How the spectrum auction will affect telco dividends

There could be some cuts to pay for the spectrum cost.

The recently concluded Phase 1 of the General Spectrum Auction (GSA) has resulted in a higher-than-expected spectrum cost for Singapore telcos.

According to Maybank Kim Eng, the excess demand for 50MHz from the incumbent telcos and newcomer TPG led to frenzied bidding for the 175MHz of spectrum available and a final price premium of 560% per lot for the non-reserved 900Mhz spectrum, 370% for 700MHz, and 297% for 2.5GHz.

Specifically for M1 and StarHub, they would have to lower dividends to pay for the spectrum cost. Both M1 and StarHub got the 10MHz of 900MHz spectrum they are entitled to at the reserved price of $20m per 2x5MHz lot under the First Right of Refusal.

M1 also bid and won 20MHz of 700MHz spectrum for $94m per 2x5MHz lot. In total, it will pay $208m. On the other hand, StarHub won 30MHz of 700MHz spectrum for $94m per 2x5MHz lot, as well as 20MHz of 2.5GHz spectrum for $11.9m per 5MHz lot. In total, it will pay $349.6m.

Maybank Kim Eng said the total amounts are significantly higher than the expected $109m.

With this, it said M1 needs to lower its FY18-19 dividends by 38% to keep its gearing levels below the estimated comfort level of 1.8x net debt/EBITDA. The same goes with StarHub, which would need to lower dividends by 13-38%.

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