KUALA LUMPUR (Jan 4): Maybank Investment Bank Bhd (Maybank IB) has maintained its “neutral” call on the telecommunications sector over its challenging outlook for 2024, as the sector is plagued by uncertainty over the phased transition to dual fifth-generation (5G) networks.

The research house said the “possible step-up in Digital Nasional Bhd (DNB) lease payments could adversely impact telecommunications companies' (telcos) earnings”.

"Telcos are currently paying a nominal amount to use DNB’s 5G services. When the required conditions (such as DNB achieving 80% coverage) are fulfilled, the minimum annual fee would rise to RM360 million for Maxis Bhd and RM288 million per telco for the rest.

"Assuming telcos maintain their current level of network investment (thus discounted cash flow-neutral), the higher proportion of operational expenditure (which is not depreciated) would theoretically be earnings dilutive to telcos," Maybank IB said in a research note.

The research house noted that concerns over access price reduction for fixed broadband had somewhat dissipated, after Maxis finalised its commercial agreement with Telekom Malaysia Bhd (TM).

It added that “the telecommunication industry increasingly depicts a long-drawn race to the bottom, as competition hampers monetisation and regulatory demands intensify”.

"As revenue stagnates, we believe telcos can only rely on optimising costs (including engaging in mergers) to preserve earnings.

"In Malaysia, telcos with headroom to address costs, in our view, are TM, Axiata Group Bhd and CelcomDigi Bhd," said Maybank IB.