KUALA LUMPUR: Analysts see merit in further consolidation in the telecommunications (telco) market as the sector gears up for the 5G revolution under the government's ambitious Jendela initiative.
The spotlight is increasingly on the viability of smaller players like U Mobile Sdn Bhd.
BMI Research technology analyst Alex Kheder said given U Mobile's position as the smallest player in Malaysia's mobile market and its limited presence in the wireline segment, the company faces significant challenges in competing within the expanding 5G landscape.
He said this scenario underscores the necessity for market consolidation, especially as competition has predominantly been characterised by aggressive pricing strategies employed by larger competitors like CelcomDigi.
"Smaller operators like U Mobile may struggle to sustain competitiveness in this high-capital environment, particularly when larger entities can leverage economies of scale, such as sharing infrastructure, to remain at a low-cost base," he added.
Kheder was commenting on recent news that Maxis was looking to takeover U Mobile.
One of its major shareholders Berjaya Corp Bhd's Tan Sri Vincent Tan Chee Yioun reportedly said he rejected Maxis offer and that they are filing for an initial public offering by the end of this month.
Maxis and U Mobile declined to provide further comments for this article.
In the Bloomberg article, U Mobile said it is very focused on delivering more innovative 5G products and services to our customers, and doing the prep work required to respond to the Applicant Information Package (AIP) issued by the government to participate in the tender to build the nation's second 5G network.
Analysts said Maxis' proposed plan to acquire U Mobile could significantly expand its subscriber base in Malaysia.
Currently, Maxis ranks as the second-largest mobile operator in the country, with approximately 9.5 million subscribers.
In contrast, market leader CelcomDigi commands a subscriber base of 20.4 million.
CelcomDigi is the result of a merger between the two companies initiated in 2021.
"No, the industry has already gone through consolidation recently with the merger between Celcom and DiGi," said Mercury Securities head of research Toh Woo Kim.
But if the Maxis-U Mobile deal materialised, he said the enlarged entity will help to close the gap with the industry leader, namely CelcomDigi.
"By acquiring U Mobile with its estimated 8.5 million subscriber base, this would significantly help to close the gap (with CelcomDigi)," he added.
He said the deal, if it materialises, promises more than just an increase in subscriber numbers, but also significant opportunities for synergy, particularly in network sharing and achieving larger economies of scale.
"U Mobile largely focuses on the value or price-sensitive segment of the mobile market, which can be complementary to Maxis' focus on the premium segment. "Beyond that, there is also synergy that can be realised in terms of network sharing and achieving larger economies of scale," he said.
When asked about other potential acquisition targets for Maxis in the Malaysian telco market, Toh said he saw none in the telco space.
"Astro comes to mind but it's not a telco company. And Astro also comes with its own set of problems," he said. Meanwhile, Kheder said should the deal materialise, U Mobile may experience some attrition in its subscriber base. However, he said this outcome is contingent on whether Maxis will extend U Mobile's low-cost offerings.
"Maxis has traditionally focused on the enterprise and high-value post-paid segments, which have bolstered its stable average revenue per user (ARPU)."Although Maxis is a relatively smaller player compared to larger players such as Telekom Malaysia and CelcomDigi, it could strategically expand its market offerings to attract a younger, lower-income demographic—a segment that has been predominantly targeted by U Mobile," he said.
In addition, Kheder said in light of the ongoing phase-out of 2G and 3G services, and the limited access to the Digital Nasional Bhd (DNB) 5G platform, Maxis has the opportunity to enhance U Mobile's 4G segment.
He said this could serve as a means to diversify Maxis's revenue streams away from fixed broadband and enterprise services, capitalising on its strong reputation in mobile services.
"While this focus on 4G may be sufficient in the short term, it is not sustainable for medium- to long-term growth. "Consequently, Maxis may seek to position itself more aggressively in the 5G market," he said.
The government is likely to award the second 5G network in the third quarter of 2024. Maxis, CelcomDigi and U Mobile have expressed an interest in participating in the second network.
Currently the three are a party to Digital Nasional Bhd (DNB), holding 14 per cent interests each in DNB.
According to the share agreements signed with DNB on June 28, CelcomDigi, Maxis, U Mobile and YTL Communications have a month to decide which of them will remain in DNB.