KUALA LUMPUR: RHB Investment Bank Bhd research said the government is likely to award the second 5G network, which Maxis, CelcomDigi and U Mobile have expressed an interest in, in the third quarter of 2024.
The 5G Application Information Package (AIP) issued by Malaysian Communications and Multimedia Commission (MCMC) on July 1, 2024 contained the guidelines, evaluation criteria, pricing and timeline for the tender of the 5G spectrum.
RHB research said the telcos will likely be assessed based on a range of factors including coverage, infrastructure sharing, technical and financial considerations, that should be in their business plans.
Based on the Digital Nasional Bhd (DNB) share agreements inked on June 28 with CelcomDigi, Maxis, U Mobile and YTL Communications, the telcos have a month to decided which of them will remain in DNB.
Telcos moving to the second entity are required to divest their stakes to DNB's remaining shareholders via call and put options entered.
"We learnt that the spectrum will be awarded on an apparatus assignment (AA) basis, to be aligned with the earlier award to DNB," RHB research said.
The AA model subjects a recipient to a fixed fee, tagged to the number of sites to be rolled out.
RHB research said the model is comparatively less punitive than an upfront fee levied under the spectrum assignment (SA) model, seen in earlier spectrum awards.
Under the SA model, RHB research estimated a 5-8 per cent drop in earnings impact on Maxis and CelcomDigi.
RHB research said while telcos have not guided on 5G capital expenditure (capex), it does not see a new capex upcycle as they are expected to form network sharing pacts, use existing brownfield sites, and focus on areas with stronger return on innvestments for the roll out.
It also sees a potential reversal of the previous directive by the regulator disallowing mobile network operators (MNOs) to re-farm 4G spectrum for 5G as contributing to lower industry capex with the use of dynamic spectrum sharing (DSS).
"Given the time needed for site roll out, the MNOs will continue the wholesale arrangements with DNB in the medium term.
This could portend some downside earnings risks in the medium term, in our view, as telcos bear additional 5G wholesale and operating expenditure-related charges to the new 5G network," RHB research said.
RHB research has a Neutral call on the industry with a with a preference for fixed line/integrated plays from structural catalysts and stronger earnings outlook. Its top picks are Axiata Group and OCK Group.