This article first appeared in The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024

FOLLOWING the termination of the share sale agreement (SSA) between Digital Nasional Bhd (DNB), Telekom Malaysia Bhd (KL:TM) and the Minister of Finance Inc (MoF Inc.), it seems likely that TM’s submission for the tender for the second 5G network will not be considered.

However, analysts covering TM are neutral or positive on this development as it allows the national telecommunications group to focus on its core strength of providing critical infrastructure for the deployment of the network.

“TM is well positioned to capitalise on the growing demand for 5G by offering critical infrastructure, such as fibre-optic backhaul, without the financial burden of owning a stake in the 5G network,” says Shahira Abdul Rahim, an analyst with BIMB Securities.

“Most notably, TM will continue to provide 5G services through its existing access agreement (AA) with DNB, which remains valid for another 10 years,” says Shahira in response to The Edge’s questions on the possible impact of the termination of the SSA on TM.

Martin Foo of MIDF Research opines that there will be no impact on TM’s 5G offerings with the termination of the SSA as the service agreement is intact. TM also has a fibre-leasing agreement with DNB, which will not be impacted by the termination.

On Aug 23, DNB announced that it had terminated the TM SSA in the light of the expiry of the longstop date on Aug 21. The longstop date for TM was previously extended from June 21 to Aug 21 to enable the telco to seek shareholders’ approval, which was one of the conditions precedent in the SSA.

TM was, however, unable to fulfil the said condition precedent by Aug 21 and requested a further extension of the longstop date to Dec 31, 2024. In the statement announcing the termination, DNB said it had deliberated on TM’s request but was unable to extend the deadline further.

Prior to the termination of the SSA, all five major mobile network operators (MNOs) in the country, namely TM, Maxis Bhd (KL:MAXIS), CelcomDigi Bhd (KL:CDB), U Mobile Sdn Bhd and YTL Communications Sdn Bhd, had entered into a conditional SSA.

The conditional SSA, among others, provides a shareholder advance of RM233 million to DNB in order for the latter to expand its network quickly to reach 80% coverage of populated areas (COPA), in exchange for shares in the company.

One of the conditions was an undertaking by the then Ministry of Digital Communications that only investors that had subscribed for the DNB shares and granted shareholder advance to DNB would be eligible to be shareholders of the second 5G network.

While the other four MNOs met the conditions precedent of the SSA, TM somehow could not meet them by the first longstop date and subsequently requested an extension of the date to Aug 21.

Why TM could not meet the conditions precedent is unknown. However, a source close to DNB says TM is the only MNO among the five that needed shareholders’ approval for the transaction due to MoF Inc being deemed to be the largest shareholder of the company.

MoF Inc owns Khazanah Nasional Bhd, which is the largest shareholder of TM with a 20.1% stake.

During a briefing on TM’s financial results for the second quarter ended June 30, 2024, its managing director and group CEO Amar Huzaimi Md Deris said TM had to deal with a few matters before it could ratify the SSA.

Amar declined to reveal details of the said matters as they were confidential. However, he gave the assurance that TM would continue to participate in the rollout of the 5G network due to its role as the largest owner of telecommunications fibre infrastructure in the country.

“We would like to reiterate that we will continue to play a key role in supporting the nation by developing the [5G] ecosystem, ensuring that the nation benefits from the connectivity and digital services,” he said.

When The Edge pointed out that only shareholders of DNB could participate in the tender for the second 5G network, Amar said TM had already submitted for the Application Information Package (AIP).

In June, prior to the termination of TM’s SSA, the government directed the Malaysian Communications and Multimedia Commission (MCMC) to initiate the process of selecting MNOs to develop the country’s second 5G network.

MCMC was directed to issue the AIP on July 1, for eligible MNOs to submit their bids to participate in the development of the second 5G network, according to Communications Minister Fahmi Fadzil.

It is not known how much it would cost the winning MNO to build the second 5G network. To date, DNB has spent a total of RM4.5 billion on developing its network and achieved 81.9% COPA.

The budgeted cost for DNB to develop its network is RM16.5 billion over 10 years.

DNB in a statement to The Edge’s question as to the reason for not allowing the extension of the longstop date of the TM SSA, says its board had considered the request judiciously but was unable to extend the deadline further.

Following the ratification of the SSA by the other four MNOs, the composition of DNB’s board also changes. It is believed that the other four MNOs objected to TM being given “special treatment” by being allowed to have its longstop date extended further.

Representatives of the four MNOs are already on the DNB board.

Datuk Seri Yeoh Seok Hong, the managing director of YTL Power International Bhd (KL:YTLPOWR), which is the owner of YTL Communications, is also on the board. CelcomDigi is represented by Datuk Kamal Khalid, its chief transformation officer.

Maxis’ representative on the DNB board is the chairman of its audit and risk committee and member of its nomination and remuneration committee, Uthaya Kumar K Vivekananda.

Kenneth Chang Yit Fei, the founding director of U Mobile, is the MNO’s representative on the DNB board.

Despite the fact that it is quite clear that TM will not be eligible to participate in the bidding for the second 5G network, the contest is still open. MCMC, which is conducting the tender, declined to confirm that TM is not eligible to compete for the second network.

“Considering that the tender evaluation process is still ongoing, it would be premature to comment on specific details regarding the participation criteria, submissions or cost estimates.

“To prevent unnecessary speculation and to allow space for strategic considerations by the government, MCMC is unable to provide further information at this time,” said the commission, which is overseen by the Ministry of Communications.

Whether or not TM is eligible to bid for the second network, it will still be able to lease the network. Having said that, it would be the only MNO that does not have a stake in either of the 5G networks in the country, if it is unable to participate in the second 5G network tender.

While all the MNOs pay the same amount to lease the 5G network from DNB, it is not clear whether the payment for the second 5G network will be the same across the board. This having been said, Shahira of BIMB Securities opines that TM is leaning towards DNB’s network.

“We think TM is leaning towards Entity A (DNB), as the group is considered a primary beneficiary of providing services to the public sector, such as MyGovNet,” she says. 

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