• Top Picks: Telekom Malaysia, Time dotCom, and OCK Group. The industry is on track to achieve its end-2022 Phase 1 JENDELA targets with fibre premises passed and mobile broadband throughputs as key outperformers. With 4G coverage and fibre connectivity targets met, the regulatory focus will shift towards overall internet coverage via fit-for- purpose technologies. Key downside risks: Competition, regulatory setbacks, and further delays in the 5G process. Still NEUTRAL.

• Focus turning to overall internet coverage. At its belated 2Q22 quarterly briefing on the progress of the JENDELA programme, the Malaysian Communications & Multimedia Commission (MCMC) said the focus will turn to “internet coverage” via fit-for-purpose technologies – ie fibre broadband, broadband/satellite wireless access, fixed wireless access, and 5G – post Phase 1 completion by year’s end. MCMC will disclose specific targets and outlay for Phase 2 (2023-2025) during the next progress (3Q22) update. The overall cost to implement Phase 1 was previously estimated at MYR28bn, with 60% funded by the industry/telcos and the remaining 40% from the Universal Service Provisioning Fund.

• 4G coverage inching higher, mobile speeds above target. The industry added 117 new 4G sites in 1H22 (2Q22: 57), bringing the cumulate number to 1,306 or c.79% of Phase 1’s 1,611 target. Upgrades to existing 4G sites reached 3,962 in 1H22 (2Q22: 1710). Consequently, 2Q22 4G population coverage ticked up to 95.82% (1Q22: 95.5%). We see the progress to plug the remaining 1.1% coverage gap (96.9% target by end 2022) to be most challenging, given remote site locations and accessibility issues. The industry has exceeded the mobile broadband speed target of 35Mbps by end 2022 with a 47.04Mbps mean speed (29.89 median) achieved in 2Q22 (Ookla) on additional capacity from the 3G shutdown. While 5G coverage reached 27% in 2Q22, red tape may hinder network rollout at state levels.

• Fibre rollout at 96% of target. Despite a slight drop in the number of fibre premises passed of 168,759 in 2Q22 (1Q22: 179,666), the cumulative number reached 7.2m during this period and is on track to hit 7.5m by year’s end (additional 0.3m premises). All fibre access providers exceeded quarterly targets with the exception of Tenaga Nasional (TNB MK, NEUTRAL, TP: MYR9) unit Allo Technology – which was impacted by material shortages. On satellite/broadband wireless access or BWA, all 839 sites were completed in May.

• Mandatory Standards On Access Pricing (MSAP) public inquiry (PI) process to start in October. Post publication of the PI report on the Mandatory Standards On Access (MSA) on 7 Sep, MCMC is expected to issue a final determination on the MSA soon. This will be followed thereafter by the PI on MSAP, which we understand is slated to commence in October. A review of the MSAP, which governs the ceiling prices for access providers, is typically undertaken every three years. The next review, initially scheduled for 2020, was deferred to end 2022. The regulator had previously maintained an accommodative stance on broadband pricing, which suggests little appetite for prices to decline.

Source: RHB Research - 20 Sep 2022