Investment Highlights

• Cancelling spectrum awards for 700MHz, 900Mhz and 2600MHz. Within a few days of awarding 700MHz spectrum blocks to 5 companies without a tender, Communications and Multimedia Minister Datuk Saifuddin Abdullah has ordered the Malaysian Communications and Multimedia Commission (MCMC) to cancel the ministerial order on the spectrum allocation, including the 900MHz and 2600MHz bands which are currently being deployed for 3G/4G usage. From our update yesterday, recall that 5 companies were awarded the 5G spectrum bands of 703MHz to 743MHz, and 758MHz to 798MHz as follows:

-TM: 2 x 5MHz blocks of 718MHz–723MHz and 773MHz–778 MHz.

-Maxis: 2 x 10MHz blocks of 733MHz–743MHz and 788MHz–798MHz

-Digi: 2 x 10MHz blocks of 703MHz–713MHz and 758MHz–768MHz

-Axiata’s Celcom: 2 x 10MHz blocks of 723MHz–733MHz and 778MHz–788MHz.

-Altel Communications: 2 x 5MHz blocks of 713MHz–718MHz and 768MHz–773MHz.

U-Mobile, which already provide cellular services did not secure any 700MHz allocation. Besides obtaining the 700MHz award, Altel, which has not deployed any cellular services to date, was additionally awarded the 10MHz block of the 900MHz spectrum on 15 May this year.

• Triple flip. Back in October 2017, the MCMC) had offered up to 8 blocks of 700MHz bands for a 15-year spectrum assignment to mobile operators at a price of RM21.6mil/MHz and annual fee of RM1.9mil/MHz. This was allocated on 2 x 5MHz blocks, ranging from 703MHz to 743MHz and 758MHz to 798MHz with each bid limited to a maximum of 4 blocks.

However, earlier this year, the MCMC decided that instead of allocating the 700MHz and 3.5GHz bands to individual licensees as for the 900MHz and 1,800MHz spectrums, the regulator planned to assign these bands to a single entity comprising of a consortium of multiple licensees. This was to encourage the sharing of resources to build and operate the required 5G infrastructure, while facilitating a faster rollout.

This single-entity approach was envisioned to minimise costs and prevent duplication of infrastructure against the backdrop of additional spending requirements to enhance 4G networks. In the MCMC’s final report on the rollout of 5G spectrum networks, the 700MHz, 3.5 gigahertz (GHz) and 26/28GHz bands have been identified as pioneer spectrum bands for the implementation of 5G networks in Malaysia.

• Neutral on the regulatory U-turn for now. Besides the recently awarded 10MHz block for the 900MHz and 10MHz block for the 700MHz, Altel also has a 20MHz block for the 2600MHz band. As the cancellation order by the minister also includes the 900MHz and 2600MHz, we opine that the government may be reviewing the overall spectrum allocation process to enable a more efficient utilisation and integration to the usage of scarce spectrum resources in the race of develop highspeed broadband capability for the country.

At this stage, we are uncertain if the MCMC has discontinued its pragmatic approach to encourage collaboration amongst 5G operators. Being negative on the earlier direct ministerial award without tender, we are neutral for now on this turn of events pending further clarification from the MCMC.

• Intense mobile competition with unlimited data. Earlier this year, Celcom introduced a postpaid plan with unlimited data with its MEGA product launch at RM98/month with a hotspot quota of 5GB/month. U Mobile also has a new GX38 prepaid plan which offers unlimited data at a promotional price of RM35/month with a speed cap of 6Mbps, compared with 3Mbps for its existing GX30 plan priced at RM30/month.

For comparison, Digi currently offers its Infinite online plan with unlimited data and calls at RM100/month while Unifi Mobile is priced at RM99/month. Maxis currently does not have an unlimited data plan, with the highest MaxisOne quota of 60GB priced at RM188/month. However, with Maxis planning to double data quotas for all postpaid plans, we do not preclude future erosion in ARPUs from new pricing challenges.

• Maintain NEUTRAL outlook on the sector given the unmitigated mobile competition amid escalating capex requirements against the backdrop of the National Fiberisation and Connectivity Plan (NFCP) agenda to improve national connectivity and affordability. Our only BUY currently is Axiata, given its low EV/EBITDA valuations and rising prospects for monetisation of its multiple businesses.

Source: AmInvest Research - 4 Jun 2020