Positive sentiment on dual 5G model

PETALING JAYA: Analysts generally welcomed the government’s decision to shift to a dual wholesale network model early next year for the rollout of the country’s 5G service.

The move is expected to improve the profitability of telecommunication firms (telcos) and ensure better quality of services for consumers driven by more competition among telco operators.

RHB Research said the shift to dual 5G networks will allow telcos to regain control and 5G spectrum ownership.

“The shift unshackles the contentious operating expenditure (opex) model tied to the single wholesale network (SWN) approach. With dual 5G networks, joint network collaborations will also ultimately lead to lower 5G rollout costs and cost to serve,” the research house said in a report yesterday.

Apart from the mobile network operators, RHB Research said telco infrastructure players like OCK Group Bhd stand to benefit from a second 5G network provider.

“These players are expected to have greater visibility on the industry’s spectrum roadmap and on-going upgrades to 4G sites,” said the research house.

RHB Research stated the overall 5G spectrum outlay is estimated to be at RM6bil, which would entail RM1.6bil per operator, with the upfront and annual fees projected at RM695mil and RM59mil respectively.

“This under the assumption that the 700MHz/3500MHz/mmWave bands are distributed equally to the four major mobile network operators – and the government adopts the spectrum assignment framework similar to the previous reallocations of the 900MHz/1800MHz/2600MHz spectrum,” the brokerage said.

RHB Research noted CelcomDigi Bhd and Maxis Bhd’s core earnings could potentially decline by 5% to 6% and 4% to 5% respectively for the financial year 2024 (FY24) to FY25 as a result of incorporating spectrum amortisation and higher financing costs from additional debt taken to fund the spectrum payment.

“Aside from spectrum costs, we see 5G capital expenditure (capex) for the telcos as manageable, given that they involve software upgrades and incremental spending on 4G sites (mostly 5G ready), with 5G core network investments already in place as part of the SWN model,” the research house said.

RHB Research maintained a “neutral” call on the telecommunications sector with its top pick being Telekom Malaysia Bhd (TM) and OCK. The research house expect sector core earnings to drop by 0.8% this year due to integration related costs at CelcomDigi Bhd.

“We have a preference for fixed line players, given their more discernible earnings catalysts, structural growth prospects, and relatively more benign competition,” RHB Research said.

On the other hand, Kenanga Research said a second 5G network will see a reduction in access prices with increased competition in 5G leasing costs.

Telcos will also be able to purchase 5G access on a need basis which will do away with upfront payment fees.

“It will also result in better margins, earnings and free cash flows, for telcos leading to a sustainable dividend payment as seen before 2020. We believe a second 5G network will be positive for consumers (for example, competition resulting in better services, broader bandwidth, improved speed and affordability),” the research house said.

Kenanga Research maintained its “overweight” call on the sector with its top picks being CelcomDigi Bhd with a target price (TP) of RM5.15 a share and Maxis with a TP of RM5.03 a share.

Meanwhile, TA Research said uncertainty now looms on Phase 1 in terms of the participating telcos and respective capacity and financial commitments.

“There is also uncertainty with the execution of Phase 2, with regards to the composition of telcos under Entity A and Entity B, rollout strategy (demand and supply-driven), spectrum allocation and cost, and the ability to drive capex and opex savings (example, via active network sharing and dynamic spectrum sharing),” the research house said in a report yesterday.

TA Research maintained a “neutral” stance on the telecommunications sector with a “buy” call for Axiata Group Bhd (TP: RM4.05) and TM (TP: RM6.45) and a “sell” call for CelcomDigi Bhd (TP: RM3.95) and Maxis (TP: RM3.65).