, par-

ticularly mobile data. According to the ICF, only 22mn out of Indone-

sia's 230mn mobile subscribers can be categorised as internet-friendly.

Mobile 3G subscription rates in alternative Asian emerging market

are still generally low. For example, Indian operators Bharti Airtel,

IDEA Cellular and Vodafone India have slashed their 3G tariff rates

due to poor consumer response. We believe that companies can take

the opportunity presented by an infant mobile internet market and pro-

mote mobile data and cloud-base services together. Indonesian mobile


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Asia TelecommunicationsAuStrAlIA

operators are eyeing the domestic 3G market, and we believe that

launching localised services will not only encourage consumers to

sign up for data services, but also lessen the threat of OTT providers.

Private Companies Cannot Do It AloneThe Asia Cloud Computing Association (an organisation compris-

ing rms such as Alcatel-Lucent, Cisco, Dimension Data Asia

Pacic, Rackspace and Telstra International) announced a Cloud

Readiness Index in September 2011, which ranks 14 Asian countries.

The index looks at criteria and conditions required for the successful

implementation and uptake of cloud computing technology through

10 key attributes, which affect how products and services can be

offered, delivered and consumed by the market.

Developed countries scored well due to strong underlying infra-

structure (quality of broadband and power grid as well as interna -

tional connectivity) and an environment conducive for businesses

and cloud developments (for example, regulatory conditions, data

protection policy, government prioritisation and business efciency

index). While emerging markets generally fared poorly in several of

these aspects, the situation could be improved if the governmentsare able to provide more support in addition to efforts from the

private sector.

Despite their relatively low readiness, BMI believes that the

growth potential in emerging markets should attract companies to

invest in the technology. The Asia Cloud Computing Association

reckons that worldwide spending on cloud services is expected to

reach US$150bn by 2014, and the spending on cloud computing is

forecast to reach 30-40% of IT budgets by 2013. While the gov-

ernments in emerging Asia are starting to create a cloud-friendly

environment, the progress often hampered by slow policy reform

and a lack of coordination with the private sector.

AUSTRALIA

Site Sharing To Boost VHAs

and Optuss NetworksVodafone Hutchison Australia (VHA) and Optus signed a bind-

ing Memorandum of Understanding in May to expand their current

network joint venture agreement, which would lower the cost to

challenge the resurgence of mobile market leader Telstra. This

development chimes with BMIs core view that telecoms opera-

tors would seek network-sharing opportunities in spite of intense

competition due to the benets.

VHA and Optus signed an agreement in 2004 to share about 2,000mobile sites in their 3G networks across Australia, and the enhanced

agreement will see the two mobile operators build 500 new shared

sites in the next four years in capital cities Geelong in Victoria and

the central coast in New South Wales. The two rms will install its

own transmitting equipment but they will share the AUD400,000

ASIA CLOUD READINESS INDEX

RegulatoryConditions

InternationalConnectivity

DataProtection

Policy

BroadbandQuality

GovernmentPrioritisation

PowerGrid

Quality

InternetFiltering

BusinessEfficiency

Index

GlobalRisk

ICTDevelop-

ment

IndexScore

Rank

Japan 8.7 9.0 10.0 8.0 8.2 9.0 10.0 6.8 6.5 8.4 85 1

Hong Kong 7.5 9.0 10.0 6.4 8.4 9.2 10.0 9.3 5.0 8.4 83 2

South Korea 8.7 7.0 10.0 9.0 8.6 8.4 7.5 6.4 8.0 8.8 82 3

Singapore 10.0 9.0 6.0 5.6 9.4 8.9 7.5 8.9 8.0 8.3 82 4

Australia 10.0 6.0 8.0 5.3 6.6 8.0 10.0 8.1 8.0 7.7 78 5

Taiwan 6.2 8.0 10.0 5.4 7.3 8.2 10.0 7.8 5.0 7.7 76 6

New Zealand 7.5 4.0 10.0 5.3 8.7 6.9 8.7 7.5 6.5 8.2 73 7

Malaysia 7.5 6.0 6.0 4.7 8.8 7.6 10.0 6.5 5.0 6.3 68 8

China 8.7 9.0 2.0 4.9 5.2 7.0 6.2 6.3 5.0 5.7 60 9

India 6.2 6.0 6.0 4.7 6.6 4.1 7.5 5.9 2.0 4.2 53 10

Thailand 5.0 5.0 2.0 5.0 4.1 7.6 7.5 6.6 2.0 5.7 51 11

Indonesia 7.5 4.0 6.0 4.6 4.3 4.8 8.7 3.3 2.0 5.0 50 12Vietnam 7.5 5.0 4.0 4.5 3.5 4.8 3.7 5.0 5.0 5.5 48 13

The Philippines 5 0 5 0 2 0 4 6 3 7 4 5 7 5 5 1 2 0 5 4 45 14

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Dec-11

TelstraOptusVodafone Hutchison Australia

Resurgent Telstra Is Cause For ConcernAustralia Mobile Subscribers By Operator (000)

Source: Operators, BMI


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Asia TelecommunicationsNew ZeAlANd

(US$405,505) construction cost. Optus has announced that the

expanded deal with VHA will bolster its new mobile sites by about

960, thereby strengthening its 3G and 4G networks. Meanwhile,

VHA will have approximately 1,800 new sites (after incorporating

400 Optus sites, the 500 new shared sites and 900 sites from its 3

mobile network). The new agreement is subject to the Australia

Competition and Consumer Commission's approval, but we do not

expect any opposition.

BMI previously reported that Telstra nished 2011 strongly

by gaining 1.699mn mobile subscribers (see 'Telstra's Recovery

On Track, February 10), which dwarfed Optus's net addition of

444,000 and VHA's net loss of 554,000, and we believe that the

network-sharing agreement highlights the two companies' intent to

catch up with Telstra.

There are several benets arising from the closer cooperation

between the second- and third-ranked mobile operators. Firstly, the

two companies will be able to bolster their 3G network coverage and

better challenge Telstra, which has the widest network in Australia.

At present, smartphones and tablet computers that depend on 3G

connectivity are the main revenue drivers for the Australian telecomsindustry. It is necessary for operators to ensure that they have suf-

cient network capacity and coverage to cope with the burgeoning

data demand to prevent loss of the revenue opportunity. Secondly,

Telstra has taken a lead in the 4G market by rolling out commercial

LTE services in September 2011. Sharing telecoms infrastructure

should accelerate the efforts of VHA and Optus to deploy their own

4G services. Thirdly, cost savings should allow the rms to channel

capital into areas that could boost revenues. VHA is already burdened

with a hefty network upgrade bill following complaints about poor

network performances. Similarly, Optus slashed 750 jobs, almost

8% of its total workforce, in early May to improve efciencies.

NEW ZEALAND

Stronger Vodafone NZ To

Challenge TCNZVodafone New Zealand (Vodafone NZ) and Telstra announced

on July 12 that they have reached an agreement for the sale of

TelstraClear (TCNZ) to the former for a cash consideration of

NZD840mn (US$633mn). BMI reafrms our view that the transac-

tion is a good deal as Vodafone NZ will be in a better position to

compete with Telecom Corporation of New Zealand (TCNZ) on

multiple fronts while Telstra will be able to focus on restructuring

its main Australian operation.

While Vodafone NZ is the country's leading mobile operator,

it lags behind TCNZ in the xed-line sector, particularly in terms

of network infrastructure. The acquisition of TelstraClear lls the

decit, which will bolster Vodafone NZ's presence in the enterprise

market, and allow the operator to offer a stronger telecoms solution

in the retail sector. As previously highlighted, Vodafone NZ will

have approximately 29% of the xed broadband market, up from

13% before the acquisition, thereby closing the gap with leader

TCNZ, which had 49% market share (as of June).

