Commercial launch of 5G network in Malaysia may face delay

The 5G network costs are expected to accelerate the consolidation of the local telecommunication sector


THE commercial launch of 5G network in Malaysia may take place in 2021, as coverage will be limited to major cities due to insufficient spectrum bandwidth and the uncertainty of the business case.

Credit rating agency Fitch Ratings Inc said the 5G network costs are expected to accelerate the consolidation of the local telecommunication sector.

“The coveted 3.5GHz frequency band for 5G is currently used for satellite services.

“To defray 5G network costs, Malaysian telecommunication companies (telcos) are likely to pursue network-sharing arrangements on a commercial basis, potentially undermining Telekom Malaysia Bhd’s (TM) ambitious proposal to the government to build a single national 5G infrastructure,” it said in its 2020 Outlook for the Asia-Pacific Telecoms.

According to the Global System for Mobile Communications Association, the ideal spectrums identified for 5G adoption are the mid-band (C-band: 3.3-3.8GHz) and high band (mmWave: 26/28GHz).

The C-band is currently used for satellite services.

Fitch gave a stable outlook for the Malaysian telecommunication sector in 2020 but believes expensive 5G airwaves will leave telcos with less flexibility to weather the capital expenditure (capex) upcycle.

“The downside risks to our stable leverage forecast include large 5G spectrum payments.

“The regulator plans to allocate 700MHz, 2,300MHz and 2,600MHz as 5G spectrum in the first half of 2020, and has said that it has no intention to profit from the award of the 5G spectrum,” it added.

TM’s (A-) leverage will remain above the industry average, according to Fitch, reflecting the narrowing returns from wholesale network access.

“The incumbent fixed-line telco may also revive its aggressive mobile expansion plans, following a recent change in leadership,” it said.

A neutral free cashflow forecast also underpins the agency’s expectations that telcos will preserve capital ahead of the 5G capex upcycle to maintain balance sheet strength.

“Major telcos had previously managed their leverage profiles through dividend cuts, equity raising (Maxis Bhd’s share placements in 2017) and asset disposals.

“Operational cashflows are likely to stay flat, as ongoing cost-cutting measures offset the effects of competitive pressure. Our capex projections exclude potential 5G spectrum fees, so any significant debt-funded capex would delay deleveraging,” the rating agency added.

In terms of sector fundamentals, Fitch believes that competition would shift to enterprise and converged services.

It said that telcos are unlikely to engage in predatory pricing, with their focus shifting from consumer to enterprise and converged services.

This should ease competition in the mobile sphere, though fixed broadband rivalry is likely to intensify.

The agency said that the mandatory standard on access pricing will give retail service providers access to fibre at regulated rates. Maxis Bhd is allocating RM1 billion to its yearly capex over 2019-2021 to support its convergence strategy, and Axiata Group Bhd’s Celcom is offering home fibre solutions in Sabah and mobile operator, Bhd, in Melaka.

Additionally, Fitch said the RM21.6 billion (US$5.2 billion) National Fiberisation and Connectivity Plan (NFCP) should steer competition for fibre rollouts through a wider pool of public-private partnerships, which deviates from previous practices of awarding nationwide contracts to a sole provider — TM.

Approved in August 2019, the NFCP aims to expand broadband access to 98% of populated areas by 2023.