Telecommunication - 2.6 GHz spectrum finally awarded

We are maintaining our NEUTRAL view on the Telecommunication sector. The Malaysian Communications and Multimedia Commission  (MCMC) has finally announced the allocation of the much anticipated 2.6 GHz spectrum band, paving the way for mobile subscribers to enjoy faster 4G/LTE services in the future.  All the mobile operators had earlier indicated that their networks were ready to deploy LTE services when the 2.6GHz spectrum was being finalised by MCMC. While the exact allocation of the spectrum bandwidth have yet to be revealed, we believe the final allotment will come in close to our prediction (see table below). Thus, a potential infrastructure collaboration agreement among either Celcom and Digi or Celcom and Puncak Semangat is expected to be initiated in the near future. There are no changes to our telco companies’ FY12-FY14 earnings forecasts. We are keeping our OUTPERFORM rating on TM (TP: RM6.25) while maintaining MARKET PERFORM calls on Maxis (TP: RM7.00); Axiata (TP: RM6.10) and Digi (TP: RM4.95).

Award of 2600 MHz band.  The Malaysian Communications and Multimedia Commission (MCMC) has announced that eight companies will be awarded the access to the 2600 MHz spectrum band. The eight companies are Celcom Axiata Bhd, Digi Telecommunications S/B, Maxis Broadband S/B, Packet One Networks S/B, Puncak Semangat S/B (“P.S.”), REDtone Marketing S/B, U Mobile S/B and YTL Communications S/B. 

More smart partnerships and sharing agreements are expected to be inked. MCMC indicated that the existing service providers may use the 2.6GHz spectrum allocation to further expand and enhance the capacity of their mobile broadband networks while the newcomer (i.e. Puncak Semangat) is expected to bring fresh ideas and innovations to the market. MCMC expects the service providers to enter into more smart partnerships and sharing agreements (i.e. infrastructure sharing to further reduce the duplication of physical transmission to towers) while providing 4G wholesale MVNO (Mobile Virtual Network Service) to other service providers that do not have the access to the spectrum. 

LTE (Long Term Evolution) offers a faster data rate transfer as compared to the existing 3G network equipments by using radio waves over the same bandwidth. It features peak download speed of up to 300Mbps and upload speed of up to 75Mbps. In comparison, the latest 3G technology, HSPA+, provides download speed of just 56Mbps and upload speed of up to 22 Mbps. By using LTE, the network providers would be able to offer better transfer rates on their existing network cells and thus provide subscribers with a lower cost service.

Details of the allocation have yet to be unveiled but based on our earlier understanding, the 2.6 GMz spectrum is likely awarded under the Apparatus Assignment status, which requires the renewal of each license on annual basis. On the actual bandwidth allocation front, we understand from our sources that the allotment could be as follows:  

Potential 2.6 GHz spectrum and bandwidth allocation

              

FDD Band 

·         Redtone - 2x10 MHz

·         Maxis - 2x10 MHz

·         UMobile -  2x10 MHz

·         P.S. - 2x15 MHz

·         Celcom - 2x10 MHz

·         Digi - 2x10 MHz

TDD Band

·         P1 - 20 MHz

·         YTL - 20 MHz

Source: Kenanga Research

Should the actual spectrum bandwidth allocation similar to our prediction above, we believe that either Celcom and Digi or Celcom and Puncak Semangat could potentially enter into a smart partnership and sharing agreement in the future to enhance their spectrum efficiency and compete with the Maxis team (note that Redtone and U-Mobile had already teamed up with Maxis earlier).  

Source: Kenanga