Telcos to ride on 5G monetisation opportunities


KUALA LUMPUR: Telcos are seeking out fresh opportunities to monetise the 5G network, including targeting high net worth retail customers to derive higher revenue.

In a sector update, Kenanga Research said mobile players have tweaked their 5G plans to to drive up the average revenue per user (Arpu) from customers with strong spending capacity.

"Evidently, new or revamped plans incorporate tiered speeds and caps, 5G data quotas, and fair usage policies that throttle speeds after limits are exceeded.

"Therefore, this may compel customers to upgrade to expensive plans that correspond to faster speeds, as well as higher thresholds for fair usage policy (FUP) caps and 5G quota," said the research firm.

Kenanga said it is sanguine that Arpu will recover or at least stabilise in 2024 after a weak showing in 2023.

"We believe this would be the case, particularly for the postpaid segment given that affluent customers that can afford higher Arpu fall within this demographic," it said.

Over the longer term, Kenanga said the enterprise segment would also present more opportunities for telcos to monetise 5G.

It said telcos are encouraging enterprises to implement systems that leverage 5G.

For example, CelcomDigi Bhd's strategic partnership with Japan-based Softbank Corp and Sumitumo Group's SC-NEX aims to formulate IR 4.0 solutions that apply artificial intelligence (AI) in robotics and analytics.

It also cited the collaboration between Maxis and Amazon Web Services to push regenerative AI and 5G via integrated solutions in the retail, manufacturing, logistics and financial services segments.

"In essence, we believe that investors are less wary on 5G as monetisation opportunities from enterprise and high net worth clients loom on the horizon.

"Moreover, investors are optimistic that earnings and dividends for telco players will remain intact given a milder and more accommodative regulatory environment," said Kenanga.

To recap, the 5G network comes at a cost for mobile players, which are required to pay a target capacity payment of RM288mil per annum, with the exception of Maxis that is required to pay RM360mil per annum, to Digital Nasional Bhd.

However, the government has said that telcos would not be allowed to recoup these costs via additional access charges on their customers for 5G services.

Kenanga maintained its "overweight" recommendation on the telco sector with Telekom Malaysia Bhd (outperform, TP: RM7.22) and CelcomDigi Bhd (outperform, TP: RM5.83) as its top picks.

The research firm said it liked TM for its leverage on secular data growth on the back of current trends such as digital transformation, proliferation of Internet of Things (IoT) and AI integration, and its benefits from Jendela phase 2 projects via roll-out and monetisation opportunities.

It also noted the telco's potential earnings accretion from the potential development of a new hyperscale data center.

Meanwhile, CelcomDigi stands to benefit from merger synergies amounting to net present value of RM8bil over five years.

According to Kenanga, the telco's robust average free cash flow yield of 7.9% in FY24-25 implies capacity to pay steady dividends.

It added that CelcomDigi also has a leading subscriber base share of 39% and 20% in the postpaid and prepaid segments, respectively, translating to pricing power and economies of scale.

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Telcos , 5G , monetisation , Maxis , CelcomDigi , TM , enterprise , mobile , Kenanga

   

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