Still room for more consolidation in telcos


INTENSE competition among local telecommunications service providers (telcos) could see more players opting to consolidate their businesses to optimise cost and reduce rivalry in the industry.

AmInvestment Bank Bhd (AmInvest) analyst Alex Goh in a note yesterday stated that more merger and acquisition activities could materialise as the industry’s revenue trajectory remains stagnant.

He added that this is despite the Malaysian Communications and Multimedia Commission’s (MCMC) preference to maintain competitive pressures to reduce broadband prices.

“Notwithstanding efforts to reduce capital expenditure deployment by the regulator and among operators, we still expect declining data yields amid intense competition among themselves, further exacerbated by U Mobile Sdn Bhd, Unifi Mobile and mobile virtual network operators, to drive operators to seek consolidation for greater cost optimisation, economies of scale and reducing rivalry,” Goh said.

The research house maintained an ‘Overweight’ call on the telecommunications sector with a ‘Buy’ call on Telekom Malaysia Bhd (TM) and Axiata Group Bhd.

Goh stated that TM has shown significant cost improvements together with more compelling dividend yields, while Axiata offers bargain enterprise value/Ebitda valuations with multiple opportunities for monetisation as the group aims for higher dividend payout policies.

The companies also scored three to four stars on environmental, social and corporate governance rubrics, making their valuations even more compelling.

AmInvest maintained a ‘Hold’ call on Maxis Bhd and Bhd amid expectations the companies’ revenue and margin growth prospects will be constrained by intense competition in the sector.

Last month, the country’s three largest telcos, namely Celcom, Digi and Maxis, agreed to jointly develop and share fibre infrastructure which will facilitate faster and more efficient backhaul deployment to their base stations, as well as to avoid duplication.

Goh said the collaboration could still mean a single-hop system by complementing fibre technology with microwaves, which allows faster deployment.

“Even so, fibre infrastructure upgrades will accommodate accelerating Internet traffic growth, especially in high-impact areas, extending 4G mobile backhaul to eventually support 5G new sites and fibre-to-home services.

“Over the longer term, the operators could potentially deploy fibre broadband service directly to consumers, bypassing TM’s high- speed broadband and sub-urban broadband networks,” he said. According to the MCMC, the National Digital Infrastructure Plan’s (Jendela) Phase 1 progress is currently on track to reach its national target to fiberise 7.5 million premises, achieve mobile broadband speed of 35 megabits per second (Mbps) and 4G coverage of 96.9% by the end of 2022.

The MCMC’s second quarterly report on the Jendela stated that 4G coverage rose 1.5 percentage points to 93.5%, while mobile broadband speeds slid slightly by 0.6% to 25.4Mbps in the first quarter of 2021 (1Q21).

Goh added that with 629,000 3G customers migrating to 4G and 20K carriers switched off in 1Q21, the MCMC has ceased the certification and importation of 3G and 4G equipment without voice over long-term evolution from Jan 1, 2021.

“The MCMC revealed state permits for tower deployment in Malaysia currently have a six-year median cost of RM42,000 per site with the most expensive in Johor at RM117,000, followed by Melaka (RM105,000) and Sarawak (RM65,000).

“As such, the MCMC plans to engage with the states to reduce permit costs, which are different across the states, and speed up 4G coverage expansion,” he said.

As 5G investments are expected to cost 25%-75% more than 4G infrastructure, Jendela aims to eliminate duplication of resources and allow operators to compete on service quality as opposed to facilities-based differentiation.