Price competition will impact telco revenues despite collaboration, says Kenanga

KUALA LUMPUR: Mobile network operators (MNO) Celcom, Digi and Maxis will still face stiff competition in the mobile space despite their collaboration in developing and sharing fibre infrastructure.

Kenanga Research said in a note that their 20-year agreement could benefit the collaborators in three different ways, including reducing the capex requirements, expanding the fibre reach of the operators and reducing the duplication of assets.

"Regardless of which pans out, the MNOs stand to benefit from lower costs and/or wider fibre coverage.

"We like that they are collaborating, as this not only makes financial and operational sense for the MNOs, but it is also beneficial to society, as it means greater access to cheaper fibre connectivity, and efficient use of resources," it said.

However, with the 5G spectrum owned by the government's special purpose vehicle, Digital Nasional Bhd, and the telcos continuing to share backhaul infrastructure, their service revenue will be impacted by price competition as they will be offering similar-quality 5G services.

Moreover, by tapping into the shared 5G capacity, MVNOs could exacerbate the already-fierce price competition in mobile offerings, it said.

Moving forward, Kenanga said it would not be surprised if mergers and acquisitions emerge in the industry to consolidate the infrastructure and subscriber base as well as to save costs through synergies.

"There have been rumors about Digi’s parent Telenor and Celcom Axiata reigniting discussions of a possible merger.

"While a merger may bring strategic benefits, we believe that the reasons for the failed discussions, which include 'complexities' across 14 entities and 9 regions, disagreement in equity share, and relocation of combined entity from Malaysia to Singapore, may continue to prevent the deal from going through," it said.

Kenanga, which is "neutral" on the sector, maintained its recommendations for the individual counters.

Its top pick remains Axiata with an "outperform" call and a target price of RM4.40.

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