Malaysia’s broadband market to get more competitive under Pakatan, says Fitch unit

KUALA LUMPUR, July 19 — Telekom Malaysia’s (TM) dominance over the country’s broadband market will be cut and its earnings halved as the Pakatan Harapan (PH) government moves to fulfill its electoral promise for faster, cheaper internet rates, BMI Research said today.

The Fitch Group unit said the government’s move will likely further deregulate the broadband market by pursuing LLU (Local Loop Unbundling) to present users with more choices, increasing competition, which will lower prices.

It added that at the same time, the removal of the goods and services tax (GST) will increase slightly the services uptake.

“The Pakatan Harapan (PH) government’s pledges will likely be negative for wireline incumbent Telekom Malaysia, which possesses a virtual monopoly over the fixed broadband market. The newly-installed government aims to reduce broadband prices by half while simultaneously doubling speeds,” added BMI Research.

TM’s continued roll-outs of last-mile fibre connectivity will allow it to substitute legacy ADSL (Asymmetric Digital Subscriber Line) connections with the newer technology to boost broadband revenues, which could be adversely affected by possible government-mandated price cuts.

BMI Research said Malaysia’s currently fixed broadband growth will largely be driven by enterprise take-up of leased-line subscriptions as well as a more general uptick of fibre connections.

It said that TM, which derived nearly 34 per cent of its total revenues from retail broadband services in the first quarter of 2018, could have its broadband revenue halved in a worst case scenario if  the government mandates price cuts.

The state-owned operator spent 65 per cent of its first quarter capital expenditure for this year on improving access, centred largely on the High-Speed Broadband and Sub-Urban Broadband projects.

“We believe that the government may eventually mandate LLU to allow retailers to offer differentiated services over TM’s fixed infrastructure. At present, broadband retailers purchase bit-stream access at regulated tariffs to provide connectivity,” said the research outfit.

While fibre broadband players Maxis and TIME Broadband operate their own wireline assets, these remain largely limited to capital cities where returns on investment are significantly higher. Full LLP will allow smaller broadband providers to expand their footprint beyond urban areas, and present meaningful competition to TM in regions where it holds a monopoly.

In many areas, TM provides only ADSL services under its Streamyx brand, as the lack of wireline competition failed to incentivise the incumbent to invest in new-generation infrastructure. However, the increasing availability of advanced dedicated mobile broadband connections have weighed on Streamyx’s subscriptions.

All mobile operators, including DiGi and Celcom Axiata have been focusing capital expenditure into improving LTE availability and have been rigorously promoting their mobile broadband offerings.

 The previous government’s National Broadband plans have also done well to stimulate broadband uptake in recent years, although the PH government could review initiatives such as the Pusat Internet 1Malaysia project, which constructed Internet centres in regional areas.

BMI Research said it was positive the Malaysian Communications and Multimedia Commission will retain its independence and proactive role in regulating the market under the new administration.