Minimal impact on Maxis from Celcom-Digi merger

By NG MIN SHEN / pic credit: MAXIS

The proposed merger of Axiata Group Bhd and Telenor ASA’s Asia operations is not expected to significantly affect Maxis Bhd, with analysts citing Maxis’ stronghold in the high-end segment.

Government-linked Axiata and Norwegian telecommunication company (telco) Telenor announced on Monday that they had begun talks to merge their telecom and infrastructure operations in Asia into a new enlarged entity.

The proposed non-cash deal also includes plans to merge Axiata’s Celcom Axiata Bhd and Telenor’s Digi.Com Bhd to create Malaysia’s largest mobile operator.

Currently, Celcom and Digi are two of the country’s “Big 3” telcos alongside Maxis. If the merger is successful, the Celcom-Digi entity would hold over 50% market share in the domestic mobile space, and about 35% of the converged market.

However, industry experts believe Maxis will continue to retain the majority of its customers as the telco enjoys fairly strong “stickiness”, as it attracts users’ willingness to pay more for a better network quality.

JF Apex Securities Bhd analyst Lee Cherng Wee expects the industry status quo to remain for the time being, given that it will take at least one to two years for details of the proposed merger to be fully ironed out, and subsequently for consolidation to take place.

“It won’t really be a problem for Maxis in the immediate term, because Telenor and Axiata will have to consolidate before starting anything like a price war. But I don’t think they will start a price war — if they do, they’ll hurt their own margins as well.

It’s not like a few years back, when U Mobile Sdn Bhd did it in order to gain subscribers,” he told The Malaysian Reserve (TMR) yesterday.

Lee also anticipates telcos’ revenue market share and subscriber base to stay unchanged post-merger, if it materialises.

An analyst at a local brokerage said Maxis will continue to retain its leading average revenue per user (ARPU) while focusing on growing its fibre broadband and enterprise segments.

“On paper, it looks like its negative for Maxis. But it will still have its own niche in the high-end market. Digi and Celcom are both concentrated in the mid-end segment. As a customer, you’re more interested in service
coverage and quality, which is where Maxis is at,” the analyst told TMR.

As at end-2018, Maxis had the highest blended ARPU of RM59 attributed to its strong postpaid segment, followed by Celcom with RM50 and Digi with RM41.

While customers would not switch over from Maxis to Celcom or Digi merely because of a merger, they could be tempted if the merged entity does provide on-par or better service at cheaper prices.

“With this proposed merger, the parties will have more firepower for new market innovations and to come up with different product permutations. Also, Celcom has wider coverage and Digi’s plans are cheaper, so these things could attract some people to jump ship,” the analyst added.

Maxis has 18 ‘Sell’ calls and 10 ‘Hold’ recommendations among analysts surveyed by Bloomberg, with none calling to ‘Buy’. The stock closed five sen or 0.91% higher at RM5.52 yesterday, valuing the firm at RM43.15 billion.

Axiata has 14 ‘Buy’ and 13 ‘Hold’ ratings, with none suggesting to ‘Sell’. Shares of the group closed eight sen or 1.72% lower at RM4.56 yesterday, after jumping 14.85% on Tuesday. The company was valued at RM41.31 billion.

Analysts have 14 ‘Hold’, seven ‘Buy’ and four ‘Sell’ calls on Digi, which rose one sen or 0.21% to RM4.81 yesterday for a market capitalisation of RM37.4 billion.