Doubt over end-June deadline for telcos


There is also talk in the industry that the percentages in the DNB stake sale offered to telcos may not be substantial enough to equity account.It is said the government is offering the nine invited players about 7.8% equity stake each in DNB, which totals 70%. The government will hold the remaining 30% in DNB.

PETALING JAYA: Is there a possibility the end-June deadline for telcos to take a stake in Digital Nasional Bhd (DNB) will be extended to give the parties involved more time to negotiate a deal?

Or will the deadline remain as telecom players wait for changes to be made to the existing reference access offer (RAO) dated end-March for the provision of 5G wholesale access services?

“A typical merger and acquisition deal probably takes at least a couple of months to do, as it involves an agreed term sheet, the need to undertake due diligence, finalisation of agreements and thereafter the completion of the deal.

“In between, there is also the internal governance for all potential investors such as board meetings and approvals needed and that is why the end-June deadline seems almost impossible,’’ said a telecom executive.

There is also talk in the industry that the percentages in the DNB stake sale offered to telcos may not be substantial enough to equity account.

It is said the government is offering the nine invited players about 7.8% equity stake each in DNB, which totals 70%. The government will hold the remaining 30% in DNB.

However, if any player does not take up the stake in DNB, it will then be offered to the remaining investors but up to a maximum of 20% each, the executive said.

Without the changes to the RAO, it is not likely the players will enter into a deal as their concerns are many. Topping the list is the high wholesale access pricing that will translate to higher pricing for consumers.

The telcos also are not willing to commit to a 10-year agreement for access. Their argument is that it is too long a period to stay in an agreement for an industry that is rapidly changing.

More so, the cost for wholesale access over a decade could work out to about RM8bil per telco depending on the usage patterns of each player.

At that rate, their argument is it makes better sense for them to build and manage their own network instead of leasing space from DNB, reports have suggested.

“Bear in mind that the RM8bil does not include the cost of buying a stake in DNB and the whole deal, including DNB’s stake, could cost much more than building their own networks.

“The question is, does it make economic sense to buy stakes and pay high 5G wholesales access rates and eventually pass on the cost to consumers?’’ asked an industry executive.

These are some of the questions looming in the industry as players wait for a revised RAO and pricing structure for their next move.

“The RAO is an important document and the longer this matter drags on, the more uncertainties there will be and this will not bode well for the share price of the telcos,’’ he said.

The mobile players (Celcom Axiata Bhd, Digi.com Bhd, Maxis Bhd and U Mobile) had, on April 8, said “the RAO in its current published form will not enable affordable and quality 5G services for the rakyat and businesses in Malaysia, and will impede the acceleration of 5G services and penetration in the country.’’

DNB is said to have provided verbal briefings on potential changes to the RAO but it is yet to be documented.

CGS-CIMB Research in its recent note said “a deadline of end-June has been set by the Finance Ministry but given the complexity of the issues, there is a risk that it may have to be extended, in our view.’’

It has an “underweight’’ rating on the Malaysian telecoms sector. This is pending the conclusion of the negotiations on DNB’s stake sale and the signing of wholesale access agreements.

“We think telcos’ share price performance may continue to be lacklustre as investors will be concerned over the potential negative outcomes,’’ the report said.

Besides that, CGS-CIMB said the three big service revenue (Celcom, Digi and Maxis) is expected to grow by low single-digit year-on-year (y-o-y) in 2022, led by a gradual recovery in roaming and migrant/tourist prepaid SIM sales as Covid-19 abates.

This is partly offset by a fall-off in revenue, boosted by Prihatin-led initiatives in 2021.

It said competition may also be more stable in 2022, with potentially stronger consumer purchasing power and the Celcom-Digi merger alleviating some pricing pressure.

However, it does not expect major market repair, as U Mobile will likely want to keep growing its revenue scale to achieve sustainable net profit and decent return on equity, while the Big Three may continue to engage in subscriber acquisition and retention initiatives in a mature mobile market.

CGS-CIMB is more positive on the revenue growth for the fixed business due to structural demand and relatively more benign competition.

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