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Wednesday, June 6, 2018

Competition in telco sector likely to dampen revenue growth

Wednesday, 6 Jun 20189:11 AM MYT

KUALA LUMPUR: AmInvestment Research said the growing postpaid segment in 1Q2018 was insufficient to offset the decline in blended average revenue per user (Arpu) in the telco sector.

Despite a slight boost from the MFRS 15, this led to a service revenue decline of 4% on quarter to RM5.5bil.

The research house said in its Wednesday report that the total subscribers over the quarter continued to contract due to tight competition and ongoing SIM consolidation.

The bulk of the quarter-on-quarter decline stemmed from Maxis, which lost 214,000 subscribers as it focused on higher value postpoaid customers.

Digi and Celcom saw increases in their subscription, with Celcom posting higher numbers after declining for nine consecutive quarters.

According to AmInvestment, while Digi continued to have the largest subscriber base, Maxis remains the revenue leader due to its stronger postpaid segment in terms of Arpu and subscriber base.

"This places Maxis in the leading position for sector revenue with a market share of 40% vs. 30% for both Celcom and Digi," it said.

With regards to outlook, AmInvestment said the sector's near-to-medium term revenue growth remais weak given the likelihood of further intensification in the mobile wars.

"We expect further repackaging formulations by the industry against unifi Mobile’s promotional free Bebas plan (vs. retail price of RM10 per SIM card) which offers 10GB of LTE data until 30 June this year. We note that this competes head on with U Mobile’s Hero P79 plan, which offers 20GB data for RM79/month."

It said Digi and Celcom were likely to compete against the U Mobile's plan and unifi Mobile's unlimited mobile data/voice/SMS pricing plans.

"As U Mobile and unifi Mobile wrestle for new customers on the unlimited mobile data arena, prospects will deteriorate for incremental service revenue accretions in the sector."

AmInvestment believes that sector consolidation is the logical route, likely to be lead by the potential re-merger of Axiata and Telekom Malaysia.

"Main synergistic benefits from an Axiata-TM merger are the complementary suite of services which Axiata's mobile services can integrate into TM's fixed line operations to draw further mobile market share from the other players Maxis, Digi and U Mobile," it said.

The research house has a neutral call on the sector while the fair value for Telekom has been cut to RM5.30 from RM6.20 due to declining broadband Arpu prospects.

Its top buys remain Axiata and Telekom due to the game-changing possibility of a merger. It has hold calls on Maxis and Digi due to the resistance in revenue growth amid potential loss of competitive advantage following an Axiata-Telekom merger.


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