Why Starhub’s Capex can be dramatically lower than Depreciation to potentially pay out more dividends | Investment Moats Skip to Content

Why Starhub’s Capex can be dramatically lower than Depreciation to potentially pay out more dividends

We talk during the last Q3 2011 financial results report the concern why Starhub can have a much much lower capital expenditure versus their depreciation. [Analysis here >>]

The worry here is that Starhub is forgoing capital investments so that they can pay out more dividends. However this doesn’t seem to be the case.

We uncover this article that shares how Starhub engaged Nokia Siemens to modernize their network. [Full article here >>]

Essentially, this network upgrade did a lot of good things for Starhub

  • Modernize Starhub’s 3G core network and triple the network throughput via Direct Tunnel
  • Maintained its leadership position by being the first to implement the 21 Mbps HSPA+ technology in South East Asia.
  • Enable subscribers to enjoy a faster and smoother mobile broadband experience.
  • Gain network efficiency and up to 30% percent savings in CAPEX and OPEX with Direct Tunnel
  • Platform longevity and clear path to LTE

This really addresses my prime worry

Direct Tunnel enables virtually unlimited data throughput capacity in the SGSN. “There is no need to invest substantial amounts of money to build capacity to handle the increased data throughput,“ said Cook.

The bane of telcos in future is with increase data access, it will lead to higher capital expenditure which the telco cannot monetize. This network upgrade goes a long way to address that.

What it means to investors

As an investor, perhaps you worry more about whether free cash flow is able to pay for current 20 cent dividends.

  1. This upgrade shows that future capital expenditure cost, other than spectrum purchase, is dramatically lower than the past. It may make sense to have a higher depreciation versus new capital expenditure. Starhub is doing its job moving forward with the times.
  2. With less capital expenditure, free cash flow increases. Starhub can clear its debt and could raise its 20 cent dividends. Already their free cash flow can more than sustain their current 20 cent dividends.

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komatineni

Monday 21st of November 2011

Drizzt, my 2c..Direct Tunnel is not new and operators opted for it few years back (Singapore other ops did it in 2008). Even without that the capex required for SGSN is negligible compared to overall capex. Still this doesn't solve the major painpoint which is rnc aka radio network controller :| The major CAPEX for telco players right now is Radio. How well they can streamline their multiple radio access nets.i.e 2g, 3g & LTE is the key.

Drizzt

Monday 21st of November 2011

hi komatineni, thanks for the information. you really look well read in this area. my question is will the radio be a bottleneck for high traffic? in a local context where population is dense will an upgrade to LTE radio's mitigate the problem?

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