A cautious outlook for the telecommunications sector has been given, particularly in mobile segments, due to heightened competition and economic pressures from inflation, as cited by RHB Investment Bank's report today (July 16, Tuesday). With the recent issuance of the 5G Application Information Package (AIP) on July 1, the sector anticipates a structured rollout under the apparatus assignment (AA) model, perceived as less financially burdensome compared to previous spectrum assignment (SA) models.

Analysts maintain a NEUTRAL stance on the telecommunications sector, acknowledging the complexities of the 5G spectrum rollout and its potential impacts on major players like Maxis and CelcomDigi (CDB). The shift towards Apparatus Assignment (AA) for 5G spectrum allocation is expected to mitigate immediate financial strain, with outcomes projected by the Third Quarter of 2024 (3Q24). The sector's resilience hinges on effective spectrum utilization and operational efficiencies amid ongoing regulatory adjustments.
Analysts favour fixed-line and integrated plays, citing strategic catalysts and stronger earnings potential. Axiata Group and OCK Group are identified as top picks amidst evolving industry dynamics.

RHB notes that most Mobile Network Operators (MNOs) are positioning themselves for the second 5G network rollout through Entity B, as outlined in recent agreements with Digital Nasional Berhad (DNB). The regulatory framework mandates divestiture requirements for operators migrating to Entity B, which could influence market dynamics pending further shareholder negotiations.
Financially, the transition to the 5G spectrum under the previous SA model was estimated to potentially impact Maxis' and CDB's earnings by -5% to -8% for FY25F–26F, primarily driven by increased financing costs and spectrum-related amortization.

Looking ahead, RHB anticipates manageable capital expenditures (Capex) for telcos despite ongoing network expansion, facilitated by collaborative infrastructure sharing and innovative spectrum management strategies. The potential reintroduction of spectrum re-farming for 5G deployment and ongoing wholesale agreements with DNB are expected to moderate industry-wide Capex requirements in the medium term.
However, analysts caution against medium-term earnings risks stemming from additional operational expenses associated with the new 5G infrastructure.