MCMC published the NFCP industry consultation report last month. Overall, we are positive on the outcome as policy makers appeared more proactive to tackle thorny regulatory issues at all levels. Airwave reallocation schedule is on track while regulator is flexible in their potential use. MSAP will continue to be reviewed every 3 years from pricing and access list perspectives. Walking the talk is crucial to take our national broadband ambition to the next level. Reiterate NEUTRAL with Digi and TIME as top picks.

Feedback and response. On 29 Mar, MCMC published the industry consultation report on National Ferberisation and Connectivity Plan (NFCP) which will be implemented from 2019 till 2023. We discuss some of the broad-based areas here.

Federal / state / local authorities. Challenges include (1) overlapping of powers between Federal and State governments; (2) exclusivity of state-backed companies; (3) different and complex processes; (4) difficult and burdensome right of-way; and more. Although there are multiple jurisdictions and laws involved, we opine that recognizing broadband as a public utility, similar to water, electricity and telephony, may be a quick solution. This “public utility approach” is currently adopted in the EU and India.

Infrastructure planning and deployment. The regulator is currently improving database and information collection to better coordinate planning and sharing of infrastructure. It will also (1) develop Garis Panduan Perancangan Infrastruktur; (2) operationalise of Chapter 1 Part X of Communications and Multimedia Act 1998; and (3) amend Uniform Building By-Law. We laud MCMC’s move to promote sharing as a critical success factor in network deployments to provide equitable access to all while price remains affordable.

Spectrum. Tentatively, 700MHz will be allocated in 2019 while 2300MHz and 2600MHz will be assigned in 2020. MCMC may take into consideration of pricing aspect during re-allocation process but is not keen to extend current holding period of 15 to 20 years. MCMC is flexible in the potential use of airwave (RAN sharing and carrier aggregation) as long as it is beneficial to subscribers and complies with technical requirements. Going forward, we hope that the regulator will optimize its spectrum distribution and no longer tolerate idle holders.

Access/competition. Even with the enforcement of MSAP in Jan 2018, broadband cost is still above the affordability target of 1% of GNI by 2020. As such, MCMC will further review MSAP every 3 years from the perspective of both price and access list, taking into consideration of new developments and requirements including access to TNB and TM poles as well as public structures. In order to enhance competition, MCMC will also study the need to consider functional or structural separation (netco, opco, fibreco) in order to create neutral infrastructure provider and fixed mobile convergence. We think this may have huge implications towards TM if separation is mandated following similar policies adopted in Singapore (NetLink Trust), UK (Openreach) and Australia (NBN). All in, we are positive on the holistic outcome of the report and walking the talk is crucial to take our national broadband ambition to the next level. At this juncture, we reiterate NEUTRAL on the sector due to the lack of positive catalyst in the near term while keeping tabs on the NFCP development. However, telco remains stable supported by resilient domestic demand. Their dependable dividend yield will be a plus point in a volatile market.

Top picks: Digi (BUY, TP: RM5.10) and TIME (BUY, TP: RM10.21).

Source: Hong Leong Investment Bank Research - 10 Apr 2019