AN in-depth look at Digital Nasional Bhd’s (DNB) commercial offer shows that mobile network operator (MNOs) may have to pay substantial 5G wholesale fees from their FY2023F onwards.
Based on DNB’s commercial offer and timeline for site roll-out of its 5G single wholesale network (SWN), CGS-CIMB Research expects MNOs to be charged substantial minimum wholesale fees of RM303 mil/RM403 mil/RM432 mil/RM432m in FY2023F/2024F/2025F/2026F.
This has prompted the research house to downgrade the telco sector to “underweight” (from “neutral” previously) alongside Maxis Bhd’s rating to “reduce” (from “hold” previously) with a revised target price of RM3.80 (from RM4.70 previously).
“We believe MNOs may not be able to generate much extra mobile revenue from 5G in the near/mid-term due to (i) lack of unique ‘killer’ use cases and (ii) still limited coverage in the first few years while (iii) 5G device penetration will take time to rise,” opined analysts Foong Choong Chen and Sherman Lam Hsien Jin in a telco sector update.
“We do see potential for new 5G enterprise revenue streams but wide-scale commercialisation may be three to five years away.”
While DNB pays for 5G capex, CGS-CIMB Research is of the view that MNOs’ capex will not drop much in FY2022-2024F due to (i) JENDELA’s 4G coverage/speed targets and (ii) still growing 4G traffic.
“(However), MNOs’ capex may fall from FY2025F as they offload more 4G traffic onto DNB’s 5G network when coverage is wider and 5G device penetration is higher,” reckoned the research house.
While the Government may decide on its SWN plan in February, CGS-CIMB Research opted to turn from “neutral” to “underweight” as the potential earnings downside risk is quite big and “MNO share prices have yet to reflect this in a major way”.
“We continue to prefer the fixed segment due to better revenue growth prospects, more benign competition and less regulatory risk,” noted the research house.
“Telekom Malaysia remains our top Malaysian telco pick with unchanged DCF (discounted cash flow)-based target price of RM7.50. The key upside risks are lower 5G wholesale fees, cancellation of SWN or MNOs offered equity stakes in DNB.”
In its counter-argument, DNB has described a dual wholesale network (DWN) model as
“while not inconceivable, would invoke more challenges (especially when roll-out has begun), delay 5G execution, and contribute to excess capacity in the long-run”.
The driver behind Malaysia’s development of 5G infrastructure further asserts that the proposed consortium model is not new and has been previously mooted (under the Pakatan Harapan Government) with mobile network operators (MNOs) unable to agree on the operating model and strategic objectives.
DNB is hopeful that the four MNOs – Celcom Axiata Bhd, Digi.Com Bhd, Maxis Bhd, and U Mobile Sdn Bhd – will soon ink their 5G wholesale agreements.
Thus far, Telekom Malaysia Bhd (unifi Mobile) and YTL Communications Sdn Bhd (YES) are the first two operators in the country to provide 5G access to their respective customers within coverage areas of Putrajaya, Cyberjaya dan Kuala Lumpur. – Jan 25, 2022
