Singapore Telcos’ unlimited data plans: A thing of the past?

M1 is phasing out its unlimited data plans. These plans used to cost consumers S$15.69-S$59.40 for 1-21 Mbps. StarHub may also follow soon while SingTel does not offer unlimited data plans.

Existing M1 customers can avail unlimited plans till contracts expire. M1 yesterday introduced four new plans, tiered to bundled data ranging from 4GB to 50 GB.

M1 reveals practical broadband speed range. SingTel started to reveal the average speeds in June 2011. M1 also joined SingTel in disclosing its range of average broadband speeds. For similar theoretical speeds as SingTel, M1 users are getting a wider range. The minimum typical speed at M1 was much lower than SingTel, demonstrating better surfing experience at SingTel.

Our view
Peak hour congestion could be the key reason. We anticipated the move as it is a well-known fact that 2% of heavy users congest the network for the remaining 98%. As evident from the minimum
broadband speeds, it is quite clear that M1’s network was getting congested during the peak time resulting in lower speeds. StarHub could be the next to follow M1 on this.

Positive for free cash flow. The news is positive in the sense that telcos are not spending excessive capex on non-revenue generating customers. This should also conserve sector’s free cash flows resulting in healthy dividend yields.

We prefer StarHub to M1 for higher yield and lower gearing. StarHub is trading at ~7% yield based on S$20 Scts DPS versus 6% at M1 based on 80% payout ratio as its free cash flow lags earnings due to fair value accounting. At the end of 2Q11, M1 had net debt to annualized EBITDA of 1.1x versus 0.7x for StarHub and SingTel each, and M1 may not want to gear up more than peers.

Weaker Indian Rupee & Aussie dollar are near term concerns for SingTel. Over the last two months, Indian rupee has weakened 5%, Aussie dollar has weakened 2% while Indonesian Rupiah has also weakened ~2% against SGD. Every 10% decline in each currency is estimated to have a 2% adverse impact on SingTel’s earnings. Market appears quite bullish on Bharti's recovery though, which contributes 15-20% to SingTel's earnings.

The sector continues to be defensive. StarHub (Buy, TP: S$3.05) is our top pick followed by SingTel (HOLD, TP S$3.20) & M1 (HOLD,TP S$2.60).