THE consolidation plan of major cellular operators, DiGi.Com Bhd and Axiata Group Bhd – while yet to be approved by the Malaysian Communications and Multimedia Commission (MCMC) – appears to have temporarily relieved the intense price wars in the mobile sector as the merged entity could have a cellular subscriber market share of 50%.
Nevertheless, cellular operators (celcos) continue to face headwinds in raising their revenue growth trajectory as competition remains intense from rapidly growing unlisted operator U Mobile (which targets the affordable market segment) and multiple mobile virtual network operators, according to AmResearch.
“Given the MCMC’s policy to promote competition for fair pricing regimes, we expect flattish revenue prospects to persist despite the merger proposition among two major players currently,” projected analyst Alex Goh in a telco sector update.
“While celcos encourage prepaid subscribers to migrate to their post-paid services, discounted family plans and bundling with third-party fibre services could erode blended average post-paid revenue per user (ARPU).”
On June 21, DiGi inked a conditional share purchase agreement with Axiata as part of a proposed merger of Celcom Axiata Bhd and DiGi Telecommunications Sdn Bhd’s merger exercise.
This signing follows the satisfactory completion of due diligence processes, allowing the parties to now move into the next phase of the proposed transaction.
Notwithstanding the intense completion and movement control order (MCO) since March 2020, AmResearch observed that cellular subscribers have risen over the past four quarters consecutively with net subscribers increasing by 361,000 quarter-on-quarter (qoq) from both prepaid (+221,000) and post-paid (+140,000) segments.
“The proportion of post-paid users has gradually risen to 33% in 1Q 2021 from 25% in 4Q 2017 as celcos have been encouraging subscribers to migrate to higher priced post-paid plans,” noted the research house.
“However, this has been partly offset by a RM1/month qoq decline in average revenue per user (ARPU) to RM75/month largely caused by the post-paid segment.”
All-in-all, AmResearch maintained “overweight” call on the telco sector given the consolidation synergies from the Celcom-DiGi merger which could partly mitigate the intense price competition.
Nevertheless, the research house cautioned that the sector can be de-rated to “neutral” if the current consolidation plan for both cellular operators is aborted or disallowed by the regulator “which could mean the resumption of intense mobile price war with more players”.
“Additionally, political changes could re-emphasise the National Fiberisation and Connectivity Plan (NFCP) prerogatives in extending cuts to fixed broadband prices and the mandatory standard on access pricing (MSAP) structure for wholesale fibre operators,” reckoned AmResearch.
“We are also cautious on possibilities of higher-than-expected increase in operating and capital cost requirements as operators need to further upgrade their network infrastructure to facilitate 5G roll-outs.” – July 12, 2021
