Potential Axiata-Telenor deal seen a catalyst for telco sector

Telenor’s logo is seen in central Belgrade, Serbia, March 21, 2018. — Reuters pic
Telenor’s logo is seen in central Belgrade, Serbia, March 21, 2018. — Reuters pic

KUALA LUMPUR, Jan 20 — The revived talks between Khazanah Nasional Bhd and Norway’s largest mobile operator Telenor ASA on a potential deal involving Axiata Group Bhd could be a potential re-rating catalyst if the proposed merger materialises, says an analyst.

Another catalyst is the synergy arising from consolidation within the local telecommunications sector to mitigate competition among the cellular operators, AmInvestment Bank analyst Alex Goh said.

“We note that the share prices of telco stocks have appreciated recently due to the rising trend of collaboration among the potential 5G mobile operators,” he said in a research note today.

Pending further developments on this front, the investment bank has maintained its ‘neutral’ outlook on the sector.

On the flip said, Goh said the sector could be de-rated on resumption of revenue declines against the backdrop of mobile price war intensification and sharp drops in fixed broadband prices next year, driven by the National Fiberisation and Connectivity Plan prerogatives.

“We’re also cautious on possibilities of higher-than-expected increase in operating and capital cost requirements as operators need to further upgrade their network infrastructure for 5G rollouts,” he said.

Last week, media reports said Khazanah Nasional has revived negotiations with Telenor ASA, which owns a 49 per cent equity stake in Digi.Com, for a potential deal involving Axiata Group.

Both parties are also in the early stages of exploring several possible scenarios including Telenor buying part of Khazanah’s 38 per cent equity stake in Axiata and a subsequent merger of Axiata and Telenor’s telecommunications tower assets or consolidation in certain markets.

“As these are still at exploratory stages, any merger proposal, which could yet be derailed, has yet to be mutually agreed on by both parties,” Goh said, adding that acquiring a minority stake could still allow Telenor to strengthen its presence in Asia.

In another development, he said collaboration and pooling of resources among key players in the industry is increasingly important against the backdrop of rising 5G capital expenditure rollouts.

He said intense competition amid the government’s policy to expand broadband connectivity to rural and remote regions has highlighted the imperative for consolidation in the telco sector.

He pointed out that the RM7 billion-RM8 billion investment for 5G deployment in Malaysia as indicated by the National 5G Task Force is likely for targeted sites for high data usage.

“Industry sources have indicated that the capex per square kilometre could be 10 times higher than 4G for selected locations,” Goh said.

He estimated that 4G capital expenditure by telcos has surpassed RM15 billion to date on a nationwide coverage programme over the past six years.

Besides 5G spending, he said additional capex for 4G is still required given that only 40 per cent of mobile towers are fiberised, which has resulted in sub-optimal speeds and connectivity for 4G services.

“Evidently, a substantively higher proportion of fiberised mobile towers is needed to deploy 5G services,” he said.

However, the Malaysian Communications and Multimedia Commission has highlighted that telcos’ capex spending trend has been declining, and is currently below the industry average.

Among the three main mobile operators, Digi Telecommunications Sdn Bhd’s capex fell the most by 11 per cent last year, followed by Celcom Axiata Bhd by six per cent and Maxis Bhd by five per cent. — Bernama

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