Hong Kong telecom sector:Analysis of iPhone 7bundled plans no hike in handset subsidy

Event

With iPhone 7 and iPhone 7 Plus to be launched on September 16, weconduct a proprietary study of the monthly subscription packages offered byHong Kong mobile operators and gauge the extent of competition.。

Impact

Among all four HK mobile operators, CMHK offers the highest degree ofhandset subsidy along with iPhone 7/ iPhone 7 Plus. As we compare theamount of handset rebate offered along subscription packages, we noteCMHK (wholly owned subsidiary of China Mobile) is the most proactiveoperator leveraging on iPhone 7’s launch to acquire subscribers.

On the back of iPhone 7’s launch, we note all the operators have kepttheir tariff level the same as before. When the HK operators launchediPhone 6 about two years ago, it was an industry wide phenomenon thatevery operator revised upward their monthly tariffs. Given the operators havenot launched new monthly tariffs this time around, we believe we may have towait for another 12 months before the next potential tariff hike. In themeantime, we expect ARPU to stay stable in the near term.

Despite Hong Kong Broadband Network (‘HKBN’) entering the sector asMVNO, we are unaware of intensifying competition. In early August,HKBN (1310 HK, not rated) announced that it will offer an MVNO service on a6-month free trial service. With the company primarily focusing on its wirelinebusiness, we do not expect HKBN to be very ambitious in expanding its newlyfounded mobile business.

Outlook

HKT (6823 HK, Outperform, TP: HK$12.50) remains our preferred pick ona 12-month basis: (1) stable earnings growth, as it does not own a volatilebusinesses; (2) flexible dividend policy to smooth volatility of dividends due toearnings fluctuation; (3) mobile business no longer a drag for the company;(4) local telephony business stabilising, as competitors are reassessingbusiness strategies; and (5) peak capex investment period for its fixed-linebusiness being pretty much over, in our view.