2G spectrum refarming will affect telco Big 3, says analyst

PETALING JAYA: The possible re-farming of the 2G spectrum on the 900MHz and 1800MHz frequency bands will pose a negative impact to the three big boys in the telco industry namely Maxis Bhd, Celcom Axiata and DiGi.com Bhd, according to AllianceDBS Research.
Spectrum re-farming is the process of re-deploying spectrum from one operator or set of operators and and then dividing it between new operators in an effort address the needs of the markets more equitably.
"As such, they stand to lose if there is a re-farming, regardless of the outcome," it analyst Toh Woo Kim said in a research note last Friday.
He said, at best, if those spectrums are retained by the Big 3, there are still risks of high spectrum fees imposed by the regulator or the result of a fierce bidding process.
Toh said U Mobile, YTL E-Solutions Bhd and Puncak Semangat Sdn Bhd are potential threats to the big boys as they are backed by financially strong parents that could put up competitive bids to rival incumbents.
"For U Mobile, securing additional spectrum would strengthen its position as an aggressive 4th player in Malaysia," he added.
However, it is believed that DiGi will be least affected considering that it owns very little spectrum in the coveted 900MHz band.
"In fact, the company is keen to acquire the low-frequency spectrum to compete effectively with Maxis and Celcom," Toh said, adding that DiGi could comfortably fund the potential spectrum cost without jeopardising its dividend commitment with low net gearing of only 0.1 times net debt/ebitda.
"For Maxis, we see further risks to dividend payouts given that gearing is approaching its limit of 2 times net debt/ebitda," Tan noted.
Among the methods of implementing spectrum refarming includes an auction, a beauty contest, or a combination of both.
Toh noted that the Malaysian Communications and Multimedia Commission has never chosen the auction route for spectrum allocation before, therefore a good gauge for spectrum price in Malaysia would be DiGi's purchase of 3G spectrum (2x15MHz in the 2100MHz band) for about RM650 million, back in 2007.