5G spectrum award to telcos defers capital expenditure risk

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KUALA LUMPUR, June 3 – Maybank Investment Bank expects that the Communications and Multimedia Ministry’s (MCMC) move to award Fifth Generation (5G) mobile network’s 700 megahertz (MHz) band to five telecommunication (telco) companies would defer 5G capital expenditure (capex) risk.

The investment bank said while details are lacking, it appeared that there had been a deviation from some of the original regulatory plans.

“5G capex risk appears to have been deferred for now, although the impact to share prices is still unclear pending further disclosures, given that the tenure, mode of assignment and use case for the 700MHz were not specified,” it said in a research note today.

It said as the major players got a slice of the 700MHz band, the risk of missing out has dissipated for now, but the financial impact on these companies could only be ascertained on the eventual disclosure of the spectrum fees.

In a separate note, Public Investment Bank said generally, the commercial rollout of 5G networks would take several years, given the need to improve current networks’ connectivity as well as uncertainties over the adoption rate by consumers and businesses.

Earlier this year, the MCMC issued a report mentioning that the 700MHz and 3.5GHz bands would not be allocated to individual licensees.

Instead, it would be assigned to a consortium in order to lower investment cost and to avoid duplications of network infrastructure.

“At this juncture, it remains to be seen whether the previous consortium approach to help minimise cost and reduce duplications of infrastructure is still applicable, as the pricing for this 700MHz spectrum was not disclosed,” Public Investment Bank said.

Moving forward, it said one of the biggest challenges in 5G deployment is investment costs, with infrastructure — including spectrum and small cell towers — accounting for a big chunk of the cost.

The challenges also include the adoption rate, given that 5G connectivity is only expected to apply to a small minority of industry players.

The investment bank said it also remained doubtful on the demand for 5G, as the country would first need to develop an ecosystem that involved advanced industries like artificial intelligence, driverless cars and Internet of Things.

Public Investment Bank has maintained a “neutral” call on the sector.

In a ministerial order on May 15, the ministry said Celcom Axiata Bhd, Digi Telecommunications Sdn Bhd and Maxis Broadband Sdn Bhd would be allocated 2x10MHz each, while Telekom Malaysian Bhd and Altel Communications Sdn Bhd would receive 2x5MHz each.

In a separate determination, the 2600MHz band would be reallocated via spectrum assignments to existing holders for 15 years (current tenures expire in Dec 2021), but spectrum fees were not mentioned.