Mainstream
Is 700MHz spectrum a boon or bane?
Ng Wai Mun 
The high cost of acquiring the 700MHz spectrum is a burden to smaller telco players
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PLANS by the Malaysian Communications and Multimedia Commission (MCMC) to reallocate the 700MHz spectrum may favour the larger telecommunications companies (telcos) while putting smaller ones at a disadvantage.

This is mainly due to the high fees – a minimum of RM215.54 mil for each 5MHz band – imposed by the MCMC which has caused some discomfort to industry players, especially with the economic challenges.

Although MCMC has provided options for instalment payments stretching over 15 years, it will still be a huge financial burden to smaller telcos.

“It is literally a scenario of ‘damned if you do and damned if you don’t’ for the smaller telcos,” a regional telecommunications analyst tells FocusM.

He says funding requirements for the spectrum will greatly weaken the smaller mobile telcos’ balance sheets.

As it is, they are incurring losses and struggling to survive in the highly competitive mobile telecommunications market.

The 700MHz is attractive as it can also be used to broadcast television content and is 30% to 40% wider in terms of coverage.

JF Apex Securities senior analyst Lee Cherng Wee says smaller players like the mobile virtual network operators will incur huge financial undertakings to bid for the 700MHz spectrum, and it will “burden” them even more.

 

Bidding methods

On Oct 11, the MCMC revealed plans to reallocate the 700MHz in bands of 5MHz each through a tender exercise.

Telcos can bid for the two blocks of the 5MHz spectrum either through lump sum payment or via instalment.

For lump sum payment, MCMC charges RM215.54 mil for each 5MHz block. Though expensive, it is the cheapest option for them.

MCMC charges RM215.54 mil for each 5MHz block

In terms of instalments, telcos have options to pay via five, 10 or 15 payments. However, the total cost of the spectrum via instalments will be higher.

In addition, there will be an annual fee of RM18.55 mil for each 5MHz spectrum block.

And to bid for the tender, telcos will also have to provide an irrevocable bank guarantee amounting to RM10 million, which is refundable if the applicant is unsuccessful.

The MCMC declined to comment when approached on how the annual fees and spectrum pricing were determined.

In February last year, the MCMC awarded the 900MHz spectrum, which was also a huge financial undertaking.

The fees then varied between RM600 mil to just under RM1 bil.

Arab Investment Bank Research says that based on the single lump sum scenario, the 700MHz price component worked out to RM21.6 mil per MHz in contrast to the 900MHz’s RM21.8 mil.

AllianceDBS Research is mildly positive on the spectrum fee. In its report, analyst Toh Woo Kim, says the spectrum fee for the 2x5MHz block is similar to the total fee set by MCMC last year for a 2x5MHz block of the 900MHz spectrum.

Toh says the 700MHz band should be more valuable due to scarcity, thus the spectrum costs could have been much higher if the auction route was chosen.

To the big telcos like Maxis Bhd and DiGi.com Bhd, the financial requirements are not significant as they would have as much spectrum as possible for future growth and expansion plans.

“To the profitable [smaller] telcos that make less than RM10 mil annually, the financial requirements will hit them badly,” the analyst says.

He asks why such high fees are being charged when the authorities are supposed to help develop and grow the mobile telecommunications sector.

 

Huge pockets

Local telcos have been under severe pressure with flat subscriber growth and lower earnings in the past few quarters.

Under current sector challenges, is it worthwhile to acquire additional spectrum?

At least one analyst is unsure if the business earnings can be justified.

However, Lee says it is better for telcos to bid for the spectrum. “The major three telcos have huge pockets. It is better to bid than lose out in the long-term.

Going forward, they need to utilise the 700MHz strategically to increase earnings.”

MIDF analyst Martin Foo says in a research report that Maxis, Digi, Celcom, YTL Communications and UMobile have sufficient cash to fund their bidding.

As the cost of acquiring the 700MHz may be out of reach for smaller telcos, it begs the question if they should even try to obtain it.

Lee says it may not be a serious issue as implementing the 700MHz spectrum takes time.

Another senior telecommunications official says: “Yes, the 700MHz has never been used [by mobile telcos] before, but it is not so much a case of ‘you don’t miss what you never had’, assuming the smaller telcos were to miss out on it.

“Telcos need a spectrum of a lower frequency to complement and enhance their existing operations.”

However, the official stresses that it is not only about the 700MHz frequency but also the spectrum itself.

The global mobile sector is constantly working to make more spectrum available to feed the increasing telco appetite for bandwidth, he says.



This article first appeared in Focus Malaysia Issue 257.