Highlights

Last week, The Star newspaper reported that MCMC has issued a directive to telcos in April to introduce Equipment Identity Register (EIR) solution as part of a government crime-prevention initiative to reduce phone thefts.

The solution will blacklist stolen phone based on 15-digit International Mobile Station Equipment Identity (IMEI) code which is unique to every device. Thus, changing SIM cards will not reactive them.

A clearing house (similar to the MNP solution) will be hosting the Malaysian Central EIR (MCEIR), to which all the reported stolen devices’ IMEI codes will be forwarded, stored and broadcast to all telcos (see Figure #1). This is currently outsourced to Nuemera Malaysia Sdn Bhd.

Stolen mobile devices will be rendered unusable within 3 hours after reports are logged. Once blocked, the phone cannot ever be reactivated.

MCMC chairman Datuk Mohamed Sharil Tarmizi shared that the telcos were not to charge their subscribers for the new service which is expected to go live before end of the year.

Malaysia is the first in the region with such implementation and this solution will be extended regionally and the effort had been endorsed at the recent Asean Telecommunication Senior Officials Meeting and Asean Telecommunication Ministerial Meeting.

Comments

This development is very much within our anticipation (refer to our report titled “2013 Outlook” dated Jan 14th, 2013) and we are neutral on this development

This service will be introduced at the expense of telcos in return for greater security offered which could make users more satisfied and loyal towards their service providers.

Although this will be offered free of charge, our channel checks revealed that cellcos will need to fork out RM1.50 per subscriber annually to the clearing house in order to maintain the MCEIR.

Based on our high level estimations (see Figure #2), this will lead to a minor impact to cellcos’ bottom line, with 1.06%, 1.12% and 0.75% of Maxis, DiGi and Axiata’s FY13E PAT respectively.

We do not foresee that this will alter telcos’ CAPEX significantly as the EIR solution is expected to cost circa RM20m while IMEI check protocol is currently used for automatic device detection solution.

Catalysts

• Cost savings from partnerships.
• Managed services / outsourcing.
• Increased demand for wholesale bandwidth.

Risks

Irrational competition, regulation of tariffs, FOREX.

Forecasts

Unchanged pending official guidance from cellcos.

Rating

Neutral

Positives – Low beta, defensive, strong cash-generation and dividends should underpin the share price.

Negatives – Potential irrational competition, regulatory risks, unable to monetize data, dumb pipes.

Top Picks

TM (BUY, TP: RM5.82).

TdC (BUY, TP: RM3.99).

Source: Hong Leong Investment Bank Research- 6 Aug 2013