Advantage to fixed-line operators

5G environment set to benefit TM and Time

PETALING JAYA: Both Telekom Malaysia Bhd (TM) and TIME Dotcom Bhd will benefit more in a 5G environment versus the mobile players by leasing more of their fibre to the latter. In addition, the likelihood of retail broadband pricing coming down further may be slim for now.

As 5G needs fibre backhaul, the mobile players may be forced to sign long-term agreements with TM and Time.

Depending on the wholesale pricing, this could potentially put pressure on the mobile players earnings in the long term as they will no longer have their own networks but have to be reliant on fibre players and the 5G network provider, Digital Nasional Bhd (the government’s special purpose vehicle or SPV), to offer 5G services.

UOBKayHian Research wrote that the 5G network densification requirement would accelerate the rollout of fibre and build more cell towers that need to be fiberised.

“Importantly, we gathered that the 5G SPV model may mandate mobile service providers to lease 5G fibre networks from fixed-line players by signing a long-term (10-15 years) wholesale agreement, ’’ it said.

As it is, the fixed line players reported better earnings growth of 33% year-on-year (y-o-y) in the first quarter of 2021 while the big three (Celcom Axiata Bhd, Bhd and Maxis Bhd) saw earnings decline by 21%. There are several factors to that and analysts expect the big three to face more challenges ahead.

The research house expects the fixed-line operators to fare better than mobile operators in 2021 given the positive subscriber growth trajectory and stable average revenue per user outlook.On broadband pricing it said, the government is satisfied with the price point of home broadband packages, especially the entry level broadband packages at RM79-RM99 per month.

“This bodes well for TM and Time as we do not expect further price reversion for the fixed-line players in 2021 given the limited regulatory pressure, ’’ it said.

However, if the mandatory standard on access pricing (MSAP) is renegotiated (expected next year) and if the wholesale prices are pushed upwards, it would lead to higher retail broadband pricing. To be fair, since the enforcement of the MSAP effective from January 2018, the home broadband pricing dropped by an average of 47% since 2017.

AmInvestment Research said “we are also cautious on possibilities of higher-than expected increase in operating and capital cost requirements as operators need to further upgrade their network infrastructure to facilitate 5G rollouts.It added that with an easing of broadband price pressures, this could lower earnings risk to the wholesale segment of TM and Time.

However, UOBKayHian believes that even with the implementation of MSAP, “the impact on broadband pricing could be marginal. This comes as the regulator appears cognisant of the fine balance between consumer affordability and investment returns for telecoms companies.’’

Meanwhile, CGSCIMB believes there will be no major changes to the MSAP when a review is undertaken in 2022.

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