TelstraClear's sale price of NZD840mn well exceeded analysts'

valuations, which ranged from NZD350-425mn, according to theAustralian Financial Review. Telstra has announced that it will

return about NZD490mn in cash to Australia via a pre-com-

In the past year, Telstra has been restructuring its operations in

light of the changing Australian competitive landscape, driven bythe country's National Broadband Network project. Telstra was

the rst Australian mobile operator to launch LTE services, and it

has been aggressively expanding into new high-growth businesses

such as cloud computing and machine-to-machine, in addition to

key overseas markets (India, Japan and Singapore).

The allure of New Zealand has been fading in light of the coun-

try's limited growth potential and the distraction it has on Telstra's

overall nancial position. Additionally, the sale of AAPT's consumer

arm to iiNet by TCNZ in September 2010 meant that there is less

incentive for Telstra to remain in New Zealand as a defensive

mechanism.

The transaction is expected to complete in Q412, subject to the ap-proval by the New Zealand Commerce Commission, the Ministry of

Business, Innovation and Employment and the Overseas Investment

Ofce. While the acquisition means that there is one less player in

the market, we still expect regulatory approval since Vodafone NZ

will be able to better challenge TCNZ in the xed telecoms industry.

INDONESIA

Telkom's Pacnet Bid May Not

Yield Expected ResultsTelekomunikasi Indonesia (Telkom) has reportedly submitted

a bid for submarine cable operator Pacnet as the Indonesian rm

looks to reinvest prots generated from its domestic telecoms busi-

ness. While acquiring Pacnet should boost Telkom's international

recognition among other benets, we are concerned about Telkom

gaining signicant exposure to the submarine cable industry, which

is experiencing intense competition and declining prices.

Telkom is a dominant player in the Indonesian telecoms market

with strong market positions in the mobile, xed-line and broadband

sectors. Through its subsidiary Telekomunikasi Selular (Telkom-

sel), Telkom has about 40% market share in Indonesia's mobile

industry. While the mobile penetration rate has almost reached

100%, we believe that the market still possesses substantial growthopportunities with prepaid being the main form of mobile subscrip-

tion. Furthermore, 3G services have yet to gain traction, and mobile

0%

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40%

60%

80%

100%

120%

Mobile Fixed Broadband

Oth ers 2d eg rees

TCNZ Vo dafo ne NZ

Equal FightNew Zealand Mobile And Fixed Broadband Market Shares (%), June 2011

Vodafone NZs xed broadband market share includes TelstraClears 16%. Source:

Commerce Commission


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Asia TelecommunicationstIMor-leSte

7% and 12% year-on-year (y-o-y) respectively, and the operator

generated net prot of IDR3.322trn (US$362mn), up by 17.5%.

With a strong position in the Indonesian telecoms industry, it is

no surprise that Telkom would look to overseas markets and inor-

ganic growth for more revenue-generating opportunities. Telkom

wanted to purchase Cambodian mobile operator CamGSM but

cancelled the plan reportedly due to differences in valuation. BMI

believes that acquiring another telecoms operator would be one of the

more conservative means of expansion as it leverages on Telkom's

expertise, but potentially attractive targets in South East Asia are

limited. Frontier markets such as Myanmar hold signicant long-

term prospects but they carry equivalent risks.

Pacnet owns the EAC-C2C submarine cable network that spans

36,800km between Hong Kong, China, South Korea, Japan, Taiwan,the Philippines and Singapore. Pacnet's network was extended across

the Pacic Ocean via the EAC Pacic, which connects Chikura, Ja-

pan to Los Angeles and other Points of Presence in the US. In April

2011, Pacnet expanded its network reach to Chennai, India through

the i2i cable system. The rm is also expanding its data centre and

cloud business, and it announced in May that it will triple the capac-

ity of its data centre in Sydney over the next year.

Telkom's CEO has said that the rm aims to invest in bre

optic cables in order to improve connection speeds and it is open

to mergers and acquisitions. BMI believes that Pacnet would t

the bill, and acquiring the submarine cable operator would raise

Telkom's prole in Asia Pacic. Further, the submarine cable busi-

ness is highly related to the telecoms industry. However, the two

businesses are distinct, and Telkom does not have prior experience

operating a submarine cable network. Telkom could allow Pacnet

to maintain full autonomy but it would defeat the purpose of gain-

ing full ownership.

It is common for telecoms operators to invest in submarine cable

networks, but they tend to form a consortium to reduce costs and

risks. The entry of telecoms operators has also increased international

bandwidth, resulting in declining prices. Like the telecoms sector,

the submarine cable market is capital-intensive, and Telkom could

suffer as it tries to grow the two businesses.

TIMOR-LESTE

New Licences To Introduce

Competition

The Government of the Democratic Republic of Timor-Leste has an-nounced the award of two new telecommunications licences, ending

the monopoly ofPortugal Telecom-owned Timor Telecom. The

two licences have been issued to Viettel Global Investment and PT

Telekomunikasi Indonesia International (Telin). BMI expects the

competitive dynamic introduced by the licensing of new operators

to benet consumers. However, given the small size of the market,

we consider Timor-Leste to hold limited potential for operators.

The government initially awarded the licence to Digicel Pacic

Limited, which has considerable experience operating in develop-

ing small island markets across the Caribbean, and Telin. Digicel

had committed to launching GSM and 3G services to cover 91% of

the population within four months. However, it was announced on

July 11 that Digicel has withdrawn its application without providinga reason. According to the tender process rules in the Request for

Applications of April 12 2012, the applicant with the next highest

score would be awarded the licence. In this case, it was Viettel,

which had scored 0.5 points less than Digicel out of 100 points.

Viettel is committed to provide initial GSM and 3G coverage of

93% of the population and 95% in the next three months. Meanwhile,

Telin has committed to launching services in under six months, with

GSM and 3G access for 94% of the population. Given Viettel's ex-

perience in emerging markets and Telin's experience in Indonesia

through sister company Telkomcel, we have a positive outlook for

the commencement of services in Timor-Leste.

Portugal Telecom reported it had 616,000 subscribers in Timor-

Leste at the end of March 2012, up 16.8% y-o-y. Based on this gure,

Timor-Leste had a mobile penetration rate of just over 53% in Q112.

BMI forecasts penetration will rise to over 58% at YE16, a forecast

we previously upgraded when the end of Timor Telecom's monopoly

was announced in April 2012. With the majority of Timor-Leste's

population likely to have the option to choose between three mobile

providers by Q113, BMI expects competition to change dynamicsin the market.

We expect the introduction of competition will benet consum-

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201

2f

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3f

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4f

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5f

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6f

Number of Cell ular Mobile Phone Subscribers ('000) LHS

Number of Mobile Phone Subscribers/100 Inhabitants RHS

Limited Opportunities Despite LiberalisationTimor-Leste Mobile Market Forecast, 2009-2016

f = BMI forecast. Source: BMI, ITU, Portugal Telecom

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Reven ue Net Pro fi t RHS

Domestic Business Fuelling Expansion AmbitionTelkom Financial Results (IDRbn), 2010-2012

Source: Telkom


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Asia TelecommunicationsMAlAySIA

for mobile markets, and indicates there is signicant potential for

downward movement in prices with the introduction of competition.

In terms of service innovation, with all three providers expected to

offer 3G mobile broadband services by Q113, the data market has

strong growth potential from a reasonable base Timor Telecom

reported 17.7% of mobile service revenue derived from Q112 data.

Meanwhile, the government of Timor-Leste is also considering

benets beyond the consumer market, with ICT service availability

to medical clinics, schools, agricultural management and other social

areas outlined as an important benet.

BMI shares the Timor-Leste government's outlook for the

contribution of competition to social goals and consumer welfare.

