Technology has become indispensable amid the pandemic. As an essential service, telco operators were largely spared the fallout from the pandemic over the last 18 months.
The performance of RAM-rated telco players largely held up across all financial metrics, whether measured against leverage or profitability. Nevertheless, pockets of revenue pressure were felt, stemming from softness in the migrant segment, weaker roaming revenue and challenging customer acquisition.
“The sector’s decelerating top-line growth is due to a few factors, namely, steep declines in data pricing on a per-unit basis, a structural shift from voice and short messaging service to internet revenues, and product bundling which has lowered the average revenue per user,” says Davinder Kaur Gill, RAM’s co-head of infrastructure and utility ratings during her presentation on the industry’s outlook at the virtual RAM Credit Summit 2021 held last week.
Pitted against the unabated rise in data consumption, these challenges will create some strain on the network and overall data costs for telco operators.
Meanwhile, the prospects for fixed broadband, in particular, Telekom Malaysia is more promising. The Jalinan Digital Negara (JENDELA) initiative by Malaysian Communications and Multimedia Commission will see Malaysia’s nationwide fibre footprint expand significantly to 7.5 million premises passed by end of next year, which augurs well from a retail and subscriber uptake perspective, in addition to laying a strong 5G network foundation for the country.
Given the slowing service revenue growth over the past few years, telco players are reinventing themselves. Many have expanded their product offerings to include fixed broadband services, device subsidies and more recently ICT offerings either via partnerships or inorganic growth through acquisitions (as announced by both Maxis and TIME).
Looking ahead, the policy and regulatory decisions, particularly on 5G and spectrum acquisition cost, will continue to drive the industry’s return on investments as well as profitability and capex going forward.
RAM will continue to monitor cost pressures as well as spectrum renewal cost, which can crimp balance sheets and potentially impact future discretionary dividends.
