The recent briefing on JENDELA by MCMC, showed that JENDELA 1 was a success, surpassing its original targets and laying the groundwork for an accelerated roll-out of 5G and paving the way for JENDELA 2. Most of the telcos surpassed their original targets in terms of upgrading, fiberisation and building new towers but some missed their marks due to issues with local authorities. JENDELA 1 also introduces satellite connectivity to improve coverage in rural and remote areas. Overall network complaints dropped by 68% in 2022, further signifying the success of JENDELA 1 in providing wider and efficient coverage. Our sector top picks remain CDB (TP: RM5.15) and MAXIS (TP: RM5.30).

The recently concluded JENDELA Phase 1 (Sep 2020 – Dec 2022), was a success in the view of MCMC, surpassing its original targets set out on September 2020. Phase 1 focused on optimising resources and infrastructure for mobile as well as fixed broadband services. The achievements in Phase 1 lay the foundation for a solid start for JENDELA Phase 2 (2023 - 2025). Under Phase 2, the emphasis will be on expanding internet coverage on 5G and multiple future technologies i.e. satellite technology to deliver connectivity at higher speeds with greater reliability as well as improving the quality of experience. Phase 2 target is simple; (i) 100% internet coverage, (ii) 100 Mbps mobile broadband speed, and (iii) 9m premises passed with gigabit speed (from the current 7.5m achieved under JENDELA 1). JENDELA Phase 1 costs RM28b of which 40% were borne by the government. Phase 2 is expected to be launched by the end of 2023 but with no mention yet of how much the expenditure will be.

Under Phase 1, the target was: (i) 4G coverage in populated areas (COPA) of 96.9%, (ii) 35 Mbps mobile broadband speed to be achieved, and (iii) 7.5m premises passed with gigabit speed. Its minor targets include: (i) gradual retirement of 3G networks, (ii) satellite connectivity to improve mobile coverage and remote areas, and (iii) 5G planning and implementation for commercialisation (the last two originally planned for Phase 2). As at end-2022, these targets surpassed its original objectives – (i) 96.92 % COPA, (ii) 116.03 Mbps (mean) or 43.46 Mbps (median), and (iii) 7.74m premises passed (or access to fibre broadband). All these were achieved via: (i) fiberisation of premises (2.78m passed vs 2.71m targeted), (ii) upgrade of base stations (37,977 upgraded or 99.9% achieved), and (iii) number of new mobile towers built (1,778 4G towers or 92.5% target achieved). Satellite connectivity were enabled at 839 (100% achieved) sites where connectivity infra remains a challenge.

TM surpassed in terms of fiberisation of premises with 109.6% completed while MAXIS failed to achieved its targets (47.0%) due to delay in permit approval by local authorities but MAXIS achieved 99.6% in terms of base stations upgrade but slightly below its illustrious peer – CELCOMDIGI (99.9%) – but the number of base stations upgrade is significantly higher (discounting the CELCOMDGIG consolidation). Bulk of new 4G towers built under Phase 1 was done by MAXIS and U Mobile with MAXIS achieved 100%. To improve mobile coverage in rural and remote areas, eight states were identified; Johor, Kelantan, Negeri Sembilan, Pahang, Perak, Selangor, Sabah and Sarawak with the last two states taking the bulk of the locations identified.

For the whole of 2022, MCMC received 64,020 network complaints, dominated by 4G quality of services. The top complaint areas are namely; Petaling, Kuala Lumpur, Johor Bharu, Seremban and Klang. With the completion of new 4G towers (Phase 1) it is expected that complaints from rural areas will be further reduced Those in the dense complaint areas will be addressed via traffic monitoring (for capacity improvement or changing traffic routes) and public awareness (use of device that support 4G VoLTE and certain packages has certain limitation especially on speed). All these efforts seemed to be succeeding as complaints seemed to be greatly reduced by 63% by the month of Dec 2022 from its peak of 8,616 complaints in Jan2022.

The briefing also touched on the coming of the 2nd 5G network slated for 2024 where Malaysia will move from a Single Wholesale Network to a Dual Network (DN) model. As highlighted last month, the task force set up involves all the telco players to prepare for the coming of the 2nd network. MCMC reiterates that all telcos involved are committed in getting the 80% 5G COPA by the end of 2023 so as to launch the 2nd network by 2024. As of Apr 2023, 57.9%, 5G COPA had been achieved and MCMC is positive that this will reach 80% in 6-month time. The telcos are positive on the new network with MAXIS feeling positive it will be playing a more active role in this network. YTL reiterate its commitment to achieve 80% COPA and looking forward to expand beyond that.

As reported the DN will see the existence of two entities - at this moment named as A and B. No clear indication of which telco will make up the composition of each entity but its widely believed that DNB will be in entity A. Entity B will have the same tasks as entity A that is to achieve 80% COPA but no clear timeline is set on when will entity B achieve this target. It is expected that both entities will have equal treatment and the spectrum access will be equally split. The present Random-Access Offer (RAO) for the spectrum lease from Digital Nasional B will be revoked once the DN came to its existence and a new one will be formulated. MCMC acknowledged that 5G subscription are still slow – 1.2m subscribers or 3.1% adoption rate but believes with 80% COPA achieved and lower price introduced, adoption rate will see better take-up rate.

Our sector top picks remain CDB and MAXIS

We believe MAXIS’s positive earnings momentum will sustain into FY23 underpinned by: (i) its expanded 4G coverage, (ii) impending 5G roll-out where its interim access costs would likely be lower than its peers, (iii) the full-year impact of the reopening of the economy, and iv) brand loyalty from its premium customers. Given the attractive bundling of home internet and mobile services, we are positive on its home internet gaining momentum further. With the risks of higher inflation abating coupled with business activities moving again, B2B revenue will continue to be resilient as both corporates and SMEs continue to upgrade their digitalization. Its margins are likely to improve on account of higher-end products and services being offered.

We still like CDB for: (i) as an entity that will become well entrenched in the public sector and migrant worker space, dominating the mobile market share at 43% and dwarfing other MNOs, (ii) its competitive pricing and attractive bundling to attract migrant and domestic customers, (iii) the roll-out of 5G that will likely further boost its subscriber base given the absence of MAXIS at this early roll-out stage.

Source: Kenanga Research - 8 Jun 2023