Govt dismantling of DNB's single wholesale network model bodes well for MNOs' earnings, dividends — Kenanga

03 Jan 2024 - The Edge Malaysia

KUALA LUMPUR (Jan 3): Mobile network operators’ (MNOs) earnings and dividends prospects are more likely to remain intact following Putrajaya’s move to dismantle the 5G single wholesale network model (SWM) headed by Digital Nasional Bhd (DNB), according to Kenanga Research.

The research house maintained its "overweight" rating on the telecommunications sector, believing investors to be generally upbeat about the 5G dual network (DN) model proposed by the government, which entails having a second entity roll out the next generation wholesale network provider, as the new model reflects a milder regulatory environment.

"Evidently, the introduction of DN reflects the current government’s more accommodative and liberal approach. Therefore, we are cautiously optimistic that earnings and dividends for telco players will remain intact," it said, naming CelcomDigi Bhd and Telekom Malaysia as its top picks in a report on Wednesday.

Kenanga also said the transition from SWM to DN marks the removal of unfair pricing arising from DNB's monopoly, and enhanced network roll-out efficiencies with the second 5G network.

SWM was intended to have DNB act as a wholesaler to roll out the 5G network nationwide and lease its network capacity at a lower cost to MNOs, which would share the infrastructure without spending huge amounts to set up their own infrastructure, allowing them to focus on competing on a level playing field to service retail customers.

Last month, the government entered into agreements with five MNOs to eventually give up majority control over DNB, a special purpose vehicle owned by the Ministry of Finance established to roll out RM16 billion worth of 5G network infrastructure in Malaysia at a faster pace to enable the nation to catch up with its regional peers.

This was effectively a reversal of the SWM model, allowing the 5G rollout be led by MNOs.

Maxis Bhd was the first in the country to provide 4G service a decade ago in 2013, but the industry has continued to be criticised for poor network quality in recent years, despite MNOs having rolled out their own infrastructure.

DNB, on the other hand, is on track to achieve 80% coverage of populated areas for its 5G infrastructure by the end-2023.

Kenanga on Wednesday noted that the 5G monetisation remains sluggish for MNOs, given that availability of the network appears "lacking".

"As such, the current 5G infrastructure seems inadequate to accommodate more users and traffic. Hence, this further supports the case for deployment of a second new network to boost 5G service quality," it said.


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