However, we believe that, with a population of just 1.154mn in

2011 (albeit expected to reach 1.6mn by 2016), potential nancial

rewards are limited. Financial reward will also be limited by low

incomes with GDP per capita of US$777 in 2011. However,

both new operators have experience of operating successfully in

markets with similar incomes, geography and scale and as such are

well positioned to maximise potential benet from real growth in

private consumption over the medium term, which BMI forecaststo average 7.5% 2012-2020.

MALAYSIA

FRiENDi Looks EastMiddle Eastern mobile virtual network operator (MVNO) FRiENDi

will launch services in Malaysia by the end of 2012. FRiENDi

will partner with sovereign wealth fund Kumpulan Perangsang

Selangor Berhad (KPS) to roll out services. Following its merger

with MVNO Virgin Mobile, FRiENDi announced plans to expand

services in the Middle East, North Africa, Sub-Saharan Africa andSouth Asia. BMI believes Malaysian mobile network operators

(MNOs') receptive approach to MVNOs makes it a good market in

which to begin operations in the region.

Malaysian MNOs have not treated MVNOs as a threat to their

main business, unlike operators in other markets. MVNOs can serve

as a useful addition to a mobile market, boosting competition while

allowing MNOs to focus on new services, mobile content and up -grading networks. Malaysian MVNOs vary from low-cost options

such as Happy Prepaid and Tune Talk while XOX and Merchantrade

a good market in which to start operations. While the market seems

a little crowded, FRiENDi's long experience in offering services

as an MVNO should see it nd success in the Malaysian market.

KPS has invested in the mobile market through its subsidiary

Perangsang Telco Sdn Bhd, which has entered into a partnership

agreement with FRiENDi, Samena Telecom Limited and Ceres

Telekom Sdn Bhd through a 30% equity stake in Ceres. The com-

pany's entry into the Malaysian market can be immediate as Ceres

already holds the licences needed to launch services. FRiENDi

believes there is still signicant opportunity to take a leadership

position in Malaysia's MVNO sphere, stating both the FRiENDi

and Virgin Mobile brands would be used in the launch.

Outside Malaysia, BMI believes the Thai market offers signi-

cant opportunities for FRiENDi, given the lower mobile penetration

rate and smaller number of MVNOs in the market. However, much

like Malaysia, the mobile market is already highly competitive.

FRiENDi's experience should again hold it in good stead in Thai -

land and, if welcomed by MNOs in the market, could bring more

subscribers into the market.

While Pakistan, Bangladesh and India offer signicant growthopportunities, regulatory difculties will likely make these countries

more difcult for service launches. In Pakistan the price of an MVNO

licence increased from US$10,000 to US$5mn in October 2009,

which only served to dissuade companies from entering the market

as an MVNO. With low potential returns and a difcult political

and business environment, the relative low risk and investment of

launching as an MVNO was successfully removed by the increased

price. Meanwhile, India's new regulations for the telecoms market

includes introducing MVNOs into the market, but BMI does not

expect licences to be made available in the near term and there is not

yet any conrmation on when the National Telecom Policy will be

enforced. Regulations in Bangladesh could also prove prohibitive.Indonesia's mobile market has eight active operators and no cur-

rent MVNOs. With growth expected to remain strong in the market,

MVNOs could be important in ensuring lower cost services continue

to meet subscriber needs. However, Tune Talk has already hinted it

would be interested in entering the Indonesian mobile market, which

could suggest a gradual opening up to new operators.

BMI believes FRiENDi and Virgin Mobile's experience in

offering mobile services as MVNOs make them well suited to of-

fering services in new markets. While Malaysia's market is already

competitive, we believe the companies have a strong outlook as they

expand services outside the MEA region.

THAILAND

3G Auction On Track, Outlook

Remains UncertainThe 3G licence auction in Thailand is gradually approaching reality

after the National Broadcasting and Telecommunications Commis-

sion (NBTC) announced in mid-June further details such as a rough

reserve price for the spectrum. However, the convoluted nature

of the Thai telecoms industry means that it is difcult to predict

the outcome of the auction, which is scheduled for Q412, and the

potential impact.The NBTC believes that the reserve price for each of the nine

blocks of 5MHz spectrum will start from THB4bn, which is in line

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Malaysia In donesiaTh ailand Bang ladeshIndia Pakistan

Opportunities For ExpansionMobile Penetration (%)

f = BMI forecast. Source: BMI, operators, regulators, World Bank (ITU)


7/17

Asia TelecommunicationsVIetNAM

participant can potentially secure a maximum of 20MHz of 2.1GHz

spectrum during the simultaneous ascending-bid auction. Under

the new draft information memorandum, the NBTC has removed

the N-1 rule, which would have resulted in the cancellation of the

auction if there were only one bidder.

Thailand is one of the last countries in Asia Pacic that has yet

to auction 3G licences. While we believe that the market is more

than ready for 3G services, previous attempts to issue licences have

been primarily foiled by political wrangles and complications aris-

ing from concessions between private and state telecoms operators.

Following the collapse of the 3G auction in September 2010, True

and CAT Telecom modied their concession agreement to allow

the former to introduce 3G services. However, the deal has beendeemed illegal by the NBTC as the regulator decided that it was in

violation of the Frequency Allocation Act. Consequently, a series of

amendments to the contract such as stipulating that CAT Telecom

is solely responsible for spectrum control must be made.

The existing concession-based telecoms model in Thailand is

resulting in a high degree of uncertainty for operators. Spectrum will

be returned to the regulator for reallocation, and it is still unclear what

the competitive landscape will become, thereby potentially prevent-

ing operators from competing aggressively for the 2.1GHz spectrum.

Further, the Asia Pacic market is transitioning towards 4G services,

and Thai operators are caught right in the middle where launching

3G services now may not have the desired long-term outlook. While

BMI acknowledges that the NBTC is trying to implement reforms

in the market, immediate drastic changes are unlikely. Although

there is pent-up demand for 3G services among Thai consumers,

we do not expect strong interest from foreign operators due to the

lack of clarity on rules and regulations within the telecoms sector,

especially on the issue of foreign ownership.

VIETNAM

Resolve Skewed Competitive

Landscape Before MNPVietnam's Ministry of Information and Communications (MIC) hasannounced that it plans to implement mobile number portability

with the fundamental benets that MNP brings, we struggle to see

the scheme realising the potential rewards based on the existing

market situation.

Although the MIC started drafting the MNP guidelines in

late 2010, details about the scheme remain scant. However, the

ministry announced at the end of May that all mobile numbers will

be centrally managed by its telecoms department instead of being

partially managed by each network provider. The MIC claimed

that the central numbers management method is being applied by

as many as 70 countries worldwide.

Introducing MNP in Vietnam has the potential to slightly level

the competitive landscape and provide a much-needed boost to

the increasingly marginalised smaller operators: GTEL Mobile,S-Fone and Vietnamobile. The three rms account for about 5%

of Vietnam's mobile market while state-backed operators Viettel,

MobiFone and VinaPhone control the remaining 95%. Giving

consumers the option to switch providers while retaining their

mobile numbers could encourage subscribers of Viettel, MobiFone

and VinaPhone to migrate to smaller operators, especially if smaller

operators introduce competitively priced or tailored packages.

However, this scenario may not play out nicely. Firstly, we have

seen MNP schemes in countries such as India, Thailand and China

receive muted response due to factors such as slow porting process

and the fact that subscribers own multiple prepaid SIM cards. Sec-

ondly, larger operators could intensify the competition by matching

smaller operators' strategies, which is a relatively easy move given

their signicantly larger scale.

