How Hong Kong wireless telco will benefit from proposed acquisition of CSL

Here are 3 main positives.

According to Barclays, HKT's proposed acquisition of CSL (pending shareholder and regulatory approvals) is a material positive for the competitive dynamics in Hong Kong wireless. 

Consequent pricing power and competition-related cost dynamics should start to drive a positive earnings revision bias on a 12- to 18-month view.

Here's more from Barclays:

We raise our ratings for both HTHK and SmarTone to OW from EW. HKT (rated OW) remains our top pick, and PCCW stays OW as well. Our regional top picks are AIS, Bharti Airtel, HKT, PT Telkom, SingTel and SKT (all rated OW).

We see three clear positive points from HKT's proposal to acquire CSL: 1) earnings revision should be biased to the upside on higher pricing power and better control of subscriber acquisition costs – we raise our estimates for both HTHK and SmarTone; 2) HKT-CSL's decision to not participate in the spectrum auctions in 4Q14 should reduce overpayment risk significantly; and 3) solid balance sheets and cash flows should support potential yield delivery to the upside post the spectrum auctions.

However, immediate report cards likely to still look poor. We expect poor results for 2H13 and do not expect 1H14 to be much better, but potential consolidation implies that forward-looking prospects are much better than would be implied in these results.