KUALA LUMPUR: The 10-year agreement between Telekom Malaysia Bhd (TM) and Maxis Bhd for the former to provide high-speed broadband (HSBB) access to the latter has been viewed positively by analysts as it would pave the way for the parties to lower costs.

The agreement signed by Maxis’ broadband arm, Maxis Broadband Sdn Bhd, will enable it to access 1.3 million homes via TM’s infrastructure by end-2012. Under the agreement, TM will provide Maxis with access to its HSBB infrastructure which covers last-mile access to homes.

According to TM, the number of homes covered by the service stands at 700,000 currently and would expand to 750,000 by year-end.

The HSBB (Access) service offered by TM is open to all MCMC-licensed service providers who wish to offer IP-based services and applications to end-users.

The other wholesale HSBB service offered by TM is the HSBB (Transmission) Service, which has been made available since early 2009 to provide point-to-point connectivity.

AmResearch Sdn Bhd, which is overweight on the telecommunications sector, said, with the agreement, Maxis is the first operator in Malaysia to have a fully integrated bundled service with network access in both mobile and fixed markets.

“As we understand it, Maxis would only have the last-mile connection to the HSBB, the peripheral network that is the most tedious and expensive part of connectivity, and uses its own trunk fibre optic network for the transmission of the network — that is the backbone connection.

“The potential IP-based services to be delivered over HSBB access may include IPTV, VoIP, video on-demand, high-speed Internet, telepresence, eHealth, interactive TV and hosting services,” it said.

AmResearch maintained its “buy” call on TM with a fair value of RM3.90 and “hold” recommendation on Maxis with a fair value of RM5.48.

The research house said in the short term, Maxis may face a slight pressure on costs as the offering of high-speed broadband under the agreement necessitates Maxis to have its own value-added service on top of the service already provided by TM’s Unifi service currently.

“We believe this would incur initiation costs, which would definitely not be matched by the incremental revenue due to it by the first year. We reckon the business model of this new business may involve high capex in the early years and skew towards opex-based.

“On the part of TM, we are very positive about the new revenue stream. We believe that there will not be cannibalisation of its own potential subscribers. After all, the HSBB network is meant to have a very high capacity, thus releasing it to other companies is the right way to leverage what would otherwise be wasted capacity,” it said.

The research house said there was no concern about loss of revenue to TM as the subscriber profiles of Maxis and TM are slightly different.

“TM caters more to the mass market, while Maxis targets a more affluent population. In any case, TM would still receive revenue from the subscribers, only it is now coming in from Maxis,” it said.

MIDF Research said it was not surprised by the move from Maxis, since the mobile communication sphere is saturated, at over 106% and with Maxis as the leading service provider with about 40% market share.

“With the introduction of YES by YTL Communication, we expect further intense competition in the mobile Internet space.

“We believe the impact will not be immediate, since the rollout of HSBB has yet to reach full swing. Also, there are no details on the service offering by Maxis, giving rise to constraints in determining its attractiveness compared to TM’s Unifi,” it said.

The research house also said that while the proposition of the HSBB wholesale access agreement could be attractive, other operators like Axiata Group Bhd and DiGi.Com Bhd might not be keen on signing a long-term agreement as yet.

“Maxis looks more set to diversify into the home sphere, given its mobile market share. Axiata might not be so keen as it will likely want to expand its operations abroad while DiGi will look at concentrating on getting more of the mobile market share here,” it said.

Meanwhile, RHB Research Institute Sdn Bhd maintained its “overweight” call on the sector and said that with the agreement, TM will benefit from a higher utilisation rate of its HSBB network, which would lead to more wholesale revenue.

“While we note that Maxis plans to, among others, offer high spend Internet service as well, we do not expect Maxis to compete aggressively in that segment but instead, focus more on providing content,” it said.

The research house said that by riding on TM’s HSBB network, Maxis’ capital expenditure should trend lower going forward. “Maxis has previously alluded that capex guidance may be lowered upon signing of the agreement with TM on the use of the HSBB network, though management did not disclose the amount of capex savings,” it said.

This article appeared in The Edge Financial Daily, December 16, 2010.