By Xavier Kong
THE Malaysian Communications and Multimedia Commission (MCMC) announced its final position on the matter of spectrum allocation, following the public inquiry in July 2019, and analysts opine that the decisions are pragmatic and balanced.
The MCMC decided that the 700MHz, 3.5GHz, 26GHz and 28GHz bands will be allocated for the rollout of 5G, while the 2300MHz and 2600MHz bands will be maintained as per their existing allocation, pending their maturity for 5G until Dec 31 2021, but with a review prior to expiry.
The MCMC is also considering allocating the 700 MHz and 3.5GHz bands to a single entity comprising a consortium of multiple licensees instead of individual licensees, stating that the capital expenditure burden in rolling out the relevant infrastructure will be lower via the sharing of resources. The single entity will be assigned in one package by way of beauty contest, estimated to start in the first quarter of 2020.
“We view that the MCMC is taking a balanced stance on the matter of spectrum allocation, in particular by allocating the low-band 700MHz and mid-band 3.5GHz bands to a single entity,” said TA Securities.
The research house also notes that the resulting cost synergies should not only facilitate the government in achieving targets under the National Fiberisation and Connectivity Plan (NFCP), but also help telecommunication players in overcoming the hurdle of expanding into the country’s underserved suburban and rural areas in a commercially viable manner.
According to AmInvestment Bank, the MCMC will only release 2 x 30MHz of the 700MHz band and 100MHz for the 3.5GHz band this year for assignment with the remaining frequencies at a later stage.
A total bandwidth of 3200MHz for the two higher 5G bands of 26GHz and 28GHz will be assigned in two methods, namely a tender process for four blocks of 400MHz of the 24.9GHz to 26.5GHz frequency bands on a nationwide basis, and a first-come-first-served basis for four blocks of 400MHz of the remaining 26.5GHz to 28.1GHz frequency bands, with the second option open to any party, including non-licensees for the purpose of deploying localised or private networks.
“The MCMC affirmed that the existing allocation for 2300MHz for WiMax and 2600MHz bands for 4G will be maintained until Dec 31, 2021, as all operators are urged to continue deploying mobile broadband services using existing technology in parallel with the necessary preparation towards 5G,” said AmInvest, which remains negative on the NFCP.
The negative sentiment towards the plan stems from the research house pointing out that infrastructure costs could very well be substantially higher, and it remains to be seen whether or not operators can pass these costs on to consumers with adequate investment returns. This is despite the “pragmatic 5G approach by the MCMC” which partly offers relief for the sector.
AmInvest also notes that, given Telekom Malaysia Bhd’s (TM) role as the national broadband provider, the group may bear up to half of the NFCP cost, which translates to RM2.2 bil over the next five years.
“Besides TM’s own capex requirements, the NFCP rollout alone translates to 19% of FY20F
revenue, already above management’s FY19F capex target of 18% and 9% in 9MFY19. Additionally, the thrust of the NFCP towards connecting the rural population could mean that revenue accretion from these investments will be minimal,” said AmInvest.
Both TA and AmInvest maintain their respective recommendations of underweight and neutral for the telco sector.
“Our bearish stance is premised on the sector’s subdued near-term growth prospects and furthermore, we also opine that the valuations of domestic-centric players are fair at current levels,” said TA Securities.
It is positive on Axiata Group Bhd with a buy call (TP: RM5.00) but sell on Maxis Bhd (TP: RM4.80), Digi.Com Bhd (TP: RM4.25) and TM (TP: RM3.62).
AmInvest also has a buy call on Axiata with a fair value of RM4.90 per share given its low EV/EBITDA valuations and rising prospects for monetisation of its multiple businesses.
Its neutral outlook on the sector was mainly due to the escalating NFCP and 5G capex requirements against the backdrop of government-targeted fiberised ARPU (average revenue per user) reductions. – Jan 2, 2020
