THE delay in rolling out 5G could be a positive for the telco industry, as analysts believe it is uncertain if it will enhance earnings for telcos.
“Delays would mean the deferment of 5G capital expenditure, at least until clarity is obtained on the spectrum process, so it is a positive in that respect,” said RHB Investment Bank analyst Jeffrey Tan.
Tan also noted that, as it stands, the industry is already facing challenges in monetising data on 4G due to stiff data price competition.
“Telcos are not hard-up to commercialise 5G. As it is, initial 5G rollouts are likely to be confined to enterprise use cases,” Tan told FocusM.
Another local analyst opines that it remains uncertain whether 5G will enhance earnings for telcos.
“It will likely be given free like 4G. The most they could do is to cap speeds, and require consumers to pay higher prices to use higher speeds,” said the analyst, adding that more information is needed to assess just how the delay in 5G would affect the industry, as even the telcos cannot give any guidance on the matter.
Noted as well was that the delay in 5G would impact the industrial side more than the residential, owing to the nature of 5G.
“It all comes down to the applications people use it for. For a smart home, it would likely require the rewiring of everything in the household, and this is not accessible to every Malaysian. 5G would more likely go towards the industrial side of things, rather than residential,” said the analyst to FocusM.
When asked about what would act as a catalyst for the sector, Tan shared that a number of factors, such as industry consolidations or mergers and acquisitions, would be boons to the sector.
“Considering the intense competition and the price wars, industry consolidation, mergers and acquisitions, stronger than expected earnings or dividends, or positive regulatory developments would all be potential catalysts for the industry,” said Tan.
The local analyst noted it is “unfortunate that the players are competing to provide higher speed at the same pricing, so competition will still be there.”
“Furthermore, the Malaysian Communications and Multimedia Commission wants more competition, rather than less competition, so the telcos coming together as an oligopoly (a state of limited competition) is never going to happen,” said the analyst.
The local analyst also believes that mergers and acquisitions will be the primary catalyst for the sector.
“Two deals that have fallen through, namely the merger deal between Axiata Group Bhd and Digi.com Bhd’s parent Telenor, as well as the deal between Axiata and Telekom Malaysia Bhd, would have been good rerating factors, but they did not pan out,” said the analyst. – July 24, 2020
