Investment Highlights

• Freedom for fixed line subscribers. The Malaysian Communications and Multimedia Commission (MCMC) is currently reviewing plans for fixed number portability (FNP) which would allow land line subscribers, both residential and commercial, to change their telecommunication service providers and retain their existing phone numbers by the end of 2022. The MCMC views that FNP could exert a wider influence on competition across the telecoms market and benefit stakeholders given the rise of bundled services.

• Similar to MNP. FNP, which will be reviewed by an industry working group to be set up by 3Q2021, is similar to mobile number portability (MNP). Implemented in 2008, MNP allows mobile users to port out to other mobile networks without relinquishing their original mobile numbers. Currently, a fixed line user will get a new phone number upon the change of networks, thereby creating hesitancy in switching, especially among corporations and SMEs.

• Positive for consumers. With the convergence of voice, data and video services, freedom of choice and the ability to access new and innovative services over broadband and IP services for all Malaysian businesses, consumers will benefit as FNP will significantly improve the competitive landscape and accelerate innovation across the nation.

• Good for pure cellular operators. This is positive for cellular operators without last-mile fibre connectivity and are currently offering bundled services with fixed broadband options. In our view, other than Maxis, which has a significant market share of 465K fibre subscribers vs. TM’s 2mil currently, the other incumbent cellular operators currently offer such bundled options only in selected locations in the country. As such, we believe Maxis would be the main beneficiary from FNP given its much stronger mobile market position vs. TM’s unifi mobile.

• Negative for TM. We believe that FNP will be a negative for TM given the potential erosion to its dominant market share in the fibre business underpinned by the ownership of the High Speed Broadband and Sub-Urban Broadband networks. At this juncture, TM’s mobile business remains a distant direct competitor to the four largest cellular operators. Even so, this can be partly mitigated by TM becoming more aggressive in its value-added services offerings such as providing content via unifi TV or promotional discounts to switch operators.

• Limited impact to Time. To some extent, Time dotCom could also experience some heightened competition given that the company does not have any mobile options at this juncture. However, this could be limited given that Time targets selected areas such as mass dwelling units, which TM had overlooked in the past, and commercial hubs.

• Mitigated by upcoming 5G rollouts. For now, we maintain our forecasts for TM and Maxis given that FNP is scheduled to commence in FY23F onwards. Notwithstanding TM’s weak cellular market position, the upcoming 5G rollouts could level off current 2G/4G service coverage disparity between unifi mobile and other more established cellular incumbents, shifting the competitive advantage to TM. Recall that the government-owned Digital Nasional will own the 5G infrastructure and spectrum while providing wholesale services to cellular players. The initial 5G rollout will begin in selected areas in Kuala Lumpur, Putrajaya and Cyberjaya staring in December 2021 with the objective of achieving 80% nationwide population coverage by 2024.

• 5G differentiation. As Maxis has shown its successful drive to differentiate through superior network quality, brand loyalty, customer care and convergence strategy by bundling with fibre solutions, competitors have also begun similar marketing campaigns. Increasingly, operators agree that ongoing intense competition globally will obviate any attempt to charge premium prices for 5G branding unless the provision of additional managed services and attractive content are offered to customers. As such, we believe that 5G marketing campaigns are likely to follow fixed broadband models in offering unlimited data limited by speed caps that will depend on the evolution of the ecosystem involving the innovation of new applications, devices and content.

• Maintain OVERWEIGHT on the sector given the consolidation synergies for the 2 cellular operators which could partly alleviate intense price competition. Reiterate our BUY call for TM, which has shown significant cost improvements together with compelling dividend yields and HOLD for Maxis given the continuing competition from mobile virtual network operators and affordable segment players like U Mobile constrains revenue growth prospects.

Source: AmInvest Research - 30 Jul 2021