Thirdly, the Vietnamese mobile industry's competitive landscape

could undergo signicant changes in the next two years. The Vietnam

Posts and Telecommunications Group, parent company of MobiFone

and VinaPhone, has proposed merging the two mobile operators in

order to comply with a change in business law. A possible outcome

is a merged entity that has strong competitive advantage such as

more than 50% of the mobile market share and extensive telecoms

infrastructure. This in turn could drive smaller operators closer to

the brink of exit. South Korea's SK Telecom has already withdrawn

investment from S-Fone while Russia's VimpelCom followed suit in

April. Without the support of foreign investors, S-Fone and GTELMobile could face the same fate of as EVN Telecom, which strug-

gled to generate protability and was taken over by Viettel in early

Viettel37%

MobiFone29%

VinaPhone29%

VimpelCom3%

Vietnamobile2%

S-Fone0%

MNP To Have Limited ImpactVietnam Estimated Mobile Market Share, June 2012

Source: VimpelCom, BMI

0

10

20

30

40

50

60

70

IndustryRewards

CountryRewards

Industry

Risks

Country Risk

TelecomsRating

Thailand Regional Average

Attractiveness Hindered By UncertaintiesAsia Pacic Telecoms Risk/Reward Ratings Q312

Source: BMI


8/17

Asia TelecommunicationsPhIlIPPINeS

Consequently, the worst case scenario would be a duopoly in the

Vietnamese mobile market, and we foresee MNP having limited

impact on consumer choices.

PHILIPPINES

Domestic Dominance CouldFuel Overseas ExpansionAlthough the Philippine Long Distance Telephone Company

(PLDT) has denied a media report that it is in discussion to acquire

TV stations in Indonesia or Vietnam, BMI believes that it is still

a possible scenario in the future as it would provide the country's

largest telecoms operator additional revenues from alternative geo-

graphical and sectorial markets, especially if it successfully invests

in GMA Networks.

GMA Networks is the Philippines second largest TV broad-

caster, and discussions between the rm and PLDT to strike a deal

have taken place in the last decade with no success due to pricingdisagreements. While PLDT already owns a stake in third-ranked

TV 5, acquiring a part of GMA Network would match the telecoms

operator's strategy of bolstering its content portfolio, thereby helping

PLDT shift away from its traditional business model of providing

basic telecoms services and countering the threat of over-the-top

(OTT) service providers.

GMA Networks has conrmed that discussions with PLDT are

ongoing and an agreement has not been reached (as of mid-June).

However, PLDT is condent that a deal will be forged by end-2012

and the price tag would be less than the PHP100bn (US$2.3bn) mark

previously mentioned by GMA chairperson.

GMA Networks and TV market leader ABS-CBN reportedly

account for 60% of the Philippines' audience share with TV 5 in

a distant third. Assuming that PLDT succeeds in acquiring GMA

Networks, the combined market share of GMA Networks and TV 5

should top the market, thereby forming a duopoly with ABS-CBN as

the second-ranked provider. While PLDT chairperson has said that

it remains to be seen if the government would approve the acquisi-tion, a repeat of PLDT's purchase ofDigital Telecommunications

Philippines, which resulted in a duopoly in the mobile industry,

Eventually, PLDT could dominate both the Philippine telecoms

and broadcasting industries, and BMI believes that this would pave

the way for the rm to expand overseas with its enlarged scale and

greater experience. Investing in another telecoms operator is the

traditional model and could be seen as the more conservative ap -

proach, but at present, the content market presents stronger growth

potential. Consequently, we believe that it is possible that PLDT

could look to invest in the broadcasting industries of Indonesia and

Vietnam as growing afuence and improving connectivity would

spur demand for content. The prospects are not limited to the

broadcasting industry as other OTT services such as SMS over IP

are becoming increasingly lucrative.

CAMBODIA

Emaxx-Excell Deal Long OverDigital Star Media's planned acquisition of Cambodia's GT-Tell,

which operates under the brand Excell, collapsed in February, al-

though this news has only just come to light. While this developmentis a blow to the mobile market given its overcrowded landscape,

BMI reafrms that the short-to-medium outlook would not have

been promising even if the deal had gone through, as Digital Star

Media had planned to focus on 4G technologies.

In July 2011, the Phnom Penh Post reported that WiMAX opera-

tor Digital Star Media, which operates under the brand Emaxx, was

in talks to acquire Cambodia's smallest mobile operator, GT-Tell,

for an undisclosed sum. Digital Star Media planned to offer both

WiMAX and LTE services in the Cambodian market, and it believed

that the country's only CDMA operator would complement its

strategy in terms of technological advancement. Digital Star Media

originally planned to purchase GT-Tell's 28 mobile towers in all 24Cambodian provinces.

It was revealed in January 2012 by Digital Star Media's then-CEO

Frank May that the company was still conducting the due diligence

process. No reasons were given for the subsequent collapse in

February. Regardless, we would have maintained our view that the

Cambodian market is not ready for next-generation mobile technolo-

gies, much like many emerging markets in the region.While data from Cambodia's Ministry of Post and Telecommu-

nications as well as mobile operators suggest that the penetration

Metfone,8,200

Excell, 42hello , 1,978

Mfone, 414

Beeline,1,078

CambodiaAdvance

Communicati

ons, 90

Mobitel, 2,600

Smart Mobile,2,400

Unsustainable SituationCambodia Estimated Mobile Market Share, March 2012 (000)

Only Beeline and hello provided March 2012 data. Source: MPTC, operators, BMI

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mobile Fixed-Line Broadband

Globe Telecom PLDT

Firm Grip On The Telecoms MarketOperator Market Shares By Segment (%)

PLDTs subscriber gures include Digitel. Source: Operators, BMI


9/17

Asia TelecommunicationsMyANMAr

are using prepaid subscriptions and that 3G is still an underused

and expensive service. Theoretically, WiMAX and LTE are ideal

for bringing internet access to a large proportion of the population

in a cost-effective manner. However, BMI believes that there is a

lack of demand necessary to make Digital Star Media's plan com-

mercially viable in the near term.

4G-compatible mobile devices have yet to reach the requirednumber to reap economies of scale, partially due to the wide range

of frequencies used. The situation in Cambodia is further exacerbated

by language and cultural barriers, and a lack of awareness of the

benets of internet accessibility.

Digital Star Media has not disclosed its strategy following the

unsuccessful acquisition of GT-Tell. The operator could continue

focusing on WiMAX, although the technology is being increasingly

marginalised on the global scale. Mergers and acquisitions are still

a possibility, but BMI believes that it is more likely Digital Star

Media now becomes a target for a larger mobile operator such as

Smart Mobile or Metfone.

Meanwhile, the outlook for GT-Tell continues to look unsus-

tainable in the long term. Besides being the only CDMA opera-tor, local media reported that its subscriber base has stagnated at

around 40,000 (BMI estimates that GT-Tell had 42,000 mobile

subscribers in March). By comparison, market leader Metfone saw

its subscriber base double between March 2011 and March 2012 to

8.2mn, although we caution that the number could be inated through

the inclusion of inactive accounts. We continue to see a need for

consolidation in the Cambodian mobile market, and highlight the

benets of merging networks and services. In June, Smart Mobile

announced that its subscriber base has crossed the 3mn mark, an

achievement that we believe was aided by the acquisition of the

previously TeliaSonera-owned Applifone (marketed as Star-Cell)

in December 2010.

MYANMAR

Still A Major Risk For EntrantsMyanmar announced in July that it is working on a reform plan to

bring affordable telecommunications services that are on par with

international standards. It is also looking for consultants to facilitate

the industry liberalisation process, which would in turn open up the

market to interested foreign companies. While the Myanmarese tel-

ecoms market harbours signicant long-term growth opportunities in

light of years of isolation, BMI holds rm to our view that there is

too much uncertainty at the moment, which poses a myriad of risks.

The minister of communications, posts and telegraphs, Thein

Tun, has announced that state-owned telecoms operators Myanmar

Post and Telecommunication and internet service provider Yatan-

arpon Teleport are planning to form joint ventures with local and

international rms, which is in line with our view previously stated

in our special report. Having a local partner is important because the

international community has little knowledge about the Myanmarese

business practices and consumer preferences, in addition to helping

to reduce bureaucratic red tape.

