U Mobile terminates 3G sharing deal with Maxis

PETALING JAYA: U Mobile Sdn Bhd yesterday said it has terminated a multi-billion ringgit network sharing and alliance agreement (NSA) signed in 2011 with Maxis Broadband Sdn Bhd on its growing subscriber base and additional spectrum bands which it received last year.
The NSA was for 10 years with an option to renew for a further two years.
The agreement, which was the first active 3G radio access network (RAN) sharing arrangement to be deployed in Malaysia at the time, was also a milestone in the telecommunications industry because it was the first to partake in the active telecommunication systems and operating frequency spectrum, beyond the existing physical (passive) infrastructure sharing, long practised between operators in the industry.
“With our growing subscriber base, U Mobile has decided that it will be more appropriate to focus on expanding our own network, especially with the additional spectrum of 2x15MHz of 1800MHz bands and 2x5MHz of 900MHz bands that were awarded by the government last year,” U Mobile said in a statement.
The additional 1800MHz was made available on April 1, 2017, while the 900MHz will be made available by the end of this week, on July 1.
“We are currently upgrading our own networks progressively to support these new spectrum bands so that our customers can enjoy an enhanced network experience when the spectrum bands are turned on and the upgrade is completed,” it added.
U Mobile said the termination of the RAN share agreement is not expected to impact its customers’ network experience or its service quality to its customers.
“We expect to be able to replace the RAN share sites within the stipulated timeline as we continue with our planned network investment programme. U Mobile customers can look forward to an enhanced network experience and coverage once the exercise is completed,” it said.
The termination will take place in stages for a period of 18 months with completion on Dec 27, 2018.
U Mobile cancelled the deal under a termination for convenience option. Maxis Broadband received the letter from U Mobile last Friday.
Maxis Bhd told Bursa Malaysia in a filing it is not expected to have a material effect on the consolidated financial results for the financial year ending 2017.
According to an analyst who declined to be named, the termination only involves the 3G arrangement, which was meant to run till 2022, while the 2G agreement remains.
“The agreement with U Mobile (2G and 3G) contributed to about 5% of Maxis’ first quarter 2017 revenue. While Maxis does not provide a breakdown by 2G/3G contribution, we believe 3G contribution will be significantly larger than 2G,” he told SunBiz.
As the variable operating cost related to the 3G agreement is minimal, the operating cost savings will be minimal and impact on earnings before interest, tax, depreciation and amortisation (ebitda) and earnings will be larger.
Based on the assumption that 80% of U Mobile’s revenue contribution to Maxis comes from 3G, ebitda will be cut by 7% while earnings will be reduced by 12%, said the analyst. “If 100% comes from 3G, ebitda and earnings will be hit by 9% and 15% respectively,” he said.
“We currently have a sell call with a RM5.10 target (10% downside). Removing U Mobile’s contribution may see our target fall to about RM4.50 (20% downside),” he added.
Maxis’ share price fell 3 sen to RM5.61 yesterday, with some 5.97 million shares changing hands.
For the first quarter ended March 31, 2017, Maxis’ net profit fell 2.51% to RM505 million from RM518 million a year ago while revenue rose marginally to RM2.16 billion from RM2.14 billion a year ago.