Delay in Celcom-Digi merger not good for industry, analysts say

This is as M&A will allow the telecommunications industry to attain stronger growth 


THE Malaysian Communications and Multimedia Commission’s (MCMC) statement of issues (SOIs) against Celcom Axiata Bhd and DiGi.Com Bhd could negatively impact the sector as merger and acquisition (M&A) will be significant to attain stronger growth in the telecommunications industry. 

Read more: Celcom, Digi asked to address preliminary competition concerns in ongoing merger assessment 

Rakuten Trade Research VP (equity research) Thong Pak Leng said the absence of meaningful M&A activities in the market will only further depress the telecommunications sector. 

“M&A is imminent in the telco sector due to stiff competition. We have not seen any significant growth in the sector for many years. 

“We believe the industry consolidation will make our telecommunication companies more competitive with better efficiencies and reducing costs,” he told The Malaysian Reserve (TMR) yesterday. 

Read more: Celcom Axiata-DiGi merger still work in progress

He added that this is also in line with the rollout and adoption of the 5G network in the country which is expected to play a major role in the country’s telecommunications industry moving forward. 

An analyst with a local brokerage firm does not foresee a major red flag for the proposed merger of the telecommunications operations of Celcom and Digi at this juncture. 

He added that, however, if the proposed merger is called off due to any circumstances, then it will definitely not be good for the overall industry. 

“We do believe the merged entity will be able to streamline and offer complementary and more competitive services in both the retail and wholesale markets. 

“This may partially help address some of the concerns on revenue growth,” the analyst, speaking on condition of anonymity, told TMR. 

In a note yesterday, RHB Investment Bank Bhd analyst Jeffrey Tan stated the SOIs could potentially delay the timeline for completion of the merger, which was initially set for the end of the second quarter of 2022. 

He noted that the regulator may issue a notice of no objection if it is satisfied that the merger does not have or is not likely to have the effect of substantially lessening competition in the market or result in a dominant position. 

“While there is a possibility that a dissenting view may be issued (notice of objection), we think the risk is low, as the regulator had previously maintained an accommodative stance on market consolidation and the merger construct,” he wrote. 

Commenting further, Tan added that the uncertainty as a near-term overhang on both stocks and the key risk would be an unfavourable decision by the regulator.

RHB foresees a knee-jerk selldown on Axiata Group’s and Digi’s shares following the SOI raised by the regulator on the proposed merger.

“The ball is now in the telecommunications courts to address concerns presented within 30 days. The risk of a dissenting view is low in our view, as the regulator previously maintained an accommodative stance on market consolidations and the merger construct,” he said. 

Both Axiata and Digi have been served with the SOIs on April 1 by MCMC on preliminary concerns over market competition that could arise from their proposed merger. 

Both were also requested to submit additional comments and information on the national retail market for mobile and lowspeed fixed broadband and data services, national retail market for mobile voice and person-to-person (P2P) messaging services (including the related local distribution channel market or markets), national wholesale market for mobile voice and P2P messaging services (including network sharing arrangements), and national wholesale market for mobile broadband services (including network sharing arrangements). 

Tan believes the SOIs may have triggered renewed concerns over merger execution. 

He said the development has also caught the market off guard, as Axiata’s and Digi’s management teams had earlier indicated — during their results call and briefings — that the integration process is progressing as planned. 

RHB has maintained its ‘Neutral’ call on the telecommunication sector.