Telecom Sector - Mandatory cross-carriage from 01 Aug 11 (OCBC)

Maintain Overweight

Makes cross-carriage mandatory from 2 Jul 11. The MDA (Media Development Authority) has announced that Pay TV service providers will have to implement the cross-carriage measure from 2 Jul 11; this as it has gazetted the amendments to the Media Market Conduct Code 2010 (MMCC 2010) on 1 Jul, effectively brining closure to its extensive consultation process which started on 12 Mar 2010. In a nutshell, Pay TV providers will have to cross-carry each other's content that is acquired or renewed on an exclusive basis; this also means that Pay TV customers will be able to watch all Pay TV content with their preferred operator and need not pay any extra fee for doing so.

Implementation of framework from 1 Aug 11. However, MDA has extended the implementation date of the crosscarriage measure to 1 Aug 11 in consideration of the industry's views that there was a need to put the necessary systems and infrastructure in place to certify the content security measures before implementing the measure. And to facilitate the implementation, MDA has also issued guidelines on the content security protection requirements on 1 Jul. Some of the key technical issues include the piping of exclusive content from one operator to another, the encryption and decryption of the content. Operational issues include subscription and billing, difficulty in individual pricing due to bundling practices, ownership of technical glitches etc.

But likely to be non-event for now. But we understand that the two main operators - SingTel and StarHub - have not signed any "qualified content" after the announcement of the mandate in Mar 2010 to date. As such, there will not be any content that needs to be made available for cross carriage as yet; this also means that the implementation of the cross-carriage measure is likely to be a non-event for them as well as consumers until the signing of the first exclusive content. Nevertheless, the cross-carriage mandate could still mean better deals for consumers in the future as Pay TV operators may not bid as aggressively for coveted content as before; rising content cost was also why MDA introduced the measure in the first place.

Content is still king. Having said that, we still believe that content is king and we do not foresee a sharp drop in content cost, as Pay TV operators will still want to "own" exclusive content; this as they will still be able to enjoy revenue from subscription and advertising. As we see this development as a long-term positive, we maintain our OVERWEIGHT rating on the sector.