Malaysia's decision to redistribute telecommunication bandwidth rather than hold an open auction will spare the mobile phone service providers from wading into an expensive bidding war, but it will still intensify competition in a cut-throat market.
The Malaysian Communications and Multimedia Commission will assign the highly-prized 900MHz and 1800MHz spectrums among the country's four largest operators --Axiata Group's Celcom, Maxis, DiGi.Com and U Mobile -- and charge an unspecified fee, according to a statement from the country's telecommunication regulator.
The news calmed investors who had dumped telecom stocks after Prime Minister Najib Razak said on January 28 that the government will optimize revenue from telecommunication spectrum through a redistribution and bidding process. The announcement had sparked fears of unforeseen hefty expenditure for the telecom players and triggered a selloff that wiped off more than $2.17 billion of market value of telecommunication companies on that day alone.
"While this reallocation development is still a negative for the sector, we view the telco sell-down as an over-reaction as the impact may be lower than feared," said AmResearch analyst Alex Goh.
Axiata, the country's largest telecom company by revenue, added 5.0% last week while Maxis, which has the largest subscriber base in Malaysia, finished Friday with 6.5% weekly gain and Telenor-backed DiGi.Com climbed 3.1%.
Analysts note that separate disclosures by the respective companies show that Celcom and Maxis received lower spectrum holdings while both DiGi.Com and the unlisted U Mobile -- controlled by Malaysian gaming and retail tycoon Vincent Tan -- received higher allocation.
While the fees are "unlikely to be exorbitant," the allocation will lead to heightened competition and potentially higher capital expenditure for the incumbents, said Chong Lee Len, an analyst at brokerage UOB KayHian.
Celcom and Maxis collectively command more than half of the total mobile subscriptions in Malaysia, while Digi controls about a quarter of the market with the remainder is split between U Mobile and other smaller players.
Mobile phone penetration in Malaysia is high at over 100% and more than half of the subscribers own a smartphone. But the industry is facing pressure to upgrade their equipment and offerings that includes rolling out latest fourth-generation mobile network due to rising use of video streaming and internet gaming. The massive capital outlay required to handle the surge in data traffic, however, have been eroding profit margins, and frequently sparking a price war among the top operators.
BMI Research, a unit of Fitch Ratings, said the reallocation of the spectrum will "level the playing field" by allowing smaller operators DiGi.Com and U Mobile to further expand their third- and fourth-generation networks.
That makes U Mobile better placed to challenge the top three, BMI Research said, noting that the extra spectrum will also enable U Mobile "to build its subscriber base and stimulate higher consumption of data applications without compromising on network quality."
To make up for the lower spectrum holdings, Maxis and Celcom are likely to ramp up investments to mitigate potential traffic congestion and deepen coverage, analysts say. That portends massive capital outlay that could crimp dividend payments.
Overall, the absence of significant developments over the next six to nine months will cap any upside in telecom shares, said UOB Kay Hian's Chong
"Our Market Weight stance (on the sector) reflects limited earnings upside and pedestrian earnings outlook for Celcom, Maxis and Digi in 2016, with earnings downside arising from spectrum reallocation and heightened competition," he added.
Shares of Maxis ended 1.97% higher at 6.21 ringgit as investors continued to cheer its last week's announcement of a 38% jump in October-December net profit on improved services revenue. Local markets were closed on Monday and Tuesday for Chinese New Year. Meanwhile Axiata shed 3.6% at 5.68 ringgit and Digi.com lost 2.98% to end at 4.88 ringgit in Kuala Lumpur trading while the benchmark FTSE Bursa Malaysia KLCI fell 1.09% to 1,644.41 points.
Source: http://asia.nikkei.com/Business/AC/Redistribution-of-telecom-spectrum-partly-calms-investors?page=2
