REDtone International Bhd and billionaire Tan Sri Syed Mokhtar Al-Bukhary’s Puncak Semangat Sdn Bhd have a tad more to cheer about among the nine fourth generation (4G) spectrum winners. All nine will receive the coveted resource after their business plans are approved by the Malaysian Communication and Multimedia Commission (MCMC), sources said.
“While Puncak Semangat’s 30Mhz [of 4G spectrum] is at least 10Mhz bigger than all other winners, everyone else has existing spectrum — 900Mhz, 1800Mhz, 1900Mhz [3G] or 2.3Ghz [WiMAX]. From that perspective, the bigger existing players still have more spectrum,” said a source close to the regulators.
“The decision was made to bring in new entrants and allow room for market forces, and in that light the spectrum allocations are equitable, though not entirely equal,” the source told The Edge Financial Daily. “We believe Puncak has the financial resources for a decent rollout,” the source said.
The 4G allocation will give REDtone, whose existing 2.3Ghz WiMAX licence is limited to Sabah and Sarawak, a licence to roll out mobile services in Peninsular Malaysia and a more level playing field relative to the remaining three WiMAX spectrum holders, the source said. Its challenge, however, will be to secure the necessary funds for a wider rollout, an observer said.
To recap, all four 3G spectrum assignment holders — Maxis Bhd, Celcom Axiata Bhd, DiGi.Com Bhd and U Mobile Sdn Bhd — stand to receive 20Mhz of 4G spectrum. Like REDtone, two other WiMAX spectrum holders — Green Packet Bhd’s Packet One (Networks) Sdn Bhd and YTL Communications Sdn Bhd — will also receive 20Mhz of 4G spectrum in January 2013, if their business plans are accepted by the MCMC.
The remaining WiMAX spectrum holder, Asiaspace Sdn Bhd, will be given a 10Mhz block of 4G spectrum, provided its business plan gets MCMC’s go-ahead. Asiaspace, will also need to settle a sizeable fine first for not meeting rollout commitments made in its WiMAX business plan submission, another source added.
All nine winners will need to submit their 4G rollout plans to the MCMC by Dec 15 and pay a RM5 million irrevocable guarantee for every 10Mhz of spectrum.
But why not just give bigger blocks of spectrum to the big boys? After all, only three out of seven newcomers in the mobile telecoms space have decent-sized coverage and service offerings close to five years since the powers that be decided to sidestep incumbents and allow new entrants. Didn’t one 3G pectrum winner even make money from transferring its 3G spectrum?
Moreover, easily 94% of Malaysia’s 35.7 million mobile phone users are with the big three — Maxis, Celcom and DiGi — and they have the most money to invest, going by their earnings pool. Wouldn’t giving them more spectrum help on network quality?
“Yes, incumbents have a lot more subscribers, but they still have a lot more spectrum than the new entrants. Their spectrum allocation is already bigger than the likes of Vodafone in the UK, which has a bigger population size and wider geographical area to cover,” an industry observer pointed out. This could not be independently verified at press time.
“Are you satisfied with your current mobile phone service?” the observer asked, drawing attention to the sizeable earnings margins of 45% to over 50% that the big boy operators here command.
“Those margins are very high by industry standards. I’d call 30% a decent margin. From where I stand, that level of margins either means operators are not investing enough money in network or they’re charging customers too much,” the observer added.
Maxis, the leader in terms of earnings before interest, tax, depreciation and amortisation (Ebitda) margin, has maintained that its 50% plus margins are ahead of Celcom’s 45% and DiGi’s 46% because it has a bigger pool of higher spending subscribers.
To be fair, Maxis, Celcom and DiGi have spent an average of RM1 billion a year on improving their networks. And if that level of investment is not enough, only time will tell if the solution is to bring in new players, especially those with smaller purses.
What is certain is that more competition is on the way for existing players and the cost of delivering seamless Internet on-the-go is much higher than enabling voice and plain text message.
To maintain the kind of margins and dividends that their investors have come to expect, telecoms players are already cutting back everything they can and are now letting rivals piggy-back on their networks.
They have even resorted to no longer absorbing the 6% service tax on prepaid users to help shore up margins — or at least they tried. It is understood hat regulators have asked the operators to pass on the cost of the service tax to prepaid users on a staggered basis, instead of doing it at one go.
All that throws into question whether the high margins the big boy operators are enjoying will hold. To be sure, chances are that margins will not immediately collapse, but investors may need to start considering the possibility of smaller growth numbers and, in turn, lower dividend payouts — at least until the mobile broadband space matures.
