Hong Leong: Malaysia's 700MHz spectrum pricing 'pro-business'

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KUALA LUMPUR (Oct 12): The Malaysian Communications and Multimedia Commission's (MCMC) planned 700MHz spectrum allocation is positive for local telecommunication companies (telco) due to a "pro-business" price structure, Hong Leong Investment Bank Bhd said.

Yesterday, the MCMC said in a statement that it was soliciting bids for the 700MHz frequency bands for high-speed mobile Internet or broadband using Long Term Evolution (LTE) technology and beyond.

The MCMC said the price component of each 2x5MHz spectrum block will be RM215.54 million, based on a one lump-sum payment option. The MCMC said the annual fee component for each 2x5MHz spectrum block will be RM18.54 million throughout the validity period of the spectrum assignment.

Today, Hong Leong analyst Tan J Young wrote in a note: "The reallocation exercise is a positive development for the industry, as the pricing structure is pro-business as expected (refer to our report entitled “2017 Outlook” dated 9 Jan). The costs are lower-than-expected vis-à-vis per 900MHz block for RM218.3m charge and RM18.8m annual fee."

"Maintain NEUTRAL on the sector due to the lack of positive catalyst in the near term. However, telco remains stable, supported by resilient domestic demand. Their dependable dividend yield will be a plus point in a volatile market," Tan said.

MIDF: Maxis, Digi, Celcom Axiata, YTL Communications, U Mobile potential 700MHz spectrum bidders 

MIDF Amanah Investment Bank Bhd analyst Martin Foo Chuan Loong said assuming each bidder bids for one or two blocks of the frequency band, Maxis Bhd, Digi.Com Bhd, Celcom Axiata Bhd and YTL Communications Sdn Bhd have sufficient cash reserves to fund the bidding. 

Foo said MIDF believes U Mobile will have the financial support of its main shareholders. According to U Mobile's website, U Mobile’s main shareholders are ST Telemedia and U Telemedia. Tan Sri Vincent Tan owns U Telemedia, the website indicates.
MIDF's Foo said: "From the available payment options, the first option (one lump-sum payment) would be the most viable. However, we do not discount 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. Note that the mobile telecommunication service providers may balance between the allocation of the spectrum band and the capex required for the infrastructure." 

"Nonetheless, we view that should Digi bid and opt for a lump sum payment for 2 blocks of the 700Mhz spectrum, it could affect its dividend payment ability. Digi typically pays approximately 100% of its net earnings," he said.

At the time of writing, Maxis, Digi, Celcom Axiata, YTL Communications and U Mobile had not issued statements on the 700Mhz spectrum.