Minimal impact on telcos’ profits

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KUALA LUMPUR: The government’s move to cut basic broadband package fees is expected to have minimal impact on the earnings of telecommunications companies (telcos), analysts said.

Analysts are of the view that telco players would be able to manage the cut in broadband package fees.

Furthermore, they said the move is positive in boosting the broadband take-up rate.

Communications and Multimedia Minister Datuk Seri Ahmad Shabery Cheek said on Wednesday that the basic broadband package prices are expected to drop by between 11% and 57% in a month or two.

Yesterday, Telekom Malaysia Bhd (TM) said it will introduce two new broadband packages at lower prices.

For light users, TM is offering 1Mbps with data usage of up to 1GB for RM38 a month — excluding the goods and services tax (GST) — starting June 16. This is 57% lower than its current offering of RM88 for the same package.

“The basic broadband packages offered by the operators are already at affordable prices. The further reduction — as announced by the government — would not have much impact on them,” an analyst said.

“Their earnings will only be eroded if the government extends it to cover other broadband packages,” he added.

According to him, basic broadband packages priced at an average of RM60 to RM70 per month in the past have seen their prices decline gradually to only RM30.

Despite the significant drop in the price per GB of data, revenues of operators are still on the rise, he noted.

It is worth noting that for heavy users, TM (fundamental: 1; valuation: 1.1) said it will lower the price of its UniFi 10Mbps triple-play package by 10% to RM179 a month from RM199, starting July 15.

Another analyst told The Edge Financial Daily that users’ data consumption has increased noticeably since the emergence of smartphones and tablets.

He added that most consumers — except for those in rural areas or new to the technology — would opt for data packages more than 1GB, making the price reduction redundant.

At the time of writing, it was unclear whether other telcos will follow TM’s footsteps by lowering prices of packages targeted at heavy data users.

Meanwhile, Kenanga Research telecommunications analyst Cheow Ming Liang said the sector could face some pressure on margins as a result of lower broadband entry prices.

“However, the impact is likely to be short-lived — given consumers’ tendencies to upgrade to higher connection speed as well as to subscribe to more value-added and Internet-related services once they have more Internet experience.

“We believe with these value-for-money offerings, more consumers will be able to get into the digital mainstream and participate in the digital world,” he said.

HLIB Research said the quantum of the data tariff reduction is a negative surprise, especially for fixed broadband.

“With a lower price barrier, we expect stronger net adds and traffic volume to partly offset the cut in prices,” HLIB Research analyst Tan J Young said in a note yesterday.

“Moreover, the delayed GST boost coming in June will also cushion the impact,” he added.

According to him, DiGi.Com Bhd (fundamental: 1.55; valuation: 2.1) seemed to have the least impact due to small differentials compared with its existing data pricings, followed by Axiata Group Bhd (fundamental: 0.85; valuation: 1.1) and Maxis Bhd (fundamental: 1.15; valuation: 1.1).

Despite the minimal impact on the telcos, the market reacted negatively to the news with many of the counters closing in the red yesterday.

Among the six counters, the four big boys closed lower while Time dotCom Bhd (fundamental: 2.4; valuation: 0.8) and REDtone International Bhd (fundamental: 2.3; valuation: 0.5) were up.

TM led the losers, declining 10 sen or 1.35% to close at RM7.30, for a market capitalisation of RM27.52 billion. It was among the top losers across the bourse.

It was followed by Maxis, which slipped five sen or 0.69% to RM7.15, giving it a market capitalisation of RM54.06 billion.

Axiata closed two sen or 0.28% lower at RM7.02, for a market capitalisation of RM60.54 billion. DiGi.Com dropped one sen or 0.16% to close at RM6.23, translating into a market capitalisation of RM48.52 billion.

On the flip side, Time dotCom inched up two sen or 0.33% to close at RM6.08, for a market capitalisation of RM3.48 billion. REDtone gained half a sen or 0.61% to close at 82 sen, for a market capitalisation of RM545.94 million.

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This article first appeared in The Edge Financial Daily, on April 17, 2015.