Regulatory overhang remains key risk for telcos
KUALA LUMPUR: Regulatory overhang remains a key telecommunication sector risk, highlighted by the Pakatan government’s commitment to resume the former government’s agenda to “double the speed at half the price”, AmInvestment Bank Bhd (AmInvestment Bank) noted in a sector report.
According to Am Investment Bank, the new Malaysian Communications and Multimedia Commission (MCMC) chairman Al-Ishsal Ishak has warned that he would ensure the government’s objective to provide high-speed broadband nationwide is achieved with some operators likely to be reprimanded over regulatory breaches.
“Additionally, the government’s intention to reduce Khazanah Na si on al’ s holdings in government linked companies (GLCs) casts shadows of a share overhang,” the research firm said.
On fixed broadband average revenue per user (ARPUs), AmInvestment Bank said that even though Telekom Malaysia Bhd’s (TM) third quarter of 2018 (3Q18) results showed a surprisingly resilient unifi ARPU, it did not expect this segment to defy gravity with the almost 40 per cent price cut in the group’s 30Mbps plan to RM79 per month.
As such, the research firm expected customers’ gradual migration towards the more affordable government-mandated plans to substantively cut TM’s immediate earnings.
“With Maxis Bhd (Maxis) riding along with TM’s price cuts, we expect lower margins from fixed broadband, as forewarned by Time DotCom Bhd’s (Time dotCom) chief executive officer (CEO) despite registering a strong 3Q18 performance.”
Looking ahead, AmInvestment Bank highlighted that as revenue growth increasingly faces headwinds, telcos are increasingly focused on higher value customers, optimising existing assets and drive cost efficiencies via lower tower rental reversion rates, single supplier sourcing for bulk discounts and digitalisation initiatives.
“In our view, near- to mediumterm revenue growth outlook remains weak given market forces are constantly driving ever more competitive marketing plans.
“As U Mobile Sdn Bhd and Unifi mobile wrestle for new customers on the unlimited mobile data arena, prospects will deteriorate for incremental service revenue accretions in the sector.”
Overall, AmInvestment Bank noted that sector can be derated on resumption of revenue declines given the tight competition amid a decreasing subscriber base.
“Besides the existing mobile wars, the fixed broadband segment under TM’s unifi, Maxis’ Home Fibre and Time dotCom faces daunting prospects of declining ARPUs amid the government’s plans to develop a data-intensive socio-economy.”
“A sector re-rating requires catalysts for stronger revenue growth prospects demonstrated in subscriber, ARPU and margin expansions.
“As the global landscape for rapid data trajectory is driven by lower price plans and increasingly expensive capital expenditure (capex) rollouts to provide wider fixed broadband and 4G capabilities, coverage and service quality, any significant organic revenue or margin growth improvement is unlikely over the next 12 months.”