Fixed broadband price cut detrimental to TM’s earnings

KOTA KINABALU: The potential 25 per cent broadband price cut mooted by the Ministry of Communications and Multimedia could put immense pressure on Telekom Malaysia Bhd’s (TM) profit margin and possibly derail its plans to rollout programmes under the High-Speed Broadband 2 drive.

On Wednesday, Minister of Communications and Multimedia Gobind Singh Deo said the price of broadband in Malaysia is expected to drop by at least 25 per cent by year-end, following the implementation of the Mandatory Standard on Access Pricing (MSAP) since June 8, this year.

According to AmInvestment Bank Bhd’s research arm (AmInvestment), TM had appealed to the Malaysian Communications and Multimedia Commission to reconsider the pricing implementation after a review last year, the reduced price did not take effect in January this year. Hence, the MSAP would be backdated to January 1, 2018 from June 8, 2018.

MIDF Amanah Investment Bank Bhd’s research arm commented that the challenging market environment has negatively impacted the group’s voice, data and other revenues.

“Fortunately, the internet revenues continue to record good traction which is mainly attributable to higher mix of unifi customers and resilient unifi average revenue per unit (ARPU). However, moving forward, we expect the group to face immense pressure on profit margin as the government is considering recognising broadband access as a basic right.”

It also believed that that any cost saving initiative programme implemented by TM would be also be inadequate to match the reduction in broadband prices.

Nevertheless, Affin Hwang Investment Bank Bhd’s research arm (AffinHwang Capital) believed that while TM has yet to outline its strategy to mitigate the impact of falling broadband prices, in the long run, TM could undertake various initiatives to tackle the changing business environment (which are streamlining of business operations, right-sizing of staff force and fine-tuning of capex allocation), and this should help mitigate the earnings/cashflow decline.

Meanwhile, AmInvestment pointed out that based on unifi’s 1.2 million customers and ARPU of RM194 per month in the first quarter of the financial year 2018 (1QFY18), it estimated that this division’s annualised revenue could reach RM2.7 billion, excluding Streamyx customers which could account for another RM1.2 billion.