Telcos to gain from 5G fast-track

Digital econ

PETALING JAYA: The government’s decision to fast-track 5G services in Malaysia by year-end, underscores the urgent shift towards digital technologies that has been accelerated by the global Covid-19 pandemic.

Analysts said the move would help reap numerous benefits for the economy, especially for the local telecommunications sector.

“The 5G rollout, which will be deployed by a special purpose vehicle (SPV) that is wholly-owned by the government, will reduce the investment burden on telecommunications companies or telcos, ” said an analyst.

“This means that the local telcos can breathe easy, yet still stay committed to the Jendela digital infrastructure plan, which aims to increase Malaysia’s 4G coverage from 91.6% to 96.9% by 2022.”

5G is the fifth generation technology standard for broadband cellular networks that telcos began deploying worldwide in 2019. It is the proposed successor to 4G, which provides connectivity to most current cell phones today.

Apart from reducing the investment burden on telcos, another analyst said the government’s decision to offer 5G services by year-end came as a surprise.

“This development indeed came as a surprise as the government had initially decided to put its 5G plans on hold for at least another couple of years.”

He noted that under the previous administration, Malaysia had initially planned to roll out commercial 5G services by the third quarter of 2020.

“The collapse of the Pakatan Harapan government in February last year created doubts on the prospects of the country’s 5G rollout.

“Nevertheless, the decision to get back on track with our 5G plans will indeed have numerous economic benefits, ” the analyst said.

According to a study published early last year by the Malaysia Institute of Economic Research, the implementation of 5G is able to contribute RM12.7bil to the country’s gross domestic product (GDP), as well as create about 40,000 new jobs over a five year period.

TA Securities, in a report yesterday, said it was positive on the government’s 5G service rollout.

“The decision to accelerate the 5G rollout can be attributed to the economic benefits, such as increased productivity, income and job creation, as well as its importance to attract foreign investments, especially with regional peers like the Philippines, Singapore, and Thailand being ahead in 5G rollout.”

On Monday, the government announced that it would be spearheading the 5G services rollout in the country via an SPV.

The 5G rollout is expected to involve RM15bil in investments over 10 years that will be funded entirely by the private sector.

TA Securities said having a government SPV at the forefront of the rollout would be positive for the local telco sector.

“Telcos will avoid the heavy capital expenditure burden and cash flow pressure involved in 5G rollout if deployed individually.

“Investments in 5G networks are estimated to cost between 25% and 75% more than that for 4G, while consumers will benefit from access to 5G services at competitive tariffs, ” the research house said, adding that it has an “overweight” stance on the local telco sector.

“For exposure to the sector, we continue to advocate Axiata for its regional footprint in growth markets as well as prospects of unlocking value from its digital and infrastructure businesses. We also like domestic-centric players Maxis and DiGi, which in the current low interest rate environment offers decent 2021 and 2022 yields of 4.3% and between 3.7% and 4.3% respectively.”

Separately, Maybank Investment Bank Research also said the 5G push would benefit the local telco sector.

“Note that the SPV’s monopoly applies only to 5G infrastructure. Telcos’ prevailing holdings would remain intact and they cannot repurpose their existing spectrum for 5G.

“In addition, 5G deployment would likely boost demand for fibre, thus fixed-line players should benefit. The main risk in our view, revolves around the SPV’s ability to execute.”

Meanwhile, the World Economic Forum, in collaboration with PwC in the “5G Outlook Series: Enabling Inclusive Long-term Opportunities” said numerous markets have seen an acceleration in 5G network deployment in 2020, revealing new levels of confidence in the role of 5G as the world recovers from the pandemic.

“5G will play a role to sustain change haphazardly forced on industries during the pandemic. The pandemic forced adoption of digital tools and practices in weeks, for what would have taken years of incremental transformation.

“This sudden transition has challenged perceptions of the physical location of work, the organisation of the supply chain and interactions with customers and partners. As we move beyond addressing pandemic-related emergencies, 5G’s role in embedding impacts will emerge.”

The note added that the pandemic has underlined the importance of emerging technologies that will support societies in adopting digitisation.

“5G is thus poised to contribute to nationwide uplifts in GDP and employment in all countries, requiring the collaboration and cooperation of both the private and public sectors.”

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