DBS Vickers downgrades StarHub (CC3.SG) to Sell vs Fully Valued; estimates StarHub could be paying $40 million-$60 million annually in lease costs to use SingTel's (Z74.SG) fiber network to reach residential broadband, cable TV customers, according to Dow Jones.

StarHub is obliged to pay fixed amount for 6-7 years until contract's expiry despite potentially declining cable subscribers as people switch to National Broadband Network.

Broker adds NBN itself would entail lower margins than cable due to multiple retail service providers. Tips broadband, cable TV EBITDA to decline to $94 million in 2012 vs $137 million in 2009, fixed network EBITDA to increase marginally.

Also, potential “universal set-top box” should lead to more people migrating to NBN from 2011F, “hence squeezing StarHub's margin further.”

Adds, sustaining $0.20 DPS beyond 2010 “may entail capital reduction, leading to negative group equity by end of 2011F.” Keeps $2.20 target; shares off 1.1% at $2.73.