SINGAPORE (Mar 14): Maybank Kim Eng is maintaining Singapore's telco sector at "negative" given the worst-case scenario of a more aggressive tariff war cannot be ruled out.

This comes after Maybank reviewed IMDA regulations governing the spectrum rights recently acquired by TPG to ascertain if there was any chance for more positive scenarios for Singapore’s incumbents.

"De-rating catalysts are expected from the start of operations by TPG or any insight into its tariff plans and strategy," says Maybank analyst Luis Hilado in a Tuesday report.

Maybank continues to "hold" Singtel with $3.69 target price and "sell" for StarHub and M1 at $2.27 and $1.63 respectively.

Hilado expects TPG’s competition will erode incumbents’ wireless revenue though not necessarily by double digits.

The research house is estimating 2-4% declines for 2017-19 assuming TPG and the mobile virtual number operators carve out a minority share of less than 10% of industry wireless revenue by 2019.

"We think this scenario would provide the quickest relief for the incumbents’ operations and stock performances," says Hilado.

According to rules, TPG can terminate its licence with IMDA's approval by giving six months of advance notice although there will be no compensation or refund of fees already paid.

As major licensing fees have already been paid, Maybank doubts TPG would surrender to such an exit.

As IMDA regulations discourage any sale of its licence before it fulfils all its coverage commitments, TPG may opt for accelerated service rollout and aggressive market-share grab instead.

This could tempt an incumbent to take it out of the market.

According to Hilado, such a consolidation was seen in the Philippines in 2012 when PLDT acquired unlisted Digitel.

The prospect of a new entrant motivated the Philippine incumbent to take out a potential competitor in 2016, even before it started commercial operations.

"With Singapore’s wireless service revenue at $4 billion in CY2017, a 10% p.a. erosion over five years would translate to $1.6 billion of present value in potential lost revenue for the incumbents," says Hilado.

This amount is higher than TPG's spectrum costs and capex budget of $300 million for Singapore.

"Theoretically, somewhere between its costs and the industry’s destruction value is a price an incumbent could pay for an acquisition or merger to stem revenue losses," adds the analyst.

As at 10.55am, shares in Singtel are trading at $3.41 at 16.6 times FY18 earnings while StarHub and M1 are trading at $2.44 and $1.79 respectively.