SWN model seen to raise stakes for telcos

KUALA LUMPUR: The implementation of the single wholesale network (SWN) model is expected to add pressure on telecommunication companies (telcos) to readjust their business dynamics in an already competitive segment.

Under the SWN model, telcos will need to pay an upfront wholesale fee to Digital Nasional Bhd (DNB), a special purpose vehicle that is rolling out the 5G network in the country.

Following initial objections from telcos, which proposed a dual wholesale network to counter the SWN, the government decided to offer a 70% stake in DNB to the players and keep 30%, while holding a golden share.

MIDF Research in a report yesterday noted that the upfront wholesale fees to DNB is dependent on the revised equity stakes that will be announced soon.

“However, we believe that the SWN model is more efficient for accelerating the 5G network rollout and deployment for the country,” MIDF Research said.

“The continuation of SWN could avoid risks such as compensation costs, prolonged delays in the 5G network rollout, negative impact on foreign direct investment into Malaysia and a widening urban-rural digital divide to the sector, government and the nation.”

Additionally, MIDF Research noted that the completion of Phase 1 of the 5G deployment by the end of this year is on schedule.

When complete, it will provide up to 40% coverage in populated areas.

“The completion of the DNB stake will most likely help reduce ambiguity around the rollout of 5G in Malaysia,” said MIDF Research.

“Overall, with the emergence of the SWN model for 5G deployment, mobile network operators will need to continue to create appealing service value propositions in order to maintain their respective market share.”

Since the model may cause profit margin dilution, MIDF Research emphasised that having an efficient cost management plan in place is critical to defending profit margins.

“All in all, we maintain a neutral on the sector with a top pick on Telekom Malaysia Bhd (TM), given that the company is the country’s main fixed line player and has plenty of business opportunities under MyDigital.”

MyDigital is an initiative by the government to transform Malaysia into a high-income nation focusing on digitalisation.

Separately, MIDF Research noted that two telcos had decided not to take up an equity stake in DNB.

“The latest development is that four out of the six telcos still remain interested in taking up a stake in DNB.

“U Mobile Sdn Bhd and Maxis Bhd have declined to take up an equity stake in DNB. Meanwhile, TM and YTL Communications Sdn Bhd have obtained approval from their boards and are ready to sign an agreement to take up shares in the SWN.”

MIDF Research noted that initially, the 70% stake would have been shared equally among the six telcos.

“However, the share subscription agreement will have to be revised as U Mobile and Maxis declined to proceed with the equity deal.

“We might see three scenarios for the redistribution of shares, namely – the four telcos will be given larger shares (17.5% each from 12% previously), private telcos will take up the remaining shares, and the government will increase its stake, but not to the level of a majority shareholding in DNB.”

MIDF Research emphasised that the deal is expected to be concluded by the end of this month.