However, selecting a competent local partner in a frontier market

is a challenging task. The monopoly of Myanmar Post and Telecom-

munication and Yatanarpon Teleport means that there is a lack ofoptions for international players. Further, Investor protection and

general legal framework are also particularly lacking in Myanmar,

system, it would be extremely difcult to prevent unwanted transfer

of technology and/or intellectual property to a local partner that may

be inclined to break contract.

The ministry has highlighted it is drafting a new communica-

tions law, which should address some of the legal and regulatory

concerns. However, the robustness of legislation and the govern-

ment's willingness to enforce laws are separate issues, especially

for the latter considering the problem of cronyism, corruption, and

government and political agendas, which are particularly prevalent

in emerging economies.

BMI expects telecoms operators that have vast experience op-

erating in emerging markets to have the greatest chance of creating

a protable business in Myanmar. These would include companies

such as Vietnam's Viettel, which has presence in Cambodia, Laos,Peru, Haiti and Mozambique, and Telekomunikasi Indonesia,

which recently acquired a mobile licence in Timor-Leste. We expect

less interest from operators in developed countries such as Telenor,

Vodafone and Axiata, many of which have suffered setbacks in

emerging markets recently due to regulatory uncertainties and

intense competition.

JAPAN

Amazon To Launch Prepaid

InternetAmazon is to launch a prepaid internet service in Japan before the

end of Q212, according to Japanese business journal Nikkei. The

company will sell SIM cards with 500MB data usage for US$25 a

month, becoming the rst company to offer such a service in Japan.

BMI believes the service will be popular in the Japanese market,

which reports buoyant mobile internet growth. Further, it gives an

indication of the changes we expect to see in Amazon's global of-

ferings throughout 2012.

Amazon will use the MVNO model to deploy services. It is

expected to partner with Japan Communications (JC), which uses

NTT DoCoMo's 4G LTE network. Despite JC seeming to refute

claims in a press release, BMI believes this is unlikely to indicate therumours are false. It is common practice in Japan to refute claims of

a product launch if such news is leaked prior to an ofcial announce-

0

5

10

15

20

25

0

100

200

300

400

500

600

700

800

900

1,000

2009

2010

2011e

2012f

2013f

2014f

2015f

2016f

Number of Cell ular Mobile Phone Subscribers ('000) LHS

Number of Broadband Internet Subscribers ('000) RHS

Signifcant Barriers To Realising PotentialMyanmar Mobile And Broadband Subscriber Forecasts, 2009-2016

e/f = BMI estimate/forecast. Source: BMI, ITU


10/17

Asia TelecommunicationsJAPAN

The leak also suggested that the SIM cards would be compatible

with unlocked smartphones and tablets using iOS, Android and

other operating systems, in addition to the Kindle. This could be anindication that Amazon is aiming to increase outreach of its Kindle

ebook, which it has yet to launch on the Japanese market.

The Amazon share price has been following a downtrend over

the past month, as poor prot margins deter investors. However,

revenue continues to rise, as the company seems intent on growth

at the expense of income. Further, the ambiguity over its strategy

is causing alarm among some investors. However, it enjoys a soar-

ing PE ratio (over 175), which maintains investor interest, and its

growth strategy is likely to pay off in the medium term once market

share is secured.

BMI believes there is still potential for growth in the mobile

internet market, which Amazon can capitalise on. The country is

highly receptive to new technology, which bodes well for the release

of the prepaid SIM cards and also for the future success of the Kindle

ebook. ARPUs are among the highest in the Asia-Pacic region and

the potential for LTE expansion is high.

However, BMI believes there are a number of issues which

Amazon will have to contend with when entering the Japanese mar-

ket. The mobile internet market is highly competitive and ARPUsare falling, while bureaucratic obstacles may limit the potential for

expansion.

through 2012. The government is enacting scal tightening and as

the yen depreciates, there is less potential for consumption growth

in the market, which will provide an obstacle for expansion.

Flicker Of Opportunity For

Japan's Smart TVsJapanese consumer electronics manufacturers have had a rough time

recently. A generally bearish view of the country's manufacturers is

a far cry from the strong reputation previously held by the likes of

Sony, Panasonic and Toshiba. The yen continues to appreciate and

newcomers from South Korea, China and Taiwan have also made

their impact felt. However, new data on sales of smart TV sets a

new segment of the AV market show that Japanese manufacturers

are keeping up with their rivals, which BMI believes could suggest

an opportunity to turn around agging businesses.

Japan's largest consumer electronics OEMs have struggled to

keep up with innovative newcomers that have successfully built

their brands in both developed and emerging markets. Major

Japanese electronics manufacturers Sony, Sharp and Panasonic

reported nancial losses, with Sony's JPY457bn (US$5.7bn) FY

2012 loss, its fourth straight nancial year without prot. As BMI

highlighted before, several factors have affected these companies'

ability to turn around their businesses. The yen's continued strength

makes devices from Sony, Sharp, Panasonic and their peers more

expensive and less competitive, particularly when newcomers from

China have lower costs and accept reduced margins to get their

products to market.

Despite the disadvantages facing Japanese manufacturers, data

from NPD Display Search's quarterly report on smart TV shipments,

Japan reports the highest percentage of smart TVs in overall TVshipments. In Q112, 36% of all TVs shipped to Japan were smart

TVs, considerably higher than the global average of 20%. Japanese

consumers are forward looking, expecting the latest innovations,

which has helped drive the demand for smart TVs. Sales of smart

TVs in regional peer China were around 30% but this is largely

driven by the strength of local manufacturers such as Skyworth,

Konka, Changhong and TCL. Sony was the strongest brand in

Q112, according to the NPD's report, but not considerably higher

than Skyworth.

While Chinese brands perform well in their home market, they

do not yet have the international recognition of Japan's major ven -

dors. Although newcomers such as LG Electronics and Samsung

Electronics, both based in South Korea, have gained signicant

ground, BMI believes the Japanese vendors still have some cur-

rency in their brands. Asia News Networks reports that Japanese

brands are trusted among Indian consumers 'to deliver quality' and

BMI believes the companies must build on this in other markets to

regain their position.

While the data suggests a more positive outlook for Japan's

OEMs, we do not believe the companies are out of the woods yet.

We maintain our view that fundamental problems still need to be ad-

dressed, particularly innovation and distinctiveness in their products.

Nevertheless, the companies retain some of their earlier reputation

for quality, building on this to regain their position as innovators will

go a long way to making Japanese consumer electronics companieserce global competitors once more.

60

80

100

120

140

160

180

200

220

240

260

Apr

-09

Jun

-09

Aug

-09

Oct

-09

Dec

-09

Feb-10

Apr

-10

Jun

-10

Aug

-10

Oct

-10

Dec

-10

Feb-11

Apr

-11

Jun

-11

Aug

-11

Oct

-11

Dec

-11

Feb-12

Apr

-12

Jun

-12

Will Performance Improve?Amazon Share Price (US$)

Source: BMI , Bloomberg

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

84,000

86,000

88,000

90,000

92,000

94,000

96,000

98,000

100,000

102,000

104,000

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

No. o f Mobile Internet Subscribers ('000)% chg q -o-q RHS

Growth ContinuesMobile Internet Subscribers 2009-2012

Source: BMI, Operators


11/17

Asia TelecommunicationsSouth KoreA

SOUTH KOREA

LGs First-Mover Advantage

May Not Last

LG Electronics announced in end-May that global sales of its LTEsmartphones have reached 3mn units, which positioned the rm

among the frontrunners in the nascent LTE market. While this should

provide a much-needed boost to the South Korean manufacturer's

stuttering mobile business, the competitive landscape will quickly

intensify as the global LTE industry matures and rival handset mak-

ers ramp up their LTE device portfolio.

