25% broadband price cut to hit players hard, TM taking the brunt

Fixed broadband price cut are expected by year-end following the rollout of the MSAP

By NG MIN SHEN / Pic By TMR File

The government’s intention to slash broadband prices by at least 25% by year-end will likely hit local broadband players hard as the increase in subscribers may not offset loss in pricing power.

Communications and Multimedia Minister Gobind Singh Deo said on Wednesday, fixed broadband prices are expected to drop by at least 25% by year-end following the implementation of the Mandatory Standard on Access Pricing (MSAP), which was enforced starting June 8.

AmInvestment Bank Bhd analyst Alex Goh said the MSAP would have a “negative” impact on Telekom Malaysia Bhd (TM) as the bulk of the group’s business is driven by its Internet segment.

“Annual revenue from UniFi is estimated at about RM2.7 billion, with an additional RM1.2 billion from Streamyx. Assuming an absolute 25% price reduction, a 25% impact on revenue would be tremendous on TM. It could wipe out about 90% of TM’s earnings, if the price cut is done on an absolute level,” he told The Malaysian Reserve (TMR).

TIME dotCom Bhd and Maxis Bhd, the other two major broadband players in the country, are likely to be hit as well, although the impact on Maxis will be marginal as its main business is still telcommunications services.

“TM is the sole operator of UniFi and the sole fixed-line operator in Malaysia. If they’re making losses, they cannot maintain their assets and will have trouble servicing the borrowings taken out to fund existing projects like the rollout of the High Speed Broadband Phase 2 (HSBB 2),” Goh said.

He said TIME dotCom, which has carved a niche for itself in urban high-rise dwellings, would be affected to a lesser extent, given its pricing is very competitive.

“The impact also depends on whether the price cut is absolute, or is referring to price per megabits per second (Mbps). If it’s price per Mbps, that will be manageable because operators can maintain the pricing, but provide higher speeds,” Goh said, adding that he expects TM to appeal the price cut.

According to Gobind, the relevant parties are currently in commercial discussions to finalise the wholesale prices, whereby lower wholesale prices should translate to lower retail prices.

The process is scheduled to be completed by July or August this year, after which new lower-priced broadband packages are expected to be rolled out to consumers, he said.

Gobind said the revised prices did not come into effect on Jan 1 this year as TM had appealed to the Malaysian Communications and Multimedia Commission to reconsider its stance on certain pricing aspects.

In May, the minister had said the government would double broadband speeds in Malaysia at half the price, in line with the national agenda to improve broadband quality at affordable and accessible prices.

JF Apex Securities Bhd analyst Lee Cherng Wee expects broadband players’ earnings would be affected by the proposed price cut, but by how much would require more details.

“For TM, the impact will be very significant. TIME dotCom will also be hit. If they roll out affordable packages, that might attract more subscribers, but may not fully offset the decline in pricing,” he told TMR.

Affin Hwang Investment Bank Bhd in a research report noted that it was “surprised” at the speedy execution and magnitude of the proposed broadband price cut, adding that it would hit TM’s short-term earnings, but the group would likely have tools to cushion the blow in the long run.

Shares of TM closed 49 sen, or 13.5% lower at RM3.14 yesterday, giving the group a market capitalisation of RM12 billion. The stock was actively traded with 68.53 million shares changing hands.

TIME dotCom ended the day’s trade 22 sen, or 2.63% weaker at RM8.13, with a market capitalisation of RM4.79 billion with 5.08 million shares traded.

Maxis closed unchanged at RM5.57 for a market capitalisation of RM43.15 billion with 2.38 million shares traded.

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