Merger underscores scale, says Fitch

KUALA LUMPUR: The proposed merger of Axiata Group Bhd and Norwegian giant Telenor ASA’s telecommunications and infrastructure assets in Asia underscores the significance of scale, said Fitch Ratings.

It said continuous investment was needed to maintain modest earnings before interest, taxes, depreciation and amortisation growth in the competitive Asian telecom market.

Axiata and Telenor announced this week that they were in the early stages of discussions to merge their telco assets in nine Asian countries.

The merged entity (MergeCo) will become one of the largest regional telcos in Asean and South Asia and potentially one of the five largest tower companies in the world.

The signing of a binding agreement is expected in the third quarter this year, subject to approvals from shareholders and regulatory authorities.

Fitch said it expected the merger of Axiata’s Celcom Axiata Bhd and Telenor’s Digi.Com Bhd to provide sufficient scale and operational synergies to compete on data pricing, network capacity and spectrum holdings.

“The enlarged entity would become the largest domestic mobile operator, with a combined market share of over 50 and 35 per cent of total revenue share in the domestic fixed and mobile sectors, surpassing fixed-line operator Telekom Malaysia Bhd,” it said in a report yesterday, adding that the merged entity will have more pricing power.

However, stiff competition means that telcos are seldom able to price data to capitalise on the rapid growth in data consumption, now averaging about 11GB per user a month from 7GB a year ago.