We are maintaining
our NEUTRAL view on the Telecommunication sector while awaiting the 3QCY13
results of the remaining three telco companies left, which are scheduled to be
released in the later part of this week.
Malaysian telecommunication service providers may soon have to review their prices
for the facilities and services on the Access List for the period of 2013-2015. We understand that the
public inquiry for the proposed access pricing has ended in mid-November, with
the final or mandated paper targeted to be out in 1QCY13. Based on the proposed
new interconnection rates (where the fixed and mobile local termination rates
are to be reduced by 18.4%-19.4% and 9%-27% , respectively), this scheme in our
view will benefit the net sender of the interconnection charges i.e. TM and Digi
although the net earnings impact to them is hard to gauge at this juncture.
Telco subscribers or end consumers will be the ultimate winner in this case
given that the lower interconnection rates would translate to lower direct costs
for telco operators, thus suggesting further rooms for a voice tariff reduction
in the future. We are maintaining all our Telco stock ratings and target prices
for now, pending the upcoming 3QCY13 results review. Our target prices for TM,
Maxis and Axiata are currently set at RM6.45, RM7.35 and RM6.33, respectively.
We are keeping our OUTPERFORM calls on TM while maintaining MARKET PERFORM ratings
for both Maxis and Axiata. Our Digi target
price of RM4.95 and UNDERPERFORM call are currently under review.
Review of Access
Pricing. Malaysian telecommunication service providers may soon have to review
their prices for the facilities and services on the Access List for the period
of 2013-2015. The previous revision to these cost-based prices occurred in 2006
where the mandated prices from that review have now expired in the intervening
period. The Malaysian Communications and Multimedia Commission (MCMC) has
earlier conducted a public inquiry on the review of the access pricing, which
outlined the authority’s preliminary
views on which facilities and services on the Access List should be subject to
price regulation and, where relevant, provides tables of proposed regulated
prices for the next three calendar years. We understand that the public inquiry
has ended on 14 November and the final or mandated paper will be due out in 1QCY13.
Lower interconnection
rate. The proposed new interconnection rates will apply to all voice calls
that originate and terminate on fixed network and mobile network. In general,
fixed and mobile local origination rates are to be reduced by 11.4%-12.2% and
7.4%-22.2% while the termination rate will be cut by 18.4%-19.4% and 9%-27%,
respectively, during CY13-CY15 from the existing 5 sen/minute flat rate. On top
of that, MCMC, for the first time, has also proposed to set a regulated price
for the fixed access services (mainly in fixed wholesale services) and HSBB
wholesale services. Note that, MCMC only proposed to set the maximum HSBB
wholesale price for 10 Mb/s downstream with a 10.1 contention ratio in the
aggregation network (please refer to the overleaf page for further details)
while the other categories would still be subject to commercial negotiation
based on service demand and take-up rate assumptions. We understand that the
proposed calculated prices were prepared by MCMC and are still subject to the
finding of the industry and public feedbacks.
Subscribers – the
ultimate winner. While the actual interconnection rates have yet to be finalised,
the intention of MCMC is very clear at this juncture, which is to lower telcos’
direct cost and thus providing the room for further voice tariff reductions in the future. This will ultimately
benefit the end users in our view. From
the telco’s perspective, while the net earnings impact to them is hard
to gauge at this juncture, the proposed lower interconnection rates will
benefit to the net sender of the interconnection charges such as TM given that the
fixed-line operator subscribers tend to make more calls to mobile rather than
receiving calls. Digi could benefit to a certain extent as well given that the
company has fewer subscribers as compared to its mobile peers.
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