Mobile packages may not get cheaper despite MCMC directive

PETALING JAYA: Consumers may not necessarily see cheaper packages despite the Malaysian Communications and Multimedia Commission’s (MCMC) move to stop mobile operators from passing on additional costs to subscribers, analysts say.
Hong Leong Investment Bank (HLIB) Research does not expect any changes in the pricing of packages offered by operators or a price war in the offing, as the telecommunications landscape is already very competitive.
“MCMC’s definition of cheap is different from what you and I perceive. They always talk about price per megabit. So it’s not about what the subscriber payment being cheaper, but it is likely that they will look at cost per megabit,” HLIB Research told SunBiz.
On Wednesday, MCMC announced the fees for the spectrum in the 900MHz and 1800MHz bands that were allocated to Celcom, Digi, Maxis and U Mobile for 15 years.
The commission placed a condition on the mobile operators to offer packages that are cheaper than current ones to their subscribers, in order to ensure that costs are not passed down to subscribers.
HLIB Research said with rising costs, mobile operators will be open to more partnerships and may evaluate more asset, tower and spectrum sharing in order to save cost.
Meanwhile, a source familiar with the sector said mobile operators will find ways to pass on some of the costs or try to balance them out by adjusting the packages offered to subscribers.
“They can still do something. There’s a lot of room for them to play around with. For example, they can offer different prices for peak periods and off-peak periods,” said the source, who declined to be named.
Mobile operators could maintain or increase prices for high-end subscribers and pass on the savings to low-end subscribers who are from the lower income segment like students and foreign workers, who favour prepaid packages.
Under the new fee structure, mobile operators have to pay RM499.725 million per 2x5MHz block in the 900MHz band and RM217.77 million per 2x5MHz block in the 1800MHz band and an annual fee. The spectrum fees can be paid in a lump sum or staggered, but at a higher price.
This would see Maxis and Celcom footing the biggest bill at RM816.75 million and an annual fee of RM70.25 million each, while U Mobile has the smallest with RM500 million and a RM40 million annual fee.
PublicInvest Research, which initially anticipated a cost of around RM1 billion, said the pricing is not exorbitant, but it would unfavourably alter the cost structure of mobile players.
“Prior to this, the spectrum was based on annual renewal with operators paying annual licensing fees of between RM50 million and RM80 million but minimal upfront cost,” it said in its report yesterday.
“The annual payment should have no incremental impact on the bottom line as all the operators are already paying a similar sum as licensing fees under the apparatus assignment. However, it is still unclear what is the potential impact of the lump sum amount on telcos’ earnings as there were no details provided in the staggered payment option,” it added.
PublicInvest said telcos are likely to choose the staggered payment option to avoid straining their balance sheet, which would compromise future capital expenditure.
According to the source, the new cost structure will result in margins being squeezed and the high margins today, which average out to 45% between the three big players, will gradually reduce over the years. In comparison, the margins for regional players are currently 30% to 35%.
On the back of higher costs and lower margins, mobile operators are unlikely to go on a price war and would be more rational in pricing their products.