KUALA LUMPUR: Malaysian telco companies may have to pay billions of ringgit to retain or acquire more 900MHz and 1800MHz spectrum and CIMB Equities Research is keeping its Neutral rating for the sector.
“We believe Maxis and Celcom stand to lose the most given the potential cash outlay for their larger spectrum holdings. They may also lose some 900MHz spectrum that could see a degradation in their network coverage. While DiGi could get more 900MHz spectrum, it may have to fork out a lot of cash to win some in the auction,” the research house said on Friday.
CIMB Research pointed out there may be more cash outlays for telcos to renew spectrum licences going forward. The 3G-2.1GHz 15-year licences are up for renewal in 2018-20, while the 2.6GHz spectrum’s 5-year assignment period is up for review in Dec 2017.
Nevertheless, this latest development adds to the challenging outlook for the sector in 2016, it said.
On Thursday, under the revised Budget 2016, the government announced that it will optimise the revenue from telecommunication spectrum through a redistribution and bidding process that will be implemented soon.
“This is a negative surprise for the sector as mobile incumbents may need to pay substantial amounts to retain or acquire more 900MHz and 1800MHz spectrum.
“The initial 900MHz and 1800MHz spectrum licence term had expired several years ago and is now renewed annually. All spectrum was previously allocated on a beauty-contest (3G-2.1GHz) or assignment (4G-2.6GHz) basis, with minimal upfront payment charged for the spectrum,” it said.
In the recent Thai auctions, the reserve price for the 900MHz spectrum was 12.9bil baht for 2 x 10MHz, or RM2.2mil/MHz per million population. For 1800MHz, the reserve price was 15.9bil baht for 2 x 15MHz, or RM1.8mil/MHz per million population.
“If the MCMC uses the same reserve price benchmark, the minimum Maxis, Celcom and DiGi would have to pay to retain their 900MHz and 1800MHz spectrum are RM2.37bn, RM2.43bn and RM1.46bn, respectively. This would shave off 4.7% of our target price for Maxis, 4.2% for Axiata and 3.8% for DiGi.
“The final spectrum price will depend on the auction terms and the bidding intensity. In the recent Thai auctions, the final prices were 2.5x (1800MHz) to nearly 6x (900MHz) higher than the reserve price due to intense bidding.
“If we assume the same outcome, Maxis, Celcom and DiGi would have to pay RM9.55bil, RM9.94bil and RM4.11bil, respectively, to retain their existing spectrum holdings. In this case, our target prices for Maxis/Axiata/DiGi would be cut by 19.0%/17.0%/10.6%.
“Mobile incumbents could lose the spectrum to smaller existing operators (TM-P1, U Mobile, YES) that outbid them. In this scenario, they would have to spend more capex to re-tune and build network capacity to make up for any loss of spectrum. Competition from the smaller operators that win spectrum may also intensify,” it said.
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