Price of reassignment of spectrum to have minimal impact on telcos -- research houses

KUALA LUMPUR, Feb 14  --  The price levied for the 2600 megahertz (MHz) spectrum assignments looks “fair”, and is at a reasonable discount to the price in 2016, which effectively means this will leave “a marginal impact” on mobile network operators, research houses said.

Celcom Axiata Bhd, Maxis Bhd and Digi Telecommunications Sdn Bhd have accepted the spectrum offer from the Malaysian Communications and Multimedia Commission (MCMC).

The effective period for the spectrum assignment commences on July 1 for a period of five years with a one-time fee of RM11.8 million to be paid by 12 noon today (Feb 14) and an annual fee component fixed at RM20.8 million payable before Dec 15 each year throughout the validity of the period.

Research houses have maintained a "neutral" call on the telecommunications sector as the new pricing is fairly similar to the previous arrangement. This suggests a minimal incremental cost to the telcos, the research houses concurred.

In a research note, MIDF Research said on average, the fees for the acceptance of the spectrum assignment only impact a minimal of 2.5 per cent of earnings estimates of mobile network operators.

Hence, MIDF  is not making any changes for its earnings estimates of the three companies. Axiata would have the least impact, followed by Maxis and Digi, it added.

MIDF Research also advised investors to maintain exposure in Axiata, and also Telekom Malaysia Bhd (TM) as Axiata has regional exposure in emerging countries that may deliver greater growth potentials, while TM is the nation’s main fixed line player and has better opportunities with MyDigital’s Initiatives.

While TM has yet to announce its own acceptance of the spectrum, the group already operates a 20MHz block of the 4G spectrum which was acquired earlier by Packet One Networks (subsequently rebranded to Webe and finally, unifi Mobile).  

"Notwithstanding that the earlier 4G bandwidth was under an Apparatus Assignment (AA), the same block size under the current spectrum assignment suggests that the annual charge is unchanged for the group. Hence, we expect that the earnings impact will be neutral for TM," said AmInvestment Bank Bhd. 

The bank has maintained a "buy" call on TM with unchanged forecasts with a fair value of RM7.10 per share. 

Meanwhile, RHB Research said based on the upfront fee and the present value of annual payments over five years -- at a cost of capital of seven per cent -- the total spectrum consideration works out to RM96.9 million per telco. 

The bank said this would raise the net debt or earnings before interest, taxes, depreciation, and amortisation of Maxis, Digi and Axiata Group marginally to 2.40 times, 1.61 times and 0.92 times, respectively.

Also, there will be a core earnings impact of 0.9 to1.2 per cent for financial year 2022, and 1.6 to 2.2 per cent for financial year 2023 as a result of additional annual spectrum amortisation charges.

However, RHB Research said the key downside risks to the telco sector are competition, weaker-than-expected results and negative regulatory developments.  

-- BERNAMA