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Asian Wireless Telecom Firms Undergoing Transition
Source: marketwatch.com
Source Date: Thursday, July 22, 2010
Focus: Institution and HR Management
Created: Jul 25, 2010

HONG KONG (MarketWatch) -- The Asian telecommunications space is undergoing an evolution as more markets in the region approach maturity after years of growth led by an explosive increase in subscribers.

Although the emergence of smart-phones and high-speed third-generation mobile services, as well as mobile Internet and banking applications, offer new opportunities for revenue growth, investors in the sector may need to be prepared for a change in the way the returns are measured.

Analysts at HSBC Global Research said that wireless-service providers in the Asia-Pacific region are transitioning from a period of "easy" top-line growth driven by addition of subscribers to a "more complex" model that emphasizes on free cash flow-dividend yields.
"We argue that most Asian operators are reluctant to acknowledge this shift from a supply-constrained to a demand-constrained environment. We maintain a cautious view on the two key markets of China and India," HSBC said in a report.

"We maintain a cautious view on the two key markets of China and India, which are at the beginning of a long, complex transition to a slower growth model," they said.

The analysts said the new growth model in Asia has become more delinked from earnings growth.

The Asia-Pacific region -- by far the largest in the world in terms of wireless subscribers and still among the fastest growing -- had about 1.91 billion users out of the 4.31 billion subscribers in the world as of June 2009, according to Mobile Infolink data posted on the Web site of industry group GSM World.

Figures released this month showed that China alone had more than 785 million subscribers by the end of June 2010. India, the second largest market by subscribers, had close to 650 million subscribers by the end of last month.

HSBC analysts said they were cautious on the Chinese telecom companies, as a "slower 3G roll-out forestalls a growth rebound," while India's players faced a fiercely competitive environment, with an "opaque regulatory structure and poor outlook for industry profitability in the near term."

The brokerage said that telecom operators in Taiwan, South Korea and Australia offered the best dividend yields, with Australia's Telstra Corp. being a clear standout, while Southeast Asian telecom companies also generally offered higher dividend yields. Telstra currently has a dividend yield of 8.7%, according to FactSet Research data.

HSBC listed Korea as its favorite country-stock-sector combination in the telecom space, saying a shift there to a consumer-focused policy and an empowerment of management teams to make structural changes in their business models create the potential for superior returns.

Wireless telecom sector shares were broadly lower in Asia on Thursday, in line with the broad market performance in the region. Shares of Telstra /quotes/comstock/22x!e:tls (AU:TLS 3.20, -0.01, -0.31%) /quotes/comstock/11i!tlsyy (TLSYY 14.34, -0.14, -0.97%) fell 0.3% in Sydney, China Mobile Ltd. /quotes/comstock/22h!e:941 (HK:941 78.45, 0.00, 0.00%) /quotes/comstock/13*!chl/quotes/nls/chl (CHL 50.94, -0.01, -0.02%) slid 0.5% and China Unicom Hong Kong Ltd. /quotes/comstock/22h!e:762 (HK:762 10.76, +0.14, +1.32%) /quotes/comstock/11i!clphy (CLPHY 7.30, -0.02, -0.27%) rose 1% in Hong Kong.

NTT DoCoMo /quotes/comstock/13*!dcm/quotes/nls/dcm (DCM 15.68, -0.05, -0.32%) (JP:9437 135,900, +600.00, +0.44%) fell 0.2% in Tokyo, while Singapore Telecommunications /quotes/comstock/11i!sngnf (SNGNF 2.28, +0.08, +3.64%) /quotes/comstock/22i!e:z74 (SG:Z74 3.09, +0.03, +0.98%) and Bharti Airtel lost 0.3% each in Seoul and Mumbai, respectively.

In the wider markets, Japan's Nikkei Stock Average fell 0.7%, the Hang Seng Index fell 0.2% in Hong Kong, South Korea's Kospi dropped 0.4%, Australia's S&P/ASX 200 shed 0.6%, Taiwan's Taiex gave up 0.3% and India's Sensex lost 0.3%.
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