Australian Telecomunications Update

Market analyst, UBS has the following market commentary with regards to the Australian telecommunications sector. TLS has performed in-line with the market (ASX200INDXF) ytd (+1.7%) with a nominal re-rating (+8.2%) driven by H107 results and a lack of a competitive response. SGT has underperformed (-8.8%) after outperforming in CYQ406 (+21%) while TEL continues to be plagued by domestic woes despite YPG sale optimism (-10.7%). A draft ACCC cost model prices MTA 50% below current rates (12c); TLS would be a net beneficiary everything else being equal. The ALP proposed it would invest $4.7bn to part build a national FTTN network, raising the FTTN debate again. HTA announced a $2.8bn recapitalisation; TEL's participation remains a question mark. TEL: YPG sale and use of proceeds, potential UMTS upgrade, Opsep; and an aggressive Vodafone. SGT: FY07 results and FY08 guidance in May; and, capital management potential. TLS: FTTN and FY08 EPS upgrades if competitors fail to respond. HTA: X-Series launch. SGT remains the analyst's preferred sector given emerging market mobile growth, balance sheet strength and relative value despite continued Optus concerns. TLS's slight premium to our fair value looks sustainable near-term, while TEL continues to trade at a premium even under optimistic YPG and PWT scenarios.