KUALA LUMPUR (Jan 27): Telco firms may need to fork out RM394 million each to buy out U Mobile Sdn Bhd and the Ministry of Finance's equity stakes in Digital Nasional Berhad (DNB) under the rollout of the second 5G network, according to CIMB Securities.
"For now, investors should assume that CelcomDigi (KL:CDB), Maxis (KL:MAXIS) and YTL (KL:YTL) will stay put in DNB.
"If the final shareholding in DNB is equal, then we estimate each would have to fork out a not-too-substantial RM394m to buy out UM’s and the Ministry of Finance’s equity stakes (including the repayment of RM450m of shareholders advances), " the research firm said in its note on Monday.
However, these direct costs are not the only financial obligations that the telecommunications providers would face, as they will also be required to continue paying 5G access fees to DNB while accounting for potential losses.
Despite these added financial pressures, the research house suggested that the cost burden would be partially mitigated by a tapering of capital expenditure (capex) for 4G networks, which would allow the telcos to offset expenses.
As part of the ongoing development of Malaysia's telecommunications infrastructure, DNB is expected to rationalise its costs.
CIMB Securities highlighted areas such as manpower and infrastructure leases, which could reduce the cost differential between DNB's network and the second 5G network being developed by U Mobile and its partners.
In terms of capacity, the limited spectrum available to support at least three, possibly four, telecommunications providers presents a challenge.
However, DNB has the ability to address mid- to long-term capacity requirements through strategies such as cell densification. This approach, according to CIMB Securities, could help bridge any potential gaps as demand for 5G services increases in the coming years.
Looking ahead, U Mobile is anticipated to receive the official letter of award for implementation of the second 5G network in the first quarter of 2025, it said.
The company aims to commence its rollout shortly thereafter, partnering with vendors such as Huawei and ZTE, and is projected to achieve 80% population coverage by the third or fourth quarter of 2026.
Previously, U Mobile chairman Tan Sri Vincent Tan Chee Yioun expressed confidence in achieving these milestones without the need for local partnerships, with the company planning to list on Bursa Malaysia by end-2025.
Financially, U Mobile has positioned itself with a net debt to earnings before interest, tax, depreciation, amortisation (Ebitda) ratio of 2.0x for fiscal year 2023, excluding shareholder advances and redeemable convertible preference shares, which may eventually be converted into equity.
The research house estimated that this ratio could rise to 2.6x by the end of fiscal year 2026, assuming an investment of RM3 billion in 5G capital expenditure between fiscal years 2025 and 2026, additional lease liabilities of RM1 billion, and an expected 10% compound annual growth rate (CAGR) in Ebitda. This financial outlook also factors in the anticipated RM2 billion in proceeds from U Mobile’s initial public offering (IPO).
The future of U Mobile’s 5G network would likely depend on commercial considerations, including the possibility of forming partnerships with other domestic telcos.
Such partnerships, if they materialise, may occur after the completion of the network rollout and could involve offering equity stakes in the second 5G network or entering into long-term wholesale access agreements.
Despite the challenges and substantial investments required, analysts remain generally positive about the potential of 5G in Malaysia, though they note that monetisation opportunities are somewhat limited. The absence of a "killer app" for 5G is seen as a key factor in limiting its immediate commercial viability.
Instead, 5G is viewed primarily as a cost-efficient solution to manage increasing data traffic, serving as an alternative to the continued densification of 4G networks.
With the expected global launch of 6G around 2030, the trend towards network sharing, including for 5G, is seen as a logical progression for the industry.