New Broadband Packages Cheaper By 25% By End-18

The MCMC is imposing a ceiling price for wholesale broadband prices (offered by TM to retail telcos like Maxis) and this should lead to new broadband packages at 25% cheaper rates. Net earnings impact is negative, as we factor in declining wholesale prices and ARPU dilution from heightened competition (partly offset by higher subscriber growth). In tandem with our 2019-20 earnings forecast cuts of 13-18%, our target price is down to RM4.30. Maintain BUY as earnings risk has been priced-in.

WHAT’S NEW

• For new contracts, fixed broadband prices in Malaysia are expected to drop by at least 25% by end-18. Communications and Multimedia Minister Gobind Singh Deo said this followed the implementation of the Mandatory Standard on Access Pricing (MSAP) that was enforced beginning 8 June. He said that the relevant parties are currently in commercial discussions to finalise the wholesale prices. The process is scheduled to be concluded in July or August, after which new and lower-priced broadband packages will be rolled out to consumers.
• TM wholesale fibre prices will drop 9-12% over 2019-20 under MSAP. The MSAP stipulates the ceiling wholesale prices that can be charged by service providers for the facilities and services used by the retail telco players. Lowering wholesale prices should translate to lower retail prices for consumers. Based on the MCMC website publication, the MSAP will lead to a 9-12% reduction in wholesale fibre prices sold by TM to Maxis, Digi, Celcom and any other retail telco player (see table overleaf).
• Affordable entry-level packages to be offered to all Malaysians in the near future. According to the minister, the revision of the MSAP prices is in keeping with the pledge of the government to lower broadband prices. The Malaysian Communications and Multimedia Commission (MCMC) will monitor broadband prices in Malaysia to ensure affordable entrylevel packages are offered to Malaysians.
• Audit of MCMC and USP funds. Separately, the Ministry will also conduct an independent audit on two funds under the supervision of the MCMC. The two funds are the MCMC fund and the Universal Service Provision (USP) fund. According to MCMC financial statements, the first fund has RM800m, while the USP fund has RM8.5b as at 31 Dec 16.

Source: UOB Kay Hian Research - 21 Jun 2018