Telcos to face flattish revenue trajectory due to Digital Nasional’s additional charges

The all-in prices of mobile plans, however, are likely to remain largely unchanged 


THE country’s 5G rates are expected to be at worst compared to 4G rates as Malaysia Communications and Multimedia Commission (MCMC) has not changed its National Digital Infrastructure Plan (Jendela) targets and timelines. 

AmInvestment Bank Bhd (AmInvest) analyst Alex Goh said, however, the 5G wholesale rates are still under evaluation by the MCMC. 

According to him, MCMC chairman Dr Fadhlullah Suhaimi Abdul Malek has affirmed that the mandatory standard access pricing (MSAP) between Digital Nasional Bhd and telecommunication companies (telcos) operators will lead to retail prices that are at least equal or lower than 4G rates megabits per second (Mbps). 

“For consumers, this could mean that the all-in prices of mobile plans are likely to remain largely unchanged. Telcos are likely to face a flattish revenue trajectory while bearing the additional wholesale charge from Digital Nasional, partly offset by leasing income from the operator’s existing net-work infrastructure that will be needed for 5G connectivity,” Goh said in a note. 

He recalls that Digital Nasional has appointed Ericsson (M) Sdn Bhd to design and build the national 5G network at a total cost of RM11 billion. 

“This comprises RM7 billion for tower rental and fibre leasing costs over a ten-year period and RM4 billion for network equipment, deployment services, ongoing maintenance and network management. 

“The government-owned 5G wholesaler expects the launch of its network in areas within Kuala Lumpur, Putrajaya and Cyberjaya beginning December 2021, with the objective of achieving 80% nationwide population coverage by 2024,” stated Goh. 

The chairman also reaffirmed that fixed broadband prices in the country are relatively affordable compared with the region, bring- ing a measure of clarity to the MSAP review. 

“He reiterated that the difficulties of continued investment into unreached areas on social prerogatives against the backdrop of uncertainties in wholesale prices. With an easing of broadband price pressures, this reduces longer-term earnings risk to the wholesale segment of Telekom Malaysia Bhd (TM) and Time dotcom Bhd,” Goh noted. 

The Jendela plan aims to achieve entry-level fixed broadband packages at 1% of gross national income by 2020, which could have cut fixed broadband prices to RM40 per month, less than half of unifi’s most affordable plan at RM89 per month currently. 

Besides, Jendela’s Phase 1 progress is currently on track to reach its national target to provide broadband services to 7.5 million premises, while achieving mobile broadband speed of 35Mbps and 4G coverage of 96.9% by the end of 2022. 

“On quarter-on-quarter (QoQ), fiberised premises have increased by 6% to 6.4 million while mobile broadband speeds rose by 19% to 31.3Mbps in the third quarter of 2021 (3Q21). The fixed broadband premises increased by 378,000, surpassing the MCMC’s target by 2.1 times, while new mobile sites rose by 67 (3% above target) and upgraded sites by 2,954 (9% above goal),” he said. 

To date, 1.2 million 3G customers have migrated to 4G, with only 413,000 remaining to reach the year-end target of 1.6 million. 

“The only underperformance came from the slower 79,000 3G carriers being switched off versus a target of 82,000 due to the Movement Control Order restrictions which also caused Time dotCom to miss 66% of its 3Q21 target to fiberise premises,” he added. 

Meanwhile, all 14 state governments have established their digital infrastructure committees or councils to facilitate the planning and development of new properties, in which 10 states have adopted the 

MCMC’s Communication Infrastructure Planning Guideline with Selangor and Kelantan currently finalising the process. 

“Even so, the costs to build towers have not changed significantly over the past six months. In September 2021, the median permit cost and fees to build new tower structures in the first year have risen 3% to RM11,250 per site from RM10,925 per site in March this year. 

“However, the first-year median permit cost to build new rooftop structures declined 1% to RM8,150 per site from RM8,200 per site in March,” he stated. 

Therefore, MCMC has been engaging with the states to reduce permit costs with the aim of speeding up the 4G coverage expansion and preparing the nation for a steady transition to 5G technology under the 12th Malaysia Plan, which will be implemented over two phases. 

“The results of the tender to construct 1,661 new sites, potentially worth RM4.6 billion across unreached areas for 4G expansion have been extended to the end of this month (October) from the end of June 2021,” he added. 

The analyst also noted that Maxis Bhd has shown its successful drive to differentiate through its superior network quality, brand loyalty, customer care and convergence strategy by bundling with fibre solutions, competitors such as Celcom Axiata Bhd and have also begun similar marketing campaigns. 

“Even late comer U Mobile Sdn Bhd is currently negotiating a wholesale contract with TM to bundle its mobile plans with fibre solutions. Increasingly, operators agree that the ongoing intense competition globally will obviate any attempt to charge premium prices for 5G branding unless additional managed services and attractive content are offered to customers,” he further said. 

The analyst expects that 5G marketing campaigns to follow fixed broadband models in offering unlimited data (limited by speed caps) that will depend on the evolution of the ecosystem involving new applications, devices and content. 

AmInvest has maintained an ‘Overweight’ in the telecommunication sector given the consolidation synergies for two cellular operators which could partly alleviate intense price competition and 5G cost escalations from Digital Nasional’s wholesale arrangement. 

“We reiterate our ‘Buy’ call for TM, which has shown significant cost improvements together with compelling dividend yields, and ‘Hold’ for Maxis given the continuing competition from mobile virtual network operators and affordable segment players like U Mobile constrains revenue growth prospects,” he said.