Hong Kong mobile sector expected to see better days after 3G spectrum auction

SmarTone and China Mobile's local subsidiary emerge as biggest spenders in bidding for radio spectrum, with improved earnings to follow

PUBLISHED : Tuesday, 09 December, 2014, 9:38am
UPDATED : Wednesday, 10 December, 2014, 3:01am

Hong Kong's incumbent mobile network operators could see improved financial performance next year, after the government concluded its much-anticipated public auction of radio spectrum on Monday.

SmarTone Telecommunications, China Mobile Hong Kong and Hutchison Telecommunications Hong Kong were the winning bidders, paying a combined HK$2.42 billion in spectrum utilisation fees from 2016.

"The completion of the 3G spectrum renewal auction has taken away uncertainties [in the city's telecommunications sector]," Anand Ramachandran, Barclays' head of telecommunications, internet and media equity research for Asia, excluding Japan, said in a report.

"We reiterate our positive stance on the Hong Kong telecommunications sector as we expect better pricing in mobile to start to be reflected in operators' financial results this second half of the year and drive higher earnings and cash flow growth … we see upside to dividend delivery post-auction as well."

The Office of the Communications Authority (Ofca), the executive arm of the industry regulator, said on Monday that a total of 49.2 megahertz of paired radio spectrum in the 1.9 gigahertz to 2.2GHz band was auctioned off.

HKT, the city's biggest telecommunications network operator, did not take part in the bidding as part of the conditions for its US$2.43 billion acquisition of CSL New World Mobility. HKT had also agreed to divest 29.6MHz of its 3G mobile spectrum, which was made available in the auction.

The government announced in November last year that it would take back and auction off a third of the 3G spectrum held by each of the four incumbent 3G mobile network operators, while giving the right of first refusal to renew their respective 15-year licences for two-thirds of the spectrum that each currently hold. The 3G spectrum licences of HKT, CSL, SmarTone and Hutchison Telecom will expire in October 2016.

"The auction results are in line with our expectations as the spectrum prices are fairly close to the reserve price of HK$48 million per megahertz," Ramachandran said.

SmarTone, the smallest of Hong Kong's three incumbent mobile operators, bought a total of 19.8MHz of radio spectrum for HK$980.4 million. China Mobile Hong Kong, which has operated 4G services in the city since 2012, will pay HK$970.4 million for 19.6MHz of spectrum. Hutchison Telecom won 9.8MHz of spectrum for HK$470.4 million.

An Ofca spokesman said the new spectrum assignees "would have about two years to prepare for the necessary network configuration" and mobile infrastructure roll-out. Their spectrum assignments will be for 15 years, running from October 22, 2016 to October 21, 2031.

The winning bidders must submit a letter of credit in March to guarantee payment of fees before the spectrum re-assignments take effect.

SmarTone chief technology officer Stephen Chau Kam-kun yesterday said the company planned to "re-farm" the spectrum it won for 4G services. Hutchison Telecom had the same plan, while China Mobile Hong Kong saw its new spectrum boosting its network bandwidth.