Competition stabilising, but telco sector not out of the woods yet
KUCHING: While competition in the telecommunication (telco) sector seemed relatively stable, analysts pointed out that there is still a need for telco players to enrich their value proposition, which in-turn may pressure short-term margins.
In a sector update, the research arm of Kenanga Investment Bank Bhd ( Kenanga Research) noted that while the mobile operators are still vying for a bigger share of the consumer wallets, price competition appeared to be less aggressive for now, suggested that incumbents might have lower appetite for further price disruptive campaigns.
“Having said that, in view of the fading market share of the top three incumbents’ coupled with a narrowed network gap, there is a need for players to enrich their value proposition further to differentiate themselves and being aggressive in marketing campaigns to defend their market share, which in-turn may pressure short-term margins,” it opined.
On the fixed-line front, it pointed out that Telekom Malaysia Bhd’s (TM) plan to consolidate its mass-market brands to strengthen quad play proposition could potentially improve its product bundling.
“Nonetheless, the efforts to raise its share in multi- dwelling units (to tackle Time dotCom’s retail segment) may create a discrepancy in its Unifi services should TM decide to match the latter’s pricing and broadband speed,” it cautioned.
On the telco sector’s 2Q17 and first half of 2017 (1H17) results, Kenanga Research noted that Maxis Bhd (Maxis) showed signs of improvement while TM and Axiata Group Bhd’s (Axiata) results were in line with expectations.
“The relatively steady 1H17 performances helped the players to maintain their respective FY17 KPIs,” it said.
Digi.com Bhd ( Digi), on the other hand, below concensus’ expectations.
As for service revenue growth, the research team pointed out that Celcom was the only imcumbent which registered growth (an increase of 1.4 per cent q- o- q) in service revenue in 2Q17 after a sharp dip in 1Q17.
“Despite a mild improvement, the group as well as Digi’s service revenue market share (at 29 per cent each) still lagged behind Maxis due to the latter’s premium pricing strategy and extensive network infrastructure,” it added.
Moving forward, Kenanga Research expected the industry’s service revenue annual growth rate in FY17 to continue remaining weak (down 1.8 per cent compared with minus 4.2 per cent in FY16) but to stabilise a year later (an increase of 1.1 per cent in FY18).
Meanwhile, on Budget 2018, the research team said, “While we do not expect the sector to be in the limelight in the upcoming 2018 budget announcement ( October 27), we believe the authority is likely to clarify the outstanding issues stated in the previous budget statement rather than introducing any new initiatives.”
To recap, the government had announced to cut broadband prices by 50 per cent ( by 2019) and provide RM1 billion to ensure the coverage and quality of broadband nationwide reach up to 20Mbps.
“We understand that discussions on the above issues are still on- going with no firm decision being made with the government,” it added.