No pressure on broadband operators to cut rates this year, says TM

TM will focus on higher-income yielding sites for broadband expansion and introduce more competitive products


THE pressure on telecommunications companies (telcos) to lower broadband prices appears to have eased under current political and economic conditions.

“Telekom Malaysia Bhd’s (TM) management indicated that the authorities have not been pressuring broadband operators to cut rates further for this year, in contrast to the National Fiberisation and Connectivity Plan which aimed to reduce entry-level packages to 1% of gross national income, implying RM40 per month,” AmInvestment Bank Bhd wrote in a recent report.

Datuk Noor Kamarul Anuar Nuruddin, who was appointed MD and group CEO in June last year, is “realigning TM’s priorities” by focusing on higher income yielding sites for broadband expansion and introducing more competitive products, the research house added.

Former Communications and Multimedia Minister Gobind Singh Deo said in May 2018 the government would double broadband speeds in Malaysia at half the price.

Telcos including TM began slashing prices in June 2018 after the Mandatory Standard on Access Pricing (MSAP) was implemented. As a result, TM’s second-quarter earnings that year halved as provisions were recognised for wholesale revenue reduction due to the MSAP.

From June to December 2018, average broadband prices were reduced by 49% through the MSAP, the Malaysian Communications and Multimedia Commission said in September last year.

AmInvestment Bank expects TM’s operational costs to continue improving, following a 16% year-on-year (YoY) drop to RM10 billion last year due to its Performance Improvement Programme (PIP).

“However, TM’s forecast earnings before interest and taxes for the financial year ending Dec 31, 2020 (FY20) is expected to reach only RM1.4 billion versus RM1.6 billion in FY19 due to higher capital expenditure (capex) rollouts in tandem with the group’s network improvement efforts,” it added.

While the company’s management indicated that the Movement Control Order (MCO) may slow down the projected FY20 capex of RM2.8 billion, the guidance of low to mid 20% of capex/revenue is maintained as rollouts could be ramped up after the MCO.

“So far, TM has spent RM10 million out of the RM400 million earmarked for the Covid-19 economic stimulus package to improve network quality. While this accelerates TM’s rollout plans, its capex guidance may be revised in the second quarter of 2020 (2Q20) due to the MCO prerogative,” AmInvestment Bank said.

It raised its earnings estimates for TM’s FY20 to FY22 by 2% on lower operating cost assumptions, following a teleconference with TM’s corporate finance and investor relations team on Monday.

The research house keeps its ‘Hold’ call on the telco but with a higher discounted cash flow-based fair value of RM4.15 per share (from an earlier RM3.50 per share).

While net additions of unifi subscribers have fallen on reduced churn during the first two weeks of the MCO with the closure of TM One kiosks, average revenue per user (ARPU) may experience lower pressure with minimal discounts being offered during this period, except on a case-by-case basis for some small and medium enterprises which include bill payment deferrals.

Although no discounts are provided for the retail segment, free content such as video-on-demand is being offered currently.

“However, Streamyx ARPU, which fell RM15 per month to RM96 per month in 4Q19, is expected to drop further due to the full-year repricing impact from last year,” the research firm said.