Because listed major telcos each got a slice of the 700MHz band, the risk of missing out has dissipated for now. — Bernama photo

KUCHING: Analysts are generally neutral on the latest announcement by the Malaysian Communications and Multimedia Commission (MCMC) on the allocation of 700MHz spectrum to five telecommunications companies (telcos) namely Telekom Malaysia Bhd (TM), Digi.Com Bhd (Digi), Axiata Group Bhd (Axiata), Maxis Bhd (Maxis), and Altel Communications Sdn Bhd (Altel).

Of note, the 700MHz, 3.5 gigahertz (GHz) and 26/28GHz bands have been identified as pioneer spectrum bands for the implementation of 5G networks in Malaysia.

“Generally, we believe the commercial rollout of 5G networks would take several years, given the need to improve the connectivity of current network as well as uncertainty over the adoption rate by consumers and businesses,” the research team at Public Investment Bank Bhd (PublicInvest Research) said.

“One of the biggest challenges is investment cost with infrastructure (which includes spectrum, small cell towers) accounting for a big chunk of the deployment cost.

“Adoption rate is seen as another obstacle as 5G connectivity is only expected to apply to a small minority of industry players.

“All said, we remain doubtful on the demand for 5G, as the country would first be required to develop an ecosystem that involves advanced industries like artificial intelligence, driverless cars, Internet of Things, and others,” it added.

Meanwhile, analysts are generally surprised by MCMC’s change in allocating the 700MHz and 3.5GHz bands to individual licensees as opposed to its initial move to assign these bands to a single entity comprising of a consortium of multiple licensees

According to PublicInvest Research, in January this year, MCMC issued a final report mentioning that the 700MHz and 3.5GHz bands will not be allocated to individual licensees.

Instead, it will be assigned to a consortium in order to lower investment cost and to avoid duplications of network infrastructure.

“As no pricing has been disclosed, it remains uncertain if the current administration is still adopting the same approach of not offering airwaves at excessive cost to carriers in order to reduce deployment cost and allowing consumers to benefit,” it added.

“At this juncture, it remains to be seen whether the previous consortium approach to help minimise cost and reduce duplications of infrastructure is still applicable as the pricing for this 700MHz spectrum was not disclosed,” the research team said.

In a separate note, the research team at AmInvestment Bank Bhd (AmInvestment) said: “For now, we are uncertain if the MCMC has discontinued its pragmatic approach to encourage collaboration amongst operators.

“If so, this means that the capital expenditure (capex) for the sector will be higher than earlier expectations while competition amongst players
will heighten even further, similar to the free 4G promotions which had been offered in the past.”

As such, it said it is negative on this development, pending further clarification from the MCMC.

On the other hand, Maybank Investment Bank Bhd’s research house (Maybank IB Research) believed that because the listed major telcos each got a slice of the 700MHz band, the risk of missing out has dissipated for now.

However, it noted, “The eventual disclosure of spectrum fees would allow us to ascertain the financial impact, and would reveal whether the entire exercise was for fund-raising.”

Meanwhile, according to AmInvestment, there is no change to the existing allocation for 2300MHz for WiMax and 2600MHz bands for 4G, which would be maintained until Dec 31, 2021 as all operators are urged to continue deploying mobile broadband services using existing technology in parallel to the necessary preparation towards 5G.

The MCMC would undertake the necessary review of the bands in 2021.

Aside from that, it noted that total subscriber trajectory continued its downward trend after a brief uptick in the second quarter of 2019 (2Q19) amid the still intense mobile competition.

“Mobile subscribers decreased by 580,000 quarter-on-quarter (q-o-q) as the prepaid declines of 704,000 were only able to be partially offset by postpaid additions of 124,000.

All in, AmInvestment maintained its ‘neutral’ outlook on the sector given the unmitigated mobile competition amid escalating capex requirements against the backdrop of the National Fiberisation and Connectivity Plan (NFCP) agenda to improve national connectivity and affordability.

Similarly, PublicInvest and Maybank IB Research maintained their ‘neutral’ view pending further clarification on the telco sector’s regulatory plans.