Telco

Telco: Spore and Msia announced plans to cut roaming charges by 20% for voice and 30% for SMS to enhance connectivity between the countries. The first set of rate cuts will come into effect May 1, followed by 2nd round of reductions in May 2012 which combined, could lower rates by up to 50% in total. Data roaming is next on the govts’ agenda…

Local telcos currently charge consumers $0.70-1.00 /min for receiving a Spore call when in Msia. This will be slashed 20% to $0.56-0.80 from May, and to $0.49-0.70 a yr later. The cost of sending SMS will be halved, from $0.62 now to $0.42 next mth and to $0.30 a yr later…

Overseas roaming contributes around 15-25% of local telcos' mobile revenue, with Msia the top mobile roaming destination, and accounting for the bulk of int’l roaming traffic among local cellphone subscribers.
The impact on earnings of this rate reduction will depend on 3 factors:
a) price elasticity of demand;
b) higher data roaming from the rise in smartphone penetration.
c) rise in Singapore-Malaysia travel…

Goldman notes M1 (Neutral, $2.40 TP) will be most impacted, estimates roaming accounts for 12-15% of M1’s revenue, which would translate to a 3-5% EPS decline assuming traffic patterns do not change.
Says StarHub (Sell, $2.30 TP) will experience a 2-3% EPS decline.
And believes SingTel (Buy, $3.70 TP) would be least impacted, with only 1-2% EPS decline given SingTel Mobile accounts for only 10% of Group revenue.