TV - FTA

TV - FTA  
- 49 digital TV channel applications to an auction of 24 digital TV channel licences have been sold to 33 interested operators from various industries including telecoms, print and satellite TV. The number is 20% higher than our expectation and 2x the available supply. If all the applicants submit applications and make it to the auction, the bidding will be fierce and the final bid prices should surpass the reserve prices, especially for the SD kids and SD variety channel licences. In the near term, lofty upfront fees would have a more adverse impact on new players than incumbents due to lack of branding, expertise and scalability. The sector remains a Neutral, with MCOT as our top pick.
What Happened
The National Broadcasting and Telecommunications Commission (NBTC) revealed that 49 digital TV licence applications were sold to 33 interested operators from various industries. This is about 2x the 24 digital TV channel licences that are available. Among the four licence categories, the number of applications vs. the channels available is 2.4x for SD kids and SD variety channel licences and 1.7x for SD news and HD variety channel licences. The NBTC will announce the standard network rental fees no later than 15 Oct 13, 15 days before the application submission date. The spectrum auction should be held in mid-Dec 13 and no later than Jan 14.  
 
What We Think
The bidding is likely to be fierce given the excess demand and suggests lofty prices for winning bids. If so, expensive upfront fees would be more of a burden to new players than the incumbents which have established branding and economies of scale in their content library. Our analysis suggests that incumbents will still be winners during the first three years. Thereafter, new players are likely to emerge and they should be able to snatch considerable viewership and adex market shares from the incumbents in the 4th-5th years.  
 
What You Should Do
Given the changing competitive dynamics and lack of earnings visibility in the medium- to long-term, we are Neutral on the media sector. While we like BEC for its execution capability and buoyant earnings growth in the next 6-8 quarters, it is only a Neutral as digital TV will limit its earnings visibility in the medium term. We prefer MCOT given 1) MCOT's share price beating after its weak 1H13 results, 2) low market expectations for its 2H13 earnings growth, 3) upside surprises from its digital TV network management business, and 4) its lofty dividend yield of 7.9%.