Possible cut in 5G SWN rollout costs may spur earnings of MNOs

PETALING JAYA: A cut in the fifth generation (5G) single wholesale network (SWN) model rollout costs is positive and could boost mobile network operators (MNOs) earnings over the long term, says CGS-CIMB Research.

The government is currently reviewing the 5G SWN rollout by Digital Nasional Bhd (DNB) and is slated to make a final decision by the end of this month.

Post-Budget 2023, Communications and Digital Minister Fahmi Fadzil also held discussions with all telecommunication companies (telcos) and reaffirmed that Malaysia would expedite 5G coverage to 80% by end-2023 (from end-2024).

He further said on March 9 that the government would honour contracts signed for DNB’s 5G rollout, which suggests that the disbanding of DNB is unlikely.

According to CGS-CIMB Research, a possible scenario is the continuation of the SWN model with improved transparency and the MNOs allowed to deploy 5G on their existing spectrum via Dynamic Spectrum Sharing (DSS).

“If improved transparency and 5G DSS by altering the scope of DNB’s rollout leads to reduced 5G rollout cost, and correspondingly, lower wholesale fees, we believe it would help to boost the MNOs’ financial year 2023-2025 core earnings per share and more substantially over the long run,” the research house said in its latest report.

Another potential scenario is changing to a 5G dual wholesale network (DWN) model, with 5G DSS allowed.

This would be more complex, as it involves a re-allocation of 5G spectrum to DNB and the second 5G network, which may be owned by the MNOs that did not take up stakes in DNB previously, such as Maxis Bhd and U Mobile Sdn Bhd.

“It is also possible the government may exit from its stake in DNB, leaving both 5G networks privately driven.

“If spectrum cost and coverage and quality of service requirements are not too punitive, then it would be akin to the pre-SWN era, i.e. MNOs commercially engage in active network sharing to mitigate the cost of 5G rollout.

“Each 5G network should cost roughly the same as (but in total, more than) a cost-efficiently rolled out SWN but with traffic split two ways, cost per gigabyte (would be higher, all-else remaining equal,” CGS-CIMB Research added.

If the government’s final 5G decision sees a material cut in rollout costs and a shift in control to the private sector, it opines that the MNOs’ share prices may react positively; anything short of that (i.e. lack of details) would result in a muted response.

“Beyond this potentially positive mobile development, we continue to prefer the fixed telcos due to structurally better revenue growth prospects, more benign competition and better valuation.

“Sector upside risks include more favourable 5G policy changes, while the downside risks involve more intense mobile competition,” it noted.

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