Minimal financial impact on telcos from 700Mhz spectrum

• Five out of eight telcos have sufficient cash reserves to fund the bidding
• Digi’s dividend repayment ability and debt levels to be affected

OF THE eight telcos expected to bid for the 700Mhz spectrum, five have sufficient cash reserves to fund the bidding, according to MIDF Research’s telecommunications sector update report published yesterday.

“Taking a cue from the current allocation of 2,600Mhz, a total of eight mobile telecommunication service providers could be bidding for the 700Mhz spectrum. These include Maxis, Digi, Celcom, Redtone, Webe, Altel, U Mobile and YTL Comm (YES).

However, the research house believes that premised on the rollout of mobile services on 2,600Mhz, Maxis, Digi, Celcom, U Mobile and YTL Comm stand a better chance of getting a fair portion of the 700Mhz.

The research house said that assuming that each bidder bids for one or two blocks of the frequency band, Maxis, Digi, Celcom and YTL Comm have sufficient cash reserves to fund the bidding, while U Mobile has the financial support of its main shareholders.

The research house does not discount the possibility of the bidders opting for the instalment option in view of the annual maintenance fee and capital expenditure required to efficiently rollout services on the 700Mhz spectrum band.

“Note that the mobile telecommunication services providers may balance between the allocation of the spectrum band and the capex required for the infrastructure. Nonetheless, we view that should Digi bid and opt for a lump sum payment for two blocks of the 700Mhz spectrum, it could affect its dividend payment ability,” the research house said, noting also that Digi typically pays 100% of its net earnings.

AmInvestment Bank noted that all players will have minimal balance sheet impact from the spectrum exercise, except for Digi.

“Based on a 2 x 5Mhz allocation for the lump sum payment [option], the FY18 forecast net debt/EBITDA [earnings before interest, tax, depreciation and amortisation] impact is minimal, remaining at 1.5 times for Axiata, 1.2 times for Maxis and 1.8 times for TM.

“However, given Digi’s low debt levels, its FY18 forecast net debt/EBITDA will rise from 0.6 times to 0.7 times, which is still comfortably within the group’s acceptable gearing,” the research house said in a research note yesterday.

AmInvestment also pointed out that competition in the mobile segment remains intense, as total subscribers have fallen by 3.9 million or 11% since the first quarter of 2013, wholly due to the decline in the prepaid segment.

“In our view, near-to-medium-term earnings catalysts appear weak given the likelihood of further intensification in the celco wars with U Mobile’s unlimited data option at RM78/month plus free data roaming vs. webe’s RM79/month,” it said.

Related links:

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