PETALING JAYA: A second 5G network may lead to lower access charges and translate into better earnings for telecommunication companies (telcos).

This would free up cash flows, allowing them to pay higher dividends, according to Kenanga Research.

Reuters had reported that Malaysia might introduce a second 5G network in 2024.

The rollout is contingent on the nation’s 5G coverage reaching 80% of the entire population by end-2023, the news agency reported.

Kenanga Research said it is a positive development given the new government’s policies in recent months.

A second 5G network will see improved profitability for telcos, and it is beneficial for consumers as competition will result in better services, broader bandwidth, improved speed and affordability, accorsing to the research house.

“We reiterate our ‘overweight’ stance on the sector and see a second 5G network as a bonus to the sector, if it materialises,” said Kenanga Research in a report yesterday.

According to the research house, the unity government is committed to dismantling monopolies and promoting competition.

“Recall, the Single Wholesale Network or SWN model for the rollout of 5G via Digital National Bhd (DNB) that had come under constant criticisms due to its monopolistic nature, which could lead to excessive pricing, and to a certain extent, lack of transparency,” it added.

In 2022, DNB announced that the SWN model would cost telecommunication operators RM30,000 one gigabits per second (Gbps) per month on 5G leasing charges.

“Assuming a take-up rate of 1,000 Gbps, this would ultimately cost the telcos a whopping RM360mil a year to provide 5G to consumers.

“They also have to pay a fixed upfront fees regardless of how far the 5G population coverage progresses – a concern to the market as dividend payments might be significantly reduced given the additional costs,” said Kenanga Research.

The introduction of a second 5G network operator, it said, would challenge DNB’s grip on the market, spurring competition that could result in reduced 5G leasing charges – a boon to the telcos.

The government’s commitment towards bridging the digital divide and driving Industrial Revolution 4.0 would further boost investment and demand for telco services.

“Wider coverage, better affordability and faster speed are set to boost subscriptions and average revenue per user,” the research house added.

Its sector top picks are CelcomDigi Bhd and Maxis Bhd.

The research house liked CelcomDigi as the group is the new market leader in the mobile market with a combined market share of 43%.

Besides, CelcomDigi’s key point is its network capacity with wider coverage.

It also has competitive pricing and attractive bundling to attract migrant and domestic customers as well as the Bottom 40 group.

Its earnings before interest, taxes, depreciation and amortisation margins are above the industry average of 41% to 42%, while the rollout of 5G will boost its subscribers given the absence of Maxis’ presence in this space currently, added Kenanga Research.

As for Maxis, the research firm said the telco has strong branding and customer loyalty, especially in the premium segment.

There is also resilient demand for its services as it is ahead of the competitors in terms of putting up new 4G towers, fiberisation of premises and upgrading of existing towers, thus boosting its business-to-business revenue.