Kenanga Research said it was cautiously optimistic on the implementation of the new 5G DN model.
PETALING JAYA: The official fifth-generation (5G) dual network (DN) policy for the mobile telecommunications industry in Malaysia will likely be unveiled by the first quarter of this year (1Q24), according to Kenanga Research.
The brokerage, which has an “overweight” rating on the telco sector, said it was cautiously optimistic on the implementation of the new 5G DN model.
This was underpinned by a more accommodative regulatory environment following the withdrawal of government intervention; removal of unfair pricing as Digital Nasional Bhd’s (DNB) monopoly is dismantled, and enhanced network roll-out efficiencies for the second 5G network, it explained.
Therefore, it was hopeful that earnings and dividends for mobile telco players would remain intact upon DN taking effect.
“In terms of material developments for the sector in 1Q24, we believe that the Communications and Digital Ministry (KKD) will finally issue the highly anticipated official 5G DN policy directive,” Kenanga Research said in its report.
The government announced in May 2023 that 5G network would be implemented in two phases. Under phase one, DNB would continue its 5G rollout to meet 80% coverage of populated area by end-2023, while under phase two, the single wholesale network would transition to a DN.
“As part of this transition, two entities will be established, namely entities A and B, which will each own DNB and the upcoming second 5G network, respectively.
“Both entities will be entirely owned by private telcos – but their equity stakes are unknown at this juncture,” Kenanga Research said.
“Therefore, in 1Q24, we are hopeful to receive enhanced clarity on details such as the final equity stake for each telco in entity A or B; key financial information on DNB; entity B’s acquisition price (if any) and mode of payment; and revised (if any) access rates charged by DNB to each telco,” it added.
Kenanga Research noted that the first step in transition from SWN to DN was initiated following the signing of the conditional share subscription agreements (SSAs) by the Finance Ministry (MoF) and DNB with five telco players, namely CelcomDigi Bhd
, Maxis Bhd, U Mobile Sdn Bhd, Telekom Malaysia Bhd and YTL Power International Bhd.
Under the SSAs, all five telcos agreed to pay RM233mil each for an initial 14% stake each in DNB. The SSAs were targeted for completion in February to April 2024.
“Following completion of the SSAs, and upon DNB having achieved 80% coverage in populated areas, the telcos are required to acquire MoF’s remaining 30% stake in DNB for at least RM190mil,” Kenanga Research said.
“Based on our understanding, post completion of this exercise, each telco will end up with a 20% stake in DNB after having forked out a total consideration of RM420mil.
“The latter is the cumulative total of RM233mil in shareholder advances for an initial 14% stake, and RM190mil for an additional 6% stake to enable the full exit of MoF from DNB,” it added.
While details remained fluid at this juncture, Kenanga Research said it arrived at several assumptions on the potential mechanics of the DN implementation.
Based on KKD’s aspiration for healthy wholesale competition to drive enhanced 5G coverage and service quality, the brokerage said it was likely that entities A and B would each be spearheaded by a single major telco leading a consortium of other smaller players.
As such, in future, following entity B’s formation, it said it would not rule out the possibility that DNB’s shareholding structure might be recalibrated.
“Moreover, this will result in comparable total subscriber base between both entities. Hence, one does not have an unfair advantage over the other,” Kenanga Research argued.
“Additionally, we believe that operating conditions need to be level – which implies equal ownership of 5G spectrum blocks between A and B,” it said, adding that with the aim of fairness in mind, KKD might structure a financially reasonable exit mechanism from DNB for entity B members.
