Asia Essentials

Demand for mobile data is relentless

It comes as no surprise that consumers continue to clamour for more data, andthe rapid expansion of mobile data traffic is set to continue across Asia – we seea 54% CAGR between now and 2020. Over the longer term, we also seeindustrial and IoT demands pushing the need for ever greater networkcapabilities. Countries which stand out in terms of sharing telecom infrastructureare India, Malaysia, Indonesia and Thailand. For investors, we believe thesecompanies provide an alternate high yield exposure to the sector: We especiallylike India’s Bharti Infratel and Thailand’s DIF on this theme.

Networks and technology are improving

Supporting this seemingly insatiable demand is the expansion of networks. 4G isincreasingly available in most markets across Asia and talk of 5G trials is nowunderway. Networks also need additional radio frequencies to carry the growingtraffic, and as higher spectrum is used, more towers (sometimes a 4-foldincrease) and increased network densification are required.

Infrastructure rationalization can save money

Of course capex is needed to keep up with these requirements, but the towercompanies and other telecom infrastructure companies can help to managecosts by sharing common network elements. Overall capex/opex reductions of 8-15% are plausible, but the experience varies widely by market. In somecountries, the regulator is pushing for more infrastructure sharing and betterresource allocation (e.g. China, Indonesia, India), while in others, such as Koreaand Japan, towers and networks are seen as core elements of a telco'scompetitive differentiation (although we rarely see this as justified).

Winnowing out the winners: win-win-win

In this report we explore these trends and the opportunities they provide,especially to tower companies and other telecom infrastructure stocks. Whenexecuted well, we believe infrastructure rationalization can benefit 1) the telcos,2) the tower and infrastructure companies, and 3) consumers. We believe that,globally, tower companies are generally regarded by the market as solidbusiness models, but we caution investors not to paint all listed infrastructurecompanies with the same brush. Business models differ widely by market and bycompany with specific challenges inherent to individual companies. Below areselected stocks in Asia that we see linked to this theme.