The parties need it to continuously fill rising consumer demand that is estimated to increase 10-fold

by ASILA JALIL / graphic by MZUKRI MOHAMAD

THE proposed merger of Celcom Axiata Bhd and DiGi.Com Bhd is driven by demand for network capacity and benefits to be gained from the enlarged scale.

Increasing demand for network coverage with the highest speed and the competition among service providers have pushed down the prices for the services.

A source close to Celcom told The Malaysian Reserve that the two parties need the financial power to continuously fill the demand because the required network capacity in the years to come may increase 10-fold, in line with the rise in digital adoption.

“Demand for data is so big that we cannot keep up. That is why we need that financial power because we need to scale up very quickly.

“We need to meet consumer demand for the increase in data usage and the lowering of price,” said the individual.

He added that issues relating to market dominance and monopoly by this merged entity should not arise as there are at least five other strong players in the industry to ensure a healthy competition.

The merged entity will be named Celcom Digi Bhd and have a proforma revenue of RM12.4 billion in financial year 2020, pushing its position to the top of the list compared to other telecommunications companies (telcos).

However, he said the difference in revenue between Celcom Digi and Telekom Malaysia Bhd (TM), which came in second, is only around RM2 billion.

“There is still competition, so it is not a monopoly.”

TM‘s revenue stood at RM10.8 billion, while Maxis Bhd was ranked third with RM9 billion. Celcom is also committed to no forced layoff of its staff should the companies merge.

“Since our establishment, we have yet to lay off staff and we will remain that way. We have given voluntary separation schemes in the past years and that is common, it happens at other companies as well,” he said.

When asked why it chose Digi as the partner, he said serious discussions were held with other service providers in the market, but Digi emerged as the best suitor due to synergies and growth potential.

He added that the parties previous attempt to merge the Asian operations of Axiata Group Bhd and Telenor ASA in 2019 failed because it was too big and came with various set of hurdles.

“We are confident this is going to go through, and it is at a smaller scale.”

Meanwhile, he said the parties decided to have merger talks now as it is best for the company to take “drastic but necessary actions” when it is still standing strong in its business operations.

He added that Celcom is negotiating “from a position of strength” and is now at a more stable position compared to two years ago.

“Now, Celcom is still gaining profit and we have a lot of subscribers. It would be difficult if we were to do it when we have debts to pay with a much lesser number of subscribers. It gives us a better opportunity to negotiate as equal,” he said.

On April 8, Axiata and Telenor, which has a 49% stake in Digi, announced that they were in advanced discussions on the potential merger of the telcos.

Axiata and Digi will have an equal stake of about 33.1% each in Celcom Digi, while Axiata together with local institutional funds will own over 51% of the company.

The merged entity would have a combined 19.1 million customers.