This article appeared in The Edge Financial Daily, December 7, 2011.
“While Puncak Semangat’s 30Mhz [of 4G spectrum] is at least 10Mhz bigger than all other winners, everyone else has existing spectrum — 900Mhz, 1800Mhz, 1900Mhz [3G] or 2.3Ghz [WiMAX]. From that perspective, the bigger existing players still have more spectrum,” said a source close to the regulators.
“The decision was made to bring in new entrants and allow room for market forces, and in that light the spectrum allocations are equitable, though not entirely equal,” the source told The Edge Financial Daily. “We believe Puncak has the financial resources for a decent rollout,” the source said.
The 4G allocation will give REDtone, whose existing 2.3Ghz WiMAX licence is limited to Sabah and Sarawak, a licence to roll out mobile services in Peninsular Malaysia and a more level playing field relative to the remaining three WiMAX spectrum holders, the source said. Its challenge, however, will be to secure the necessary funds for a wider rollout, an observer said.
To recap, all four 3G spectrum assignment holders — Maxis Bhd, Celcom Axiata Bhd, DiGi.Com Bhd and U Mobile Sdn Bhd — stand to receive 20Mhz of 4G spectrum. Like REDtone, two other WiMAX spectrum holders — Green Packet Bhd’s Packet One (Networks) Sdn Bhd and YTL Communications Sdn Bhd — will also receive 20Mhz of 4G spectrum in January 2013, if their business plans are accepted by the MCMC.
The remaining WiMAX spectrum holder, Asiaspace Sdn Bhd, will be given a 10Mhz block of 4G spectrum, provided its business plan gets MCMC’s go-ahead. Asiaspace, will also need to settle a sizeable fine first for not meeting rollout commitments made in its WiMAX business plan submission, another source added.
All nine winners will need to submit their 4G rollout plans to the MCMC by Dec 15 and pay a RM5 million irrevocable guarantee for every 10Mhz of spectrum.
But why not just give bigger blocks of spectrum to the big boys? After all, only three out of seven newcomers in the mobile telecoms space have decent-sized coverage and service offerings close to five years since the powers that be decided to sidestep incumbents and allow new entrants. Didn’t one 3G pectrum winner even make money from transferring its 3G spectrum?
Moreover, easily 94% of Malaysia’s 35.7 million mobile phone users are with the big three — Maxis, Celcom and DiGi — and they have the most money to invest, going by their earnings pool. Wouldn’t giving them more spectrum help on network quality?
“Yes, incumbents have a lot more subscribers, but they still have a lot more spectrum than the new entrants. Their spectrum allocation is already bigger than the likes of Vodafone in the UK, which has a bigger population size and wider geographical area to cover,” an industry observer pointed out. This could not be independently verified at press time.
“Are you satisfied with your current mobile phone service?” the observer asked, drawing attention to the sizeable earnings margins of 45% to over 50% that the big boy operators here command.
“Those margins are very high by industry standards. I’d call 30% a decent margin. From where I stand, that level of margins either means operators are not investing enough money in network or they’re charging customers too much,” the observer added.
Maxis, the leader in terms of earnings before interest, tax, depreciation and amortisation (Ebitda) margin, has maintained that its 50% plus margins are ahead of Celcom’s 45% and DiGi’s 46% because it has a bigger pool of higher spending subscribers.
To be fair, Maxis, Celcom and DiGi have spent an average of RM1 billion a year on improving their networks. And if that level of investment is not enough, only time will tell if the solution is to bring in new players, especially those with smaller purses.
What is certain is that more competition is on the way for existing players and the cost of delivering seamless Internet on-the-go is much higher than enabling voice and plain text message.
To maintain the kind of margins and dividends that their investors have come to expect, telecoms players are already cutting back everything they can and are now letting rivals piggy-back on their networks.
They have even resorted to no longer absorbing the 6% service tax on prepaid users to help shore up margins — or at least they tried. It is understood hat regulators have asked the operators to pass on the cost of the service tax to prepaid users on a staggered basis, instead of doing it at one go.
All that throws into question whether the high margins the big boy operators are enjoying will hold. To be sure, chances are that margins will not immediately collapse, but investors may need to start considering the possibility of smaller growth numbers and, in turn, lower dividend payouts — at least until the mobile broadband space matures.
This article appeared in The Edge Financial Daily, December 7, 2011.
