Two Asian Telecoms
The percentage of prepaid versus postpaid (contract) customers is highly dependent on the well-being of the target consumer. In more developed economies, contracts are the norm, while in emerging markets it is the other way around.
The Philippines is one of the less-developed Asian markets with GDP per capita of $2,223, but that simply means bigger potential for development. Philippine Long Distance Telephone (NYSE:PHI) is the dominant telecom in the Philippines. The company had 66.1 million mobile subs at the end of March 2012, with net additions of 2.4 million from year-end 2011. Of the total, only 2 million were postpaid customers and only 2.1 million had wireless broadband.
Needless to say, most of those customers don’t have smartphones, but when that changes in the next five years, ARPU should be substantially higher. Management aims to pay a dividend twice a year, with the current 4.5% yield being quite competitive.
In Indonesia, with GDP per capita of $3,508, the state of the wireless market is naturally more advanced. The wireless penetration is 107% to 255.3 million access lines (with separate business and personal phones for many consumers). Since it was too costly to run landlines to remote locations for years (to customers who could not afford the bills), the wireless boom has helped many emerging markets develop a more vibrant business environment.
Indonesia’s PT Telekomunikasi Indonesia (NYSE:TLK), or simply Telkom, has 43% of the wireless market in one of the most vibrant economies in Asia, whose proximity to China and abundance of hard and soft commodities have helped coin the term “Chindonesia.”
Indonesia never experienced a recession in 2008 and presently is growing GDP at 5% to 6% a year. This has caused the economy to more than double its GDP from $432 billion in 2007 to an estimated $928 billion in 2012, which is causing a surge in disposable incomes and likely will cause a surge for postpaid wireless services with higher ARPU. Only 5.2 million mobile customers have broadband data contracts, so that should grow exponentially in the next five years.
Dividends here too are a little erratic, but usually paid twice a year with a not-too-shabby current yield of 2.8%. They also have room to go higher as Telkom’s revenues grow with the introduction of new services.
Ivan Martchev is a research consultant with institutional money manager Navellier & Associates. The opinions expressed are his own. Navellier & Associates does not hold positions in the stocks mentioned in this article for its clients. This is neither a recommendation to buy nor sell the stocks mentioned in this article. Investors should consult their financial adviser prior to making any decision to buy or sell the aforementioned securities.