5G, Telcos, Dnb, Rollout, Economy, Users, Benefit

5G, Telcos

Telcos post-5G rollout

WHILE the spectrum is merely radio frequencies, it is often a prized asset of telecommunication companies (telcos).

16/10/2021 2:50:00 PM

Moving forward, the 5G rollout via DNB offers the telcos a chance to “rebrand” themselves from utility to growth stocks.

WHILE the spectrum is merely radio frequencies, it is often a prized asset of telecommunication companies (telcos).

, received 20MHz of bandwidth each.Under the 5G rollout via Digital Nasional Bhd (DNB), well-established mobile network operators (MNOs) such as Maxis, Celcom or Digi will be on a level playing field with any new entrant, at least in terms of competition.

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No party is required to spend huge capital expenditure (capex) to build the 5G infrastructures. Rather, they would compete on differentiated and innovative 5G services provided to end-users.This is expected to give rise to more competition, which should be beneficial for the end-users.

As for the telcos, customer acquisition and retention will depend on their ability to provide differentiated offerings at attractive prices. Moving forward, the focus will not merely be on faster speeds or network size.Everyone should have the same access. headtopics.com

Interesting as it may sound, Malaysia is going into uncharted waters as the 5G network will be deployed and owned by DNB alone.Many wonder whether a government-led, single-entity rollout of the 5G network will put the private telcos at a disadvantage.

Some believe that Malaysia’s approach would affect telcos’ margins in the longer run due to extra costs.Earlier this year, Fitch Solutions warned that the DNB model would likely be costlier to implement, as it would be centrally-coordinated.“Elevated costs associated with a single-entity rollout would likely be passed on to operators in the form of higher wholesale costs, and in turn, operators would find it difficult to extract higher margins from selling these services to their customers.

“Lower profits would also mean less funds for operators to invest into service development, weakening the ability of the operators to differentiate themselves from their rivals,” it says.However, UBS Research believes that Malaysia’s model is viable and could present MNOs with opportunities to increase data margins and free cash flow yields, if the project is executed well.

“From our 5G retail pricing scenario analysis, we found there is scope for MNOs to increase data margins, as the 5G (expected) wholesale price of 50 sen per GB is lower than the existing network cost of RM1.10 per GB.“This is possible even if MNOs set retail 5G prices on par with or lower than existing 4G or 3G prices per GB. headtopics.com

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“MNOs could also benefit from higher free cash flow yields due to lower 5G-related capex requirements,” UBS Research said in a report earlier in September 2021.However, the research house’s analysis indicates that this phenomenon is likely to take place only in the initial years after launch, when the 4G backup remains a factor.

Eventually, the benefits are expected to taper as competition from mobile virtual network operators (MVNOs) begins to kick in more prominently.Examples of MVNOs in Malaysia are Tune Talk, XOX and Redtone, among others.By not requiring telcos to undertake their own 5G infrastructure building, they do not need to raise additional debt or dilute shareholders to fund the initial network capex.

This improves the free cash flow profile for the industry, freeing up cash for dividends or redeployment into cost-saving optimisations, or other verticals for new revenue growth.Moving forward, the 5G rollout via DNB offers the telcos a chance to “rebrand” themselves from utility to growth stocks.

Their growth will be largely driven by their differentiated services and not through the costly capex on infrastructure building.DNB says this is also an opportunity for telcos to significantly improve their long-term financial outlook.CLICK TO ENLARGE headtopics.com

After all, while Malaysian telcos are known to have lofty earnings before interest, tax, depreciation and amortisation (Ebitda) margins, this has been gradually reducing and could reduce further over the coming years had they been asked to rollout the 5G networks on their own.

An industry observer says that telcos’ fundamentals will continue to deteriorate under such a scenario if left unchecked.This in turn would affect their service delivery to the end-users.“Assuming the job to roll out 5G was given to the telcos, they would have to forsake dividends to shareholders or they would have to take on debt to fund the deployment.

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“But since the 5G rollout is done by the government, we won’t see the telcos’ balance sheets being pressured.“Instead, they can invest in their existing services, including 4G, to enable a better user experience,” he says.Not only that, telcos can have better focus on reducing legacy costs under the DNB-led 5G initiative, considering that the infrastructure building comes under DNB’s purview.

DNB says that the telcos will enjoy a much better capacity utilisation and a significant spectrum efficiency.In addition, DNB says Malaysia’s 5G rollout model allows telcos and other players to jump on the 5G bandwagon quicker.For now, DNB pledges that the telcos and other MVNOs will not be disadvantaged by the single-entity 5G rollout model.

Until the 5G network is fully deployed, it remains to be seen whether the telcos would have fared better if the spectrum is given to individual operators, and not to DNB. Read more: The Star »

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