Unveiled 700MHz spectrum framework. MCMC has determined the frameworks of the 700MHz frequency bands where 703MHz to 743MHz; and 758MHz to 798MHz (which currently used for analogue broadcasting services) will be made available for Cellcos (effective from 1 January 2019) for deployment of high speed mobile broadband services using LTE technology and beyond for the validity period of 15-year. The 700MHz spectrum (which segregated into a total 8 blocks) shall be assigned by way of tender through the process of the beauty contest method. Note that, applicants for an assignment are assessed only based on their experience and technical and commercial proposal under the beauty contest method.

Procedures and timeline. The authority has invited members of the public to submit comments on their Spectrum Marketing Plans. The public comment invitation is due on or before 12 noon, 25 Oct 2017. Thereafter, The Commission will consider the submissions received before issuing the invitation and application information package, which required applicants to submit their preliminary 5-year business plan (from year 2019 to 2023 and based on 2x5MHz spectrum block) prior to 12 noon, 2 January 2018. The applicant shall indicate their preferred total spectrum allocation(s) and spectrum block(s) in the Preliminary Business Plan. Please refer to the overleaf page for the requirements of Preliminary Business Plan. The Commission has set the spectrum limit of four spectrum blocks per applicant where each block is set at 2x5MHz. Together with the applications, applicants shall each submit to the Commission an Irrevocable Bank Guarantee of RM10m, which will be valid for one year from the date of application, being the deposit for spectrum assignment. Evaluation of the Preliminary Business Plan submitted will be based on a set of criteria pre-determined by the Commission, and the authority reserves the right to re-tender the remaining spectrum should there is any unassigned block (s).

Spectrum price and specification. Similar to the prior 900MHz and 1800MHz spectrums, the 700MHz assignment fee also consists of two components, namely Annual Fee and Price components. The Annual Fee component of each 2x5MHz spectrum block has been set at RM18.539m throughout the validity period of the spectrum assignment and need to be settled before 15 December of each year. For the Price component, the successful applicant may select one out of the four options for payment of the entire cost of allocated spectrum block(s), which include lump-sum payment of RM215.535m; or 5-year/10-year/15-year equal annual payments of RM260.595m/RM328.380m/RM417.120m, respectively, (and settled on 1 July of each year), for each 2x5MHz spectrum block (Figure 3).

A positive surprise. We were surprised that the proposed total 15-year upholding of 2x5MHz in the 700MHz spectrum band is slightly cheaper than the 900MHz frequency (RM493.6m vs. RM499.7m) as the former generally is perceived as more valuable due to its greater geographic coverage capability (which implied lower capex incurred) and better indoor signal strength.

Potential financial impact on the new spectrum structure. While it’s too early to gauge the impact, the new regime is likely to lower the incumbents’ profitability given the 700MHz spectrum is a newly allocated frequency, thus successful applicant would need to fork out additional licencing fee for upholding the spectrums. Having said that, we do not foresee the big three incumbents facing any difficulty in settling the spectrum fee with a lump-sum payment in view of their hefty war chest. For illustration purpose, assuming the top three mobile incumbents are awarded 2x10MHz frequency each and settled the payment via the lump-sum method as well as amortising the spectrum under the useful life, we estimated that our MAXIS/AXIATA/DIGI’s FY18 PATAMI could be lowered by 2.4%/3.5%/3.1%, respectively (Figure 5).

Source: Kenanga Research - 12 Oct 2017