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Tuesday, 6 September 2016 | MYT 6:04 PM

Spectrum fees lower compared to countries with auction mode

 In India and Thailand, the price, under an auction mode, would be four to five times higher than the base price as the telcos would compete during bidding to get as much spectrum as possible, says Nikhil. - EPA pic

In India and Thailand, the price, under an auction mode, would be four to five times higher than the base price as the telcos would compete during bidding to get as much spectrum as possible, says Nikhil. - EPA pic

KUALA LUMPUR: The new spectrum fees for telecommunication companies (telcos) under the spectrum reallocation exercise by the Malaysian Communication and Multimedia Commission (MCMC) is reasonably priced compared with countries which applied the auction mode, said telco analysts.

IDC Market Research (M) Sdn Bhd research manager for telecom, Nikhil Batra, said the fact that the Malaysian government had opted for reallocation instead of the auction mode, was a big advantage for telcos as they did not have to go through the auction process.

“Auction mode needs specific expertise whereby the telcos need to decide on the amount of spectrum allocated, by region, to bid.

“Plus, they also have to decide on the economical cost so that telcos would have no problem in monetising their capital expenditure,” he told Bernama.

With the new fees, the Government is expected to collect between RM2.6bil and RM2.8bil for 15 years, along with a fixed annual maintenance fee.

“Maxis and Celcom would have to pay RM70mil in maintenance fee, Digi RM51.5mil and U-Mobile about RM43mil,” he said.

“The amount is not much different from what was collected under the previous model (roll-out).

“Like in India and Thailand, for example, the price, under an auction mode,  would be four to five times higher than the base price as the telcos would compete during bidding to get as much spectrum possible to control the market,” said Nikhil.

With the reallocation, he said the four telcos now had about the same amount of spectrum but with a different set of challenges.

“Celcom and Maxis used to own a bigger spectrum of 34MHz and 32MHz of the 900MHz band previously but have less now, with both being reduced by 14MHz and 12MHz, respectively, to 20MHz each.

“This means that they will have less operating expenditure (OPEX), which would offer them slight relief from margin pressure, from the already saturated market.

“But they have to expect deterioration in service quality and find effective ways to manage their subscribers based on lesser spectrum,” said Nikhil.

As for Digi and U-Mobile, he said, the higher allocation would mean more costs for them but with the new capacity, there was this need to find ways to optimise the spectrum by attracting more customers to monetise their investments.

Telcos have to look into simplifying their back-end processes, get into technologies for internal operations to reduce OPEX while for end-user offerings, they have to increase the campaign to targeted users for higher uptake, he said.

The pricing is not an overnight decision by MCMC as it has been engaged in discussions with telcos especially on the cost side, said Nikhil.

He said the commission believed telcos were prepared for this and that it would be interesting to see their strategies to overcome these challenges.

Meanwhile, Current Analysis Group senior analyst Alfie Amir also finds the spectrum fees to be reasonable and lower compared to other countries.

He said Malaysian telcos only had to pay several hundred millions of US dollars for the 900MHz and 1800MHz while telcos in Germany and Thailand paid more than US$1bil or at least three times more for the same amount of spectrum. 

However, he said, the new fees were expected to have an impact on the telcos’ total service revenue by between 10% and 15% of their current earnings before interest, taxes, depreciation, and amortisation (EBbitda) and profit after tax (PAT) margins (currently at around 45% and 25% respectively). 

As a result, Alfie said telcos were expected to cut down their spending, such as by delaying their network upgrades, postpone or cancel the not-so-critical new operational initiatives or even downsize the total headcount, in order to maintain their margins, as well as stay relevant in the market.

“It is unlikely telcos will pass through the additional spectrum cost to the customers with the current intense competition and price war as increasing existing service rates will result in losing subscribers,” he said. 

Among the telcos, Alfie pointed out that U-Mobile was likely to have the most impact as its existing subscribers and revenue were way less than the other three main telcos (Celom, Digi, Maxis), but it has to pay the same amount as Digi, and not much less than Celcom and Maxis.

He said telcos would need to look beyond traditional connectivities (voice, SMS, data) in order to further monetise their existing investments, for example, in the Internet-of-things (IoT) and big data analytics.

“As profitability is shrinking due to market saturation and additional spectrum cost, telcos will have no other options but to be more pro-active and innovative in order to retain their subscribers, revenue and survive the competition,” he said.

As a result, both consumer and enterprise users can expect positive transformation by telcos especially in improving customer service such as enhanced customer journey and improved user experience, he maintained. - Bernama

Tags / Keywords: Corporate News , Telcos , Government , Celcom , Maxis , Digi , U Mobile

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