Research house analysts have chimed in on the discourse about the implications of the dual network system for both mobile network operators (MNOs) and customers.
This comes after the communications and digital ministry announced on May 3 that the single wholesale network (SWN) will transition to a dual network model in early 2024 in a bid to dismantle monopolies and promote competition.
However, the second network under Phase 2 will only be established when SWN reaches 80% coverage of populated areas, up from around 55% now by end-2023.
This implies that a new entity would roll out the second network, whilst another may be taking over the network established by Digital Nasional Bhd (DNB) – likely via the sale of DNB by the finance ministry.
CelcomDigi Bhd was quick to terminate their acquisition of a stake in DNB, in order to make way for a “more active and direct role” following the official announcement.
The share subscription agreement would have cost the group RM357 million, according to estimates from Kenanga Investment Bank Bhd.
Will competition drive down costs?
In 2022, DNB announced that the SWN model would cost telco operators RM30,000 per Gbps (gigabit per second) a month (or 13 sen per GB) on 5G leasing charges.
Assuming a take-up rate of 1,000Gbps, this would ultimately cost the telcos a whopping RM360 million a year to provide 5G to consumers.
This comes on top of fixed upfront fees, which must be paid regardless of DNB’s progress with population coverage.
“The introduction of a second 5G network operator would challenge DNB’s grip on the market, spurring competition that could result in reduced 5G leasing charges, a boon to the telco operators,” said Kenanga.
Kenanga analyst Ahmad Ramzani Ramli is positive on the impact of a second network, confident that competition will lower access prices and allow telcos to buy access on a need basis and eliminate upfront fees.
As a result, the MNOs can enjoy better margins, earnings and free cash flows to allow for more sustainable dividend payment.
Separately, Public Investment Bank in a note said the impact on retail pricing is still unclear, as well as the spectrum cost to be paid by the second operator.
RHB Investment Bank Bhd said by incorporating spectrum amortisations and higher financing costs to fund the spectrum payment, CelcomDigi’s FY2024-2205 core earnings possibly could decline by 5%-6% and Maxis Bhd’s by 4%-5%.
“Aside from spectrum costs, we see 5G capex for the telcos as manageable, given that they involve software upgrades and incremental spending on 4G sites (mostly 5G ready),” it said.
However, there is a contrarian view that having more 5G network operators will drive down costs.
Plum, a UK-based telecommunications consultancy, has argued that rolling out of multiple networks for each mobile operator would require six times as many 5G base stations.
“This means that the end-user prices under the SWN are expected to be around 60% lower than with a deployment of six 5G networks,” it added.
Additionally, it warned that a market controlled by two consortiums is unlikely to create healthy competition to benefit consumers.
Operators would need to commit long-term to each consortium, and each would in a similar way be a monopoly provider to its constituent operators.
Everyone wants a slice of the pie
Perhaps more interesting than the impact of the dual network on cost is which MNOs will be involved in the ownership of the second network.
PublicInvest opines that the second operator will likely be a consortium of MNOs.
“CelcomDigi, being the largest telco operator in the country, is likely to be involved. Note that the group has announced its withdrawal from subscribing for DNB’s equity stake, suggesting that it is eyeing the role of a second 5G operator,” it said.
It added that despite the lead time for rolling out infrastructure, take-up rate remains slow and the return on investment will be low in the initial years.
“We reckon that Maxis would also be keen to be an owner and operator of the 5G network,” added PublicInvest.
Noting Maxis’ delay in formalising a wholesale agreement with DNB, no changes were made to forecasts as PublicInvest had already factored in wholesale fees of RM288 million in FY2023.