All eyes on 700MHz spectrum
Industry closely watching who will get the prized frequency band at the end of Q1
THE 700MHz spectrum award will be closely watched by the industry when the winners are announced at the end of the first quarter.
For now, the three big players by users, Maxis Bhd, Digi.Com Bhd and Celcom Axiata Bhd, have submitted bids for a portion of the spectrum. This is the same spectrum some years ago a company wanted it all for itself, but that would have been disastrous for the industry.
The regulator, Malaysian Communications & Multimedia Commission (MCMC) has to ensure there is fair play and the consumers benefit from any spectrum award, and all serious players get a slice of this prized spectrum.
“While the MCMC’s evaluation criteria seem to suggest that the Big Three (Celcom, Digi, Maxis) and U Mobile stand a better chance of being assigned the 700MHz, there remains uncertainty over who will be the eventual winners.
“We expect the MCMC to announce the winners by the end of the first quarter,’’ says CIMB Research Bhd.
There is talk that a new player, Yoodo, is likely to emerge. Maxis has ookyo and Digi tapp in that similar space.
It is said to be owned and operated by Celcom and will provide “customisable plans to minimise unused data, call minutes, SMS and other additional services.’’
It may also want a part of the 700MHz and so would Telekom Malaysia Bhd’s unifi mobile.
How the MCMC will select the player will be scrutinised as this spectrum is said to improve indoor coverage.
Apart from 700MHz, two more spectrums up for reallocation are the 2300MHz and 2600MHz bands.
The 700MHz spectrum is currently being used for analogue television broadcasting and will be available for cellular operators in 2019.
AmInvestment Bank says this new spectrum will be used as coverage band for the deployment of high-speed mobile broadband services using long-term evolution (LTE) technology and beyond.
The regulator would offer up to eight blocks of 2 x 5MHz bands, ranging from 703MHz-743MHz and 758MHz-798MHz, for a 15-year spectrum assignment to mobile operators.
However, AmInvestment believes that the additional frequency band does not immediately translate into higher revenues, which will only materialise from higher paying subscriber market share as the service quality and speed improve compared with other players.
Since last year, the regulator has been reassigning spectrum and charging fees, a model that is different from the past.
This is after the Government realised that it could earn more by dishing out the spectrum instead of charging paltry sums when its counterparts in other countries are making huge monies for giving out spectrum.
Malaysia has not gone into intense auctioning where billions of dollars are raised by governments in dishing out spectrums.
This week, the big three players paid the regulator over RM355.5mil as upfront monies for the 2,100MHz spectrum re-assignment. The 2x15MHz Frequency Division Duplex and 1x5MHz Time Division Duplex (TDD) spectrum is RM118.4mil for each player, and the annual fee RM50mil, this works out to be about RM2.75bil over the 16 year period. The 2100MHz band is currently deployed for 3G services.
Surprise for players?
“It is no surprise, the up-front is relatively low, but not the annual fees. The hope is that annual fees can be lower,’’ says an industry source. The source adds that “when you add up all the spectrum cost, it is an indication that spectrum in Malaysia is not cheap anymore.’’
Public Investment Bank in a note says that “the spectrum cost looks fair given that it is being priced below 700MHz, 900MHz and 1800MHz spectrum (lower spectrum bands are more valuable).’’
Hong Leong Research adds that there is “no funding concern, as all three incumbents’ gearing levels remain comfortable. Based on their latest financial positions, Axiata, Digi and Maxis’ net debt to EBITDA ratios post payment are 1.37x (from 1.35x), 0.78x (from 0.74x) and 1.58x (from 1.56x), respectively.’’
U Mobile was not affected by this week’s reallocation as its 2100MHz licence was renewed in 2014 for 13 years to 2027. With this extension, all 2100MHz concessions, including U Mobile’s will end concurrently by 2034, says the house.
The 2100MHz spectrum reallocation is the second wave by the regulator.
Last year, MCMC reallocated the 900MHz and 1800MHz bands, when it reorganised it so that every player has a bite of both the spectrums.
For the 900MHz and 1800MHz bands, the four mobile companies paid RM2.7bil as the upfront payment.
In addition, there are yearly payments from the four. AmInvestment Bank believes “the pricing of the 2100MHz translates to RM3.9mil for the price component vs. RM9.5mil/MHz for the 1800MHz band, RM21.8mil/MHz for the 900MHz and RM21.6mil/MHz for the 700MHz.
“Compared to the cellular coverage area of 1800Mhz which is 67% wider than 2100MHz, we view the price component as attractively priced for the telco operators.’’
The research house adds that the if the price component and annual fees were to be based on 1800MHz, “we estimate that the celcos would have saved RM249mil over the next 16 years, translating to RM16mil per annum, (though) a minor impact to earnings.
“Together with the 2100MHz annual spectrum fee, higher depreciation and interest charges from the lump sum payment, we estimate that the additional annual costs of RM63mil translate to 2% of Maxis’ FY19F earnings, 3% for Axiata and 3.5% for Digi.’’
With all this spectrum, will users benefit in terms of better pricing?
“(We) expect further repackaging formulations by the industry,” says AmInvestment.
It expects says near- to medium-term revenue growth outlook to remain 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 unifi mobile’s unlimited mobile data/ voice/SMS pricing plans.
“As U Mobile and unifi mobile wrestle for new customers on the unlimited mobile data arena, we do not discount the possibility of sector earnings cuts if incumbents up the ante to further exacerbate the already intense competition for market share,’’ the research house says. However, CIMB reckons that mobile competition is stabilising with some telcos trying to better monetise data, which could see the industry returning to flat to low-single-digit mobile revenue growth this year.