‘Telco sector consolidation still necessary’
KUCHING: Despite a slight improvement of results by telecommunications (telco) firms, a sector consolidation is still needed in order to offset the possibility of sector earnings cuts thanks to growing intensity in competition for market share.
In a sector report, AmInvestment Bank Bhd (AmInvestment Bank) saw that the sector’s revenue saw a slight improvement of one per cent quarter over quarter (q-o-q) to RM5.4 billion on the back of postpaid accretion and average revenue per user (ARPU) improvement. Postpaid subscribers saw a 57 million increase while ARPU saw an increase to 49 sen, causing sector EBITDA to be driven up by 6 per cent q- o- q with a 2 ppt increase in margin.
“Together with cost efficiency gains and lower depreciation, sector PATAMI rose by 12 per cent q- o- q,” it detailled in the report.
The positive results were, however, shadowed by the growing concern of too much competition as U Mobile and Webe continue to wrestle for new customers on the unlimited mobile data arena.
“Following U Mobile’s recent P78 plan, which offers unlimited data with speeds up to 5Mbps for RM78 per month, it has introduced P99 for unlimited data with no speed caps at RM99 per month.
“In our view, near to mediumterm earnings catalysts appear weak given the likelihood of further intensification in the telco wars with U Mobile and Digi raising the ante against TM’s Webe’s unlimited mobile data, voice, SMS pricing plans,” said the bank.
Webe’s unlimited plans will soon be rebranded to UniFi Mobile and are still currently priced at RM79 per month for the first SIM, RM69 for the second, RM 59 for the third and RM49 for the fourth SIM.
Similarly, competition for the fixed broadband segment is also itenfifying as Maxis is now lowering the price of its home fibre services by RM20 per month to RM119 per month for its 10 Mbps option which offers unlimited voice calls to all mobile and landlines as part of its year- end sales campaign.
TM has also reintroduced its UNiFi 10Mbps at RM129 per month.
“Recall during the Budget 2017 announcement last year, the prime minister had indicated the government’s intentions to double fixed broadband speed and halve its prices within 2 years.
Hence, we expect further pricing revisions to this segment next year,” added the bank.
In light of this, AmInvestment Bank remained convinced that a sector consolidation remains the logical route moving forward.
“This is likely to be spearheaded by the protracted re-merge of Axiata and TM.” If such a merger does emerge, current sector dynamics will fundamentally reshape as main synergistic benefits form an Axiata-TM merger are the complementary suite of services which Axiata’s mobile services can integrate into TM’s fixed line operations to draw further mobile market share from other players.
“However, the more immediate earnings impact from an AxiataTM merger will be cost efficiencies from the reduction in redundancies for head office expenses, network operating centres, marketing costs and procurement management.
“Assuming a 10 per cent cost reduction would mean substantial annual savings of RM2.1 billion – 3 per cent of the combined group’s market capitalisation,” explained the bank.