PETALING JAYA: While Malaysia’s top three telcos already have plenty of spectrum, analysts say the process by which little-known Puncak Semangat Sdn Bhd was awarded the largest block of the 2.6 Ghz bandwidth was not ideal.
“There appears to be a lack of tender process or criteria and scoring system for the award process, unlike the 3G beauty contest. In addition, there was no official call for expression of interest for the spectrum, which is a scarce resource,” CIMB Research said in a note to clients.
“While we agree that competition should not be infrastructure-based, the current structure could inadvertently lead to rent seeking. The smaller players could seek lease payments for the use of their 2.6GHz spectrum from the Tier-1 players.
“In our view, infrastructure-sharing can be achieved by imposing strict rollout and open access conditions on the winners of the spectrum. Winners could be selected based on their commitment to roll out and wholesale pricing to access seekers, such as Singapore’s crafting of the structure for the Next Generation National Broadband Network.”
Malaysian Communications and Multimedia Commission (MCMC) chairman Datuk Mohamed Sharil Tarmizi had on Tuesday defended the regulator’s decision to cede 40 MHz to Puncak Semangat, which has no track record in telecommunications.
The other seven who received allocations were given 20 MHz each, which does not allow for optimum operation unless they pair up to share infrastructure.
Besides Puncak Semangat, Celcom Axiata Bhd, DiGi Telecommunications Sdn Bhd, Maxis Broadband Sdn Bhd, Packet One Networks (M) Sdn Bhd, REDtone Marketing Sdn Bhd, U Mobile Sdn Bhd, and YTL Communications Sdn Bhd received a block of the 2.6 Ghz frequency, which they will ride on to provide 4G or long-term evolution (LTE) services with speeds in excess of 100 Mbps.
But Sharil reasoned that the Tier-1 telcos including Celcom, DiGi and Maxis already had more than 100 MHz of spectrum each after taking into account the allocations from the 900 MHz, 1,800 Mhz and 2.1 GHz bands they were previously given licences to.
The entry of Puncak Semangat would also invigorate competition in the market as well as promote network sharing between old and new players, Sharil added.
In a report, RHB Research Institute said: “Overall, the MCMC hopes to promote greater competition, which should translate into lower prices, when it made the decision to allocate the LTE spectrum to eight players.
“With a 20 MHz spectrum block, the MCMC argues that the smaller players would have a bargaining chip when negotiating infrastructure sharing arrangements with incumbents.”
Meanwhile, M&A Securities pointed out that the allocation would benefit consumers as end user prices may fall in light of more competition.
“However, from the telcos’ point of view, heavy discounting is needed to secure customers and this will compress their margins. There is a potential the major telco (Maxis, DiGi, Axiata, U Mobile) will consolidate to cushion the compressing margins via network sharing.
“For now we foresee network consolidation as sufficient to cushion against compressing margins as is ongoing between Maxis-U Mobile, Celcom-DiGi and potentially Redtone with other suitors,” it explained.
Despite the prospect of further pressure on margins, M&A Securities upgraded the telco sector to overweight from neutral due to its low Beta nature.
“We believe fund managers will rebalance their portfolio in 2013 to low Beta sectors in anticipation of the general election in March or April.
“We believe the telco players will adjust and react to the competitive environment and realign their strategy accordingly as they have done in the past three decades in order to maintain their profitability and niche survival,” it opined.