‘Telcos’ mobile service revenue unlikely to pick up’

Q3 decline suggests further stabilisation in telcos’ promotional activities, say analysts

THE decline in the telecommunication industry’s mobile service revenue (MSR) in the third quarter suggests a further stabilisation in competitive promotional activities.

Analysts expect the MSR momentum to remain relatively subdued next year as mobile operators look to defend or improve their wallet share on the back of tight competition and continuing sluggish prepaid market.

They said industry MSR growth had eased to 0.5 per cent year-on-year (y-o-y) in the third quarter this year. This was lower than the y-o-y growth of 0.9 per cent in the second quarter and 2.8 per cent in the first quarter.

Quarter-on-quarter, the third quarter MSR grew 1.6 per cent after two successive quarters of decline, supported mainly by stronger prepaid revenue growth and some seasonality.

According to a report by RHB Research, of the big three mobile operators, Digi.Com Bhd’s MSR continued to underwhelm with a five per cent y-o-y decline in third quarter, while Celcom Axiata Bhd and Maxis Bhd posted 1.5 and 1.4 per cent growth, respectively.

Celcom’s MSR grew for the second consecutive quarter, with the telco cementing its second-largest MSR share at 30.4 per cent. This is behind industry leader Maxis (40.1 per cent), but slightly ahead of Digi’s 29.5 per cent.

On earnings before interest, taxes, depreciation and amortisation share, both Celcom and Maxis posted increases while Digi saw a decline.

RHB said with MSR down 1.4 per cent year to date, industry growth looked to be flattish at best for this year on the back of fourth-quarter revenue seasonality.

On the 700 megahertz (MHz) spectrum, RHB said the pricing, which was set by the Malaysian Communications and Multimedia Commission at RM215.5 million for a five MHz block, had eased concerns over potentially prohibitive spectrum costs.

RHB expects mobile operators, including Telekom Malaysia Bhd (TM), to submit their interest for the coveted spectrum.

It said the 700MHz would complement higher currently spectrum used bands for 4 G (1,800MHz/2,600MHzc) and allow the telcos to better optimise network capacities from the surge in data traffic.

“For TM, the 700MHz would raise its competitive advantage and complement the 850MHz/2,300MHz/2,600MHz bands, leading to lower capex/opex (capital expenditure/operational expenditure) in the longer-term,” it said.

RHB said telcos were to submit their applications by January 2 next year.

The spectrum is valid for 15 years and can be utilised from January 2019, with the migration from analogue to digital broadcasting, targeted for completion in the second half of next year. There are eight blocks (2x 40MHz) available, with bandwidth capped at 20MHz per recipient. Based on the assumption of a 2x 10MHz block tender, RHB estimated financial year 2019 core earnings impact to be four to five per- cent for the mobile operators, while the impact on TM would be higher at nine per- cent. “This takes into account spectrum amortisation, the annual spectrum fee and higher financing costs,” it said. RHB said the spectrum consideration would raise Maxis, Digi and Axiata Group Bhd’s net debt/ebitda to 1.6, 0.6 and 1.3 times, from 1.4 times, 0.3 times and 1.2 times, respectively, while TM’s net debt/ebitda is expected to increase marginally, from 1.6 per cent to 1.7 per- cent.