Australian Telecom Sector Update

Submitted by Craig Strzelecki on 23 April, 2007 - 19:17

Sharemarket analyst UBS has given an update for the Australian telecommunications sector: TEL outperforms: TEL outperformed reversing last weeks losses as structural separation gathers momentum. TLS performed inline but has outperformed by 4% since the ALP announced its FTTN plan on 22 March ($2.1bn value creation). SGT gave up gains despite Bharti rallying 7%. News flow: G-9 access undertaking, ACCC fixed-line review; G-9 lodged a draft FTTN access undertaking proposing prices of $21-24. ACCC announces Fixed Services Review with LSS pricing and exchange regulation in focus. TelstraClear abandons $50m Tauranga 3G plan. Coonan confirms ongoing talks with both TLS and G9 on FTTN. Optus will pursue legal action if a uncompetitive deal is struck between the LP and TLS. Offshore, KKR is linked to a Bell Canada bid. Catalysts: broadband politics, upcoming results, capital management; TEL: capital mgt, UMTS build? Opsep and Vodafone aggression. SingTel (SGT): FY07 results/FY08 guidance (May 9), capital mangement, renewed Optus aggression? Telecommunications giant of the sector: Telstra: potential broadband capex bubble could knock EPS momentum; fibre regulation is key (Federal Budget due 8 May). The analyst's stock preference: SGT over TLS, TLS over TEL; SGT is their top pick. A 25% Bharti price target upgrade (or c25c) yesterday has yet to be factored in. TLS premium appears sustainable but hinges on broadband politics. TEL trades at a premium but aggressive PWT synergies ($100mpa) & YPG capital management gains would imply it is fairly valued.