KUALA LUMPUR: The implementation of the single wholesale network (SWN) model for the deployment of 5G will increase the pressure on telcos to adjust shifting dynamics in an already competitive business.
MIDF Research said the revised equity stakes that would be announced soon might require companies to pay upfront wholesale fees to Digital Nasional Bhd (DNB).
The firm, however, still believes that the SWN model is more efficient for accelerating 5G network rollout and deployment for the country.
"The continuation of SWN could avoid risks such as compensation costs, prolonged delays in 5G network rollout, negative impact on Foreign Direct Investment (FDI) into Malaysia, and a widening urban-rural digital divide to the sector, government, and nation," it said in a note.
It was reported that four out of the previous six telcos remained interested to take up equity stake in DNB.
According to media reports, U Mobile and Maxis declined to take up a stake in DNB while Telekom Malaysia (TM) and YTL Communications (Yes) had obtained approval from its boards and were ready to sign an agreement to take up shares in the SWN.
Initially, 70 per cent stake would be shared equally among the six telcos but now the Share Subscription Agreement (SSAs) would have to be revised as the two telcos declined to proceed with the equity deal, said MIDF Research.
"We might see three scenarios for the redistribution of shares, the four telcos will be given larger shares, 17.5 per cent each (previously: 12 per cent); private telco companies to take up the remaining shares, and/or the government increase its stake, but not at the level of a majority shareholding in DNB.
"The deal is expected to conclude by end of September 2022," it said.
MIDF Research added that the 5G deployment was currently on pace, with the completion of Phase 1 by end of this year would cover 40 per cent coverage in populated areas.
The completion of the DNB stake will most likely help to reduce ambiguity around the rollout of 5G in Malaysia.
"Overall, with the emergence of the SWN model for 5G deployment, mobile network operators will need to continue to create appealing service value propositions in order to maintain their respective market share.
"Since the model may cause profit margin dilution, having an efficient cost management plan in place is critical to defending profit margins," it added.
MIDF Research maintained neutral on the sector with top pick of TM (Buy, target price: RM6.91), for its position as the nation's main fixed line player and has plenty of business opportunities under MyDigital Initiatives.