=> KARACHI- PTCL broad band services sector growth is
KARACHI- PTCL broad band services sector growth is set for take-off and the number of its subscribers is likely to increase by 440,000 by FY12 , said Merrill Lynch report on Pak Telecom Co Ltd.
In addition to expanding its broadband coverage, PTCL is also currently in the testing phase of its Internet Protocol Television (IPTV), which is set to be launched by 3QFY08.
Report further disclosed that PTCL has a big advantage to leverage its wide network coverage and capture a majority share.
In the past, growth in the broad band sector has been hampered by high cost, quality constraints and lack of local language content. Even the governmentÆs broadband policy, which was finalized in Dec-04, did little to help promote the growth of broadband in the country.
The aggressive ongoing expansion plans of Ufone, cellular subsidy of PTCL, will help the company maintain market share, even as the industry gets increasingly competitive with the entry of China Mobile (CMPak). Just recently, the company announced US$150mn for network expansion, which will add another 1,000 cities to its existing coverage to 1,405 cities, towns and villages which is in addition to US$550mn spent last year for expansion.
PTCL launched its broadband services in May earlier this year and plans to double its existing broadband subscriber base to 50,000 by Dec-07.
According to the PTCL management, the company expects broadband users to surpass the 2 million mark by FY12.
Report sees these forecasts may look a little too ambitious from current vantage point, the abysmally low internet penetration rate of 1.5% and increasingly more affordable broadband rates leads to believe that broadband could be on the verge of taking off and entering a supernormal growth phase, similar to what was witnessed with cellular subscribers a few years back. However, the rate of broadband services may decline by 3.5 percent of top line by 2010E, estimated report.
However, things seem to be changing quickly with the reduction in E1 bandwidth rates from US$1200 to US$1000 since Jan- 07, which has allowed operators to offer broadband services at more affordable rates. In addition, the government is also considering using USF funds to promote the use of broadband, which could potentially mean that the cost of usage would be subsidized for the common man with the USF Fund being used to compensate the service providers.
PTCL will be the first company to launch IPTV services in Pakistan, allowing users the access to television through their internet protocol. The IPTV services will be delivered via the companyÆs broadband network, allowing users the facility to avail television, VoIP and Internet access all over the same connection.
Ufone is also a beneficiary of the ongoing M&A spree in telecoms in Pakistan.
While the entry of international operators is intensifying competition in the sector, it provides a valuation benchmark for Ufone, which is not listed. Merril Lynch valuates currently a value of PRs10/share of PTCL for the 100% ownership in Ufone.
However, what could play out in the market at a later stage (especially if Ufone was to get listed as a separate entity or be a potential acquisition target) is valuations of other cellular companies being replicated for Ufone during M&A transactions. In the most recent acquisition in the sector, Singtel acquired a 30% strategic stake in Warid Telecom at a EV/Sub of US$299 in April-07.
Just to give an idea of how drastically Ufone valuations could jump in the event of an M&A, the value of PRs10/share translates into an EV/Sub of US$84 based on April- 07 subs or just under US$70/sub based on the current number of subscribers.
Depressed FY08 earnings due to a 14.9% drop in revenues in 1QFY08 coupled with the one-time expense of VSS during the ongoing fiscal year is likely to cast a shadow on stock price performance in the short term, in our view. However, long-term outlook on the stock remains positive due to factors mentioned above.
Merrill Lynch reiterates the stock with a revised Price Objective of PRs51/share.
Source: The Nation
Date:12/12/2007
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