• Access agreements (AAs) inked. Telekom Malaysia (TM), Celcom, DiGi.Com (Digi), YTL Communications, and U-Mobile have executed 5G wholesale AAs with Digital Nasional (DNB), paving the way for commercial 5G services. Maxis is still assessing the governance requirements for the AA. We see 8-15% FY23F-24F core earnings dilution on the revised wholesale terms with 2-8% reductions in the telcos’ TPs. The net impact on TM is overall positive. Our earnings forecasts and TPs are unchanged, pending further details and release of 3Q22 results. Still NEUTRAL.

• Some indulgence. The mobile network operators (MNOs) have come to a landing with DNB with respects to pricing and volume commitments on 5G network wholesale. While 10-year agreements were inked (into 2032), actual wholesale pricing will be reviewed every three years as part of the mandatory standard on access pricing or MSAP. Based on our checks with industry sources – as details of the AA are not disclosed – the minimum volume/capacity commitment has been set at 800GBps vs the initial 1,200GBps commitment with the rate still fixed at MYR30,000/GBps/month. Access seekers are, however, allowed to carry forward unused capacity to be offset against future wholesale charges. Excess capacity usage beyond the minimum commitment, we understand, will be based on actual usage – this suggests lower cost/GB in the longer term.

• Zero premium. As expected, the telcos are offering 5G services to subscribers on compatible 5G handsets at no additional cost (zero premium) to 4G. Note: 5G population coverage is still about a third (33.2% as at end September) with no outright consumer use cases/killer app. This compares with the Singapore telcos, which unveiled 5G services at a SGD10-15 premium to 4G plans in 3Q20 and bundled with higher data quotas. Celcom’s 5G offerings from 1 Nov will be across most of its existing postpaid/prepaid packages with the introductory offer valid till end 2022. TM’s 5G service (branded as uni5G) is available via opt-in via its self-care app. U-Mobile, which had in mid-August revamped its postpaid packages to include 5G data, will launch its service on 3 Nov.

• Earnings impact looks to be tempered but dilutive in the medium term, nonetheless. We see 5G wholesale charges to be earnings dilutive for the MNOs in the medium-term as: i) 5G adoption is likely to be gradual with telcos incurring fixed/recurring wholesale charges, ii) monetisation challenges (little incremental 5G revenues) as existing 4G plans in the market are already very competitive with generous data included, and iii) there is a dearth of consumer/retail 5G use cases. Based on the revised wholesale rates levied by DNB (MYR288m pa for a minimum volume commitment or MYR30,000 x 800GBps/month), we estimate Digi, Maxis, and Axiata’s FY23-24F core earnings to fall by 8-15% with their TPs lowered to MYR3.65, MYR3.60, and MYR3.66. We see the overall impact on TM as net positive, as the revenues from DNB for 5G fibre backhaul should more than offset higher wholesale fees incurred. Key risks: Competition, weaker- than-expected earnings and regulatory setbacks.

Source: RHB Research - 1 Nov 2022