Prospects of 5G dual network may be positive for telcos

22 Apr 2023 - The Star Business

Malaysia has been going with the concept of having a single wholesale network (SWN) with state-owned Digital Nasional Bhd (DNB) as a neutral party providing a 5G network for all other companies to tap on.

All mobile operators in the country, except for Maxis Bhd, have agreed to use DNB's network.

The government has been studying the SWN model and will make a decision on whether to continue the concept.

The Reuters report noted that the government is considering the introduction of a second 5G network from January 2024, in line with its policy of promoting competition and dismantling monopolies.

While a dual network would put DNB's plan in disarray, analysts commenting on the article however, reckon that a dual network will be positive for telecommunications companies (telcos).

Ahmad Ramzani Ramli from Kenanga Research believes a second 5G network might result in reduced 5G leasing charges for mobile network operators (MNOs).

"We are positive on the development, as this could lead to lower 5G access charges,and hence better earnings and freeing up cash flows for the telcos, allowing them to pay better dividens,"he explains, in a report on the telecommunications sector. 

Additionally, Ahmad Ramzani believes the government's commitment towards bridging the digital divide and driving Industrial Revolution 4.0 will further boost investment and demand for telco services.

"Wider coverage, better affordability and faster speed are set to boost subscription and average revenue per user (Arpu)," he says.

Moreover, a second 5G network could also benefit consumers, citing the "competition" to result in better services, broader bandwidth, improved speed and affordability.

According to him, a dual network model will allow telcos to purchase 5G access on a need basis, hence eliminating upfront payment fees.

"We reitarate our 'overweight' stance on the sector and see a second 5G network as a bonus to the sector, if it materialises," he concludes the report. 

Chong Lee Len from UOB Kay Hian (UOBKH) Research, on the other hand, thinks there will be potential consortiums formed. 

"There is market speculation that Maxis and U Mobile were not part of the DNB equity agreement," he notes.

Chong believes there is a high possibility that Maxis and U Mobile may jointly roll out a second 5G network, combining their 6,500 towers in the rollout.

That suggests that potentially, Celcomdigi, Telekom Malaysia and Yes may be the alternative 5G network consortium, he explains. 

According to Chong, the proposed equity agreement in DNB has lapsed.

"We understand that the proposed equity agreement to take a stake in DNB has lapsed, as two precedent conditions were not fullfilled within the stipulated timeline," he says, adding that there was no equity injection by the MNOs.

The second 5G network will benefit Maxis as it allows the telco to maintain superior network coverage and Arpu.

"Maxis may need to conserve cash flow to roll out 5G in Malaysia,"he says.

Chong expects Maxis capital expenditure intensity to rise from the current 12% to in a range of between 15% and 20%, suggesting an annual capex of RM1.5bil.

However, he believes this will affect Maxis' cash flow and may result in lower dividend payouts and yields until the monetisation of 5G materialises.

From a price viewpoint, Ahmad Ramzani points out that under the SWN model, telco operators would need to pay RM30,000 for 1,000 Gigabits per second (Gbps) capacity per month as 5G leasing charges. 

"Assuming a take-up rate of 1,000Gbps, this would ultimately cost the telcos a whopping Rm360mil per year to provide 5G to consumers,"he explains. 

Last month, the government, in lien with its commitment to end monopolies and have a "competitive" environment, decided to end Puspakom Sdn Bhd's (Puspakom) monopoly on vehicle inspections next year.

Teh Cabinet decided that the services will instead be opened to all parties who meet the conditions.

However, Puspakom will still continue to offer the services as its contract has been extended for 15 years from Sept 1, 2024.

Additionally, Transport Minister Anthony Loke said an open payment system for transport services is soon to be implemented, marking a major step forward in the convenience and accessibility of transportation for all. 

With the implementation of the new open payment system, the public will no longer be limited to just one payment option, Touch'nGo but instead, they will have access to a variety of alternative payment methods. 


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