Modest growth for mobile segment. Despite the looming global macro-economic uncertainties, Singapore's mobile services market is still likely to put in a decent performance in 2012; but we expect the growth to be driven by an increase in mobile data usage following the continued proliferation of smart phones and tablets among consumers here.

However, the key challenge for operators here is how to monetize this sea change in  consumption patterns. Meanwhile, any boost from LTE , or 4G, will probably come towards end 2012.

Gradual pickup in NBN demand. As the roll-out of Singapore's Next Generation National Broadband Network takes a closer step towards achieving 95% coverage of the island by end 2012, we expect fiber subscription to increase. But we believe that the rise would be gradual rather than exponential, as there is the lack of a "killer app" to drive demand; the more uncertain economic environment may also discourage consumers from upgrading to higher speed and also higher priced plans. Hence in the medium term, we still expect both SingTel and StarHub to hold on to their legacy networks.

Cross-carriage takes off for Pay TV. After an initial period of uncertainty in the Pay TV arena following the introduction of the "exclusive content" ruling, where Pay TV operators have to cross-carry each other's content, we may finally get more clarity on the mechanics as StarHub has recently won the exclusive broadcast rights for the UEFA Euro 2012 football tournament. The month-long tournament is a good start and should prep the ground for the more hotly sought-after BPL rights for 2014-2017.

With Singapore's economy expected to slow further from the 5% expected in 2011 to just 1-3% next year, we see increased risk of earnings disappointment, especially from highly-cyclical stocks. While we do not expect the telco stocks to be immune to any market sell-down, we continue to expect the telcos to outperform the STI on a relative basis, supported by their defensive earnings and attractive dividend yields.

We have a slight preference for M1, given that it has been the laggard among the three in 2011, and it may have the most to gain from the progressive NBN roll-out in 2012.