Revised prices of broadband services likely to reduce TM’s Arpu


CGS-CIMB Research said the new retail broadband prices, while below expectations, should leave Arpus tracking within expectations.

PETALING JAYA: Telekom Malaysia Bhd’s (TM) revised prices for its fibre broadband offerings, which are lower than previous plans, will reduce its average revenue per user (Arpu).

However, TA Research expects the downside to Unifi’s Arpu to be manageable because the price point of its base plan is largely intact.

Additionally, the better value offered to existing subscribers via free speed upgrades would mitigate downtrading, it added.

Following the enforcement of the latest mandatory standard on access pricing, which entailed a reduction of regulated access pricing, Unifi’s new base plan is priced at RM99 per month but with a higher speed of 100 megabits per second (Mbps) as opposed to 30Mbps before.

Also, Unifi is offering the new base plan at a promotional price of RM89/month for a limited time.

TM also announced that existing Unifi subscribers on 30Mbps to 800Mbps plans would be entitled to free speed upgrades to be rolled out progressively within three months.

TA Research said the broadband offerings translate to a reduction of 23%, 7% and 24% for the 100Mbps/300Mbps/500Mbps plans.

With the downside to Arpu seen as manageable, TA Research is maintaining its earnings forecasts “where we had earlier baked in a 5% to 10% reduction to Unifi Arpu”.

“We maintain our ‘buy’ recommendation on TM with an unchanged target price of RM6.65 based on discounted cash flow valuation with a weighted average cost of capital of 8.5% and a long-term growth rate of 1%. We expect the clarity on the fibre broadband price revision to bode well for sentiment on the stock,” said TA Research.

Meanwhile, CGS-CIMB Research said the new retail broadband prices, while below its expectations, should leave Arpus tracking within expectations.

The free speed upgrades for existing subscribers, according to the research house, should mitigate the impact of the price reductions.

“In our view, the free speed boost for six months largely protects TM’s Arpus for the financial year 2023 (FY23) and is supportive of our current estimates for TM’s FY23, FY24 Arpus of RM129 and RM126.

“Our current FY25 Arpu estimate is RM125 and we believe any downside risk to this will be mitigated by the potential lift in subscriber numbers,” said CGS-CIMB Research.

According to the research house, the speed upgrade is important as it allows subscribers to experience faster speeds, potentially making it easier for them to consider an upgrade after the end of the free upgrade period.

“We note that the experience in neighbouring countries, including Singapore, suggests that fibre broadband Arpus can hold and even rise if consumers see the utility of the higher speed product.”

Despite a 56% decline in retail prices of the most common plan in 2018, CGS-CIMB Research said Unifi Arpus had declined by a milder 26% in 2018 to 2020 period.

It said for asset owners such as TM, the cost of higher speeds is incremental as the key cost elements are fixed in nature such as cost of installing physical infrastructure.

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