HLIB Research said demand will spike in terms of capacity and coverage in order to compensate for the 5G spectrum’s shortcomings in propagation.
PETALING JAYA: Fixed-line telecommunications companies (telco) remain the prime beneficiaries in broadband/5G infrastructure and data centre deployments.
This is as its role as backhaul to transfer data at the speed of light has become ever more critical and a mandatory pre-requisite in broadband/5G builds.
Demand will spike in terms of capacity and coverage in order to compensate for the 5G spectrum’s shortcomings in propagation, said Hong Leong Investment Bank (HLIB) Research.
It expects exponential demand to be coming from the booming data centre (DC) industry in the country, especially in the southern region, over the next three years.
The surge in wholesale bandwidth demand will boost margins. New fibre rollouts are commercially negotiated as the price is not regulated and fixed telcos will command more lucrative returns.
HLIB Research is not overly concerned about the new mandatory standard access pricing revision. This is as it believes the impact is not as severe as the previous “double the speed, half the price” objective, and it will be offset by increasing consumption over time.
Both HLIB Research and Kenanga Research prefer fixed link players for growth and due to the ongoing uncertainties surrounding mobile network operators (MNOs) as they await the unveiling of the 5G dual network (DN) policy.
In the near to medium term, Kenanga Research said its focus is on assessing earnings momentum from the delivery of global and terrestrial bandwidth services, particularly to cater to existing and upcoming DCs in Malaysia.
Both research houses have a “neutral” take on the sector. HLIB Research’s top pick remains Telekom Malaysia Bhd
(TM) for which it has a “buy” call with a target price of RM7.91 a share. Kenanga Research also has TM as its top pick, followed by TIME Dotcom Bhd.
Kenanga Research said the 5G DN is the key to unlock valuations and anticipates sentiment on MNOs to improve if the 5G DN policy delivers outcomes that surpass expectations.
The areas include fair 5G access fees for network 1 (NW1), appropriate compensation for early termination of NW1 access agreements, reasonable rollout timeline and coverage targets for NW2, and NW1 is profitable and cash generating, with a healthy balance sheet.
HLIB Research said the second 5G network will likely be superior, more cost effective, have higher level of compatibility and seamless interworking with single radio access network technology leveraging on the majority of existing non-Ericsson infrastructure, leading to a faster rollout and go-to market.
But the second 5G network deployment is rather an uphill task for U Mobile considering its size and financials.
Instead, it will consider forming collaborations, partnerships or even mergers to carry out this mandate, said the research house.
TM’s termination of the share subscription agreement with Digital Nasional Bhd is a blessing in disguise as it does not see any economic benefits of this investment, while TM has the flexibility to seek access from both 5G wholesale networks in the future, the research house added.