Despite the growing potential, not all device manufacturers have

been able to capture the boom in global demand for smartphones and

tablet computers. Apple and Samsung Electronics are the notable

outperformers but rivals such as Motorola Mobility, Research In

Motion, Sony, HTC and LG Electronics have struggled in light of

the strong competition.

BMI previously reported that the focus on the infant LTE handsetmarket puts LG Electronics in a good position as more LTE net-

works are coming online. Besides sales from North America and

Japan, LG Electronics's domestic market also played a vital role

as all three mobile operators have launched LTE services. At the

end of April, there were 4.850mn LTE subscribers in South Korea,

according to IT Statistics of Korea, up from 1.191mn in December

2011. During this period, the number of 3G subscribers declined

from 44.334mn to 41.794mn.

LG Electronics expects to expand its LTE market presence to 20

countries by end-2012. A key factor to support its strategic emphasis

on the 4G technology is LG Electronics's ownership of 23% of ap-

proximately 1,400 LTE patents led worldwide, according to themanufacturer citing a report from Jefferies & Company.

While BMI agrees that LTE-compatible handsets are the future,

more conventional 3G mobile devices are still the main growth and

revenue driver. For example, Samsung Electronics announced in

February that it has sold 20mn Galaxy S II units since April 2011,

and the device's successor similarly does not feature LTE capability.Although a larger battery has allowed Apple to introduce an LTE

iPad, the company could not offer the high-speed connectivity glob-

LG Electronics may have a rst-mover advantage with its early

focus on LTE. However, we believe that rival manufacturers are

waiting for the technology to mature, which is largely pegged to

the availability of the necessary spectrum. For example, several

operators in Asia Pacic are refarming existing spectrum such as

1800MHz while waiting for the country to complete the transition

to digital TV, which will free up spectrum in the 700MHz frequency

band. Once companies are able to launch the same product in mul-

tiple markets (without the need to modify them to work on differ-

ent LTE networks), LG Electronics's upper hand could be quickly

eroded, especially if market leaders Samsung Electronics and Apple

try to convince existing users of their products to upgrade.

TAIWAN

EV-DO Upgrade To Boost APTAfter repeated delays, Asia Pacic Telecom (previously Asia

Pacic Broadband Wireless) announced in June that its new

CDMA2000 1xEV-DO mobile broadband service will be launchedon October 1. BMI believes the upgrade, as well as the potential

introduction of attractive smartphone models, could help reverse the

operator's declining 3G subscriber base, although there are limita-

tions to its growth potential.

Asia Pacic Telecom is the only CDMA2000 operator in Taiwan,

although it competes with Chunghwa Telecom, Taiwan Mobile,

Far EasTone and VIBO Telecom in the country's overall 3G sec-

tor. However, along with VIBO Telecom, Asia Pacic Telecom

lags behind the remaining operators as they also offer 2G services.

Asia Pacic Telecom reported 3mn 3G subscribers in April 2011,

up from 2.6mn in June 2010, but it has seen limited growth since

then. Instead, the operator said that its subscriber base declined to

3.05mn in June from 3.1mn in February.

The decrease in the number of subscribers has been attributed

to the delay in rolling out its new EV-DO service, which is about

one year behind schedule. As of March, Asia Pacic Telecom had

upgraded more than 600 CDMA2000 to EV-DO, and another 2,000

are scheduled to be upgraded in Q312.According to Asia Pacic Telecom, the CDMA2000 1xEV-DO

infrastructure gives the operator a cost advantage over its rivals. In

0

20

40

60

80

100

120

140

0

5,000

10,000

15,000

20,000

25,000

30,000

2009

2010

2011e

2012f

2013f

2014f

2015f

2016f

Number of 3G Pho ne Subscribers ('000) LHS

Number of 3G Pho ne Subscribers/100 Inhabitants RHS

Positive Growth ExpectedTaiwan 3G Subscriber Forecast, 2009-2016

e/f = BMI estimate/forecast. Source: NCC, Operators, BMI

-350

-300

-250

-200

-150

-100

-50

0

50

100

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Sales

Operating Profit RHS

Early Emphasis On LTE Yielding ResultsLG Handset Unit Financial Results (KRWbn), 2010-2012

Source: LG Electronics


12/17

Asia TelecommunicationsChINA

counterparts would need to roll out 6,000-8,000 base stations.

Additionally, Asia Pacic Telecom plans to partner with China's

CDMA2000 mobile operator China Telecom to jointly procure

handsets to further lower cost.

This would allow Asia Pacic Telecom to target more cost-

conscious consumers and those who have yet to make the transition

to smartphones. The operator plans to procure 1.1mn handsets in

2012, of which 20-30% will be smartphones. Further, Asia Pacic

Telecom was negotiating a deal with Apple to sell a CDMA variant

of the iPhone, and BMI believes that this could become a reality

in the near future given that China Telecom secured an agreement

to sell CDMA iPhones in China in February. However, this is de-

pendent on Asia Pacic proving that its network can cope with a

surge in data use.

Due to its smaller scale when compared with the likes of Chun-

ghwa Telecom and Taiwan Mobile, as well as a different mobile

technology, it would be difcult for Asia Pacic Telecom to become

the market leader in terms of subscriber. The operator also recognises

the limitations as it envisages 4mn 3G subscribers in 2014. However,

the strategy of targeting the low-to-middle segment of the marketcould still protable.

CHINA

Baidu's New Smartphone A

Safe BetBaidu, the leading Chinese internet search engine, has launched a

new smartphone powered by its proprietary cloud-centric operating

system (OS). The low-cost, sub-US$150 handset will be sold through

China Unicom and, thanks to its deep connectivity with Baidu'sonline search, location and entertainment services and applications,

should mirror the success of international rivals touting the Google

Android operating system. BMI believes that the range of the new

phone's capabilities, plus its affordability, is a surer bet for the

company, which is looking to differentiate itself from established

global and local rivals alike.

The Changhong H5019 is a Foxconn-manufactured touchscreen

device that sports cloud-based voice and handwriting recognition,

interfaces are also linked to Baidu's cloud-based services, which are

expanding rapidly and include mapping and location-based services,

music and video content, gaming, social networking, advertising and

news. In many ways, Baidu mirrors global search giant Google and

has sought to replicate its success in the connected device market

with a proprietary operating system linked to all of its services and

features.

While Google-developed Android products are slowly enter-

ing the Chinese smartphone market, their impact is blunted by the

fact that Google services are heavily censored and restricted at the

delivery end of the service supply chain, rendering them slow and

ineffective in accessing specic content and applications. This is why

many Chinese still prefer Windows and Nokia Symbian handsets.

Gartner estimates that Nokia handsets accounted for 23% of the

Chinese smartphone market in Q411 and Samsung accounted for a

further 28% with its Windows and Bada-powered phones.

Apple's iPhone is very popular among the more afuent, youthful

sections of urban society, but availability is relatively limited and

the high cost of the handset means that it will remain unaffordable

for the vast majority of consumers. Gartner estimates that Appleaccounted for 9% of the market in Q411.

Local handset suppliers include Huawei Technologies and ZTE

(market shares of 15% and 9%, respectively), offering a mix of

Windows and Android-powered phones, but these offer only limited

connectivity to locally optimised services, solutions and applications.

This is where Baidu hopes its new offering will score over its rivals

and how it can outmanoeuvre consumer electronics giant Lenovo,

which is also pushing into the smartphone market after dominating

the personal computer segment.

Ostensibly, Baidu's latest foray into the smartphone market is

more compelling than its earlier, lacklustre partnership with Dell.

And, with its signicant existing online user base, the Baidu smart-phone has every chance of becoming a leading force in the market,

very quickly, BMI believes.

