No ease in competition for telco sector

KUCHING: With all players in the telecommunication (telco) sector aggressively trying to outbid each other in mobile data pricing while new entrants enter fixed broadband segment, there seems to be no ease in competition for the telco sector.

In a sector report, AmInvestment Bank Bhd (AmInvestment Bank) shared that they are expecting further repacking formulations to occur in the sector against the backdrop of U Mobile’s Hero P78 plan that offers unlimited data with speeds up to 5Mbps for RM78 per months, and P99 plan with no speed cap at RM99 per month.

“In our view, near to medium-term revenue growth outlook remains weak given the likelihood of further intensification in the mobile wars, with Digi and Celcom likely to raise the ante against both U Mobile’s plan and TM’s webe’s which is soon to be rebranded as UniFi mobile unlimited mobile data/voice/SMS pricing plans,” guided the bank.

Similarly the outlook in the fixed broadband segment is also looking dire as a second fixed broadband network player – Broadnet Network – may enter into the fray to help drive the Nationwide Fiberisation Plan by hitching onto Tenaga Nasional Bhd’s electricity transmission lines.

Should this occur, AmInvestment Bank has guided that it is expecting further pressure to mount for price and speed in the segment.

And on top of that, the bank highlights that the segment will also experience pressure from the government to revise their pricing due to the intentions of doubling fixed broadband speeds and halving prices mentioned in Budget 2017.

Due to the intense competition in the telco sector, AmInvestment Bank again reiterates that there is a dire need for consolidation as sector earnings cuts will be imminent if incumbents up the ante to further exacerbate the already intense competition for market share.

“Hence, we remain convinced that sector consolidation remains the logical route, which is likely to be spearheaded by the protracted re-merger of Axiata and TM,” said the bank.

Should the Axiata-TM re-merger finally materialise, AmInvestment Bank expects that sector dynamics may fundamentally reshape as Axiata’s mobile services would be able to integrate into TM’s fixed line operations to draw further market share from other telco 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 billon or 3 per cent of the combined group’s market capitalisation,” explained the bank.

Due to these potential near-term benefits, AmInvestment Bank reiterates that their top ‘Buys’ for the strained telco sector remain Axiata and TM, while Maxis and Digi stocks are ‘Holds’.

For the sector on the whole, competition is not looking like it will ease anytime in the near to medium-term, and as such, AmInvestment Bank will maintain its ‘Neutral’ call on the sector.