Spectrum fee announcement, reallocation may be delayed

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Impact estimates are premature at this stage given that the spectrum assignment fee may be staggered over a longer period, which could partially mitigate the full quantum.

Impact estimates are premature at this stage given that the spectrum assignment fee may be staggered over a longer period, which could partially mitigate the full quantum.

KUCHING: The telecommunications sector may see a delay in spectrum fee announcement while spectrum reallocation may also be postponed, said AmInvestment Bank Bhd (AmInvestment Bank).

According to the research firm, all eyes are on the Malaysian Communications and Multimedia Commission’s (MCMC) announcement for the new spectrum fee pricing for the 900 megawatt (MW) and 1800MW bands, which have been reallocated amongst the four main licence holders.

However, the research firm’s channel checks indicate that the announcement, which is expected to arrive by August this year, may be delayed by ongoing discussions with industry players.

“We also understand that there is also a possibility that the reallocations of the 700 megahertz (MHz), 2300MHz and 2600MHz bands, expected by the end of this year, may also be postponed,” it said.

The research firm noted that in Singapore, the spectrum auction for 2x10MHz of 900MHz band and 40MHz in the 2.3 gigahertz (GHz) band earmarked for a fourth telco operator has been delayed by six months to the third quarter of 2016 (3Q16).

AmInvestment Bank opined that impact estimates are premature at this stage given that the spectrum assignment fee may be staggered over a longer period, which could partially mitigate the full quantum.

It said that the current Apparatus Assignment fee structure, which is based on raw site and equipment numbers, translated to RM70 million for Maxis Bhd (Maxis), Celcom Axiata Bhd (Celcom) and Digi.Com Bhd (Digi) in 2015.

The research firm recalled that Thailand’s four operators paid an average US$1.18 per MHz per capita for the 900MW and 1,800MH auctions late last year.

“However, Singapore’s Infocomm Development Authority has set a reserve price of S$35 million for 60MHz in the 900MHz band or just US$0.10 per MHz per capita to entice a fourth celco operator in February this year,” it said.

Assuming the fee is spread evenly over a baseline five-year assumption, AmInvestment Bank estimated that a fee of US$0.10 to US$0.50 per MHz per capita could have a wide range in reducing financial year 2017 forecast (FY17F) earnings, by three per cent-29 per cent for Maxis, but slightly lower at two per cent-24 per cent for Digi with its lower frequency allocations and two per cent-19 per cent for Axiata, which has significant overseas earnings contributions.

The research firm noted that while no indication has been given on the spectrum fee-setting methodology, during Axiata’s 1QFY16 results briefing, its managing director/group chief executive officer (CEO) Tan Sri Jamaluddin Ibrahim has hinted that the impact could be better than their earlier expectations.

Meanwhile AmInvestment Bank pointed out that the domestic cellular communications sector remains mired in intense competition in both prepaid and postpaid segments, as the current three incumbents struggle to fend off the inroads made by U Mobile Sdn Bhd (U Mobile), upcoming webe (renamed from P1) and other mobile virtual network operators.

“This is highlighted in the continuation of mobile revenue contraction, lower average revenue per users amid ongoing contraction in voice and SMS usage during the 1QFY16 results.

“Although earnings before interest, tax, depreciation and amortisation (EBITDA) margins held steady in 1QFY16, they are likely to face pressure going forward as topline growth prospects remain flat amid rising costs from 4G capex rollouts and additional spectrum fees,” it said.

On a side note, AmInvestment Bank observed that worries regarding the UK’s possible exit from the European Union (EU) appears to be diminishing.

However, should such an event occur from the referendum on June 23, 2016, the research firm expected significant long term depreciation in the British pound and euro.

“Nevertheless, there will be insignificant earnings impact for Malaysian telcos as capital equipment costs and IDD rates are wholly denominated in US dollars.

“Additionally, other than interconnection charges, none of the Malaysian telcos have any direct operations in UK or EU,” it said.

Overall, the sector remained ‘neutral’ for AmInvestment Bank given the ongoing intense mobile competition amid uncertainties from the new spectrum re-pricing structure.