‘TM can withstand potential broadband price reductions’
KOTA KINABALU: RAM Ratings says its initial assessment shows that Telekom Malaysia Bhd’s (TM) ratings can withstand potential broadband price reductions.
In a statement, it said: “As TM’s credit metrics are expected to remain within its rating threshold, we do not foresee any immediate impact on the AAA/Stable/P1 ratings of the group’s sukuk programmes, or the AAA/Stable rating of Hijrah Pertama Bhd’s sukuk.
“Our rating approach also considers TM’s strategic role and strong relationship with the Government, which in our view renders the Group privy to extraordinary government support, if required.”
Pending further details on TM’s affordable broadband packages within the coming quarter, RAM said its initial assessment assumes a gradual 25 per cent reduction in broadband subscription rates over the next two years, flat subscriber growth and further debt drawdown – for capital expenditure (capex) and dividends.
It added, “Our analysis indicates that TM’s gearing level may peak at 1.5 times while its funds from operations debt coverage may thin to an average of 0.31 times in the next three years (1.1 and 0.44 times for FY17).”
Of note, earlier last month, the government announced that broadband subscription rates could be reduced by 25 per cent by year-end pursuant to the implementation of the Mandatory Standard Access Pricing (MSAP).
“The retail broadband segment constitutes the bulk of TM’s top line (44 per cent as at FY17).
As the sole owner and operator of the high-speed broadband (HSBB) network, we expect this move to have the most pronounced impact on TM’s financial position, as the implementation of the MSAP would lower wholesale prices on HSBB access for the other telecommunication companies (telcos).
“This would allow the telcos to cut the prices of their broadband packages, thereby compelling TM to revise theirs accordingly to remain competitive. As it is, competition is intensifying – with a noticeable shift in consumer preferences to mobile and wireless broadband,” RAM commented.
At this juncture, it noted that TM and its counterparties are still in discussions to finalise wholesale prices; this is targeted to be completed within the next one and two months.