KUCHING: The recently announced reallocation of the 700MHz spectrum is a positive development for the telecommunication industry and major telecommunication companies (telco) are expected to benefit from this new spectrum.
The Malaysian Communications and Multimedia Commission (MCMC) had recently announced its marketing plans for the 700MHz frequency bands which would be made available from January 1, 2019.
The new 700MHz frequency bands, which are currently being used for analogue broadcasting services in Malaysia, shall be used as coverage band for the deployment of high speed mobile broadband services using long term evolution (LTE) technology and beyond, from January 1, 2019 onwards.
MCMC will offer up to eight blocks of 2x5MHz bands, ranging from 703MHz-743MHz and 758MHz-798MHz, for a 15-year spectrum assignment to mobile operators, with each bid limited to a maximum of four blocks to be submitted before January 2, 2018.
According to the commission successful bidders have to pay an annual fee of RM18.5 million for each year of the 15 years of spectrum for each of the 2x5MHz spectrum block.
The research arm of Hong Leong Investment Bank Bhd (HLIB Research) said the reallocation exercise is a positive development for the industry as the pricing structure is pro-business as expected.
“The costs are lower-than-expected vis-à-vis per 900MHz block for RM218.3 million charge and RM18.8 million annual fee,” it said.
On the possible bidders of the spectrum, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) believed that eight major mobile telcos could be bidding for the 700MHz spectrum.
This includes Maxis Bhd (Maxis), Digi.com Bhd (Digi), Celcom, UMobile, Webe, Altel, Redtone and YTL Comm (YES).
“However, premised on the rollout of mobile services on 2,600MHz, we view that Maxis, Digi, Celcom, U Mobile, and YTL Comm (YES) would stand a better chance of getting a fair portion of the coveted 700MHz.
“Nonetheless, Maxis and Celcom may bid for one block of 2x5MHz while Digi and U Mobile may bid for two blocks of 2x5MHz to compensate for the shortfall in 900MHz,” the research team opined, noting that based on the current allocation of 900MHz, Maxis and Celcom have 2x10MHz each while Digi and Umobile have 2x5MHz each.
Assuming that each bidder bids for one or two blocks of the frequency band, MIDF Research pointed out that Maxis, Digi, Celcom, and YTL Comm have sufficient cash reserve to fund the bidding while U Mobile would have the financial support of its main shareholders.
“From the available payment options, the first option would be the most viable. However, we do not discount the possibility that the bidders may also opt for the instalment term.
“This is in view of the annual maintenance fee and more importantly, the capital expenditure (capex) required to efficiently rollout the services on the 700MHz frequency band,” it said, adding that the mobile telecommunication service providers may balance between the allocation of the spectrum band and the capex required for the infrastructure.
Nonetheless, it pointed out that should Digi bid and opt for a lump sum payment for two blocks of the 700MHz spectrum, it could affect its dividend payment ability as Digi typically pays approximately 100 per cent of its net earnings.
The research arm of AmInvestment Bank Bhd (AmInvestment) also noted that given Digi’s low debt levels, its financial year 2018 forecast (FY18F) net debt per earnings before interest, tax, depreciation and amortisation (EBITDA) would rise from 0.6-folds to 0.7-folds, which is still comfortably within the group’s acceptable gearing.
Looking ahead, the research team believed that following the 700MHz award, the next spectrum reallocations could be the 2600MHz and 2100MHz which are currently being used for 4G and 3G connectivity and expiring later this year and April 2018 respectively.
However, MIDF Research believed that Reallocation of 2300MHz and 2600MHz could be delayed.
It explained, “Given that the successful bidders would need to pay a hefty sum for the 700MHz next year, we do not discount the possibility that the spectrum allocation for much awaited 2,300MHz and 2,600MHz could be postpone further.
“This would provide more time for the mobile telecommunication service providers to strengthen their respective financial position.”