KUALA LUMPUR: Kenanga Research has maintained an “overweight” stance on the telecommunications sector amid news that the government may introduce a second 5G network, potentially doing away with the Single Wholesale Network (SWN) model for the roll-out of 5G in Malaysia.
Malaysia may introduce a second 5G network in 2024, with the second network roll-out contingent on the nation’s 5G coverage reaching 80 per cent of the entire population by end-2023, according to a news report.
Kenanga said it is positive on the development as “this could lead to lower 5G access charges, and hence better earnings and freeing up cash flows for the telcos, allowing them to pay better dividends.”
“The government’s commitment towards bridging the digital divide and driving Industrial Revolution 4.0 will further boost investment and demand for telco services.
“Wider coverage, better affordability and faster speed are set to boost subscription and average revenue per user (ARPU),” it added.
The research house said it was not totally surprised by the news given the new government’s policy shake-ups in recent months.
The unity government led by Pakatan Harapan (PH) has said it is committed to dismantling monopolies and promoting competition.
The SWN model for the rollout of 5G via Digital National Bhd (DNB) has come under constant criticism due to its monopolistic nature, “which could lead to excessive pricing, and to a certain extent, lack of transparency,” it noted.
In 2022, DNB announced that the SWN model would cost telco operators RM30,000/1Gbps per month on 5G leasing charges.
“Assuming a take-up rate of 1,000 Gbps, this would ultimately cost the telcos a whopping RM360 million per year to provide 5G to consumers, and they also have to pay a fixed upfront fee regardless of how far the 5G population coverage progresses.
“This is a concern to the market as dividend payments might be significantly reduced given the additional costs,” Kenanga noted.
Therefore, it said the introduction of a second 5G network operator would challenge DNB’s grip on the market, spurring competition that could result in reduced 5G leasing charges, which would be a boon to telco operators.
It said a second 5G network will spur competition in 5G leasing costs, and ultimately lead to a reduction in access prices, allowing telcos to purchase 5G access on a need basis. This would eliminate upfront payment fees, resulting in better margins and earnings as well as sustainable dividend payments.
“A second 5G network will be positive for the telco operators in that it would improve their profitability while consumers (would benefit from) the competition which would result in better services, broader bandwidth, improved speed and affordability.
“We reiterate our ‘overweight’ stance on the sector and see a second 5G network as a bonus to the sector if it materialises. Our top picks remain CelcomDigi Bhd and Maxis Bhd,” it added. – BERNAMA
