• The matching game. The competitive response by broadband access seekers so far, post inking of new commercial agreements based on the new Mandatory Standard on Access Pricing (MSAP), appears controlled and nondisruptive. This suggests that the rational albeit tight pricing environment will remain put. We maintain our NEUTRAL sector weighting, with a preference for fixed line plays. Top picks: Time dotCom and OCK Group.

• Revamped fibre broadband (FBB) packages show rational but tactical price competition. CelcomDigi (CDB) has unveiled new FBB packages and mobile-bundled plans post the new access agreements inked. We expect other access seekers to launch new plans in the coming days or weeks. For CDB, existing FBB customers can enjoy 6-27% lower monthly commitments with the entry level 50Mbps plan now retailed for MYR85 (previously: MYR90). Subscribers on FBB-mobile postpaid bundles (except for the 800Mbps plan) stand to gain MYR10-20 in monthly rebates or total savings of 3-7% per month (1-16% savings per month vs pre-adjusted bundles). As a tactical response and in a bid to upsell, CDB is waiving six months commitment on the 300Mbps plan, which lowers the average commitment to MYR97/month (24-month contract), below the price of a 100Mbps plan. Overall, the price adjustments are not overly disruptive, in our view, and matches the price-downs by the incumbent access provider which had earlier offered complementary speed upgrades. Hence, FBB competition should remain rational despite the implementation of the new MSAP, which saw wholesale prices (Layer 3 High Speed Broadband) fall by 51-65% for 2023-2025. We expect the telcos to mitigate the impact with bundled offerings, additional devices and/or speed upgrades, with ARPU dilution likely offset by the higher take up and demand for FBB/FBB-mobile bundles.

• 5G adoption skewed by Maxis’ 5G launch and complementary trial. Communications and Digital Minister Fahmi Fadzil said Malaysia’s 5G subs stood at 2.49m at end-Aug (c. 5% of overall mobile subs). Based on the official statistics from the regulator, this would imply 5G subs net-adds of 1.1m for July-August vs the 1m added in 1H23. We believe the subs number may have been inflated by the launch of Maxis’ 5G services in mid-August where a free 1-month trial was extended (subsequently MYR10/month for 4G legacy customers). The regulator defines 5G subs as those that have activated and/or connected to 5G within the last 90 days. This takes into account nonactive subs and those that have fallen back on 4G (not pure 5G customers).

• The SWN/DNB quagmire. The elephant in the room continues to be the execution of the share subscription agreements (SSAs) for Digital Nasional (DNB). Press reports have quoted the minister as saying that the SSA are expected to be signed by five mobile operators this month. Assuming the Government retains a 30% stake in DNB, each telco would have 14% stake each. The Government had stated that discussions on the second 5G network will commence after the SSAs are inked. The equity participation has raised questions over the merits of a second 5G network.

• Key downside risks are competition, weaker-than-expected earnings, and regulatory setbacks. The opposite constitute upside risks.

Source: RHB Securities Research - 19 Oct 2023