These three critical threats put local telcos under stress

A new entrant isn’t the only problem.

The probability of new entrants, anemic wireless revenue growth and expensive valuations are the three key themes that work against owning local telco stocks.

A report released today by Barclays stated that the chances of new competition in wireless are too high to ignore, especially in light of the fact that wireless revenue growth trends continue to underwhelm.

The report noted that wireless revenue growth--the main revenue driver for all telcos-- continued to decline on back of shrinking voice usage and roaming revenues, while valuations are hovering at multi-year highs.

“We think the timing of potential new entrants into the market is likely later rather than sooner. Whether new entrants will have any impact on market dynamics remains to be seen. That said, wireless prices in Singapore appear modestly expensive relative to the peer group and the stocks are not cheap, in our view,” stated Barclays analysts Anand Ramachandra and Wen Du.

“The absolute valuation case appears to be around multi-year highs, as is the valuation premium to local markets. Both absolute yields and yield spreads to local risk free rates have compressed, reflecting the rich valuation case,” they added.