PETALING JAYA: An escalated price war with sharp drops in fixed broadband prices can be expected in the telecom sector next year.
This could lead to the sector being de-rated as revenue declines and the price war will be driven by the National Fiberalisation Connectivity Plan (NFCP) initiatives, said AmInvestment Bank Bhd in a report.
“We are also cautious on the possibilities of higher-than-expected increase in operating and capital cost requirements as operators need to further upgrade their network infrastructure for 5G rollout,’’ the firm added.
While that is for next year, over the weekend Prime Minister Tun Dr Mahathir Mohamad launched the 5G demonstration projects in Langkawi. The first commercial roll-out of 5G services is expected in the third quarter of this year.
However, it will be in selected areas and not nationwide, as operators need to build infrastructure to be able to have their networks 5G-compatible.
The regulator, Malaysian Communications and Multimedia Commission (MCMC) wants the industry to collaborate and a single entity will be set up to build the infrastructure needed for the nation. All players can be partners in a single entity.
A total of RM7bil–RM8bil investment for 5G deployment is expected. This is said to be about 10 times higher capex per square km than the capex for 4G roll out in some locations.
“Over the past five to six years, we estimate that 4G capex spent by telcos has already surpassed RM15bil to-date on a nationwide coverage programme,’’ AmInvestment said.
It added that besides 5G spending, additional capex for 4G is still required, given that only 40% of mobile towers in the country are fiberised, which has resulted in sub-optimal speeds and connectivity for 4G services.
A substantially higher proportion of fiberised mobile towers are needed to deploy 5G services. MCMC had earlier said that telcos’ capex spending trend has been declining below industry average. The three big celcos are spending less – Digi.com Bhd’s capex fell the most by 11% in financial year 2018, Celcom Axiata Bhd by 6% and Maxis Bhd by 5%.
That aside, talks are looming of a potential merger or stake sale between Norway’s Telenor ASA and Khazanah Nasional Bhd, the parent of Axiata Group Bhd.
The talks are to explore possible scenarios including Telenor buying part of the Khazanah’s 38% stake in Axiata and a subsequent merger of Axiata and Telenor’s telecom tower assets or consolidation in certain markets. Another option could include a combination and eventual listing of the two carriers’ overseas operators, reports said.
Both Telenor and Axiata last year tried in vain to merge their Asian assets but aborted the talks because of several reasons, including national interest.
If the merger had gone through, it would have created a formidable player with a pro-forma revenue of over RM50bil and earnings before interest, tax, depreciation and amortisation (EBITDA) of RM20bil, with operations in nine countries.
AmInvestment Research sees Axiata as a potential re-rating catalyst if the merger materialises, given the synergies arising from consolidation while mitigating competition among the cellular operators.
Axiata share price rose on Friday after the news reports came out but it has since retraced. It closed yesterday 9 sen lower to RM4.51 per share.
AmInvestment added that pending further developments on the merger and collaboration among players for 5G, it is maintaining a “neutral” outlook on the sector, given the still substantive 5G capex requirements against the backdrop of government-targeted fiberised ARPU (average revenue per user) reductions under the NFCP.
The research house said “our only buy” currently is Axiata, given its low enterprise value/EBITDA valuations and rising prospects for monetisation of its multiple businesses.
Shares of Maxis Bhd and Digi was also down while TELEKOM MALAYSIA BHD (TM) was up slightly. Maxis fell 10 sen to RM5.60, Digi down 7 sen to RM4.55 and TM up 3 sen to RM4.05.
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