China Telecom Eyes Future

With Cloud GamingChina Telecom and Taiwan-based xed-mobile convergence appli-

cations provider Ubitus announced in June that they have formed a

partnership to deliver cloud gaming services to internet-connected

TVs in China. BMI believes that there are several important factors

that could bring success to this collaboration, which include China

Telecom's xed broadband market leadership, local regulations pro-

hibiting gaming consoles and strong demand for internet-connected

TVs in China.

Unlike 3D TVs, which have suffered languid consumer demand

due to factors such as limited content and poor viewing experience,

internet-connected or smart TVs are more well received as consum-

ers can combine multiple online services (for example, social media

and online videos) on a single platform. Under China's policy for

xed-mobile convergence, the Chinese internet-connected TV mar-

ket is expected to expand to 53mn by end-2013, and cloud gaming

is another feature that could help spur demand for internet TVs.

We have recently seen major TV manufacturers establishing part-

nerships with cloud gaming service providers. In early June duringthe Electronic Entertainment Expo conference, Samsung Electronics

signed a deal with Gaikai to stream gaming titles written for Sony's

Nokia23%

Samsung28%

SonyEricsson

4%

ZTE13%

Huawei15%

Apple9%

HTC3%

Others5%

Baidu Taking On The GiantsChina Smartphone Market Share By Vendor, Q411

Source: Gartner


13/17

Asia TelecommunicationsINdIA

gaming consoles. Similarly, OnLive announced at the same time

that it was adding LG Electronics's smart TVs to the number of

platforms that could run its cloud-based gaming system.

Cloud gaming carries out the processing and video rendering in

the cloud, which is then streamed to users, thereby removing the need

for a gaming console. This method of bringing gaming to Chinese

consumers could become a lucrative business as Chinese regulations

prohibit the sales of consoles such as the PlayStation, although units

are available through the grey market. Ubitus's GameCloud platform

will be launched on October 1, and we expect China Telecom to

enjoy exclusivity.

China Telecom is the country's largest xed broadband provider

with 81.45mn subscribers at the end of April. The operator is cur-

rently in the midst of deploying the world's largest bre optic network

and it plans to grow its bre broadband subscriber base to 100mn by

2015. Although most of the intensive processes are handled in the

cloud, high-speed broadband connectivity is still required to deliver

a seamless and low-latency cloud gaming experience to consumers.

Consequently, we believe that China Telecom is well placed to help

drive development in the cloud gaming market.

As cloud gaming eliminates the need for consumers to purchase

a gaming console, thereby reducing cost, the combined cost of an

internet-connected TV and high-speed broadband connection could

still be beyond the reach of majority of the consumer market. The

cloud gaming market is also still at its infancy, and at the current

stage where quality such as frame rates and response time are inferior

to console gaming, we do not expect serious gamers to be swayed.

INDIA

Industry To Suffer From Continued

Regulatory UncertaintiesThe collateral damage arising from the Indian telecoms regula-

tory debacle has widened after Augere has reportedly decided towithdraw from the market due to difculties in raising funds. The

drawn-out investigations and contentious measures to resolve issues

Augere is backed by France Telecom and private equity rms

such as Harbinger Capital, New Silk Route and Vedanta Oppor-

tunity Fund. Through its subsidiary Augere (Mauritius), the rm

secured 20MHz of broadband wireless access (BWA) spectrum in

Madhya Pradesh during the June 2010 auction, and it had announced

plans to soft launch TD-LTE services under its Zoosh brand in

Madhya Pradesh and Chattisgarh in early Q212. Augere displayed

its commitment by becoming one of the rst BWA licence holders to

contract a network vendor after selecting Ericsson in October 2011.

Augere is an unfortunate victim as it was not implicated in the

2G licence scandal that affected companies such as Bahrain Tel-

ecommunications, Telenor and Etisalat, some of which have exited

the Indian telecoms industry. Back in February, BMI had expected

limited collateral damage from the cancellation of 2G licences with

the greatest impact on companies in directly related sectors. For

example, telecoms towers rm Viom Networks would lose 20-21%

of its tenancy if Telenor withdraws its investments.

However, the negative effects have spilled out after the Indian

government and regulator failed to swiftly resolve the issues. Instead,

we have seen the authorities place a high price on the 2G re-auctionand try to revive the Vodafone tax case, which were detrimental to

domestic and foreign investor condence.

According to Augere CEO Lars Henrick Stork, through an in-

terview with the Economic Times, the rm's investors have been

rufed by the 2G scandal, in addition to the repeated delay in the

unveiling of the New Telecom Policy, which was scheduled to be

announced in 2011. As a result, its investors have halted funding.

Assuming that Augere follows up on its divestment plan, we

expect alternative BWA licence holders, namely Bharti Airtel,

Tikona Digital Networks and Aircel, to be interested in its spectrum

and network infrastructure. Consequently, there is limited negative

effect on the overall Indian 4G market. However, we believe thatAugere's exit sends out further warning signs to the Indian govern-

ment with more capital outow as a real possibility.

Due to the convoluted nature of the telecoms mess in India, a

quick resolution within by end-2012 is unlikely, especially when

the government remains undecided on key issues. A white paper

on 'black money' has been published by the Indian government,

which noted that the 'Vodafone tax case provides an instance of themisuse of corporate structure for avoiding the payment of taxes'.

This indicates that the government will continue pursuing Vodafone

0

10

20

30

40

50

60

70

80

Industry

Rewards

Country

Rewards

Industry

Risks

Country

Risk

Telecoms

Rating

Indonesia

China

India

India Was Leading In Early 2011Asia Pacic Telecoms Risk/Reward Ratings Q312

Source: BMI

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Chin a Telecom

China Unicom

Cloud Gaming Complements LeadershipChina Telecom And China Unicom Fixed Broadband Subscribers (000)

Source: Operators


14/17

Asia TelecommunicationsINdIA

has not provided immediate clarity on the issue after it postponed

the implementation of measures to claw back taxes owed by foreign

investors by a year from early May after backlash from the inter-

national community.

Challenges Remain Ahead ForReliance CommunicationsReliance Communications has announced better-than-expected

nancial results for the quarter ended March, which was a signi-

cant improvement from previous quarters. However, the operator

continues to be laden with hefty debt, although it is planning to list

its submarine cable assets in Singapore, in addition to negotiating a

sale of its tower arm. BMI believes that the immediate outlook for

the rm remains uncertain largely due to the regulatory uncertainty,

which is unlikely to be resolved in the near future.

Reliance Communication's revenue declined by 32.6% y-o-y to

INR53.1bn (US$958mn) in the quarter ended March, but this was

higher than analysts' expectations as polled by Reuters. Similarly,

the operator's net prot for the quarter exceeded analyst estimates

and grew by 96.7% to INR3.316bn, representing the rst y-o-y

increase since the quarter ended June 2009.

The protability improvement could be attributed to Reliance

Communication's position as the second-largest mobile operator in

India, and a surprise increase in the minutes of use (MOU). MOU

grew for the rst time in ve years to 227 minutes, up from 224

minutes the previous quarter, which is a particularly impressive feat

given that Indian mobile operators have been hiking voice tariff

rates. Reliance Communications also reported that its revenue of

INR0.44 per minute was among the highest in the industry for the

last eight consecutive quarters.

Operations Still StrugglingOn May 28, the date that Reliance Communications released its

latest nancial results, its share price opened 3.4% higher than the

previous day. However, BMI believes that Reliance Communica-

tions remain vulnerable fundamentally. Due to strong competitionand price-sensitive consumers, the operator's ARPU dipped below

the INR100 mark to INR99 for the quarter ended March while its

data services but, like its peers, consumer adoption has been below

expectations. Consequently, the operator followed Bharti Airtel,

IDEA Cellular and Vodafone India and have slashed tariff rates by

almost 62%. The price cut should spur consumer interest, although

there is a risk that sustained subscriber growth in the nascent market

would require a price war.

