Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: OSK
Telecommunications sector
Maintain neutral: At the recently concluded Asean Telecommunications and Information Technology Ministers Meeting, the Information, Communications and Culture Minister Datuk Seri Rais Yatim and Singapore's Information, Communications and Arts Minister Lui Tuck Yew jointly announced that both countries will be unveiling lower roaming rates in two months.
The proposal for lower roaming rates was mooted as far back as 2007, with a formal proposal tabled in June 2010. It was reported that mobile operators have agreed in principle to cut the voice call rate by up to 50% while the rate for SMS would be lowered by up to 30%.
Our random checks with telcos in Malaysia and Singapore elicited inconsistent responses, in particular on the statements made by the ministers on the timeline for implementation. While the mobile operators have agreed in principle to lower rates, we gather that there could be further delays in the finalisation of individual roaming agreements pending directives from telecom regulators in both countries.
Aside from the common dissatisfaction among the mobile operators, a key reason cited for the long delay in wrapping up the proposal is the fact that each individual operator would have to enter into separate agreements with their roaming partners with extended discussions on rates and conditions to be established.
The proportion of roaming revenue as a percentage of overall mobile revenue differs across the telcos in Malaysia and Singapore, with Singapore telcos (Singtel, StarHub and M1) likely to be more affected by the move as: (i) they have a higher proportion of roaming revenue; and (ii) have more roamers on their networks, both inbound and outbound.
We estimate that roaming revenue makes up circa 10% to 25% of the Singapore telcos' overall mobile revenue versus 8% to 10% of Malaysia's telcos (Maxis,Celcom and DiGi).
A reciprocal 30% reduction in roaming tariffs between the two countries, and assuming a third of the overall roaming revenues of the telcos are derived from travellers in both countries, would impact Singapore mobile revenues by 0.9% to 2.1% compared with an estimated 0.7% to 0.9% for Malaysian telcos, all else being equal.
The downside on revenues is mitigated by the fact that the telcos actively share and swap minutes with each other.
The lower roaming rates between Malaysia and Singapore will be used as a template for other Asean member countries to emulate, a longer-term aspiration under the Asean ICT Master Plan.
The proposal is perhaps similar to that adopted by the European Union, in which lower roaming tariffs (called Eurotariffs) were introduced in June 2007 for the 27 member countries following a directive by the European Commission. Given the different regulatory setting and challenges faced by the Malaysia and Singapore telcos, we think an Asean collaboration would be a tall order.
Our forecast is maintained for the telcos in Singapore ' SingTel ('neutral', target price: S$3.05) and Starhub ('neutral', TP: S$2.85).
Our 'buy' recommendation and target price for M1 are under review pending the release of its results later this week. We maintain our forecast and recommendations on the Malaysian mobile telcos ' Axiata ('buy', TP: RM5.80), Maxis ('neutral', TP: RM5.40) and DiGi ('neutral', TP: RM24.40).
While lower roaming rates are typically negative for the telcos in the short-term, given the inelastic nature of roaming calls, it is expected to stimulate usage over the longer term to offset the revenue dilution. ' OSK Research, Jan 17
This article appeared in The Edge Financial Daily, January 18, 2011.
Company Name: MAXIS BERHAD
Research House: OSK
Telecommunications sector
Maintain neutral: At the recently concluded Asean Telecommunications and Information Technology Ministers Meeting, the Information, Communications and Culture Minister Datuk Seri Rais Yatim and Singapore's Information, Communications and Arts Minister Lui Tuck Yew jointly announced that both countries will be unveiling lower roaming rates in two months.
The proposal for lower roaming rates was mooted as far back as 2007, with a formal proposal tabled in June 2010. It was reported that mobile operators have agreed in principle to cut the voice call rate by up to 50% while the rate for SMS would be lowered by up to 30%.
Our random checks with telcos in Malaysia and Singapore elicited inconsistent responses, in particular on the statements made by the ministers on the timeline for implementation. While the mobile operators have agreed in principle to lower rates, we gather that there could be further delays in the finalisation of individual roaming agreements pending directives from telecom regulators in both countries.
Aside from the common dissatisfaction among the mobile operators, a key reason cited for the long delay in wrapping up the proposal is the fact that each individual operator would have to enter into separate agreements with their roaming partners with extended discussions on rates and conditions to be established.
The proportion of roaming revenue as a percentage of overall mobile revenue differs across the telcos in Malaysia and Singapore, with Singapore telcos (Singtel, StarHub and M1) likely to be more affected by the move as: (i) they have a higher proportion of roaming revenue; and (ii) have more roamers on their networks, both inbound and outbound.
We estimate that roaming revenue makes up circa 10% to 25% of the Singapore telcos' overall mobile revenue versus 8% to 10% of Malaysia's telcos (Maxis,Celcom and DiGi).
A reciprocal 30% reduction in roaming tariffs between the two countries, and assuming a third of the overall roaming revenues of the telcos are derived from travellers in both countries, would impact Singapore mobile revenues by 0.9% to 2.1% compared with an estimated 0.7% to 0.9% for Malaysian telcos, all else being equal.
The downside on revenues is mitigated by the fact that the telcos actively share and swap minutes with each other.
The lower roaming rates between Malaysia and Singapore will be used as a template for other Asean member countries to emulate, a longer-term aspiration under the Asean ICT Master Plan.
The proposal is perhaps similar to that adopted by the European Union, in which lower roaming tariffs (called Eurotariffs) were introduced in June 2007 for the 27 member countries following a directive by the European Commission. Given the different regulatory setting and challenges faced by the Malaysia and Singapore telcos, we think an Asean collaboration would be a tall order.
Our forecast is maintained for the telcos in Singapore ' SingTel ('neutral', target price: S$3.05) and Starhub ('neutral', TP: S$2.85).
Our 'buy' recommendation and target price for M1 are under review pending the release of its results later this week. We maintain our forecast and recommendations on the Malaysian mobile telcos ' Axiata ('buy', TP: RM5.80), Maxis ('neutral', TP: RM5.40) and DiGi ('neutral', TP: RM24.40).
While lower roaming rates are typically negative for the telcos in the short-term, given the inelastic nature of roaming calls, it is expected to stimulate usage over the longer term to offset the revenue dilution. ' OSK Research, Jan 17
This article appeared in The Edge Financial Daily, January 18, 2011.
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