Debt Is Still A BurdenAs of March, Reliance Communication's net debt has grown to

INR358.393bn, up from INR320.485bn in March 2011. The hefty

debt, a result of the 3G auction and roll-out, has been an ongoing

concern, especially when the operator has repeatedly failed to reduce

the amount.

In April, Reliance Communications received initial approval

to list its submarine cable unit in Singapore, which is forecast to

raise US$1.4bn. The operator's submarine cable assets span across

68,000km, and have landing sites at 46 locations in 26 countries.

Further, an average of 80% of capacity on its network is available to

be monetised with useful life ranging from 2022 to 2031. An initial

public offering (IPO) could take place in Q212 and proceeds would

help alleviate pressure on the operator.

Meanwhile, Reliance Communications also has been trying to

ofoad its tower unit Reliance Infratel, rst through an IPO before

turning to private equity rms. However, the plan to divest Reli -

ance Infratel has been in place for about two years without success,

although Reliance Communications has announced that it is waitingfor regulatory clarify from the government.

-100

-50

0

50

100

150

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Net Profit (INRmn)

% chg y-o-y RHS

Finally GrowthReliance Communications Net Prot

Source: Reliance Communications

0% 20% 40% 60% 80% 100%

Trans-Atlantic

Intra Asia

Midd le East-West

Midd le East-East

India-West

India-East

Uti li sed Un uti li sed

Part Of Reliance Infratels AppealReliance Infratels Network Capacity And Useful Life

2015 2020 2025 2030 2035

Trans-Atlantic

Intra Asia

Midd le East-West

Midd le East-East

India-West

India-East

Source: Reliance Communications


15/17

Asia TelecommunicationsBANglAdeSh

Regulatory Risk Runs HighThe ongoing regulatory debacle has not helped Reliance Commu-

nications. BMI has highlighted the growing collateral damage from

the Indian government's inability to quickly resolve issues, and it is

possible that private equity rms in talks with Reliance Communica-

tions could be increasingly concerned, especially when the prospect

of the tower sector is highly tied to the mobile market.Reliance Communications has announced that the sale of Reli-

ance Infratel will only proceed once the Department of Telecommu-

nications and the Telecommunication Regulatory Authority of India

clear the issues on spectrum allocation and licensing guidelines. We

believe that given the contentious decision of setting a high price,

a resolution may not emerge in the near future.

BANGLADESH

GSM Switch To Boost Citycell's

OutlookPacic Bangladesh Telecom, which markets under Citycell, has an-

nounced that it plans to spend BDT16bn (US$196mn) to switch from

CDMA technology to GSM due to continuous bad performances in

light of technology limitations. The long-awaited change, assuming

that the operator receives regulatory approval, should help bolster

Citycell's outlook as it would allow subscribers of rivals rms to

easily migrate to its network.

According to the Bangladesh Telecommunication Regulatory

Commission (BTRC), Citycell had 1.713mn subscribers at the end of

May, representing only 1.9% market share. Since launching services

in 2005, Citycell's mobile subscriber base has not exceeded the 2mn

mark and signicantly lags behind larger rivals Grameenphone(38.412mn), Banglalink (25.252mn), Robi Axiata (18.733mn)

and Airtel (6.667mn).

CDMA is typically more cost-effective, and Citycell's 800MHz

spectrum is suitable for target sparsely populated rural regions. How-

ever, the technology can also become a disadvantage in emerging

markets. GSM consumers can easily switch providers by swapping

SIM cards without purchasing new handsets. By contrast, CDMAphones are locked to one network, and the switching process requires

cooperation of the old and new operators Citycell's situation is

The BTRC has rejected Citycell's requests to switch to GSM

technology over the years. However, Citycell is undergoing a mobile

licence renewal, and the new licence will be technology neutral,

thereby technically allowing Citycell to change from CDMA to

GSM. Citycell's migration plan involves paying BDT7.5bn for

5MHz of spectrum in the 1800MHz band while retaining 5MHz of

spectrum in the 800MHz band for subscribers who refuse to make

the switch. As a result of the shift to higher frequency, Citycell plans

to increase its number of base transceiver stations from 860 to 2,500.

We do not expect signicant resistance from the regulator, es-

pecially if Citycell pays its licence renewal fees (operators such as

Grameenphone are in disagreement with the BTRC over the dues).

BMI believes that making the switch would bring Citycell to the

same competitive landscape as its rival operators. However, oper-

ating two separate networks is a costly and inefcient model. We

believe that this solution to prevent subscriber backlash is temporary,

but we eventually expect Citycell to fully migrate to GSM.

AFGHANISTAN

3G Competition Heating UpThe Afghanistan Telecom Regulatory Authority (ATRA) awarded

the country's second 3G licence to MTN Afghanistan on June

20, three months after rival Etisalat launched its network. More

licences are expected to be awarded with remaining mobile opera-

tors expressing interest, according to the regulator. BMI believes

that the added competition should provide a much-needed boost to

the country's telecoms industry, particularly in lowering the cost of

accessing the internet.

The ATRA invited bids for 3G licences in August 2011 but dis-

qualied potential new entrants Sahar 3G, Toseye Eatemad Mobinand Shezai Tel USA as they were deemed to have failed to meet the

requirements. Sequentially, the licences are to be awarded to exist-

ing GSM operators, namely Etisalat, MTN Afghanistan, Afghan

Wireless Communications (AWCC) and Telecom Development

Company Afghanistan (Roshan), as per the approval of the min-

isters' committee for the telecoms sector and 3G tender conditions.

Both licences that have been awarded cost US$25mn each, and the

price is expected to be the same for Roshan and AWCC.

MTN Afghanistan expects to launch 3G services by mid-July,

although BMI believes that coverage would be limited. At launch,

Etisalat's 3G services were only available in Kabul, but the opera-

tor expanded coverage into Jalalabad in June. The rapid commer-

cialisation of 3G services indicates that operators have already been

upgrading their equipment and networks. If the ATRA awards the

remaining two licences in the near future, we expect commercial

3G services from all four operators by end-2012, which presents an

upward risk to our Afghanistan 3G subscriber forecast.

We believe that the existing high prices for internet services will

provide signicant demand for 3G. According to the Ministry of

Communication and Information Technology, the internet price for

1MB of data per month fell by 67% from 2011 to 2012 but remains

a prohibitive US$300. During this period of time, the number of

internet users increased from 1mn to 2mn. Meanwhile, Etisalat's

3G plans vary from AFN499 (US$10) a month for 1GB of data

(smartphone) to AFN899 (US$19) for 4GB of data (USB dongle).Given a level playing eld each 3G licence costs US$25mn and

individual operator's market share is about 22-29% we expect

0

20,000

40,000

60,000

80,000

100,000

120,000

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

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Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Teletalk

Citycell

Airtel

Robi Axiata

Bangladesh

Grameenphone

Citycell Not Keeping Pace With IndustryBangladesh Mobile Subscriber Growth By Operator (000)

Robi Axiatas subscriber data differ from that of the BTRC. Source: BTRC, Operators, BMI


16/17

Asia TelecommunicationsAfghANIStAN

try at the end of 2016, up from 50,000 in 2012. However, the

potential large-scale availability of affordable 3G services could

result in rapid subscriber growth. That said, development is de-

pendent on operators being able to expand their networks, a situation

complicated by doubts surrounding the country's security.

2009

2010

2011

2012

2013f

2014f

2015f

2016f

Number of 3G Phon e Subscribers ('000) LHS

Number of 3G Phone Subscribers/100 Inhabitants RHS

Growth Could AccelerateAfghanistan 3G Subscriber Forecast, 2009-2016

f = BMI Forecast. Source: MCIT, ATRA, Operators, BMI


17/17

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asia pacific telecommunications insight - september 2012

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